Primus Telecommunications Pty Ltd v CCP Australian Airships Limited [2003] VSC 120

5. Primus also alleged that CCP, in order to induce Primus to enter into the licence agreement and pay the deposit to it, engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the TPA") and that each of the second, third and fourth defendants aided, abetted, counselled and procured and/or was directly or indirectly knowingly involved in or party to the contraventions by CCP of the TPA. Primus therefore claimed against each of the second, third and fourth defendants the same loss and damage, being the loss of the deposit of $400,000 and interest thereon. Primus also alleged that CCP had contravened s 58 of the TPA in that at the time Primus paid the deposit to CCP, there were reasonable grounds of which CCP was aware or ought reasonably to have been aware for believing that CCP would not be able to supply the airship for use by Primus at the Sydney Olympic Games.

8. In its defence, CCP pleaded that, by a letter dated 19 July 2000, Primus had wrongfully purported to terminate the licence agreement prior to any breach by CCP. Further or alternatively, CCP pleaded that Primus had "failed to expeditiously provide CCP with all such information and instructions as was requested by CCP in relation to the colour, livery and specifications of the airship". CCP denied that Primus had suffered any loss "by reason that the deposit was non-refundable". CCP also denied that it engaged in misleading and deceptive conduct, alternatively if it did, that the conduct induced Primus to enter into the agreement. CCP pleaded that each of the alleged representations "were not as to fact but was a mere statement of opinion about future events". The second, third and fourth defendants relied on the same defences as CCP in respect of the alleged representations.

11. CCP counterclaimed against Primus seeking "the profit it would have made had the agreement been performed by Primus". It was said that the net profit after tax for the twelve month period would have been $1,370,000, which was amended at the hearing to the figure of $1,205,567.

15. It is necessary to set out the factual background and the relevant events in some detail, beginning with the incorporation, on 21 December 1998, of the first defendant, CCP. The two shareholders and directors were the second defendant, Douglas Cahill, and the third defendant, Robert Palmer. Each of them held one $1.00 share. Cahill was a solicitor in Bendigo, who had also held an unrestricted pilot's licence since 1974. Palmer was a former inventor and business man and a former investigator with the Victorian Corporate Affairs Office and the Australian Securities and Investments Commission ("ASIC"). Both men were interested in the concept of an airship.

18. Palmer said that he "developed an interest in airships many years ago". In the mid 1990s he joined a body in the United Kingdom called the Airship Association, which consisted of people around the world interested in airships. Palmer and Cahill came up with the idea of purchasing an airship to use for advertising purposes at the Sydney Olympic Games.

21. Through the Airship Association, Palmer was put in touch with John Taylor, an aeronautical engineer specialising in airships and an agent for an American airship manufacturer, US-LTA which was based in Eugene, Oregon. As a result of discussions with Taylor, in January 1999 Palmer contacted Ray Olma of US-LTA and discussed with him many aspects of the US-LTA airship. An exclusive feature of the US-LTA 1385 airship was that there were two large fibre optic screens fixed on either side of the airship which could show moving advertising pictures. On 26 January 1999, Palmer offered to pay US$2.75 million for a second hand airship which US-LTA accepted.

24. However, CCP still had to raise the necessary funds to purchase the airship. Accordingly, in February 1999, CCP engaged Tolhurst Corporate Limited ("Tolhurst") to facilitate raising the Australian dollar equivalent of US$3 million to purchase the second hand airship and screens. An information memorandum and business plan were prepared by a corporate adviser with Tolhurst in an endeavour to find an 80% equity partner willing to contribute A$950,000. Some interest was expressed by the managing director of Cody Outdoor Advertising but discussions were subsequently terminated. The corporate adviser then told Palmer that he did not have enough spare time to pursue the project and fund raising by Tolhurst therefore ceased.

27. Olma subsequently informed Palmer that there was someone else in Victoria interested in airships. As a result of this, in about April 1999, the fourth defendant, Gary Walsh, met Palmer and agreed to become a director of CCP. Walsh was a former member of the army and worked as a mechanical engineer for General Motors Holden. On 22 June 1999, Walsh became a director of CCP and made an initial monetary contribution of $1,000.

30. Palmer and Walsh worked together on a new business plan to be distributed to brokers and prospective investors. This plan was produced in June 1999. Palmer said that at this stage Olma agreed in a telephone conversation with him to invest A$750,000 in CCP. Palmer also contacted an investor, Geoffrey Tauber, to see if he would be interested in investing in the project. At Tauber's suggestion, Palmer and Walsh visited Paul Littman, the owner of an advertising agency, on 6 June 1999 to discuss possible advertisers.

33. By an email dated 23 June 1999, Joe Olma, the son of Ray Olma ("Olma"), wrote to Palmer setting out a "worst case" schedule for the manufacture, testing, shipping to Australia, re-assembling and testing in Australia of approximately 12 months. He therefore stated that "time is becoming critical" if the airship were to be available for the Sydney Olympic Games.

37. At Littman's suggestion, Palmer contacted Ravi Bhatia, the Chief Executive Officer of Primus. By a letter dated 23 June 1999, Palmer wrote to Bhatia offering Primus "an existing package for airship advertising during the year 2000 and beyond". Palmer referred to the Inwave fibre optic signs attached to both sides of the airship and to the clarity and brightness of the signs at night. He continued:

"This will have a great impact on the public, considering the huge television audience at the Olympic Games and other sporting events."

Palmer also provided Bhatia with some information about CCP. It was said in the letter that CCP was incorporated in 1998 "as a single purpose management company for this venture" and that it was proposed "to change its structure and become a limited company in the immediate future". The following information was also given about the three current directors of CCP:

50 years. Doug Cahill, Partner, Cahills Solicitors, Bendigo, one of the oldest and largest country Victorian legal practices. Cahill holds an unrestricted pilots licence and is a Major in the Army Reserve (Legal Corps). He is and has been a prominent director of many companies including a number listed on the ASX. He brings a vast amount of Corporate experience with him.

58 years. Robert Palmer is a public servant with the Australian Securities Investments Commission ('ASIC') and previously with the Corporate Affairs Office, Victoria. Prior to these positions he was employed by ACMIL-ACI as a contracts manager. Palmer has been self-employed as a consultant, assisting ailing businesses. He is an inventor and one of the pioneers involved in fibreglass reinforced plastics for industrial and commercial use, researching, developing, building and promoting plastic swimming pools in Victoria in the 1960s and 70s. This was one of many plastic applications he has been involved with.

32 years. Gary Walsh graduated at RMIT and has extensive experience in the automotive industry. Gary has been a company director of two successful companies in the food and building industries. With seven years experience in the Army in the area of maintenance and logistics in aircraft, Gary brings a vast amount of knowledge, experience and enthusiasm with him. Gary will commence with CCP in January 2000."

48. Palmer's approach did not result in any positive response from Primus.

52. Both Palmer and Walsh continued to approach a number of companies and advertising agencies to see if they would be interested in advertising on the airship. In his witness statement, Palmer said that CCP intended "to purchase the airship once it obtained an advertising contract which would provide sufficient income to pay off the airship over a 3-year period plus make a profit".

55. In August 1999, John Stefanou, a neighbour of Walsh, was engaged by CCP to find a company interested in advertising on the airship. Stefanou's revised terms of remuneration were confirmed in an email from Walsh dated 26 October 1999. For obtaining a client who entered into a 12 month contract with CCP, Stefanou was to receive an up-front fee of $70,000, and a further $70,000 or $11,667 per month for the first six months of operation. For a two year or greater contract, Stefanou was to receive $70,000 plus $11,667 per month for the entire operating period.

58. Palmer said that in the second half of 1999 he was in regular contact with Olma advising him of CCP's efforts to identify prospective advertisers and investors. They discussed that the Olympic Games "represented a window of opportunity for the advertiser". By a facsimile dated 7 September 1999 Palmer wrote to Olma advising about a contact with the marketing director of a potential advertiser. Palmer stated:

"I have stressed to him the need for quick decisions in relation to the Olympics and he understands the need for a decision within a few days." [Underlining in original]

In a facsimile dated 7 October 1999, Palmer and Walsh wrote to Olma stating that a potential advertiser had "now missed the Olympic Games window". [Underlining in original]

63. By facsimile dated 23 November 1999, Palmer wrote to Olma as follows:

"I have advised all that Christmas is the deadline. All paperwork an[d] order for an airship placed and a deposit paid if we are going to the Games."

Olma faxed a handwritten response on the same day, part of which read as follows:

"We will not commit to a delivery for the Olympics, or even try, for an order as late as you describe above." [Underlining in original]

At first Palmer denied receiving the response and became very indignant when this denial was challenged. He was then taken to an email from him to Taylor and his associate Al Gross, dated 25 November 1999, in which he quoted the above passage from Olma's response. (Apparently the response had been sent to Cahill because Palmer's machine had been turned off, but obviously Palmer did read it on or before 25 November.) In the email to Taylor and Gross, Palmer said that Olma believed he could deliver in time for the Olympic Games if the order was placed by 9 December.

70. Palmer said that in about November 1999 Olma informed him that the used airship had been sold in Mexico. They then commenced to negotiate the price of a new airship. Palmer said that he and Olma spoke constantly. In one of these conversations, according to Palmer, Olma agreed to invest $1.5 million into the venture. Olma denied that he agreed to do so, although he conceded that he did discuss the possibility of some investment by him. Nevertheless, this alleged promise was presumably the basis for the statement in the December 1999 business plan brochure prepared by Palmer and Walsh that:

"$1,500,000 has already been invested by Ray Olma of Canada."

On any view, this was not a correct statement - nothing had actually been invested by Olma. When Palmer was pressed about this statement, he explained that Olma agreed to reduce the price of the airship by $1.5 million. Walsh said much the same thing. When it was put to Palmer that this was a promise rather than an actual investment by Olma, he said:

"Well, I took it to be an actual investment ... . He assured me that he would invest in the company and I took him at his word."

This business plan sought an investment of $2.7 million in return for a 54% equity in the venture.

77. Palmer kept Olma informed of CCP's attempts to raise finance for the project. Thus, in a facsimile dated 13 December 1999, Palmer told Olma that he had spoken to four brokers that day "about the investors". Two and three days later he sent Olma further information about contacts with potential investors and advertisers. Two of the brokers Palmer spoke to were Oliver Messenger of Austock Brokers and Colin Jones of Barton Capital. In fact, he and Cahill had spoken to these two men about the project months earlier and each of them had indicated that he believed he could raise the necessary funding for the project.

80. In January 2000, Joseph Camenzuli, a friend of Palmer, invested $20,000 in CCP. This was the only investment received by CCP to that date, despite over 12 months' fund raising efforts by its directors. Numerous approaches had been made to brokers and private investors without any positive response in terms of money invested in the company, although it was said that a number of investors had expressed interest. All attempts at interesting an advertiser in the project had also come to nothing at this stage, despite approaches to a large number of possible clients.

84. On 5 January 2000, Stefanou reported to Palmer that he had spoken with Bhatia, who had indicated that Primus might consider a three or six month contract. Palmer advised Stefanou that CCP would not be interested in any contract less than twelve months.

87. On 17 January 2000, Stefanou met with Bhatia, Mathew Barbagallo, the General Manager - Corporate Marketing, and perhaps two other employees of Primus. During the meeting Stefanou outlined an opportunity for Primus to advertise on an airship. Stefanou played a video showing the airship and pointed out that the airship in question would be different because it would have an optic fibre screen on each side of the airship for advertising at night.

90. Following the meeting, Stefanou wrote to Bhatia by letter dated 17 January 2000 setting out details of the offer of a "huge marketing and advertising opportunity". The letter stated that "from mid 2000 operations will commence in Australia of the most advanced Airship in the World". The quoted cost of leasing the airship was $3.7 million for "Year 1".

93. Barbagallo said in his witness statement that following the meeting with Stefanou he:

"held discussions with Bhatia, Greg Wilson, the Chief Financial Officer of Primus and Mathew Nichols [sic], Primus' General Counsel about the airship. It was agreed that I should explore and negotiate a deal with CCP as it represented an opportunity to build Primus brand awareness, particularly in the Sydney market. I was aware that Telstra was involved as a sponsor of the Sydney Olympic Games. The airship proposal enabled Primus to potentially negate the dominance of Telstra in marketing and advertising in Sydney during the Sydney Olympic Games."

97. Barbagallo produced a three page document making the case within Primus for it agreeing to lease the airship. It was headed "A Powerful Addition to our Media Mix." Barbagallo enthusiastically extolled the benefits to Primus if it took up this opportunity "to 'own the skies' with a state of the art airship." Under the heading "What We Want" the following appeared as the first and third dot points:

"· A SPECIAL GRANT OF $3.5 million from the USA - Incremental to our above-the-line advertising budget. NOTE: We cannot fund this from our current budget. ... · A response by Close of business 15.2.00. This will ensure arrival for the Sydney Olympics."

Barbagallo continued to negotiate the airship proposal with Stefanou. He said that he was told that the airship would be sourced from US-LTA in the United States, but that he was not told any information concerning the funding of the airship.

103. By a facsimile dated 18 January 2000 Olma wrote to Palmer "in reference to our offer to carry up to 1M [sic] to assist in your endeavour to finance the airship as we are reviewing our willingness to continue with this support". Olma sought an indication from Palmer that the directors of CCP would guarantee the necessary insurance cover or provide "some other certain alternative", such as a bond or bank guarantee. Palmer said that this proposal was not pursued because events overtook it in that there arose the possibility of Primus signing an advertising contract.

106. By a facsimile dated 1 February 2000, Palmer wrote to Olma as follows:

"It looks like we have a deal even though we have not got their signature on the bottom line. They know our price they have accepted our price. They want the airship for the Olympics. We told them the tight timeframe and told them flatly they had a week only. All care only no promises." [Emphasis added]

At first when he was challenged about this letter, Palmer queried whether the date on the photocopy of the document was something later than 1 February. He subsequently agreed that it was the correct date, because the facsimile referred to "their" (Primus') solicitors currently drafting a confidentiality agreement, which was finalised on 2 February and signed by the parties on 4 February 2000. It should also be noted that in this facsimile Palmer asked Olma how much stock he wanted "put aside" from the $6 million float which he and Cahill were discussing.

112. On 2 February 2000, Matthew Nicholls, then the Regulatory and General Counsel for Primus, sent to Barbagallo two copies of a Heads of Agreement which he had drafted at Barbagallo's request. The document was subsequently signed by Barbagallo and Cahill and dated 4 February 2000. The Heads of Agreement provided for a period of 14 days during which the parties would "negotiate in good faith to reach agreement in relation to CCP granting Primus an exclusive licence to advertise on the airship", and if they reached agreement a further period of seven days during which they would "endeavour to formalise their agreement." CCP undertook to negotiate exclusively with Primus. The parties agreed to keep the substance of all discussions confidential.

115. By a letter dated 8 February 2000, Palmer wrote to Barbagallo responding to various queries about the airship. First, Palmer advised that he and Cahill had gone to Sydney to talk to Olympic officials about the project. "We advised them from the start that we were bringing an airship to Sydney Olympic Games ..." Palmer also advised that "most of Sydney has no flying or advertising restrictions." After dealing with other relevant matters the letter continued:

"USLTA Ray Olma ('Olma') the president of USLTA has stated today it is essential for Primus to decide as soon as possible (days) if they want delivery for the Olympics. The airship livery (painting and colour) is to be completed in the USA. The airship is then to be inflated, tested, deflated, packed, containerised and shipped to Australia, and then reassembled inflated and tested and approved by CASA. Olma states every endeavour will be made to have it here in time for the Olympics but he is hamstrung until a decision is made, every day is critical. SUMMARY Whilst the games are in progress, the Primus Airship will be seen flying all over Sydney by millions and it will be a wonderful vehicle for any Primus product launch. In the coming weeks flight paths and maps will be made available to Primus and they can be altered if required."

Barbagallo said that he regarded the ability to have the airship flying at the Sydney Olympics as "a big marketing opportunity". It made the proposal more attractive.

120. By a facsimile dated 8 February 2000, Olma advised Palmer that:

"We have been and are ready to go hard on getting the airship to you for your objective, the 'Olympic schedule'. But I need not elaborate on the delivery issue as that has been well covered in our past communications and conversations of the last (3) months or so. CCP Australian Airships financial commitment must be in whole or in part done to take it any further than it is. US LTA will not commit to the critical major components until then. We have done a great deal to be able to position the best scheduling possible anticipating this situation. The contract you signed of record will stand with our best efforts put forth to deliver the airship early and in doing so you realise CCP may incur additional costs in the program for airfreight, vendor overtime, US LTA overtime, but in any case I am sure they would be modest against the whole if this is what it takes. The ball is in your court." [Emphasis added].

A copy of this facsimile was sent to Cahill according to the note at its foot.

126. On 10 February 2000, Palmer advised Olma as follows:

"Primus got the final draft of their contract tonight. They are going to respond to it in writing by 17 February, 2000 or earlier by agreement. Contract signed 18 February or earlier by agreement. Funds transferred week ending 27 February or earlier by agreement."

130. In his witness statement, Palmer said that in about the third week of January 2000, he sent a draft contract to Primus at its request. No such document was discovered by Primus and neither Barbagallo nor Nicholls acknowledged that it had been received. This does not really matter because a further draft was sent by Palmer in early February and Nicholls certainly received this one. It was entitled: "Contract to Utilise Airship for Advertising Purposes." Nicholls studied the February version of the contract and wrote on his copy a number of amendments and questions. Clause 3.0 of the February draft read:

"The contract period will commence 1 August 2000 for 12 calendar months ceasing 31 July 2001."

Nicholls wrote on the right hand side the following:

"penalties & credits if airship not ready to commence operation by 1/8/2000."

The price stated in the February draft was $3.72 million for the 12 month period.

137. Palmer said that each draft of the contract contained a term that "a non-refundable deposit" of $400,000 would be paid by Primus. He said that this term was "most important" to CCP and its directors and that if Primus had not agreed to this term, CCP would not have proceeded with the transaction. According to Palmer:

"CCP wanted security for Primus' performance of the contract and it also wanted to be protected from the risk that Primus would decide not to proceed with the transaction."

"We regarded this clause as highly important as a security for Primus' performance and commitment to the project. CCP would not agree to enter into any agreement which did not contain this clause. It was non-negotiable. If Primus had sought to exclude this clause from the contract CCP would not have agreed to enter into such an agreement."

Walsh agreed that it was important to CCP that the deposit was non-refundable. However, he went on to say in his witness statement that:

"CCP considered $400,000 would be a large enough deposit to give confidence to CCP, US-LTA and investors that Primus was committed to fulfilling its obligations under the contract. CCP also agreed the non-refundable aspect of the deposit was necessary to protect CCP and its agents in the event that Primus attempted to cancel the contract for any reason after the deposit funds had already been committed."

146. On 16 February 2000, Cahill, Palmer, Walsh and Stefanou met with Barbagallo and Nicholls. This is an important meeting in determining the outcome of this litigation and there are significant differences in the evidence of the participants concerning what was said at this meeting.

149. Barbagallo said that at the meeting there was discussion about a deposit of $400,000. Cahill or Palmer said that if Primus agreed to go ahead a deposit of $400,000 was required "up front" to secure the airship. Barbagallo said that he did not have any discussion with CCP's representatives to the effect that CCP could keep the deposit if it was unable to deliver the airship and he did not recall any discussion about the non-refundability of the $400,000 deposit. He thought that clause was "pretty standard". Barbagallo agreed that he was told that it was a tight timeline if the airship was to arrive in Australia in time for the Sydney Olympics . He said that it was stated by Palmer and Cahill that the airship would be available for testing in Australia for the AFL finals and thereafter available for the Sydney Olympics. He said that he was never told that there was a risk that the airship might not be available for the Sydney Olympics. Barbagallo said that he knew by 16 February 2000 that the airship was still to be built. However, he denied that he was told that CCP had yet to raise the necessary funds for that purpose. He said that:

"it was my understanding that once a deposit was paid, the manufacturer could commence building of the airship."

He did not recall Palmer or Cahill using the words "every endeavour" in respect of the airship being ready for the Olympics. Although Barbagallo said that Cahill and Palmer told the meeting that they had plans to float the company, he denied that he was made aware that CCP was going to become a public company so that funds could be raised for the construction of the airship. He did not know that CCP needed "to get investors on board" in order to be able to fund the construction of the airship. He said that:

"the $400,000 deposit was the trigger for that." [T94]

Barbagallo said that he did not remember any discussions about stockbrokers or investors.

156. Nicholls said that at the meeting he and Barbagallo stated that the licence was to commence in time for the Sydney 2000 Olympic Games and that there had to be time for testing of the airship. Cahill said that the licence would commence on 1 September, not 1 August 2000 as in the draft contract, but that there would be two weeks of trialling of the airship during August. Cahill also said that the airship would be able to fly around Sydney during the Games, excluding restricted airspace directly above the Olympic venue. Nicholls said that there was no discussion about the Heads of Agreement at the meeting. He said that although he did not recall the non-refundability of the deposit being discussed he believed it would have been. He did not recall it being said that the $400,000 deposit was required for the airship manufacturer to commence manufacturing. He understood that, at that time, at least part of the airship was still to be constructed. Although Nicholls agreed that it was said that the timeline was very tight for the airship to be ready in time for the Olympics, he denied that it was said by any of the CCP representatives that there were no guarantees that it would be ready. Nicholls said that Cahill said that the company intended to become a public company on 23 March 2000, but it was not said that this step was being taken to facilitate capital raising for the airship project. There was no discussion about stockbrokers or investors. He assumed that CCP had the necessary funds to proceed with the project.

159. On 16 February 2000, Nicholls had arranged for a company search of CCP. He could not recall whether he received the search before he went to the meeting. A reading of the search revealed that CCP had only two issued shares of $1.00 each, and that an application to change its status to a public company had been lodged on 31 January 2000. Although he had the company search, Nicholls said that he had "no knowledge of what CCP's financial position was". He said that the company search did not disclose its financial position. His impression at the time was that Primus was dealing with experienced people of substance and that they had made whatever arrangements were necessary, including raising the required capital, to have the airship manufactured.

162. It was put to Nicholls in cross-examination that the discussions about the airship flying at the Olympics was all subject to the qualification that the airship may not be ready by then. Nicholls replied:

"No, I don't accept that, what was discussed was that the airship would be able to fly in Sydney during the Olympic Games, the CCP representatives said that they'd met with the Olympic authority, they understood what the requirements were, they told us that knew what the weather patterns in Sydney in September were likely to be, they made it very clear that they could and would fly in Sydney during the Olympic Games and that they were making arrangements accordingly."

It was then put to Nicholls that what became clause 3.1 of the Licence Agreement meant that the parties expressly contemplated that the airship might not be ready for the Olympics. He denied this. He said that he believed he had drafted this clause. It was intended to provide some sort of remedy or right to recompense to Primus if the airship was "slightly late by days, perhaps a week or so at the most". He said:

"What was contemplated by clause 3.1 was that with projects like this they may go over schedule by a few days or a week or what have you. It was endeavouring to address such as that. There was no contemplation that the airship wouldn't be able to fly, be ready and able to fly during the Olympics." Nicholls later said: "No, there was never any such discussion about the airship possibly not being, no, that there was a likelihood that it wouldn't be ready by that date. We knew the timeframe was tight, I knew that but no one was under any misconceptions about that but it was always clear in my mind that the airship would be ready to play at the commencement of September 2000, ready for the Olympics, it wasn't a best endeavours type contract, but it was very clear I thought in the contract that that was their common intention."

168. Nicholls had written alongside the clause in the February draft relating to the "non-refundable deposit", the words:

"Subj to CCP not being in breach of this agreement."

He agreed, in cross-examination, that this proviso was not made part of the final wording of the Agreement. However, he said that he understood this clause to mean:

"It was a deposit so it was part of the consideration of the contract. It was non-refundable so that if we withdrew or attempted to withdraw from the contract, we wouldn't get that money back."

"My understanding of the clause was that if Primus attempted to withdraw from the contract, they wouldn't get the deposit back and if that constitutes a commercial risk then, then so be it. Certainly I wouldn't have accepted the position that if the other side breached or withdrew from the contract, that Primus would forfeit the deposit."

176. Nicholls said in his witness statement that he would have recommended that Primus not enter into the Agreement if he had been "aware that CCP was unable to finance the construction and acquisition of the airship". He said that being told that CCP was about to become a public company led him to assume that it was able to raise its own funds to finance the supply and delivery of the airship to Australia.

179. The notes made by Nicholls at the meeting appear to be a fairly comprehensive record, certainly more comprehensive than anyone else's notes. Part of Nicholls' notes reads:

There is no reference in his notes to no guarantee being given about the airship being available for the Olympic Games nor to CCP only agreeing to use its best endeavours to have it available. Nor is there any reference in Nicholls' notes to CCP being permitted to refer to Primus' involvement in CCP's discussions with prospective investors despite the confidentiality provision in the Heads of Agreement.

185. It was put to Nicholls that his notes were in error when he recorded Cahill saying that the company would become a public company on 23 March 2000. He denied this. That date was mentioned. As previously stated, CCP had lodged the application to change to a public company with ASIC on 31 January 2000 and it was correctly said by Cahill that he could not have known when ASIC would approve the change. However, in a facsimile dated 1 March, Palmer advised Olma that Jones hoped to have CCP in a position to list on the Newcastle Stock Exchange by "about 23 March 2000". I therefore find that Cahill did mention that something was to happen to CCP on or about 23 March 2000.

188. In his witness statement, Palmer said that at the meeting he requested that CCP be allowed to refer to the Heads of Agreement and the draft contract with Primus in its endeavours to obtain funding for the airship from prospective investors, and that the Primus representatives agreed to this, but on no account was CCP to let Telstra know of Primus' involvement. Palmer also said that the Primus representatives indicated that it wanted delivery in time for the Olympics and that CCP advised that, although there were no guarantees that the airship would be delivered in time for the Olympics because it was a tight timeframe and CCP was relying on US-LTA to construct the airship, every endeavour would be made for this to occur. Further, Palmer said that Primus was advised that capital raising for the project was being carried out by two stockbrokers and that CCP was speaking to private investors. Primus was also advised that CCP would change its status to become a limited company within a short period so that it could legally raise the required funds.

191. In cross-examination, Palmer said that Barbagallo and Nicholls were told "in no uncertain terms" that "we had no money". It was yet to be raised. He said that he did not tell them that a deposit of US$1.6 million was required before production could proceed because CCP did not receive the purchase contract from US-LTA until 23 February. However, he agreed that in an April 1999 contract between CCP and US-LTA a deposit of US$1.4 million had been required. He said that Primus was aware that moneys from the deposit were going to US-LTA "to kick this project off". Palmer agreed that Primus wanted the airship to be at the Olympic Games - they were the focal point. "We all discussed the Sydney Olympics and beyond." He also agreed that the AFL Grand Final was mentioned, which was contrary to what had been put to Barbagallo in cross-examination.

194. Palmer's handwritten notes of the meeting refer to the question of the confidentiality of the Heads of Agreement - "CCP can refer to Primus in regard to investors and loans". There are also references to "Tight schedule" and "Primus early delivery no guarantee". Palmer said that:

"We certainly were going to try for a delivery of 1 September but there was no guarantee of it."

198. Palmer agreed that the words "best endeavours" did not appear in his notes:

"I don't believe best endeavours appear anywhere other than in the letter of the 8/2, and we said we would endeavour ... We certainly said we'd do our best - or words to that effect."

202. In his witness statement, Cahill said that at the meeting "there was general discussion about the airship being ready for the Olympics". He said that he said words to the effect of "we will do our best but we cannot guarantee it will be ready for the Olympics" and that "there was a tight timeframe". Cahill said that Palmer requested that, despite the confidentiality clause in the Heads of Agreement, CCP be permitted to refer to that document and the draft contract for the purpose of raising capital. Cahill said it was also stated at the meeting that CCP was to become a public company so that it could raise the necessary capital to finance the project and later list on either the Newcastle Stock Exchange or the Australian Stock Exchange. Cahill said that CCP informed Primus at the meeting that the airship was still to be constructed in the United States and that CCP did not have the available funds to pay the deposit or otherwise to pay the purchase price at that time and that it was necessary to obtain those funds with the Primus advertising contract in hand and that Primus' $400,000 non-refundable deposit was primarily required to be paid to US-LTA in order to commence the construction of the airship - "to kick start" the project. Cahill said that the issue of the non-refundable deposit was mentioned at the meeting by both Palmer and himself. He said that it was said that "it was absolutely essential that it be non-refundable and we needed it shortly in order to get the project moving."

205. Cahill said that his best recollection of the meeting was that he said "we'll give you the best endeavours to get this airship ready for the Olympics, and that's the best we're going to give you" and that Palmer said something similar. Later, in cross-examination, Cahill contradicted his earlier statement by saying that he did not think the words "best endeavours" were used by him. Rather, he thought his words were "We will do our best to get it there".

208. Cahill agreed in cross-examination that he never told Primus that the project could not proceed until CCP provided US$1.6 million to the manufacturer in the United States. He said:

"I don't know if it was ever put in those terms."

212. After first denying that CCP had ever engaged in trade and commerce, Cahill agreed in cross-examination that it was "starting up" on 16 February 2000 and that it would have been engaged in trade and commerce when it received the $400,000 deposit.

215. Cahill's handwritten notes of the meeting simply recorded the six people present and went on to state:

"If Primus requires any contract changes Nicholls and Barbagallo will communicate with Cahill or Palmer."

219. Walsh said in his witness statement that at the meeting Palmer said that CCP would like to be able to disclose to potential investors that its advertiser was Primus, because this would assist CCP greatly in raising funds to finance the construction of the airship. Walsh said the Primus representatives agreed to CCP being able to refer to the Heads of Agreement. Walsh also said that Palmer, Cahill or he specifically stated to the Primus representatives that:

(a) the airship usually required 6 to 7 months to be built; (b) CCP was currently seeking finance for the venture; (c) CCP would use its best endeavours to provide the airship in time for the Olympics; (d) CCP was not able to provide a guaranteed delivery date; (e) at the commencement of the contract operating period or flying time, CCP would "own" the airship as opposed to "leasing" it.

He said that Palmer explained that it was their intention for CCP "to become a Limited company and list on the Stock Exchange for capital raising purposes".

224. Walsh was asked in cross-examination who said the words "best endeavours". He replied:

"Best endeavours were words which they were probably used but all the words we used were words to that effect, best endeavours, we said we'll do our best and US-LTA will do their best."

He subsequently went on to say that "best endeavours" was "certainly discussed". He agreed that there was reference to delivery of the airship in the last two weeks of August and that it might be possible to fly the airship over the football Grand Final. But he also said that:

"We definitely did discuss that it mightn't be there for the Olympics but we believed that later in the year around summer or something, that we would be able to start working on something more concrete."

Walsh also said that Barbagallo and Nicholls should have been aware from what the CCP representatives said that "CCP at that stage had no funds". "They knew that their $400,000 was going to be used ... to move the project along" and that the $400,000 was not the full amount of the "sizeable deposit" required. He also said that "the topic of non-refundable deposit was certainly discussed". However, he could not:

"fully recall the details ... the topic of non refundability was brought up, the fact of why it was required but the words that were used - I'm not sure, Your Honour. It was a brief discussion, it was probably only discussed for a minute or so."

232. The relevant parts of Walsh's notes of the meeting read as follows:

"Heads of Agreement - Consent granted by Primus to disclose HOA info for fundraising purposes to pay for construction of Airship. ...

Olympics - Urgency due to extremely tight time frame discussed. Delivery to Australia within 7 months not guaranteed.

... Flying Zones - Briefly discussed, including Olympics and possible use by SOBO."

The notes contain no reference to the other matters Walsh said were discussed. Walsh said that he made his notes "after the - we had a bit of a summary at the end of the meeting". That is, Walsh's notes do not purport to be a record of what was actually being said at the time, but are his notes of a summary of the CCP's representatives' view of what they had said to the Primus representatives at the meeting.

239. In his witness statement, Stefanou made the following statements:

"The directors of CCP informed the Primus representatives that once they obtained an advertising contract they would be able to get funding. However Primus were advised that CCP did not have the available funds to purchase the airship and that CCP needed the deposit to form part of their order to US-LTA. Primus knew that the deposit moneys were to be paid over to US-LTA. ... There was discussion in relation to the airship not being ready for 1 September and that if it wasn't ready in time then time would be added at the end of the contract. No guarantees were given by CCP that the airship would be ready for the Olympics but CCP indicated that they would do everything in their power to see that this occurred. This would even entail Palmer & Co to go the States to ensure that this would occur."

"the idea was to have the airship in the country several weeks beforehand so they could carry out trials and do any adjustment or whatever requirements were."

Stefanou said that the words "best endeavours" were used by Palmer or Cahill. He also said that it was his understanding that "an initial deposit and an unconditional contract would get the ball rolling for finance and the arrangement they had with the manufacturer".

248. What were said to be Stefanou's typed notes of the meeting refer to the persons in attendance and continue:

"These terms were discussed in details with their legal people in attendnce [sic] . They indicated that they wanted the airship to go beyond the Olympic games period. They realised that they may not be over the Olympics venues but they would be at the Olympics and be seen.

They would have liked to be in Sydney prior to the commencement and then be around after the games taking in Queensland.

They were acutely aware that CCP and US LTA needed signed contracts and deposits paid before any other construction could be started.

Any delay would effect the delivery date into Australia."

255. These statements are more in the form of conclusions rather than notes of what was said. Moreover, the typed notes bear little resemblance to Stefanou's handwritten notes and Stefanou was unsure how they had come into existence. I can therefore place little reliance on the contents of this document. Stefanou said that his handwritten notes consisted of two pages. He rejected my suggestion that only one page related to the meeting itself and that the other page was notes of other conversations with Barbagallo. Despite this evidence, I conclude that this is the case because the page of other notes refers to checking details of discussions with "Rob" [Palmer] and ends with the observation that a meeting between CCP and Primus was arranged for 16 February. The one page of handwritten notes which definitely relates to the meeting on 16 February records that the Primus representatives "wanted everything their way" and contains a reference to "Heads of Agreement" and to CCP checking "Olympic flyover."

258. The outcome of the meeting on 16 February 2000 seemed very positive for CCP, and following it, Palmer sent a facsimile to Olma asking three questions about the screen which Primus wanted answered.

262. By a facsimile dated 21 February 2000, Olma wrote to Palmer enclosing "in its entirety" the contract between CCP and US-LTA ("the Purchase Agreement"). The letter continued:

"It is based on the accepted December '99 contract and ammended [sic] to reflect the deletion of the schedule 'F' loan option and in its place a new monthly payment schedule. ... You will notice that the overal [sic] contract price remains at the discounted price of $2,975,000.00 reflecting a discount of $225,000.00 USD. Instead the discount will be covered by CCP by the issuance of stock options, terms and price of which per share shall be the same as those issued to you and other principles [sic] of CCP and the number of those shares will reflect a value of $225,000.00 USD. These shares will be issued to the nominee designated by us for this valuable consideration. Please advise us as to documentation and manner this is covered. We also enclose the wire transfer information in order that you can effect payment to US LTA at the earliest possible date which we understand to be immediate following [sic] the completion of the 'Primus' contract. As discussed with you, we understand the Primus contract will be signed today or latest tomorrow during your meetings with them."

266. Although the Purchase Agreement bears the date 23 February 2000, the signed copy was not received by Olma until 1 March 2000. The Purchase Agreement between US-LTA and CCP provided for a total purchase price of US$2.975 million payable by a deposit of US$1.6 million plus four monthly payments of US$275,000 commencing thirty days after the payment of the deposit together with a fifth payment of US$275,000 on arrival of the airship in Australia. The following clauses should be noted:

"2.1 Time of Delivery. The Airship will be delivered to Buyer by US-LTA assembled and completed, ready for flight at place of delivery and Buyer will accept delivery of the Airship as early as 7 or as late as 8 months after receipt of initial Advance Payment. US-LTA agrees that it will work with the Buyer to adjust the US-LTA manufacture and delivery schedule as much as is possible without incurring significant additional expense in order to accomplish a schedule that permits delivery, importation and operation of the Airship at the Summer Olympic Games, in Sydney Australia, September 2000. ... 5.1 Advance Payment. Advance payment for the Airship will be made to US-LTA by Buyer by payment of the initial sum of 1,600,000.00 (One Million, Six Hundred Thousand Dollars) towards the Total Purchase Price. US-LTA shall not be required to commence any portion of the Agreement until the Advance Payment is paid into US-LTA's accounts and until such payment is made reserves the right solely to terminate this Agreement and enter into a sale Agreement with a different party for the same Airship."

The Purchase Agreement also provided that US-LTA would not be required to continue any work under the Agreement until each monthly payment had been paid to US-LTA.

271. Palmer said that it was not until he received the Purchase Agreement from Olma on or about 23 February 2000, that he knew that US-LTA was requiring a deposit of $1.6 million, but as previously noted Palmer knew that under an earlier contract a deposit of US$1.4 million had been required, so it could hardly have been unexpected. Palmer also said:

"We had a conversation with Primus on the 16th. At that point we weren't aware that we had to pay $1.6 million deposit. After that we were told that $100,000 had to be placed with US-LTA to hold the place in production line and that if paid with further funds [US-LTA] would start manufacture. The start of the manufacture would be an envelope for the airship."

In cross-examination, Palmer said that he forcefully queried the $1.6 million figure in his next conversation with Olma, who was firm that that was the deposit he wanted but that he then said that they would "work something out". However, Palmer agreed that in his account of this conversation in his witness statement, none of this was mentioned. All he said there was that, on receipt of the contract, he rang Olma and asked him about "the allowance of $1.5m previously promised by him." Olma said that he had changed his mind and that although he still wanted a shareholding, he did not want as much as $1.5 million. Palmer said that he realised that the business plan would need to be revised and advised Messenger, Jones and Tauber of this.

Continued Further Negotiations between CCP and Primus

277. By a facsimile dated 22 February 2000, Nicholls wrote to Cahill setting out a number of proposed amendments to the draft licence contract. On the following day Palmer faxed a new draft of the licence contract to Nicholls incorporating most of the latter's amendments.

280. On 24 February 2000, Palmer spoke by telephone to Barbagallo. Apart from some technical issues, they also discussed price. Barbagallo offered $3 million, but Palmer rejected this saying CCP's lowest figure was $3.3 million. On 25 February 2000 Primus and CCP signed an agreement, but not before there had been added, at the insistence of Nicholls, a ten day cooling off clause which allowed Primus to rescind the agreement during that period. The price payable by Primus was $3,250,008. Clause 4.1 provided for the payment of "a non-refundable deposit" of $400,000 "upon signing of this agreement", but no deposit was paid on 25 February 2000.

283. By a facsimile dated 1 March 2000, Cahill wrote to Nicholls as follows:

"We have been instructed by Robert Palmer that a ten day cooling off clause has been added to the contract. As previously discussed, the time constraint in relation to this matter to produce the airship in time for Sydney Olympics is extremely tight. Unless the contract is unconditional, and the deposit of $400,000.00 is received at Cahills Trust Account on or before 2.00 p.m. on Friday the 3rd of March, our client will not be able to guarantee the production of the airship for the Sydney Olympics. In the meantime our client company reserves the right to pursue active negotiations with other parties. Should your United States Principals wish to view the project, Robert Palmer will produce the specific details by e-mail later today." [Emphasis added].

287. When Cahill was cross-examined about this letter, he was asked whether he was ever able to guarantee production of the airship for the Sydney Olympics. He appeared to say that he was not. He subsequently expanded his answer and said:

"At that date, on the 1st March, we had good expectations based on Olma, that we could get it there for the Olympics, but guarantee, I don't know."

Cahill was then asked why he used the word guarantee in his letter. He said it was done:

"to make sure the thing kept going, the project kept moving forward, because we were going backwards and we were wasting time ..."

294. By a facsimile dated 1 March 2000, Palmer wrote to Olma advising him of developments regarding financing and informing him that Primus had indicated that "they want to visit your factory". Palmer also stated that Jones was:

"co-ordinating the listing of CCP on the Newcastle Stock Exchange he hopes to have us in a position to list about 23 March 2000. The exchange is due to open on 21 March 2000 ..."

298. Olma replied by facsimile also dated 1 March 2000:

"Thank you for your fax and comments of last evening our time. I received the signed documents this morning and will sign and return them today as agreed. You appreciate that we cannot commit any work until deposit. On the request by Primus to visit our facility in Eugene, at this time we respectfully decline the request. Simply put, although we have plenty to show (airship gondola, parts, and sign demonstrations), until the order is committed, we do not want to be put in the position of potentially misleading Primus about CCP's order placement and delivery presumably based on Primus' understanding that the order is already active. Once committed, of course, we would be happy to host them and anyone else you send our way. Recall that any planned showing related to a prototype of advances in laser day/night sign projection are best delayed for a month or two into the order. I admit I have a concern that Tauber is providing a 'proposal' to you on Friday, which to me means a process that may have to undergo negotiations and is not yet in agreement between you. This may be my misreading of your statements but it raises a caution flag here that although this is moving to a close the process could be delayed further. Finally, I would appreciate your confirmation in regard to the agreed share issuance of CCP stock in an amount equivalent to $225,000 USD issued per the terms provided you and your partners. Of course I do not expect this issuance to occur until the US LTA order and whatever remaining issues CCP has with respect to the share offering are in place." [Emphasis added].

302. Further negotiations about the form of the contract took place by telephone between Cahill and Nicholls on 2 March 2000. On 3 March 2000, Cahill wrote to Nicholls setting out his instructions about certain matters concerning the airship.

305. Also on 3 March 2000, Palmer sent the following email to Barbagallo:

"The following is an extract from a fax that Ray Olma sent me dated 1 March 2000. I have sent the original fax by mail with the personal details deleted. Quote: We would be happy to host them and anyone else you send our way. Recall that any planned showing related to a prototype of advances in laser day/night sign projection are best delayed for a month or two in [sic] the order."

Palmer denied in cross-examination that this was a deliberate attempt to mislead Barbagallo. He said that "we couldn't see any problem with Primus visiting the factory". However, Palmer had no credible explanation for what I find was a quite misleading quotation from Olma's facsimile. He could not recall sending to Barbagallo "the original fax by mail with the personal details deleted" nor could he identify "the personal details" in Olma's facsimile to which he was referring. No such document from Palmer was discovered by Primus. By not sending the original facsimile, Palmer was able to avoid revealing to Primus that Olma would not commit to CCP's order until the deposit was received and that Olma was concerned about CCP's ability to fund the balance of the purchase price. If Primus had known this, I consider that it would not have paid the $400,000 deposit.

310. Palmer was asked in cross-examination whether he had told Primus that Olma had said that US-LTA could not commit to any work until it received the deposit. Palmer said he had not, because he was still talking to Olma and "the rules were being changed on a daily basis". Palmer agreed that he did not tell Primus before the signing of the Licence Agreement that US-LTA required a deposit of US$1.6 million:

"There was no need to. Because they knew that the funds that we were receiving from them were going to Olma. And I had the assurance from Olma that he was going to start work on the contract by making the envelope."

This was a reference to Palmer's evidence that in a telephone conversation after he received the contract from US-LTA, Olma agreed that if he received US$100,000 he would keep CCP "in the production line" and that he would order the manufacture of the airship's envelope to be started, which was the first step in construction. However, Palmer agreed that after this alleged conversation, he signed the Purchase Agreement with US-LTA which required payment of a US$1.6 million deposit before work would commence. Palmer said that he understood the reference to "deposit" in Olma's facsimile of 1 March 2000 to be to payment of US$100,000, not the US$1.6 million.

315. By a facsimile dated 3 March 2000, Palmer advised Olma the contract would be finalised and the deposit paid by Primus on the following Monday. He also advised that "Tauber has agreed to be involved with CCP." There was nothing in Tauber's evidence that justified that assertion by Palmer. The facsimile continued:

"As soon as the Primus cheque is cleared we will forward a holding deposit of US$100,000.00 the balance will be forwarded to you shortly after. In relation to your stock options we will hold US$225,000.00 for your designated company/person."

319. By a facsimile dated 6 March 2000, Cahill again wrote to Nicholls. He stated:

"We understand the further phone conference has been arranged for 10.00 on Monday the 6th of March. We are instructed that all matters must be finalised at that conference, and that an unconditional contract be signed at 4.00 p.m. on Monday the 6th of March, and further, the sum of $400,000.00 to be paid into Cahill's Trust Account. This can be done by way of bank cheque or telegraphic transfer to the Trust Account at Bendigo Bank, Fountain Court Branch No 633000 Account No 105322903. Our client company is adamant that there be no further extensions in relation to the signing of the Contract and the payment of the deposit."

Further negotiations followed resulting in yet further amendments to the proposed contract, but agreement on the final form of the contract was eventually reached.

324. At this stage, it is important to have some idea of what the directors of CCP believed was the position with respect to the raising of the necessary funds to finance the construction and purchase of the airship, once Primus entered into an agreement with CCP. Jones said that in his early meetings with Cahill and Palmer he discussed raising the funds both from private investors and by a public listing. His preference was for a public listing. He said that he told Cahill and Palmer as early as December 1999 that the timeframe for a public listing would be three to six months, depending on how long it took to get the documentation together. Initially, he thought that raising the funds from private investors would take about the same time, but agreed that it could have happened overnight if one private investor agreed to write a cheque for all of the required funds. Jones said that he thought that by mid February Palmer and Cahill still believed that they could raise the funds from private investors "virtually overnight". However, he thought they were more likely to do so by a public listing because there had been "some resistance" from private investors.

327. Messenger said that by mid February 2000 he was still confident of raising the funds. In answer to a question, he said that he thought an interested private investor might take "a couple of weeks" to do some due diligence and make up his mind, "but I think the people we were targeting then would have had deep enough pockets to respond fairly quickly". Thus, although the directors of CCP were receiving generally positive advice from the brokers, it is difficult to believe that they thought they could raise sufficient funds in a short timeframe, particularly given the unsuccessful history to date.

331. On 7 March 2000, the final form of the Exclusive Licence for Airship for Advertising and Promotional Purposes ("the Licence Agreement") was executed by CCP and Barbagallo on behalf of Primus. Relevant provisions in the Licence Agreement were as follows:

"1.0 CCP grants the advertiser an exclusive licence within Australia to use the Airship for advertising and promotional purposes for the duration of, and on the terms of, this agreement. 1.1 The parties agree that upon the execution of this agreement, the agreement executed by the parties on or around 25 February 2000 shall be immediately terminated. ... 3.0 This agreement commences on the date when it is executed. The licence granted under this agreement shall commence on 1 September 2000 and subject to this agreement shall continue for 12 calendar months. In addition the Advertiser shall be entitled to a two week test period prior to commencement of the licence in which to rest all functions and operations of the Airship. 3.1 Without limiting clause 7, if for any reason the Airship does not commence operation by 1 September 2000 CCP shall credit the Advertiser the amount of the licence fees due for the period during which the Airship is not in operation (the 'Delay Period') and extend the licence period by a period being the Delay Period. 3.2 That CCP during the months of August, September and October 2000 proposes to fly a minimum of 160 hours per calendar month, being a total of 66 hours in addition to the standard 138 hours per month. These additional hours flown during August, September and October 2000 will be at no charge to the advertiser. 3.3 During the months September and October 2000 prior to and after the Olympic and Para Olympic games it is proposed to fly in Sydney. 3.4 CCP represents that: (a) it owns the Airship and has the unfettered right to grant a licence to use the Airship on the terms of this agreement. ... 4.0 CCP will supply the Airship for a period of twelve months which includes flying time of 1656 hours for the sum of $3,250,008.00. 4.1 A non-refundable deposit of $400,000.00 shall be paid upon signing of this agreement. These monies ('deposit') shall be offset against the monthly payments during the months of May, June, July and August 2001. 4.2 The monthly payment of $270,834.00 shall be payable 14 days in advance. The final four months (May, June, July, August 2001) shall be $170,834.00 per month. ... 7.0 If the Airship does not fly in accordance with the Flight Schedule for a period exceeding 4 weeks in aggregate the Advertiser may terminate this agreement by notice to CCP without prejudice to its other rights, except where clause 7.1 applies. 7.1 CCP will not be liable or be deemed in default under this contract on account arising out of any causes such as: directives from CASA, war, armed hostilities, riots, fires, floods, unsuitable weather, earthquakes or governmental acts. ... 8.3 During the Sydney 2000 Olympic games, CCP may, outside the hours specified in the Flight Schedule, carry SOCOG security staff for the purpose specified by that staff."

336. The deposit was not paid on the signing of the Licence Agreement. Barbagallo said in his witness statement that after 7 March 2000 he was contacted by Palmer in relation to payment of the deposit by Primus. He continued:

"Palmer told me that there was some urgency about getting the deposit because the airship manufacturer, US-LTA, had to be paid before construction could begin. Palmer told me that the manufacturing had to commence immediately in order to have the airship ready for the Sydney Olympic Games. I spoke to someone in the Primus Finance Department in relation to making an immediate payment of the deposit of $400,000. The payment was transferred to an account nominated by CCP. Although it was not discussed during this conversation, it is fair to say that I would not have arranged for the immediate payment of the deposit if Palmer told me the airship would not be ready for the Sydney Olympic Games. I regarded this as an essential part of the negotiated deal."

340. Barbagallo also said that the Licence Agreement was negotiated "on the basis the airship would be flying in Sydney during the Sydney Olympics". Had he been aware there was any possibility the airship would not be delivered by September 2000 he would not have signed the Licence Agreement.

343. By an email dated 7 March 2000, Palmer advised Olma that US$100,000 would be sent to him once the Primus deposit had been credited. Palmer also said that:

"We will be sitting down with Tauber to arrange the balance of funding on Thursday." Olma replied: "Since you now have the Primus deposit why do you not surprise me and send more than the 100K USD."

Olma said in cross-examination that he expected to be paid the full US$1.6 million deposit once Primus paid the $400,000.

"It was a combination of equities of some if I recall $500,000 from Mr Cahill and a couple of hundred thousand dollars from Mr Palmer, together with other financings that they had arranged ...".

Instead, Olma said in his witness statement that he was asked several times by Palmer and once by Walsh to commence construction on the basis of a reduced deposit and that on each occasion he refused.

350. Although Primus may have paid the $400,000 on 8 March 2000, it was not credited to Cahill's firm's account until 9 March 2000. On the same day, Cahill telegraphically transferred the sum of US$100,000 to US-LTA's account.

353. On 14 March 2000, Palmer sent a facsimile to Olma advising him that there was "nothing to report" in respect of further funding. However, he assured Olma that they would finalise the deal "asap". By a facsimile dated the same day, Olma responded:

"I received your fax. On the balance of the deposit it appears to me that it is still some time off as the position with the investors remains uncommitted. As you know the $100K wire received is well appreciated but a small (non-refundable) fraction of the balance required to proceed. Although CCP has far more funds in hand available to commit it will still take the balance of the deposit to make up lost time nevertheless if you can only send part of the remaining balance that would at least influence matters in a significant way. I will not finance the project beyond the substantial commitment we have in time and resources thus far and we will gradually grind to halt as it simply requires several major expenditures to efficiently proceed to the tune of $650K immediate. Our and your best efforts are being jeopardized by the present uncertainty. If you cannot foresee this more concretely you should probably advise Primus that you could have a delivery problem.

Rob, I know well that you are working hard on this as best you can, but our feeling is that your contacts are the problem and this is the time to tell them to have the courtesy to step up to the plate as they told you they would or to move over so you can serve your client."

"Now that Primus had finally executed the advertising contract I had every confidence that CCP would now be able to obtain the funding necessary to the project. From our discussions with Jones and Messenger, and my discussions with Tauber, CCP believed that it would be able to quickly raise the necessary funding for the project."

362. Cahill gave similar evidence. He said that both Messenger and Jones were "confident and enthusiastic about raising the funds to finalise the project". Cahill was also asked why he and his fellow directors did not lend CCP the money to get the project started, for example when Olma was talking about a US$650,000 partial deposit. Cahill said that they did not have that sort of money to invest. Nevertheless, he was confident that the deal could be done, because none of the brokers ever said it could not be done. Palmer and Walsh each agreed that he did not have that sort of money to invest.

365. In cross-examination, Olma stated that he still believed that it would have been possible to achieve the Olympics deadline if he had received the full US$1.6 million deposit on or about 9 March 2000. Obviously, this belief was "subject to the provisions that we had laid out and that were clearly on the table".

369. On and after 15 March 2000, CCP appointed Michael Quinert of Oakley Thompson & Co as its solicitor, Gibbs Surrey as its accountants and Harmon Partners as its auditors to assist with raising the necessary funding for the project.

372. By a facsimile dated 21 March 2000, Palmer informed Olma that "we are close to finalising a deal and listing". He then stated that "Cahill, Messenger and I are sitting down with the Pratt group tomorrow." In cross-examination, Palmer agreed that CCP had not previously discussed the matter with the Pratt group. This was extraordinary optimism.

375. In response, Olma sent the following facsimile dated 21 March 2000:

"I am surprised and dissapointed [sic], but it is apparent to me that you need to put in place your listing on the exchange to get this done. I did not know that! I had been told that it would take two or three days (ongoing) for the balance of the deposit to be sent, obviously your investor's (Pratt & Tauber primarily) did not come through with their investment in CCP. I have suspended all progress, and programmed activity on this contract until I know definitely were [sic] thing's are at. If I am wrong in respect of my understanding I am sure you will let me know."

379. Palmer said that the deposit he had been referring to in his discussions with Olma was the US$650,000 figure. Palmer said that his brokers, such as Jones, had told him this money was about to be raised. However, Jones gave no such evidence.

382. Palmer said that, on 23 March 2000, he had discussions with Olma regarding the deposit and Olma's reluctance to commence the manufacture of the airship other than the envelope until further moneys were received by him. However, Palmer's facsimile of that day simply stated that:

" 'Everybody' is acutely aware of the extreme need to get the deposit to you, and all stops are out."

387. Palmer said that, on 24 March 2000, he had a telephone conversation with Barbagallo in which he stated that there were a number of matters that had to be confirmed before CCP could give Primus a firm delivery date. One of the matters that had to be resolved as soon as possible was the required colour and livery for the airship. Palmer said that Barbagallo said he would get back to him with this information. Barbagallo denied that he received any request to provide details of colour or livery for the airship. Just why Palmer needed this information at this time is not at all clear and I am not prepared to find that there was any such request by CCP at this or at any other time.

390. In April 2000, Harmon Partners were auditing CCP as part of the requirements for listing. By a letter dated 10 April 2000, John Hutchins of Harmon Partners wrote to Primus requesting its confirmation of the existence of the contract between Primus and CCP. Brent Retallick, who had replaced, or was about to replace, Barbagallo was handed this letter and he forwarded it on to Nicholls. There was no response from Primus until 2 May 2000 when Gerald Miller, who had replaced Nicholls, sent a copy of the contract to Hutchins, at the request of Palmer. It was put to Miller in cross-examination that the three week delay in providing the contract "delayed the completion of the audit". In his witness statement, Palmer said that "delays were experienced by CCP in obtaining an unqualified audit report, because, as I understood it, Primus had failed to send our auditor an executed copy of the Contract". In cross-examination, this claim became significantly stronger:

"Harmon and Partners had to wait five weeks for that contract. That put us back five weeks before we could come out with some audited accounts."

However, Palmer also said in a facsimile sent to Olma on 29 April 2002 that:

"The audit was satisfactory but the auditors projections were stuffed it up [sic]. We had to have it done again and got our accountants to do it."

Thus, it appears that there was more than one cause of any delay and in any event Easter fell within this three week period, so the delay was not long. In my opinion, the suggestion that the audit was held up for "five weeks" because of the delay in providing the contract is ludicrous.

398. On 16 April 2000, Olma sent a further facsimile to Palmer. It stated:

"I will confirm to you receipt of the further 50K being part of the deposit due when our bank confirm's it. I believe it is in. I am going to begin to set up the hull order process based on your assurance to me that the balance of the deposit will be here in the next day or two and that there is no doubt as you now have signed commitment's. Because I must be here now because of the delay's to deal with supply contracts and scheduling, I have decided to wait until this is all in hand before I come over, now probably next week (week of the 24th). I have related your assurances to Joe and Martin because as you know they are under scheduling pressure because of the uncertainty over the past weeks. We all have headaches over this. Rob, it is almost two months since you got the Primus contract. I am, not to again be repetative, [sic] concerned for you over your commitment's to them. This has to be right this time as you well know." [Underlining in original]

402. Palmer said in cross-examination that Olma had said:

"months earlier that he'd place the hull on order and it was quite a shock to find out that he hadn't put it on order at this point of time."

Palmer agreed that he had told Olma that the balance of the deposit would soon be available and that CCP had signed commitments. Palmer said that the signed commitment he was referring to was one from a Mr Koadlow that "he would go out and raise" $7 million. This was hardly the commitment that Olma was expecting and was further evidence of Palmer's misleading conduct.

407. On 26 April 2000, there was yet a further facsimile from Olma to Palmer. It stated:

"We very much appreciate the monies thus far on the contract and Joe advises that the shop is fully ready to move forward, having prepared jigs and molds and personnel as much as possible to prepare to begin the major work. The next step is as we say 'cut metal', make financial commitments to vendors and sub-contractors and move all of which I cannot do of course until the full deposit is paid. In the interim, we went and remain on 'stand-by'. This puts US LTA in a difficult position as we cannot remain on 'stand-by' for weeks and pass on other possible work that might interfere with commencing your order. Therefor we are advising that we will begin to go in the other direction very soon toward undoing the set up taken thus far so that we can process other work in order to secure our revenues. This is called a 'stop work' order. If such order is given and we undo the set up, the earnest monies paid will become earned and not credited towards an order. Joe advises that we should not go much beyond May 1 as it will take a couple of weeks to undo the set-up. Again Rob this is a difficult position for us too, but I need to advise you now as time is wasting. It will be a step backwards. We will do all we can to delay such stoppage but at some point it will create losses on our end. I believe and hope this process will be concluded imminently as you say and that such steps will not be necessary. Based on conversations I have had with you and gather this 'money issue' is simply a negotiation over equity and related percentage positions and although I cannot fault trying to garner best value for yourselves, the process is losing sight about Primus, US-LTA's financial and schedule requirement, and the upcoming Olympics target to which we have now lost 2 additional months since the Primus signing that cannot be made up. The exclusivity agreement is forthcoming."

411. On 8 May 2002, Palmer met with Jones and Quinert. Jones advised that he believed he could raise all of the funds required to finance the project and asked for an exclusive mandate. Palmer instructed Quinert to draw such a mandate. It provided for $7 million to be raised for up to 55% of the issued capital of CCP.

414. On 10 May 2000, Olma again sent a facsimile to Palmer. This one read:

"To confirm the current status of the airship thus far, as of Friday May 12, 2000. If CCP cannot forward the full or a substantial amount of the deposit into US-LTA's account we will re-schedule the subject airship delivery into at least November, 2000. Over the past number of weeks as you are aware, we have repeatedly stated since before the signing of your Primus contract and henceforth thereafter that the ongoing order commitment delays would prevent a delivery based on best efforts for the Olympic Games and at this point we regretfully must state it is virtually impossible given a (4) month schedule for fabrication lead times, shipment and on site preparation and certification. The payment made of $150K sent us as non-refundable payment against the deposit amount of $1.6M required will be re-considered on a revised delivery schedule. Please confirm CCP's receipt of this notice by return fax. On a shareholder issue, could you please advise who the shareholders will be and their percentages. If you are open to advice, I have some comments on how you can structure your positions that may aid in speeding things along."

418. It was put to Palmer in cross-examination that throughout the period between January and May 2000, in his correspondence Olma continually reiterated that he would not commence production until he received if not the entire deposit at least a substantial proportion of it and that Palmer never pointed out that those written statements contradicted what Palmer said Olma had told him in conversations. Palmer's non-responsive answer was:

"We were very optimistic of getting the funds. Always optimistic. We never had a negative vibe from the brokers."

422. Later, Palmer said that in this period he expected being able to raise not just the US$1.6 million deposit, but the total cost of the airship. This expectation was based on "assurances from the brokers, sir, and Mr Tauber".

426. On 12 May 2000, Palmer faxed to Olma a copy of a "without prejudice" letter which he stated was being sent to Primus that day. Although Palmer said he sent the letter, Primus had no copy of it. Nevertheless, the letter, addressed to the managing director of Primus, read as follows:

"REGARDING PRIMUS - CCP AUSTRALIAN AIRSHIPS LTD CONTRACT (CCP) Dear Ravi, Further to our meeting yesterday with Mathew Barbagallo, Brent Retallick, David Cunningham (CCP accountant) and myself, I wish to confirm the following: CCP have had difficulty in obtaining finance to fund this project. We had assurances from two share broking firms in Melbourne that they would acquire the seed capital/investment funds required within the timeframe set out by CCP prior to listing. Our deadline was $2.5m by this weekend. As you are aware we engaged Harmon Partners on 20th March 2000 to conduct an audit of our books and records. They completed this unqualified audit on May 4th 2000. Our meeting yesterday was to advise Primus of our difficulties to date and alert you to the fact we might not be able to meet the Olympic deadline. Since our meeting yesterday I now believe we will obtain the necessary funds in time to meet our contractual commitments to Primus. Yesterday when we met, we were going to explore the option of Primus being financially involved with CCP. I have spoken with Ray Olma, President of USLTA this morning and he is prepared to catch the next available plane to Australia and meet with you if you believe that would be of any advantage." [Emphasis added].

430. Palmer gave evidence that the meeting referred to in the letter took place on 10 May 2000. The substance of the discussion was as set out in the letter. In cross-examination, Palmer denied that the reference in the letter to obtaining "the necessary funds in time to meet contractual commitments to Primus" meant getting the airship to Primus by 1 September 2000. Despite the reference in the previous paragraph of the letter to "our difficulties" and not being "able to meet the Olympic deadline", Palmer said CCP's contractual commitment would have allowed delivery as late as July 2001.

433. In his witness statement, David Cunningham of Gibbs Surrey said that he attended this meeting, although he thought it occurred "around June 2000". Cunningham said:

"In the meeting Palmer advised in effect that the delivery date of the airship (as provided in the Primus contract) may be difficult to meet as funding was proving difficult to secure. Primus expressed concerns about delivery dates and whether the airship would be available for the Olympics."

437. Although there is no mention of it in the letter, Palmer said that the question of the get up or livery "might" have been mentioned to Retallick "on about 10 May". If the lack of response from Primus had been a problem, it is surprising that it was not raised in the meeting on 10 May and then confirmed in the follow up letter. I do not accept that the question was raised at this time. In my opinion, this was not a matter of concern to CCP at this time, and more likely it was simply not referred to. Palmer agreed that he did not raise the topic with Miller in his telephone conversation on about 1 May nor with the Primus representatives at a subsequent meeting on 19 July 2000.

441. On 15 May 2000, Palmer wrote to a Bruce Uren about CCP raising $2.5 million. Included was the following statement:

"Please note there is an element of urgency in this matter, as we must pay USLTA the balance of their deposit of US$1.5m on the airship ASAP."

Palmer said that he believed his statement in that document was correct, thereby admitting that the substantial deposit was always required by US-LTA.

446. Palmer sent a further proposal to Olma, on 16 May 2000, which involved US-LTA underwriting the venture in return for a 50% interest in CCP. This facsimile commenced:

"The Directors of CCP have agreed on a proposed funding strategy which effectively doubles the income of USLTA on this deal and will enable rapid funding to achieve delivery for the Olympics." [Emphasis added].

Palmer agreed that by the time of this proposal, "we certainly were struggling" to raise the necessary funds. Palmer also agreed that the reference in his facsimile to Olma to CCP listing on the Australian Stock Exchange "within 12 months" was incorrect. It was not "an option" at that time because "you have to trade for a number of years before you can be listed on the Australian Stock Exchange". Olma later indicated that he was not interested in underwriting the project.

451. On 12 June 2000, Palmer spoke with Olma. The former's note of this conversation is as follows:

"Ray Olma stated that unless he received the balance or a substantial part of the balance of the deposit US$800,000 deposit [sic] he would not guarantee the delivery of the airship for the Olympic Games. He would only guarantee its delivery on condition that he could get the envelope manufactured in 2 months. I asked him if he had made any enquires about the envelope and he said yes he believed he could get it done and all stops would be out on his part. He said it was possible. I asked him to order it now and he was not prepared to do it unless he received the deposit."

Olma denied that he told Palmer around this date that delivery might be arranged for the Sydney Olympics.

456. On 12 June 1990, Palmer asked an Ed Swift of Flir to ascertain what, if any, work had been done on constructing the airship. Included in his letter was the following statement:

"We hope we are within days of gaining the finance required for the Primus airship. I have been speaking to Ray over the past few days and he seems to think the Olympics are still an outside chance."

"No work has been done except planning etc. No metal as been cut. Joe told us it will take 6-8 months, at least, from the time they get the 'go' (after financing is complete) to delivery in Australia. Our Airships expert, Giovanni Abrate, who was with us agreed, there is no way that ship will be ready for Olympics. Nothing as started yet. Re the signs, I am not sure, we did see some examples of signs and the equipment in in operation (very impressive) but I don't know whether any of the signs or images were yours. I had the impression not so, they said they weren't doing any work until they get paid (mostly referring to cutting metal etc."

462. On 13 June 2000, Palmer emailed Cahill, Walsh, Stefanou, Cunningham and Quinert the following:

"It looks as though the Olympics are out. I don't believe we have a chance of attending them in the airship. I spoke to Ray this morning prior to receiving this Email. He claims if he can get the envelope manufactured in two months (subcontracted) we still can have delivery for the games. Realistically I do not believe we will get it in time." [Emphasis added].

467. Retallick said in his witness statement that shortly prior to 10 July 2000 he had a telephone conversation with Palmer. He asked Palmer what was happening with the airship. Retallick said that Palmer told him that "he was running a bit behind". Retallick said that he said to Palmer that he thought the airship was supposed to be available for the Olympics. Palmer requested a meeting to discuss progress and said that he would explain the situation to him. Palmer also said that he would arrange for Cahill to attend the meeting.

470. On 10 July 2000, Cahill sent a "without prejudice" facsimile to Retallick at Primus confirming a meeting on 19 July. That facsimile commenced:

"Further to your conversation with Rob Palmer, at this stage, we are behind in the airship program but we are negotiating with the builder and our financiers in the hope to resolve our program."

474. On 17 July 2000, Palmer received an indicative letter of offer from ABN-AMRO dated 14 July 2000. Part of the indicative proposal for a facility of $5.06 million was that there be a tripartite agreement between CCP, ABN-Amro and the advertiser for a term of at least three years. Quinert drew the distinction between a letter of offer and an indicative letter which he said was simply an indication of what the bank might be prepared to do subject to various other conditions being met.

477. On 19 July 2000, Retallick and Gordon Ley met with Palmer and Quinert of Oakley Thompson & Co, solicitors. Ley was a solicitor employed by Primus. He left Primus at about the end of August 2000 and at the time of the hearing he was thought to be travelling somewhere in Europe. His notes of the meeting were tendered by Primus. The important parts of those notes read as follows:

"Indicative letter of offer from ABN Anbro to inject $1.5 million - needed to complete construction of airship. Problem has been form of contract between CCP and Primus too vague, too short a term to convince financier. No secondary market for the airship. Need to put forward three year revenue flow. Contract needs work from point of view of both parties. Construction company said airship could be finished by November if finance arranged. Rob got strung along by brokers. O.T. [Quinert] said brokers sat on their hands for a fair period of time. Need to have 36 month term will not have start date prior to November. Want financier to be involved in contract (in nature of hire purchase contract). Olympics have been missed. Financier will want to see far more 'belts and braces agreement' ('triple net security'). Airship is under construction in U.S.A. - $250,000 has been paid to USA (from our money). Company bound by contract in USA to acquire airship. Construction has been delayed because funding not in place. ... He said at this stage. Without prejudice from now on. We have not met our obligations. I said we would be very happy to negotiate the contract but need to have $400,000 refunded. Brent and I left them to discuss this. Michael [Quinert] said that ability to repay deposit depends on the matter proceeding. I said that we want to know what the company and the directors have to say about raising $400,000 to repay us. I said that I thought they should tell us the financial position of the company and the directors and should come back within 24 hours with definite proposal for repaying or securing the $400,000. Rob Palmer says deposit held by USA. After a break: Ability to repay deposit depends on the matter proceeding. Directors always in good faith - did not spend money for any other purpose. Doubtful that can recover money from the manufacturer. Could re-negotiate with another client (but is a long time away)."

481. Retallick said in his witness statement that Ley's notes were "a true summary of the conversation which occurred at that meeting". He recalled Palmer saying that the project had been delayed and did not look like it was going ahead at this stage. Palmer referred to CCP's "finance problems and their inability to raise sufficient capital to purchase the airship". Retallick rejected the suggestion, in cross-examination, that Primus had demanded the deposit back. He said that its position was that in order for a new contract to be discussed there would have to be further discussion about the deposit.

484. Palmer disagreed with parts of Ley's notes. However, he did say that he did not take much notice of the conversation at the meeting. According to Palmer, he remembered that, at the meeting, "Primus demanded the deposit back and said that it would only continue to negotiate, if the deposit was refunded." Palmer stated that from that date on, it was apparent that Primus did not wish to continue with the contract.

487. Quinert said that the purpose of calling the meeting was to ascertain Primus' attitude to an amendment to the contract to accommodate the requirements of ABN-AMRO that there be a tripartite three year agreement, rather than having the parties finish up in disputation. He said that he knew that CCP did not have the financial resources at that time to pay for the completion of the construction of the airship. He was surprised to learn that no work had been performed because he had been told by Palmer that construction had commenced. Quinert agreed with much of Ley's notes. However, he did not agree that either Palmer or he had said that CCP had not met its obligations. Nevertheless, he did say that it was a fair assessment that on 19 July CCP could not deliver the airship by 1 September 2000 given "the way the finances were at that time in terms of the funding of the construction". He thought that November was mentioned as the likely delivery date if finance could be arranged. He also said that "it was looking dangerous" that CCP may not be able to meet its obligations. He agreed that no delivery was likely unless finance could be arranged, and "the only finance that was offered" at that time "required a renegotiation of the existing contract". Quinert said that he "attempted to discuss" with the Primus representatives "the possibility of altering the existing licence" to provide for a three year licence, but he did not "concede that we were in default of the contact". Nevertheless, Quinert said that:

"We were seeking to see whether they would accommodate a request to renegotiate the existing contract ... because the existing indicative offer from ABN-AMRO was quite clear that it needed a longer term."

There were no other possibilities of finance in the wind at that time as far as he was aware.

492. Following the meeting, Miller, who had not been present, sent a facsimile to Quinert. It read as follows:

"I refer to our meeting today. I note your advice at the meeting that your client CCP Australia Airships Pty Ltd (CCP) is not able to fulfill its obligations under the agreement. In my view this constitutes a repudiation of the contract by CCP. Primus reserved its rights to accept the repudiation and to rescind the agreement and take action to recover its losses. Obviously, the directors will be made parties to this action, which will include claims based on deceptive and misleading conduct. Primus is prepared to enter into negotiations to vary the agreement, but only if the deposit of $400,000.00 paid by it is first repaid or secured to its satisfaction. Primus requires CCP and its directors to put to it within 24 hours (by say 3.00 p.m. on Thursday) a firm proposal in this regard, supported by frank disclosure of their respective financial positions. If this is not done, Primus will take vigorous action to protect its rights."

496. Palmer described the Miller letter as incorrectly "asserting that CCP had repudiated the contract and seeking recovery of the deposit". Thus, CCP relied on the Miller facsimile of 19 July 2000 as a wrongful termination by Primus of the Licence Agreement. It was put to him in cross-examination that by his letter he was "seeking to vary the contract yourself by putting to CCP a proposal that it refund the deposit when it had no obligation to do so under the contract". Miller denied the suggestion. He said that he was "responding to CCP's proposal for a new contract and I said we would enter into negotiations if the deposit was refunded or security was given, adequate security, and before we would do that we required frank disclosure on our proposal". It was also put to Miller that he was saying that the agreement with CCP was terminated unless it paid back the deposit to Primus. He disagreed, pointing out that what he said was that in his view CCP's inability to perform constituted a repudiation of the contract and that Primus reserved its rights to accept the repudiation, and that by delaying any action until December he "gave CCP a more than reasonable opportunity to perform". It was further put to Miller that he was aware from what was said at the meeting and from his letter that CCP understood that "Primus had withdrawn from the deal". He said that he was not aware of that and reiterated that that was not Primus' position. CCP still had the option of performing the contract and it "had that option till 22 December". Miller said that in his discussions with Quinert in late 2000, Quinert did not put to him that CCP was "treating that contract as having been terminated by Primus". Miller understood from Quinert that CCP was looking for someone to replace Primus as the advertiser so that CCP could "refund the deposit to us".

499. In his witness statement, Quinert said that Primus' primary focus at the meeting was "to obtain repayment of the $400,000 non-refundable deposit". He also said that he understood from Miller's letter of 19 July and "the discussions that we had during the meeting that Primus was unwilling to proceed any further with the Primus contract except on the basis that CCP refund the $400,000 non-refundable deposit." Quinert stated that after the meeting CCP "proceeded on the basis that Primus had withdrawn from the contract and endeavoured to obtain substitute advertisers". However, in cross-examination Quinert said that he understood what Miller meant when he said in his letter that Primus was reserving its rights. He also understood from the letter that Primus had not terminated the Licence Agreement as of 19 or 20 July 2000 and that it was still on foot although at that point CCP could not deliver the airship. Quinert nevertheless said that he thought Primus did not want to continue with the existing contract, although he conceded that Primus had never said that and that the $400,000 had only been demanded back "in the context of my request to amend" the existing contract.

502. Quinert replied to Miller's letter by facsimile on the following day. He stated:

"We acknowledge receipt of your facsimile of 19 July 2000. Contrary to your assertion, the writer did not advise your company that CCP would be unable to fulfil its obligations under the agreement. Rather, a proposal was put forward regarding an amendment to the current agreement so as to enhance our client's position with respect to finalisation of its funding arrangements. In addition, we suggested that various amendments to the agreement may be appropriate so as to enhance and clarify the position of Primus with respect to the transaction. We note that you have now formally made allegations of deceptive and misleading conduct with respect to the directors of CCP. We consider those allegations to be baseless and mischievous in nature. However, in the event that you care to properly particularise such allegations, we would be happy to seek instructions with regard to a formal response on behalf of the parties concerned. As advised at the meeting on 19 July 2000, the non-refundable deposit paid in accordance with the current agreement has been utilised in the manner as contemplated by the parties and as reflected by the terms of the current document. As far as our client is concerned, the terms of the existing agreement make no provision for the repayment of the deposit as suggested in your facsimile. We note that on several occasions at the meeting on 19 July 2000 you suggested that Primus wishes to take a constructive and commercial approach to this matter. Frankly, we find your conduct in issuing your facsimile of 19 July 2000 difficult to reconcile with the approach you purportedly wish to take."

506. On 20 July 2000, Olma responded to Palmer's advice of recent developments. His facsimile read:

"Thank you for your report of this morning. It appears for several reasons that CCP will be unable to make any sort of further financial commitment to US LTA at this time or in the next weeks and therefor we will proceed with our other business at hand. We are understatedly disappointed with your results with Primus but they are as we expected and forewarned you against. Although it was good news to see the AMRO commitment, it becomes mute [sic] as CCP is now in no position to take advantage of the loan offer with the loss of the sponsor commitment. From our perspective and experience in these matters it will be much harder to close a new sponsor commitment in a short period, not to mention investors without Primus' contract. I appreciate your efforts and commitment but realistically CCP is not able to commit to fund even the reduced deposit requirement at this stage and therefor we have go [sic] about our business and put what was an excellent opportunity to proceed on the back burner. If you can salvage Primus is your backing committed to put up the cash and revenue underwriting required forthwith to close AMRO?? If so, I would suggest you demonstrate assuredly to Primus that the financial deal will close at Primus' agreement and the order will be cut quickly. You can bet this will be an important point with them as up till now they have been used as a promotional tool rather than treated as a customer. Showing that the order is cut demonstrates your commitment to them as customer ... (and makes us happier too)."

510. For whatever reason, whether it was because CCP regarded Primus as having effectively withdrawn from the Licence Agreement (wrongfully repudiated it) unless CCP agreed to refund the $400,000 deposit or whether it was because CCP knew that it could not honour its commitment to Primus to have the airship available for the Olympics, the August business plan prepared by CCP did not make any reference to the Licence Agreement with Primus.

514. There was no further contact between CCP and Primus until 23 October 2000 when Miller and Quinert spoke by telephone. Quinert advised that Miller could expect a written proposal by the following Wednesday. No such proposal was ever forthcoming from CCP. In another telephone conversation on 26 October 2000, Miller told Quinert that he had advised Primus that if CCP performed its obligations under the Licence Agreement, Primus was still bound by it. Quinert referred to the possibility of another advertiser entering a joint venture with CCP. He said that he considered that if CCP obtained an alternative licensee for the airship then it would need to terminate the agreement with Primus and he sought to ascertain whether Primus would be prepared to do that if CCP repaid the $400,000. Miller said that Primus would reserve its rights and would not take any action for a further three weeks. Quinert agreed that he had not suggested in this conversation that CCP had already accepted Primus' repudiation of the contract.

517. On 29 November 2000, Miller spoke to Quinert by telephone and told him that Primus needed advice as to progress by 4 December. He told him that Primus was not prepared to allow the matter to go on unresolved for much longer. By letter dated 22 December 2000, Miller wrote to CCP as follows:

"We refer to the Agreement between CCP Australian Airships Limited ('CCP') and Primus Telecommunications Pty Ltd ('Primus') dated 25 February 2000 ('the Agreement') and confirm that CCP has failed to procure the flight of an airship bearing advertising for Primus by 1 September 2000 or at any other time in accordance with the terms of the Agreement. Moreover, it is clear that CCP will be unable to procure the airship during 2000. In these circumstances, Primus considers that this constitutes a repudiation of the Agreement by CCP, which repudiation is accepted by Primus as a rescission of the contract. Primus now seeks damages including repayment of the sum of $400,000 paid to CCP earlier this year. Primus also reserves its right to recover further damages by reason both of the breach of the Agreement by CCP and by reason of misleading deceptive conduct on the part of CCP and its directors. In the event that CCP fails to pay the sum of $400,000 or secure that sum to the satisfaction of Primus, within 21 days from the date of this letter, legal proceedings will be commenced without further notice."

Miller said that at the time he sent that letter he believed that the airship had not been constructed, that finance for the airship had not been obtained by CCP, that no delivery date had been identified for the airship and that there was no prospect of the airship being delivered or construction commencing within the immediate future.

522. By a letter dated 9 February 2001 and headed "Without Prejudice", CCP's solicitors, Oakley Thompson & Co, wrote to Miller as follows:

"We are instructed that your summation of events as outlined in your letter dated 30 January last appears to take no account of several important backgrounds [sic] facts. These are as follows: 1. When the original negotiations were held, it was understood and agreed by the persons then representing Primus that CCP at that time did not have sufficient capital to construct the airship but would use its best endeavours to seek the necessary funding from third party investors. 2. Primus executed the Licence Agreement so as to assist CCP in demonstrating to would be investors that a customer, and therefore revenue base, existed for the project. 3. The deposit was paid on a non-refundable basis with Primus's knowledge and consent that those funds would be used to assist CCP's objectives of procuring the necessary equity investment to build the airship. By making the deposit non-fundable, Primus was fully aware that the funds provided were therefor, effectively, risk capital in the venture. As previously advised, our client and its directors have made all reasonable efforts (and are continuing to do so) towards raising the necessary equity capital to construct and put into service the airship. It became apparent to our client during the course of those efforts that alterations to the licensing arrangement, such as an extension to the term, would be necessary to attract the required funding. You will recall that our client's approaches to you last year in relation to those matters were rejected out of hand, and since that time our client has been seeking alternative licence arrangements. Having regard to the foregoing, our client and its directors have acted appropriately at all times in relation to this matter and deny any wrongdoing or liability such as that you have alleged. Any proceedings that you issue will be strenuously denied. We respectfully suggest that the best way forward in this matter is for the parties to work cooperatively towards a commercial solution for all concerned."

527. Later in 2001, CCP instructed Stanley E Clarke, an attorney in Oregon, to write a letter of demand to US-LTA in respect of damages which CCP claimed it had suffered as a result of US-LTA's actions. Included in Clarke's letter dated 19 September 2001 was the following statement:

"CCP represented to you that CCP had a contract with an entity called Primus to provide the airship for advertising over the Olympic Games, Sydney September 2000, and that if the airship could not be available for the Olympic Games, CCP would be in default on its contract with Primus." [Emphasis added].

Cahill said that he had no idea who told Clarke about this representation. He said that "he probably made it upon the information which had been forwarded to him" by CCP. However, despite a call for production, CCP never produced "the information" which had been forwarded to Clarke. Palmer made the unlikely suggestion that the instructions were oral. When asked further questions about this letter, Cahill said that Palmer provided Clarke with the details of the proposed claim. Palmer said that both he and Cahill had instructed Clarke. "We gave him a rough brief on what to say to Mr Olma". Although, both Palmer and Cahill said that the above quotation from Clarke's letter was factually incorrect, neither was able to provide a credible explanation of how Clarke supposedly got it so critically wrong.

Legal Issues - The Contractual Claim against CCP

533. I turn then to an analysis of the legal issues arising out of the above facts. The first way in which Primus put its case against CCP was a claim for damages for repudiation of the Licence Agreement. Primus alleged in its Amended Statement of Claim that CCP was in breach of the Licence Agreement because it failed or refused to make the airship available to Primus in August 2000, or by 1 September 2000 or at all (paragraph 7). Clause 3.0 of the Licence Agreement stated that the licence would commence on 1 September 2000 and that Primus would be entitled to a two week period prior to that for testing purposes (hence the reference to August 2000). Primus alleged that by failing to provide the airship prior to 1 September 2000 or at all, CCP evinced an intention to no longer be bound by the Licence Agreement and thereby repudiated it (paragraph 8) and that Primus accepted the repudiation by the letter from Miller dated 22 December 2000 (paragraph 9). Primus limited its claim for damages to the loss of the deposit of $400,000 plus loss of use of that sum since the date it was paid (paragraph 10).

537. It is necessary, first, to consider the meaning of the Licence Agreement, in particular what CCP was obliged to do under the Licence Agreement. Counsel for Primus submitted that CCP's obligation was an entire obligation, that is, to make a fully functional and operational airship available in Australia for use by Primus for a period of 12 months commencing on 1 September 2000, which was two weeks prior to the opening of the Sydney Olympics. In order to ensure that there would be no hitches in the operation of the airship, the Licence Agreement provided that Primus would be entitled to a two week test period prior to 1 September 2000. Primus submitted that the commercial purpose of the Licence Agreement centred around having the airship available to be flown over Sydney during the Olympics and that time was therefore of the essence of the contract.

540. Counsel for CCP submitted that, on its proper construction, the Licence Agreement did not make time of the essence and that the airship could have been made available by CCP months after 1 September 2000. He referred to clause 3.1 of the Licence Agreement, which, he submitted, showed that the Licence Agreement itself contemplated that the airship might not be delivered in time for the Olympics. Counsel further submitted that CCP's obligation was only to use its best endeavours to have the airship delivered by 1 September 2000.

543. What then is the meaning of clauses 3.0 and 3.1 of the Licence Agreement? At first glance, the firm date specified by clause 3.0 seems to have been possibly overtaken by the procedure laid down in clause 3.1. But does clause 3.1 mean that the airship could be delivered months after 1 September 2000? Further, is the construction of clause 3.1 affected in any way by the provisions of clause 7? It would appear that Primus could have terminated the Licence Agreement if the airship did not fly "in accordance with the Flight Schedule for a period exceeding 4 weeks in aggregate ... except where clause 7.1 applies" (clause 7.0) and that Primus could have terminated the Licence Agreement if a Prohibition Event, as defined in clause 7.1, continued "for more than 8 weeks" (clause 7.2). Thus, it is by no means clear, in my opinion, simply from looking at the document just what was the meaning of parts of the Licence Agreement.

546. In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[1], Mason J, as his Honour then was, cited with approval the following passage from the speech of Lord Wilberforce, which was concurred in by a majority of the members of the House of Lords in Reardon Smith Line Ltd v Hansen-Tangen[2]. After stating that it was legitimate in construing a contract "to have regard to ... 'the surrounding circumstances'", Lord Wilberforce said:

"In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating."[3]

550. Applying that approach to the construction of the Licence Agreement makes its meaning clear, in my opinion. There is no doubt in my mind that the commercial purpose of the Licence Agreement was to have the airship available to be flown over Sydney during the Olympics. Right from the earliest of the communications between Palmer and Olma, this was expressed to be the aim of CCP because of the opportunity it provided to attract an advertiser. Such a use was highlighted in Palmer's initial approach to Primus in June 1999 and was repeated by Stefanou in his discussions in January 2000. Further, Primus' interest in the proposal was squarely based on the prospect of flying the airship over Sydney during the Olympics. That is clear from the evidence of Barbagallo and Nicholls referred to above. Thus, the genesis of the transaction, the background, the context and the market in which the parties were operating all point to the fact that having the airship available to be flown over Sydney during the Olympics was the clear commercial purpose of the Licence Agreement.

553. Indeed, this proposition was not really disputed by the defendants. As has been seen, much of their case was devoted to establishing that the Primus representatives were told two things. First, that they were told that the timeframe was tight, which can only mean the timeframe for delivery by the Olympic Games was tight, and I refer in that context to Cahill's letter to Primus of 1 March 2000. Second, that they were told that whilst CCP would use its best endeavours to have the airship delivered in time for the Olympic Games, there was no guarantee that this would be achieved.

556. The central role of the availability of the airship for use during the Olympics is also to be found in references, in the Licence Agreement itself, to the airship flying at the Olympics. Clause 3.3, one of the "conditions of this agreement", was expressed as follows:

"During the months September and October 2000 prior to and after the Olympic and Para Olympic games it is proposed to fly in Sydney."

This partly explains why clause 3.2 of the Licence Agreement contemplated greater flying time in the months of August, September and October 2000. See also the reference in clause 8.3 to the possibility of carrying SOCOG security staff "during the Sydney 2000 Olympic games".

561. I have, therefore, concluded that clause 3.1 should not be read as indicating that the parties placed no importance on the specified start date of 1 September 2000 and that it meant that the airship could be delivered months later. Rather, my reading of clauses 3.0 and 3.1 is that they were making time of the essence in the sense that it was critical to have the airship available to be flown in Sydney during the Olympics. If, however, there was a slight delay in delivery so that the airship had not completed its two week testing period before 1 September 2000 and therefore that its actual operations did not commence until, say, 8 September 2000, then this delay period of one week could be added on at the end of the 12 month licence period. Thus, clause 3.1 is only concerned with short delays in the period leading up to the Olympic Games. Any longer delay in making the airship available, beyond the time of the Olympic Games, was dealt with by clause 7 and could lead to termination of the Licence Agreement by Primus.

564. This construction of the Licence Agreement means that the submission by CCP that its obligation was only to use its best endeavours to have the airship delivered by 1 September 2000 must be rejected. The written document clearly indicates that Primus wanted the airship for the Olympic Games, not CCP's best endeavours to achieve that. Moreover, as counsel for Primus pointed out, CCP had not pleaded that the Licence Agreement contained a "best endeavours" term, either express or implied, even though other express and implied terms were specifically pleaded in paragraph 5 of the Amended Defence and Counterclaim.

567. Even though this aspect of the meeting is, in any event, inadmissible in respect of construction of the Licence Agreement, I should note that I do not accept the evidence of Palmer, Cahill, Walsh and Stefanou that the Primus representatives were told at the meeting on 16 February 2000 that although they would use their best endeavours to make the airship available for the Olympic Games there was no guarantee that this could be achieved. If this had been given the emphasis that these witnesses claimed, it is surprising that it did not find its way into the next draft of the contract, particularly as Cahill was a lawyer. Furthermore, it would seem extraordinary, if it had been said at the meeting that no guarantee could be given, that Cahill should state in his letter of 1 March 2000 that unless the $400,000 deposit was paid by 3 March:

"our client will not be able to guarantee the production of the airship for the Sydney Olympics." [Emphasis added]

571. I did not find Palmer, Cahill or Walsh to be satisfactory witnesses in a number of respects. When challenged about the specific use of the phrase "best endeavours", they tended to retreat from their previous positive assertions that these words had been repeatedly used. Cahill in particular abandoned that claim. On this issue, I prefer the evidence of Barbagallo and Nicholls that these words were not used.

575. Even if I am wrong in concluding that time was of the essence of the contract, I note that Primus' case is not based solely on CCP's failure to deliver the airship in time for the Olympic Games but rather on the allegation that by not supplying an airship by December 2000 CCP evinced an intention no longer to be bound by the Licence Agreement and thereby repudiated it. The examination of the relevant conduct starts with the meeting of 19 July 2000. CCP's case was based on the assertion that Primus had repudiated the Licence Agreement by demanding back the deposit without qualification or as a condition of agreeing to re-negotiate the contract.

578. I consider that the evidence of Retallick and Quinert and Ley's notes make it clear that what CCP told Primus at that meeting was in effect that it could not go on with the Licence Agreement because it did not have the necessary funding to pay for the construction of the airship and that it wanted Primus to enter into a new longer term contract to which the financier would also be a party. In my opinion, this constituted a repudiation by CCP of the Licence Agreement. CCP was clearly saying that it had not, and could not, meet its obligations under the Licence Agreement.

581. However, the position adopted by Primus at the meeting, and subsequently in Miller's letter, was that it reserved its rights in respect of CCP's alleged repudiation, and agreed to discuss a new contract but only on condition that the $400,000 deposit was repaid or secured in some way. It is not relevant for this purpose whether Primus had any entitlement to the deposit. As an innocent party, it was able to impose any condition it liked on its preparedness to discuss a new contract. Thus, in my opinion, CCP was not factually correct when it asserted that at the meeting of 19 July, Primus demanded back the deposit without qualification. I reject Palmer's evidence that this was said. CCP was factually correct when it also asserted that Primus demanded back the deposit as a condition of agreeing to re-negotiate the Licence Agreement, but, in my opinion, Primus was entitled to do this and its conduct could not be regarded as in any way constituting a repudiation of the Licence Agreement.

584. This matter requires careful consideration because CCP, in paragraph 7 of its Amended Defence and Counterclaim, pleaded that Miller's letter of 19 July 2000 constituted a wrongful termination by Primus of the Licence Agreement, which termination was both premature and without justification. In my opinion, this plea is based on a misunderstanding of the position adopted by Miller in his letter. CCP may well have been confused by the rather unusual and factually incorrect suggestion in Primus' pleading that CCP's repudiation was accepted by Miller in his letter of 19 July 2000. This was not how the case was put on behalf of Primus at the hearing. As I have said, Miller correctly treated CCP's statement that it was not able to fulfil its obligations under the Licence Agreement as a repudiation. Nevertheless, in my opinion, he did not accept the repudiation at that time. He simply reserved Primus' rights. Miller then indicated that Primus was prepared to enter into negotiations to vary the Licence Agreement, as requested by CCP, but only if the deposit was first repaid or secured. In no way, therefore, in my opinion, can this letter be said to be a repudiation by Primus of the Licence Agreement.

587. Perhaps out of an abundance of caution, Miller continued to reserve Primus' rights under the Licence Agreement and continued to give CCP time to perform its obligations of making the airship available for use by Primus, even after the Olympic Games were completed. Eventually, after giving CCP more time to perform in October, November and December 2000, Miller accepted the repudiation of the Licence Agreement, constituted by CCP's failure to make the airship available at all, by his letter dated 22 December 2000. I consider that the approach taken by Primus in respect of CCP's failure to perform cannot be criticised.

590. CCP's attempt to place the blame on Primus for its subsequent and continued inability to raise the necessary funds therefore fails. CCP no longer referred to the Licence Agreement with Primus, in my opinion, because it knew that it had not, and could not, meet its obligations under that agreement and that it could be terminated by Primus at any time, particularly once the Olympic Games were held without the airship flying over Sydney.

594. In addition to pleading that Primus repudiated the Licence Agreement, CCP also pleaded that "Primus failed to expeditiously provide CCP with all such information and instructions as was requested by CCP in relation to the colour, livery and specifications of the airship" (paragraph 7(b)(i) of the Amended Defence and Counterclaim). Although it is not entirely clear, this plea seems to be put forward as explaining CCP's failure to make the airship available by the Olympics or at all.

597. I have already referred to the limited evidence on this issue (paragraph 90 above). As I have stated, I am not prepared to find that there was any request by CCP to Primus to provide CCP with "the colour, livery and specifications of the airship", in view of Barbagallo's denial that he received any such request. This would seem to be the last thing Palmer or anyone else at CCP would have been worrying about in February and March 2000, when the critical issue was how to raise the funds to pay for the airship.

600. In any event, even if a request was made for such information and Primus failed to respond, there is simply no evidence relating that failure to the fact that the airship was not available for the Olympics and that it never became available. Olma never complained about not knowing the colour and livery. It was not relevant until he received his $1.6 million deposit and even then it probably would have still not been required until the very end of the construction process.

603. There was another delay allegedly caused by Primus, to which more time was devoted in the hearing. This was the failure by Primus to promptly send to the auditors a copy of the Licence Agreement. I have previously found that there was more than one cause of delay in the preparation of the auditors' report (paragraph 91 above), but more importantly this issue seems to go absolutely nowhere. It is not referred to in CCP's Amended Defence and Counterclaim nor was it submitted that this delay by Primus of, at most, a couple of weeks somehow justified CCP's failure to make the airship available.

606. I therefore conclude that all of the defences raised by CCP in answer to the allegation that it repudiated the Licence Agreement fail.

610. As I have previously stated, Primus limited its claim for damages to the loss of the deposit of $400,000 plus loss of use of that sum since the date it was paid. I have previously found that the $400,000 was not received by CCP's solicitors until 9 March 2000. The question of the appropriate calculation of the loss of use claim will need to be the subject of further argument.

613. In paragraph 10 of its Amended Defence and Counterclaim, CCP denied that Primus had suffered any loss, and in particular that Primus had suffered any loss by payment of the deposit because the parties had agreed that the deposit was non-refundable. I turn then to consider this question which could defeat Primus' otherwise straight forward claim for damages.

617. Clause 4.1 of the Licence Agreement contained the requirement that on the signing of the Agreement Primus was to pay "a non-refundable deposit of $400,000" to be offset "against the monthly payments during the months of May, June, July and August 2001". CCP maintained that this clause meant that under no circumstances would Primus be entitled to a refund of the deposit and, therefore, that Primus' attempt to claim the loss of the deposit as the damages suffered by it for CCP's alleged breach of the Licence Agreement was not maintainable. Primus submitted that clause 4.1 meant that CCP was only entitled to retain the $400,000 if Primus failed to perform its obligations under the Licence Agreement.

620. In Bot v Ristevski[4], Brooking J stated that:

"a deposit wears two aspects: if the purchase is carried out, it goes against the purchase money, but its primary purpose is that it is a guarantee that the purchaser means business ..."[5]

In NLS Pty Ltd v Hughes[6], Barwick CJ referred to the deposit in that case as "an earnest of performance which, on default, may be retained and credited against the damage suffered."[7]

625. The question is whether the addition of the word "non-refundable" changed a normal deposit into something else. In my opinion, the extra word simply makes it clear that on default by Primus it is not able to claim a refund of the deposit, even if CCP had suffered no loss. The contrary view would lead to the extraordinary result that, having received the $400,000 deposit, CCP could have walked away from the contract, yet Primus could not complain about its loss of the $400,000 simply because it was described as non-refundable. Walsh did not accept that this absurd result was contemplated. In cross-examination, he said that:

"if CCP hadn't as it represented to Primus done it's best endeavours and done everything it possibly could to try to get the airship here, then I believe Primus would be entitled to a full refund of any deposit."

629. In my opinion, the meaning of the words "non-refundable deposit" in clause 4.1 is clear, although perhaps slightly tautological. The $400,000 was non-refundable in the sense that Primus could not recover this sum if it changed its mind and decided not to proceed with the proposal to use the airship for advertising purposes. It was a sufficiently large sum to indicate to CCP, and to give CCP confidence, that Primus was committed to the airship project. If Primus defaulted, then CCP could keep the $400,000 whether or not it suffered any loss. Secondly, the $400,000 was a deposit in the sense that, not only was it an earnest of performance, it was also to be treated as part of the contract price under the Licence Agreement by being "offset against the monthly payments during the months of May, June, July and August 2001" (see the second sentence of clause 4.1). It is another thing entirely, in my opinion, to construe a non-refundable deposit as something which could never be recovered by Primus, even as part of the quantification of its damages, but could be retained by CCP even if CCP were in flagrant breach of the Licence Agreement. I therefore reject CCP's submission that the $400,000 was not recoverable by Primus even though CCP was in breach of the Licence Agreement.

632. The cases to which I was referred by counsel for the defendants did not, in my opinion, assist this submission. Howe v Smith[8], Chillingworth v Esche[9] and the unreported decision of the Court of Appeal in Gribbon v Lutton[10] were all concerned with the question of whether a defaulting party can recover the deposit it has paid to the innocent party and not with the proposition that a "non-refundable deposit" cannot ever be recovered by an innocent party. Counsel relied on the observation by Bowen L J in Howe v Smith that "persons may make exactly what bargain they please as to what is to be done with the money deposited" and that one has to "look to the documents to see what bargain was made".[11] I have attempted to follow that approach in concluding that clause 4.1 did not mean that Primus could not recover its deposit if CCP repudiated the Licence Agreement. The bargain CCP and Primus made was that Primus would lose its deposit if it decided not to go ahead with the proposed use of the airship for advertising purposes or otherwise breached the Licence Agreement.

635. In an attempt to justify its construction of the phrase "non-refundable deposit", CCP suggested that in paying the $400,000, Primus was accepting some of the financial risk of the project falling over. It was said that Primus agreed to do so because of the attractiveness of the airship project. This suggestion was rejected by both Barbagallo and Nicholls. Further, the circumstances surrounding the making of the Licence Agreement contain no hint of a type of joint venture arrangement between CCP and Primus. There was no evidence about any discussions along these lines. Had there been, Palmer and Cahill would have had to reveal that they had put virtually no money into the project and that Walsh had lent only $1,000, whereas Primus was being asked to invest $400,000.

638. In a further attempt to bolster its position in respect of the "non-refundable deposit", CCP pleaded that, in addition to clause 4.1 of the Licence Agreement, there was an implied term that "the deposit would be non-refundable in the event of termination of the agreement for any reason whatsoever and/or as a result of breach by either party" (paragraph 5(h) of the Amended Defence and Counterclaim). This was simply a way of putting forward as an implied term what CCP submitted was the correct construction of the existing clause 4.1. I have already rejected that construction. In my opinion, the alleged implied term fails to satisfy at least four of the accepted tests for implication of terms because it is not reasonable and equitable, it is not necessary to give business efficacy to the contract, it is not so obvious that "it goes without saying", and it contradicts an express term of the contract.

642. The second way in which Primus put its case against CCP was that there had been a total failure of consideration (paragraph 10 of the Amended Statement of Claim). Counsel for Primus submitted that once it was established that there had been a total failure of consideration of an entire contract the innocent party was entitled to recover any amount paid under the general principles of restitution and that it was no longer relevant whether this was seen as money had and received or unjust enrichment.

645. CCP denied in paragraph 10(b) of its Amended Defence and Counterclaim that there was a total failure of consideration "by reason that every endeavour was made by CCP to perform its obligations under the agreement." If what Primus had bargained for was CCP's "best endeavours" to have the airship available for the Olympic Games, then it might follow there was no total failure of consideration because CCP had made every endeavour to perform its obligations. However, I have already rejected the argument that Primus bargained for CCP's ""best endeavours". What Primus bargained for was to have the airship at the Olympic Games and the question is whether as that did not occur, there was a total failure of consideration such that Primus could recover the $400,000 it paid to CCP.

648. In Foran v Wight[12], a contract for the sale of land was due to be completed on 22 June 1983. Time was of the essence in this respect. A special condition required the vendors to obtain registration of a right of way before completion. On 20 June the vendors' solicitors told the purchasers' solicitors that the vendors would not be able to settle on 22 June because the right of way had not been registered. Neither party attempted to settle on the due date. On 24 June the purchasers gave the vendors a notice of rescission. The purchasers claimed the return of the deposit and the High Court (Brennan, Deane, Dawson and Gaudron JJ, Mason CJ dissenting), held that the purchasers' notice of rescission was not invalid and that the purchasers were entitled to the return of their deposit.

651. In respect of the recovery of the deposit, Brennan J said:

"Upon rescission of the contract, the consideration for which the purchasers had paid the deposit failed totally. The purchasers became entitled to recover the deposit not as damages but in quasi-contract as money paid for consideration that had totally failed ..."[13]

"Upon rescission, the purchasers were entitled to obtain restitution of the deposit which they had paid. Their claim for the return of the deposit was not founded on the rescinded contract. Nor did it represent a claim for damages for the vendors' breach of its terms. It was a claim founded in the equitable notions of fair dealing and good conscience which require restitution of a benefit received as, or as part of , the quid pro quo for a consideration which has failed ..."[14]

"But the purchasers seek only to recover the deposit paid by them. That is not a claim for damages ... It is a claim for money had and received and is based upon an imputed promise to repay, the money having been paid for a consideration that has wholly failed ..."[15]

(Reference to authorities omitted)

663. The approach of the majority in Foran v Wight was to downplay or disregard the argument that the consideration for the payment of a deposit is the payee's entry into the contract and to give prominence or priority to the second aspect of a deposit, namely, that it also bears the character of a part payment. In Baltic Shipping Co v Dillon[16] the High Court followed that general approach and held that in deciding whether or not there had been a total failure of consideration one looked at the benefit bargained for by the innocent party and the future performance of the promise and not simply the bare promise.[17] Mason CJ apparently disagreed with the majority view, at least in respect of deposits, because his Honour said:

"Prepayments can, in general, be recovered, but the position of deposits or earnests is not entirely clear, the better view being that they are not recoverable if paid to provide a sanction against withdrawal."[18]

667. Thus, in my opinion, as the deposit of $400,000 was not paid solely as "a sanction against withdrawal", but also as part of the annual licence fee for the use of the airship for advertising purposes, once the airship was not made available as promised, the consideration for that promise totally failed. The result of this alternative cause of action is that Primus is again entitled to recover the sum of $400,000, and interest thereon.

671. In its Amended Statement of Claim, Primus pleaded five representations by CCP and certain conduct by CCP (paragraph 11), which were said to have been intended to and did induce Primus to enter into the Licence Agreement and to pay to CCP the $400,000 deposit (paragraph 12). Each of the representations and the conduct was said to be misleading and deceptive (paragraph 13) and thereby in contravention of s.52 of the Trade Practices Act 1974 (Cth) (paragraph 14). This was the third way in which Primus put its case against CCP.

674. In order for the TPA to apply to CCP it had to be engaged in trade or commerce. CCP denied that this was the case - it was said to be a single purpose management company. It is hardly relevant, in my opinion, that CCP's intention may have been only to make available one airship for advertising purposes, even if that were the evidence. Eventually Cahill conceded in cross-examination that CCP was at least starting to engage in trade or commerce, when it commenced to approach potential advertisers and investors. Yet it was still argued in final submissions that the issue formed part of CCP's defence. It has been said that the terms "trade" and "commerce" are "clearly of the widest import",[19] but one does not need to resort to this approach to conclude that the negotiations between Primus and CCP were of a commercial nature. I find, therefore, that CCP was engaged in trade and commerce, certainly from the time when Stefanou first approached Primus in January 2000.

677. The pleaded representations by CCP were as follows:

(a) that whilst the Olympic Games were in progress the airship would be seen flying all over Sydney by millions;

(b) that the only areas in which the airship could not fly were designated "no fly" zones;

(c) that the airship would be available to be used by Primus for promotional purposes during the last two weeks of August 2000 and during the Sydney Olympics;

(d) that if Primus paid a deposit of $400,000 by 8 March 2000 CCP was able to guarantee the delivery of the airship for the Sydney Olympics; and

(e) that CCP owned the airship.

The conduct alleged against CCP was that it refrained from telling Primus that CCP did not have available funds to pay the deposit for, or otherwise to pay for the purchase price of, the airship, and that CCP had no commitments in place or resources for any such funding.

683. Despite the denial in paragraph 11(a) of CCP's Amended Defence and Counterclaim that any such representations were made, there is no doubt that the first two representations can be found in the letter of 8 February 2000 from Palmer on behalf of CCP to Barbagallo on behalf of Primus. The first representation is based on the virtually identical statement in the summary to that letter (see paragraph 29 above) and the second representation is an accurate summary of various statements in the early part of the letter. Further, I reject the defendants' submission that these two representations were not made in order to induce Primus to enter the Licence Agreement. The whole purpose of the letter was to achieve that very aim, in my opinion. They were not mere puffs.

686. However, I do not accept that either of these representations was misleading and deceptive. In Palmer's letter, the first representation followed immediately after the reference to Olma's statement that every endeavour would be made to have the airship here in time for the Olympics but that he was hamstrung until a decision was made. I therefore consider that the first representation has to be read subject to that qualification by Olma. If the airship was in Sydney to fly over the Olympic Games it would be seen by millions. The same applies to the second representation. Further, it was literally correct, as far as I can ascertain from the limited evidence on this point. There was no implied representation in this particular statement that the airship would be available for the Olympic Games. Rather, in my opinion, the particular context in which it was made was such that it was simply a representation by CCP as to what would be the situation with respect to where the airship could fly over Sydney if it were available during the Olympic Games.

689. The plaintiff's case was that the third representation was made in the meeting on 16 February 2000. The defendants' case was that at all times during that meeting, it was made clear to the Primus' representatives that the starting date of 1 September 2000 and the two week preceding trial period was not guaranteed, but that CCP would use its best endeavours to have the airship available by that time for use at the Olympics.

692. In my opinion, the plaintiff cannot succeed in respect of the complaint that CCP represented that the airship would be available to be used by Primus for promotional purposes during the last two weeks of August 2000. As discussed above, the parties contemplated, and provided for in the Licence Agreement, a slight delay beyond the two weeks in August and even beyond the agreed starting date of 1 September 2000. Therefore, it cannot be said that CCP made such a representation in respect of August or that Primus relied on any such representation. But that still leaves the allegation that CCP represented that the airship would be available to be used for promotional purposes during the Sydney Olympics.

695. I reject the evidence of Palmer, Cahill, Walsh and Stefanou that CCP made it clear that there were no guarantees about the Olympics but that CCP would use its best endeavours to have the airship available by the Olympics. I have already set out above the unsatisfactory nature of these witnesses' evidence about the use of the term "best endeavours". When pressed, Palmer and Cahill quickly retreated from their earlier evidence about the use of these words by them. I prefer the clear evidence of Nicholls and Barbagallo on this point to the effect that there was no qualification on CCP's promise to have the airship available for use by Primus during the Olympics. Both agreed that there was discussion about the time frame for the Olympics being tight, but CCP put no qualification on the airship being ready in time. Further, whilst it is true that there was reference in the letter of 8 February 2000 to Olma making "every endeavour" to have the airship in Australia "in time for the Olympics", that qualification was not carried into CCP's later representation to Primus, in my opinion. Nicholls and Barbagallo were told in the meeting of 16 February that the airship would be available for use during the Sydney Olympics.

698. In the light of Cahill's letter of 1 March 2000, I am strengthened in my conclusion that the CCP representatives did not say in the meeting of 16 February that it was not guaranteed that the airship would be available by the Olympics. If that had been said, it is inconceivable, in my opinion, that Cahill would write a letter suggesting that there could be a guarantee that the airship would be available for the Sydney Olympics, if certain events took place.

701. My conclusions about what was and was not said at this meeting depend largely on the credibility of the various witnesses. Counsel for Primus submitted that the version of events given by Nicholls was the most credible. I agree. Nicholls went to the meeting with the most extensive agenda, he took the most extensive contemporaneous notes and he was the most heavily involved in the redrafting of the terms of the proposed agreement. Nicholls was an impressive witness, in my opinion, particularly because he was prepared to concede when he had no recollection on a specific matter. Thus, he was all the more credible when he was firm about other matters - such as "best endeavours" and the availability of the airship for the Olympics.

704. Barbagallo was also a credible witness, in my opinion. His recollection was perhaps not as strong as Nicholls but this is hardly surprising given the different roles these two played at the meeting. But he was in no doubt that as far as he was concerned the marketing opportunity was provided by the Olympics and nothing had been said by CCP to throw that into doubt. He was also vindicated in his insistence that the AFL Grand Final was discussed at the meeting. Both Nicholls and Barbagallo were, to some extent, disinterested witnesses in that they no longer worked for Primus.

707. On the contrary, in my opinion, Cahill was an unimpressive witness. He appeared quite evasive on a number of occasions and was often forced to change his position. One example of that was his initial denial that CCP was a trading corporation. Another was his retreat from the position that he had used the words "best endeavours" at the meeting of 16 February. His attempted explanation of the language used in his letter of 1 March 2000 was most unconvincing. The Clarke letter also showed Cahill up in a bad light. The assertions in that letter by CCP's attorney in the United States completely contradicted its defence in this proceeding because it stated that CCP had represented to Primus that the airship would be available for the Sydney Olympics and that if it were not available CCP would be in breach of its contract with Primus. Cahill attempted to shift the responsibility for this damaging admission first to Palmer and then to Clarke.

710. Palmer was an equally unimpressive witness. On several occasions his firm denials were shown to be wrong. The worst example of this was his emphatic rejection that he had received the facsimile from Olma dated 23 November 1999. He was also frequently argumentative rather than answering the question when pressed in cross-examination. His explanation of why he did not point out in his correspondence what he said was a clear contradiction between Olma's written statements about the need for a substantial deposit to be paid before work would begin and Olma's oral comments was most unconvincing. Perhaps the most damaging issue for Palmer's credibility was the misleading way he quoted from Olma's facsimile when dealing with Primus' request to visit the US-LTA factory.

713. Walsh was the subject of a severe criticism by counsel for the plaintiff in that it was submitted that he sought every opportunity (whether appropriate or not) to repeat his own personal defence to the effect that "anything commercial, legal or financial, I relied on Palmer and Cahill." I agree with this criticism. It certainly seemed to me that Walsh was striving to disassociate himself from Palmer and Cahill. It was surprising that Walsh should seek to distance himself from anything to do with commercial or financial matters given the emphasis placed in his witness statement on the role he and Palmer played in "developing and revising spreadsheets to accurately forecast income and expenditure estimates" for the various business plans prepared by CCP and his statement that the accuracy of these projections was partly based on:

"my experience and track record in preparing large budgets for major items of capital equipment in the Army and General Motors, plus my experience in successfully operating small businesses."

I therefore regard Walsh's evidence with some scepticism.

718. Whilst Stefanou appeared in the witness box to be doing his best to honestly recall what had been said, he was nowhere near as definitive as he had been in his witness statement. Moreover, there were clear contradictions in his witness statement itself. Stefanou said that in his early discussions with Barbagallo "the Olympics were not given great prominence in our discussions". Yet, in the very next sentence, he stated that: "I kept stressing to Barbagallo that time was a critical factor if the airship was to arrive here in time for the Sydney Olympics". Further, having denied that any "guarantees were given by CCP that the airship would be ready for the Olympics" at the meeting on 16 February 2000 but that CCP had "indicated that they would do everything in their power to see that this occurred", Stefanou then said that following the meeting he kept in contact with Barbagallo and emphasised to him "that time was running out and that if they wanted the airship for the Olympics they would have to sign an order and pay the deposit". I therefore consider that I cannot place any great reliance on Stefanou's evidence.

721. I regret to say that I was left with the clear impression that each of Cahill, Palmer and Walsh when giving his evidence was acutely conscious of the fact that he might be found liable for the damages claimed by Primus and his answers were at times influenced by this fear of what, no doubt, would be a financially disastrous result for each of them.

724. I am, therefore, satisfied for all of the above reasons that CCP represented to Primus at the meeting on 16 February 2000 that the airship would be available to be used for promotional purposes during the Sydney Olympics. This was a representation of a future matter, and the mere fact that such a representation did not come to pass does not make it false or misleading or deceptive.[20] However, it seems to me that the statement in question impliedly represented that CCP had the means to make good the promise that the airship would be available for the Olympics.[21]

727. Alternatively, counsel for Primus submitted that a positive unqualified prediction by a company may be misleading conduct if the relevant circumstances show the need for some qualification to be attached to that statement or the possibility of its non-fulfilment to be disclosed as a requirement of fair trading. The misleading or deceptive conduct may be found in the failure to qualify the statement or disclose the risk of non-fulfilment.[22]

730. The question that, therefore, arises is whether CCP had the means to make good the promise that the airship would be available for the Olympics or whether CCP should have qualified that statement or disclosed the possibility that there was a risk that it might not be fulfilled. This involves a further examination of what was said at the meeting on 16 February 2000 with respect to the construction of the airship, what funds were required to start that process, the financial position of CCP and the prospects of CCP raising funds for payment of either the deposit or the whole purchase price of the airship.

733. I am satisfied that the Primus representatives were told at the meeting on 16 February 2000 that the airship was not yet constructed and that the payment of the $400,000 deposit was required to kick start this process. In the light of the communications between Palmer and Olma to date, the second of those statements was, in my opinion, misleading. I do not accept Palmer's evidence that Olma was prepared to start manufacture of the envelope on payment of only US$150,000. The Purchase Agreement and Olma's repeated written communications clearly state that far more was required to be paid before US-LTA would commit to construction. Thus, payment of even the $400,000 deposit was not sufficient to kick start the process of manufacturing the airship and CCP knew this.

736. Even if Olma had said that he was prepared to do as Palmer claimed, payment of the $400,000 deposit was not going to be sufficient to pay for anything other than the most basic work. Substantially more funds were required simply to pay the balance of the deposit let alone the full price and CCP did not have those funds. Palmer said that Nicholls and Barbagallo were told that CCP had no funds, but I reject that evidence. It seems to me that the CCP representatives sought to convey to Primus that funding was not a problem. Talk of the company going public and being listed on a stock exchange would not suggest to a normal person that the same company had no funds, rather, as Nicholls said, he assumed that this indicated an ability by a company of substance to raise its own funds. I accept the evidence of Nicholls and Barbagallo that they were not told that CCP was going public or that private investors were being approached so that the funds could be raised for the construction of the airship. Further, they both denied that there was any talk about stockbrokers or investors so that the question of financing the construction of the airship can have hardly been touched on.

739. Although both Nicholls and Barbagallo denied that the question of the confidentiality of the Heads of Agreement was raised, I have concluded that they were mistaken in this evidence. It seems from the fact that it is mentioned in the notes of the meeting produced by Palmer, Walsh and Stefanou that the topic was raised. It is logical that CCP would want to be free of the confidentiality restriction. Nevertheless, I am not satisfied that the CCP representatives spelt out that this request was being made because of the desperate need to interest potential investors in the project and that without a successful fundraising construction of the airship would not begin or would not proceed beyond the most basic stage. I consider that the question of the confidentiality of the Heads of Agreement must have been mentioned only briefly and without any explanation of the critical nature of the request. This would, perhaps, explain why Nicholls and Barbagallo both forgot that the topic had been raised.

742. What I find the Primus representatives were not told at the meeting on 16 February 2000 was that the tight timeframe for constructing the airship and delivering it to Australia in time for the Olympic Games was almost certain not to be met because of CCP's lack of the required funds in hand or its inability to raise such funds within an appropriately short period of time. Olma had advised Palmer on 8 February that US-LTA would not "commit to the critical major components" until CCP had made its financial commitment "in whole or in part" (paragraph 30 above). This meant that CCP had to come up with about US$3 million or a significant part of that amount in a short space of time if there was going to be any chance of having the airship available for the Olympics. Despite over a year's efforts, CCP had only managed to obtain one investment of $20,000 from a friend of Palmer. Yet nothing was said to Nicholls or Barbagallo to indicate that there were these considerable difficulties facing CCP and no qualification was put on the promise that the airship would be available for the Olympics. I have no doubt that if Nicholls and Barbagallo had been fully informed of these financial problems they would not have agreed to pay the $400,000 deposit.

745. Because the third representation related to a future event, the flying of the airship over Sydney during the Olympic Games, it is also taken to be misleading if CCP did not have reasonable grounds for making the representation (s 51A(1) of the TPA). The onus is on CCP to adduce evidence that it did have reasonable grounds (s 51A(2)). In my opinion, CCP has not discharged that onus.

748. The directors of CCP said that they relied on their brokers' assurances that the money could be raised, particularly if an advertising contract was secured with a company such as Primus. In the circumstances, I do not consider that the directors had reasonable grounds for believing that they could successfully raise the required funds or that they could do so as quickly as they were needed if the Olympics target was going to be met. I cannot accept the directors' evidence that because Jones and Messenger were positive and enthusiastic about the project and its funding, they considered that raising the money would not be a problem. The history of the attempts to date should have warned them of the difficulties. Apart from anything else, the directors should have understood that Primus had only indicated interest in a year's contract and had rejected any longer term. This was a real flaw in the viability of the project. Thus, while Messenger said that he regarded the fact that CCP had obtained an advertising contract with Primus as a "quantum leap" in the CCP's ability to raise finance for the project, he also said that an investor would want to see that the advertising contract was for "at least a couple of years". Further, he was unaware of Primus' prior rejection of a longer term commitment. Jones' positive view was clearly based on raising the funds by a public listing and as the directors should have known, if they were listening to his advice, this step was at least three and more likely six months down the track. Even three months would have made the Olympics an impossible achievement.

751. The faint hope that an investor would write a cheque for the required funds on the spot was also simply not credible. Apart from the time that an investor would want to investigate the project and its finances, there was also the critical and unresolved question of what equity the directors were prepared to offer in return for the investment. Various figures had been given in the business plans and there was clearly no fixed position. It would all be a matter for negotiation between the directors and the investor, which would also take time. Yet none of these problems were explained to Primus. The very real risk that the promise that the airship would be available for the Olympics would not be fulfilled because of CCP's lack of funds was not disclosed. I therefore find that the third representation was made by CCP and that it was misleading and deceptive because CCP did not have reasonable grounds for making the representation. As Heerey J said in Bowler v Hilda Pty Ltd:

"It is the objective nature of the alleged contravenor's conduct that is ultimately determinative of liability and not his or her state of mind ..."[23]

755. The fourth representation is said by the plaintiff to be found in Cahill's letters of 1 and 6 March 2000. There is nothing to this effect in the second letter and I therefore put it to one side. The defendants submitted that no such representation could be spelt out from the contents of the first letter. What Cahill actually said was that unless certain events occurred by a specified date "our client will not be able to guarantee the production of the airship for the Sydney Olympics". Despite the defendants' argument, I consider that this negative statement contained a positive assertion as pleaded by Primus, namely, that if the events occurred by the specified date CCP was able to guarantee the delivery of the airship for the Sydney Olympics. Cahill was clearly acting on behalf of CCP when he made that representation.

758. The events in question were that the contract had to be "unconditional", and the $400,000 deposit had to be paid, "on or before 2.00 pm on Friday the 3rd of March" (not 8 March 2000 as pleaded in the Amended Statement of Claim). The contract could only become unconditional before the deadline of 2.00 pm on 3 March by the parties executing a new agreement without any cooling off clause or agreeing that it no longer applied. Neither of these events occurred before the deadline. Nor was the deposit paid before 2.00 pm on 3 March 2000. However, it seems to me that it is irrelevant that the events in question did not occur by the deadline. The issue is whether it was misleading and deceptive conduct for Cahill to say that if certain events occurred CCP was able to guarantee the delivery of the airship for the Sydney Olympics. As discussed above, because of the problems facing CCP in raising the funds to pay for the construction of the airship, I find that CCP did not have reasonable grounds to represent that it could have ever given that guarantee. Nor did it ever intend to. The fourth representation was, therefore, misleading and deceptive.

761. In my opinion, Primus did rely on the fourth representation, even though the events did not occur before the stated deadline. Shortly thereafter Primus did execute the Licence Agreement and pay the deposit, no doubt encouraged by this further representation that the airship would be available for the Sydney Olympics.

764. The fifth representation relied on by Primus was that CCP owned the airship. It was submitted by counsel for Primus that Nicholls required this representation to be incorporated into the Licence Agreement and that CCP agreed to that course. It was not clear just why Nicholls wanted this to be the case because, as I understood Nicholls' evidence, he knew that, at the date of the meeting of 16 February and presumably when the Licence Agreement was signed, CCP did not own the airship because it was not yet in existence. Therefore, whatever one might say about the falsity of that statement, there can be no suggestion, in my opinion, that Primus acted on that representation or was induced by it to enter into the Licence Agreement and pay the $400,000 deposit. In the end, counsel for Primus seemed to be submitting that this representation was simply evidence of how desperate CCP was in that it would agree to anything, even when obviously untrue.

767. Although it is not strictly necessary in the light of my findings against CCP in respect of the third and fourth representations, I turn to consider the allegation that in order to induce Primus to enter into the Licence Agreement and to pay to CCP the $400,000 deposit, in the period between 16 February and 7 March 2000, CCP refrained from telling Primus that CCP did not have available funds to pay the deposit for, or otherwise to pay for the purchase price of, the airship and that CCP had no commitments in place or resources for any such funding. This involves examining the relationship between CCP and US-LTA during this period, the financial position of CCP at that time and the current prospects of CCP raising funds for payment of either the deposit or the whole purchase price of the airship.

770. By 7 March 2000, Palmer knew that CCP was contractually bound to pay US-LTA a US$1.6 million deposit or advance payment before the latter was "required to commence any portion of the Agreement" (paragraph 60 above). He also knew that as late as 1 March, Olma had written advising that "we cannot commit any work until deposit" and expressing concern that Primus may wrongly understand that its order was "already active" (paragraph 68 above). I have also found that Palmer deliberately withheld from Primus the fact that Olma would not commit to CCP's order until the deposit was received and that Olma was concerned about CCP's ability to fund the balance of the purchase price. I do not accept Palmer's evidence that on the basis of his telephone conversations with Olma he believed that work would start on construction of the airship on payment by CCP of as little as US$150,000 without the need for further immediate payment as per the Purchase Agreement. For example, in his facsimile to Olma dated 3 March 2000, Palmer said:

"As soon as the Primus cheque is cleared we will forward a holding deposit of US$100,000 the balance will be forwarded to you shortly after." [Emphasis added].

The US$100,000 was only holding CCP's place in the production line and Palmer acknowledged that the balance was required. I see no reason not to conclude, as Olma said he expected, that the balance referred to the remaining US$1.5 million of the US$1.6 million deposit.

775. The financial position of CCP at about 7 March 2000 was exceedingly poor. So much so, that instead of paying the whole of Primus' $400,000 deposit to US-LTA as originally envisaged, CCP retained over $100,000 in order to pay Stefanou's fee of $70,000 and other smaller debts. Nor had the prospects of CCP successfully raising the necessary funds improved by this time. There were no reasonable grounds, in my opinion, for CCP to believe that "it would be able to quickly raise the necessary funding for the project" (paragraph 82 above). Jones and Messenger had still not produced any investors or funds and although Palmer, in his evidence, placed reliance on Tauber's willingness to be involved, the relevant evidence does not go as far as justifying the conclusion that there were now reasonable grounds for believing that the funds would quickly be raised. It was still simply all blue sky.

778. It was submitted by counsel for CCP that apart from anything else, Primus could not succeed in respect of this ground because any refraining by CCP from telling Primus the true picture with respect to the financial position was inadvertent. It was held by Einfeld J in Edgar v Farrow Mortgage Services Pty Ltd[24] that:

"because section 4(2) requires A to prove firstly that R knew of these financial difficulties, there would appear to be little room for the operation of section 51A in the context of future representations by silence."

Section 4(2) of the TPA which elucidates the meaning of "conduct" does say in sub-section (c) that:

"a reference to refusing to do an act includes a reference to: (i) refraining (otherwise than inadvertently) from doing that act ..."

But even if s 51A has no role to play in this particular part of the case, this does not mean, in my opinion, that CCP's silence about the unlikelihood of the airship being available for the Olympics because of CCP's inability to raise the necessary funds in time cannot amount to misleading or deceptive conduct. In Demagogue Pty Ltd v Ramensky, Black CJ said:

"Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of `mere silence' or of a duty of disclosure can divert attention from that primary question. Although `mere silence' is a convenient way of describing some fact situations, there is in truth no such thing as `mere silence' because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed."[25]

A similar view was expressed by Hill J in Winterton Constructions Pty Ltd v Hambros Australia Ltd:

"Obviously, it is difficult to see how a mere silence could, of itself, constitute conduct which is misleading or deceptive or likely to mislead or deceive. However, if the circumstances are such that a person is entitled to believe that a relevant matter affecting him or her adversely would, if it existed, be communicated, then the failure to so communicate it may constitute conduct which is misleading or deceptive because the person who ultimately may act to his or her detriment is entitled to infer from the silence that no danger of detriment existed. Thus, where a duty to speak is imposed, silence may constitute misleading and deceptive conduct."[26]

788. The above analysis of the relevant circumstances clearly shows, in my opinion, that CCP's silence about the funding problems was misleading and deceptive. Furthermore, it was not inadvertent. CCP deliberately refrained from revealing these problems, in my opinion, because it anticipated that this information would result in it losing Primus as an advertiser and with that all hope of the project being brought to fruition.

792. CCP pleaded that even if the representations were made or the conduct was engaged in, it denied that Primus relied on the representations or conduct, or that it was reasonable for Primus to do so, in entering into the Licence Agreement and paying the $400,000 deposit. CCP further pleaded that Primus entered into the Licence Agreement and paid the deposit in reliance on its own advisers, after making its own inquiries and for its own commercial purpose. Alternatively, Primus entered into the Licence Agreement and paid the deposit without taking reasonable care to look after its own interests.

795. It seems to me to be obvious that Primus relied upon the representations by CCP that the airship would be available for the Olympic Games and that it assumed from CCP's silence on the issue that CCP had the necessary funds or the ability immediately to raise the funds to pay for the construction of the airship. Without the representations and the conduct, Primus would have walked away from the negotiations. In the light of my findings on the facts, I consider that it was reasonable for Primus to rely on the representations and the conduct.

798. There was very little evidence to support the plea that Primus relied on its own advisers in deciding to enter into the Licence Agreement and pay the deposit. But even if this be the case, it is now clear that so long as CCP's representations and conduct were at least part of the cause of Primus entering into the Licence Agreement and paying the deposit, then that is sufficient.[27] The loss sustained by Primus was the payment of the deposit and that loss was brought about by the decision to enter into the Licence Agreement which, in my view, was made in reliance on CCP's representations and conduct.[28]

801. Moreover, it is difficult for CCP to sustain the last of its above defences, carelessness by Primus in looking after its own interests, following the decision of the High Court in Henville v Walker.[29] As McHugh J said in his judgment, with which Gummow J agreed:[30]

"Nothing in the common law, in s 52 or s 82 or in the policy of the Act supports the conclusion that a claimant's damages under s 82 should be reduced because the loss or damage could have been avoided by the exercise of reasonable care on the claimant's part. There is no ground for reading into s 82 doctrines of contributory negligence and apportionment of damages. No doubt, if part of the loss or damage would not have occurred but for the unreasonable conduct of the claimant, it will be appropriate in assessing damages under s 82 to apply notions of reasonableness in assessing how much of the loss was caused by the contravention of the Act."[31]

Similar statements are to be found in the judgments of Gleeson CJ,[32] Gaudron J,[33] and Hayne J,[34] with whom Gummow J also agreed.[35] There was no break in the causal connection between the contraventions of the TPA by CCP and the loss suffered by Primus.

The Claim under s 58 of the TPA

807. The final way in which Primus put its case against CCP was that CCP had contravened s 58 of the TPA. That section relevantly provides as follows:

"A corporation shall not, in trade or commerce, accept payment or other consideration for goods or services where, at the time of the acceptance: (a) ... (b) there are reasonable grounds, of which the corporation is aware or ought reasonably to be aware, for believing that the corporation will not be able to supply the goods or services within the period specified by the corporation or, if no period is specified, within a reasonable time."

811. I have already found that CCP was engaged in trade or commerce when dealing with Primus and that at the time CCP accepted payment of the deposit for the supply of the airship for use by Primus for twelve months there were reasonable grounds of which CCP was aware for believing that CCP would not be able to supply the airship by the Olympic Games or within a reasonable time. Thus, s 58 of the TPA provides yet another avenue of recovery for Primus against CCP.

815. Primus again limited its claim for damages to the loss of the $400,000 deposit and interest thereon from the date of payment. As previously noted, there will need to be further argument on the question of interest. I see no reason why such loss cannot be recovered by Primus under s 82 of the TPA.

819. So far, my consideration has been limited to Primus' claim against CCP. However, Primus also pleaded that each of Cahill, Palmer and Walsh aided, abetted, counselled and procured and/or was directly or indirectly knowingly involved in or a party to the contraventions by CCP of s 52 of the TPA (paragraph 18 of the Amended Statement of Claim). Primus was therefore relying on the provisions of s 75B(a) and(c) of the TPA to render the individual defendants liable for its loss.

822. It was held by the High Court in Yorke v Lucas[36], that for paragraph (a) of s 75B to apply to a person it must be shown that he intentionally aided, abetted, counselled or procured a contravention; and to form the necessary intent he must have actual rather than constructive knowledge of the essential matters which make up the contravention whether or not he knows that those matters amount to a contravention.[37] It was also held in the same case that before a person can be said to have been party to a contravention within paragraph (c) of s 75B, he must be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.[38]

825. Counsel for the defendants submitted that this knowledge was not established on the part of any of the individual defendants. Particularly was this the case with Walsh, it was submitted, because he had not spoken with Jones or Messenger and because it was Palmer who had engaged in all the communications with Olma. It was also submitted that Cahill was able to rely on his lack of contact with Olma. On the other hand, it was submitted that there was no evidence that Walsh or Palmer was aware that Cahill was writing the letter dated 1 March 2000.

828. The main representation found against CCP was that made at the meeting on 16 February 2000, namely, that the airship would be available to be used by Primus for promotional purposes during the Sydney Olympics. This representation was found to be misleading and deceptive because, although it was with respect to future matters, it impliedly represented that CCP had the means to make good the promise or because it did not contain any qualification of the statement or disclose the risk of non-fulfilment, when CCP had no funds to pay for the construction of the airship and no likelihood of that position changing in the immediate future. Each of Palmer, Cahill and Walsh knew at the time of the meeting that CCP did not have the funds to pay for the construction of the airship. Each of them knew that the airship would not be constructed unless CCP raised the necessary funds and at the very least both Cahill and Walsh knew in a general way that Primus' deposit of $400,000 was required to be paid to US-LTA. Palmer obviously knew exactly what the situation was with respect to Olma and it would be surprising if he had not explained this to his fellow directors, Cahill and Walsh. Nevertheless, it seems to me that both Palmer and Cahill, for the reasons discussed above, knew that, despite the brokers' enthusiasm for the project and their positive indications that the funds could be raised, there was no likelihood that this could be achieved in time to enable construction of the airship to be completed in time for the Olympics. Even though Walsh did not speak to Jones and Messenger himself, he would no doubt have been told what they were saying. But even if he were not told or even if he were told only the positive side of the brokers' advice, Walsh knew from his own activities that many unsuccessful approaches had already been made to potential investors. He was involved in the preparation of the business plans and he would, therefore, have also been aware that the question of what equity the investors were to receive in return for their much needed funds was still unresolved.

831. I therefore find that each of Cahill, Palmer and Walsh knew that what was being said to Primus' representatives at the meeting on 16 February was misleading and deceptive because nothing was said about CCP's lack of funds to pay for the airship or about the unlikelihood that CCP could obtain those funds in the immediate future. I further find that each of them refrained from qualifying the representation that the airship would be available for the Sydney Olympics because they knew that this could cause Primus to lose interest in the project or at least to defer payment of the deposit. Each of Cahill, Palmer and Walsh aided and abetted and/or was directly or indirectly knowingly involved in or a party to the contravention by CCP of s 52 of the TPA.

834. I accept the defendants' submissions that there was no evidence that Walsh or Palmer was aware that Cahill was writing the letter dated 1 March 2000. Cahill, of course, knew exactly what he was saying. This is, therefore, an additional liability on his part in respect of this contravention by CCP of s 52 of the TPA.

837. Finally, there is the conduct of CCP in refraining, between 16 February and 9 March 2000, from telling Primus that CCP did not have available funds to pay the deposit for, or otherwise to pay for the purchase price of, the airship and that CCP had no commitments in place or resources for any such funding. Palmer apparently executed the Purchase Agreement on behalf of CCP on 23 February 2000. As fellow directors of CCP, Cahill and Walsh must therefore have known by this date that US-LTA was requiring a deposit of US$1.6 million before construction commenced. This information in particular needed to be conveyed to Primus, in my opinion, assuming that the problem with funding had not previously been communicated to Primus, if the surrounding circumstances of the negotiations between Primus and CCP were not to be misleading and deceptive. Yet nothing was said by either Palmer, Cahill or Walsh. Each of them has, therefore, in my opinion, intentionally participated in this further contravention.

840. The damages claimed against the individual defendants are the same as those claimed against CCP. Subject to the further argument in respect of interest, there is no difficulty in quantifying Primus' loss.

844. The findings I have made mean that CCP's counterclaim cannot succeed. Primus did not repudiate the Licence Agreement, nor did it make the relevant representations alleged by CCP, nor is it estopped from bringing its claim against CCP. This means that I do not have to consider the evidence relating to the quantification of CCP's alleged loss.

848. After the parties have had an opportunity to consider these reasons, I will hear submissions concerning what final orders should be made. In particular, I wish to hear argument on the question of whether Primus is entitled to interest from the date of payment of the $400,000 deposit and, if so, at what rate that interest should be calculated.

[1] [1982] HCA 24; (1982) 149 CLR 337 at 350

[2] [1976] 1 WLR 989

[3] [1976] 1 WLR 989 at 995-6

[4] [1981] VicRp 13; [1981] VR 120

[5] [1981] VicRp 13; [1981] VR 120 at 123

[6] [1966] HCA 63; (1966) 120 CLR 583

[7] [1966] HCA 63; (1966) 120 CLR 583 at 589

[8] (1884) 27 Ch D 89.

[9] [1924] 1 Ch 97.

[11] (1884) 27 Ch D 89 at 97.

[12] [1989] HCA 51; (1989) 168 CLR 385

[13] [1989] HCA 51; (1989) 168 CLR 385 at 432

[14] [1989] HCA 51; (1989) 168 CLR 385 at 438

[15] [1989] HCA 51; (1989) 168 CLR 385 at 455

[16] [1993] HCA 4; (1993) 176 CLR 344

[17] [1993] HCA 4; (1993) 176 CLR 344 at 376-7 per Deane and Dawson JJ

[18] [1993] HCA 4; (1993) 176 CLR 344 at 356.

[19] Re Ku-ring-gai Co-operative Building Society (No 12) Ltd [1978] FCA 50; (1978) 36 FLR 134 at 167 per Deane J.

[20] James v ANZ Banking Group Ltd [1986] FCA 41; (1986) 64 ALR 347

[21] Global Sportsman Pty Ltd v Mirror Newspapers Ltd [1984] FCA 180; (1984) 2 FCR 82

[22] Wheeler Grace and Pierucci Pty Ltd v Wright [1989] FCA 127; [1989] ATPR 40-940 at 50,251 per Lee J, which was cited with approval by Heerey J in Bowler v Hilda Pty Ltd (1998) 80 FCR 191 at 205-6.

[23] (1998) 80 FCR 191 at 206.

[24] [1992] ATPR (Digest) 46-096 at 53, 376.

[25] [1992] FCA 557; (1992) 39 FCR 31 at 32.

[26] [1992] FCA 582; (1992) 39 FCR 97 at 114.

[27] Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [14] per Gleeson CJ.

[28] Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [160] and [163] per Hayne J.

[29] [2001] HCA 52; (2001) 206 CLR 459.

[30] [2001] HCA 52; (2001) 206 CLR 459 at [153].

[36] [1985] HCA 65; (1985) 158 CLR 661.

[37] [1985] HCA 65; (1985) 158 CLR 661 at 667 and 669 per Mason ACJ and Wilson, Deane and Dawson JJ.

[38] [1985] HCA 65; (1985) 158 CLR 661 at 670 per Mason ACJ and Wilson, Deane and Dawson JJ.