Quinlivan v Australian Competition & Consumer Commission

The first and second respondents before the primary judge are identified in the first declaration. The fifth respondent before her Honour was Mr Bilborough, a director and shareholder of those respondents.

2 The primary judge's reasons for making the second declarations were at [267]: "Mr Quinlivan would have been fully aware of and approved the use of the spreadsheet, the use of 8 per cent as capital growth rates and the presentation by the Investlend representative. He was involved in their training. He and Mr Bilborough decided upon the figure to be used in the seminar and I take it to be likely that they would have both approved the figure to be used later. As with Mr Bilborough, he has not been shown to have had any reasonable basis for doing so. He is therefore liable as a party to the contraventions in the period at least until 9 September 1998."

9 September 1998 was the date on which the appellant ceased to manage Investlend Pty Ltd.

(a) the primary judge erred in law, alternatively erred in the exercise of her discretion, in granting a declaration that is wholly hypothetical, academic and advisory;

(b) the primary judge erred in relation to the construction and application of ss 51A, 52 and 75B of the Trade Practices Act 1974 (Cth) (the Act);

(c) the second declaration was granted in contravention of the rules of natural justice, and went outside the case pleaded against the appellant;

(d) the primary judge erred in making findings against the appellant by applying the ordinary civil standard of proof, without having regard to the principles in Briginshaw v Briginshaw (1938) 60 CLR 336;

(e) the primary judge's finding that the appellant was knowingly concerned in and conspired with others to contravene s 52 of the Act is against the evidence and the weight of the evidence.

4 Section 52(1) of the Act establishes a norm of conduct. It provides that a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive. Contravention makes the corporation potentially liable for the remedies contained in Pt VI, including injunction (s 80), damages (s 82) and other orders (s 87). 5 Section 51A is concerned with a subset of s 52 contravening conduct, namely misleading representations as to future matters. Relevantly it provides: "(1) For the purposes of this Division [Pt V, including s 52] where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation." 6 Section 51A does not of itself create a cause of action nor define a norm of conduct: Ting v Blanche (1993) 118 ALR 543 at 552. 7 Section 75B is concerned with accessorial liability. It relevantly provides: "(1) A reference in this Part [V1] to a person involved in a contravention of a provision of Part IV, IVA, IVB, V or VC, or of section 75AU or 75AYA, shall be read as a reference to a person who: (a) has aided, abetted, counselled or procured the contravention; (b) has induced, whether by threats or promises or otherwise, the contravention; (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention." Section 80, which is concerned with injunctions, contains in subs (1)(c), (d), (e) and (f) provisions to the same effect as s 75B(1). 8 The leading case on s 75B is Yorke v Lucas (1985) 158 CLR 661. The High Court held that the section imports the requirements of the criminal law. The person sought to be made liable must be shown to have had knowledge of the essential matters which go to make up the contravention. This contrasts with the rule as to primary liability under s 52 where liability may attach even though a corporation acts honestly and reasonably: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 228, Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197. 9 In Yorke itself the alleged accessory, an employee of a corporate respondent, was held not to be liable because although he was aware of the representations made - indeed they were made by him - he had no knowledge of their falsity. Therefore he could not be said to have intentionally participated in the contravention: 158 CLR at 668. "Knowledge" means actual and not constructive knowledge: Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 at 5. What is said in Yorke about s 75B is applicable to s 80(1)(c), (d), (e) and (f). 10 From the interaction of these provisions three conclusions emerge. First, s 51A does not detract from the Yorke principle that actual knowledge of the essential elements of the contravention is required if s 75B or s 80 is to apply. Where the contravening conduct involves misrepresentation, whether as to a future matter or not, this principle requires actual knowledge by the accessorial respondent of the falsity of the representation. This is an essential matter which must be alleged and proved: Su v Direct Flights International Pty Ltd [1999] FCA 78 at [38], Fernandez v Glev Pty Ltd [2000] FCA 1859 at [18]. 11 Secondly, the reversal of onus in s 51A(2) does not apply where the accessorial liability of s 75B or s 80 is relied on. This question was considered by Emmett J in Australian Competition and Consumer Commission v Universal Sports Challenge Pty Ltd [2002] FCA 1276. The Commission had proceeded against Universal Sports Challenge Pty Ltd (Universal) for contravention of s 52 and, on the basis of s 75B, against a Mr Michael Kotawicz. Universal consented to certain orders and the matter continued against Mr Kotowicz. In that context his Honour said (emphasis in original): "43 In the present case, Universal is no longer a party to the proceeding because, as I have said, the proceeding has now been dismissed as against Universal. Accordingly, it is no longer possible for Universal to adduce any evidence in the proceeding. On one view, if s 51A(2) applies as against Mr Kotowicz, it would give rise to an irrebuttable presumption so far as he is concerned. That is to say, since Universal cannot adduce evidence to the contrary, it is deemed, as against Mr Kotowicz not to have had reasonable grounds for making any relevant representation. No evidence led by Mr Kotowicz would lead to any different conclusion. 44 One view of s 51A is that it provides that a corporation is deemed, as against any party to a proceeding, not to have had reasonable grounds for making a representation unless that party adduced evidence to the contrary - see King v GIO Australia Holdings Limited [2001] FCA 308 paras [28]-[30]. That, however, is not what the section says. There could well be good policy reasons for imposing on a person who makes a representation with respect to a future matter the evidentiary onus of demonstrating that the representation was not misleading. It is a different matter altogether, however, to impose such a burden on a person who did not make the representation, albeit a person who was knowingly involved in the making of the statement. 45 That is a good reason for construing s 51A as giving rise to a deeming only as against a principal contravener of the Act. That is to say, it does not have any relevance as regards a claim against a person who is only alleged to have been involved in or to have been a party to a contravention by another person. That is the present case." 12 The case of King v GIO Holdings Limited referred to by his Honour was a decision of Moore J on a pleading strikeout application. Moore J at [30] held it was arguable that "it" in s 51A(2) could extend to a person treated by s 75B as being involved in a corporation's conduct. Thus his Honour declined to strike out a pleading in which the applicant did not assume the initial burden of proving that the misrepresentations with respect to future matters were misleading. This was in a context where counsel for the applicant had made it plain that it was not part of his case that the respondent alleged to be liable under s 75B knew the representations were false, misleading and deceptive; see 184 ALR 106 at [17]. 13 Moore J of course did not have to reach a final conclusion on this point. However Emmett J did. We find his Honour's reasoning persuasive. 14 Thirdly, it is implicit in s 51A(1) that where a corporation does have reasonable grounds for making a representation with respect to a future matter then there will be no contravention of s 52. This is a concession in favour of representors; in the case of a misleading representation where no future matter is involved it does not matter whether the corporation had reasonable grounds or not: Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513-514. 15 Accordingly, where s 75B or s 80 accessorial liability is in issue in relation to a representation with respect to a future matter, the existence or otherwise of reasonable grounds will be relevant. If reasonable grounds exist, there will have been no contravention and thus no question of accessorial liability will arise. However, as against the accessorial respondent, the onus will be on the applicant to show the respondent had actual knowledge that

• the representation was made and
• it was misleading or
• the corporation had no reasonable grounds for making it

(See Australian Competition and Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439 at [303].) 16 The passage from [267] of her Honour's judgment, quoted at [2] above, records unexceptionable findings as to the appellant's actual knowledge of the making of the representations alleged. However in the sentence "As with Mr Bilborough, he has not been shown to have had any reasonable basis for doing so" there appears to be an assumption that the onus was on the appellant to establish a "reasonable basis". In the context, that amounts to saying it was incumbent on the appellant to show that there were reasonable grounds for using the eight per cent capital growth rate. It is to be noted that in the discussion of the reverse onus in s 51A, her Honour, speaking of NAPC and Investlend to which the onus would be applicable, uses substantially the same form of words she later uses at [267] in relation to Mr Bilborough and the appellant - "it has not been shown that NAPC and Investlend had any reasonable grounds for the representation". 17 The reference to Mr Bilborough incorporates the immediately preceding part of the judgment where her Honour discusses that respondent's liability. After summarising the evidence supporting her finding that Mr Bilborough knew of Investlend's use of eight per cent as a figure, her Honour said at [260]: "Reliance could not genuinely or reasonably be placed upon the REIQ figures. Not only were they not apparently applicable to units they did not pretend to be a proper analysis for the purpose of future prediction. I infer Mr Bilborough did not have a belief in their reliability. Moreover the evidence shows that he was party to the tenor of the script which set the scene with high rates. It is not difficult to infer that he was also a party to a decision to use the rates in the analysis." 18 The "REIQ [Real Estate Institute of Queensland] figures" were contained in a table produced by Ms Anne Tam, a researcher with the Institute. The table was in the possession of Investlend and the appellant at the relevant time. The table was entitled "Sales of Dwellings (land area less than 2,000 m2)" and on its face appeared to be produced by the REIQ. It revealed that, for the period between 1974/5 and 1994/5, the Gold Coast enjoyed capital growth rates of approximately 10.3%. The dwellings referred to were house properties. There were no separate long term figures available for units because it appears such figures were only kept separately in the course of the 1980s. 19 At an earlier stage, under the heading "Whether Representation of Average Annual Capital Growth Rate Misleading", her Honour had discussed the REIQ document in these terms: "244 The document on its face relates to house properties. Ms Tam confirmed that the data used did not include sales of strata title units. I take it from the cross-examination of Mr Brett [a valuer called by the Commission] that it is not disputed that there are different markets for different types of accommodation. There was no evidence that changes in value in the different markets follow the same pattern and are of the same order annually. I take each of Mr Bilborough and Mr Quinlivan to be knowledgeable about the property market and to have appreciated the difference between house and unit values. If the fifth [Bilborough] or sixth [Quinlivan] respondent had some basis for believing that to be so, they have not explained it. The document does not appear to provide a reasonable foundation for a belief that a rate of 8 per cent or more could apply to units. Moreover it does not itself suggest that the average growth rate in the period to 1995 is reliable as a guide to a ten year period in the future. The evidence of Dr Webber is to the contrary. I draw the inference that the fifth and sixth respondents did not have such a belief more confidently, given that they have chosen not to give evidence on an issue which was raised with them at an early point.

245 It is therefore strictly unnecessary to consider Mr Brett's evidence on this topic, but for completeness I shall do so.

246 As I have earlier mentioned, I did not understand Mr Brett to have proffered an opinion in his valuation report about rates of the order of 8 per cent annually over a ten year period. In any event it was shown, through the evidence of Dr Webber, that Mr Brett's exercise is not sufficient for that purpose. It was also established that before a prediction could be made a detailed analysis would have to be undertaken. Even so it was not said to what extent such a prediction could be relied upon. 247 Dr Webber, is a consultant micro-economist and statistician. His expertise in the area of the statistical analysis of trends is established. Mr Brett does not have this expertise. Dr Webber said that Mr Brett's estimate of an average growth rate is not a statistically reliable indication of trend. The method used is susceptible to error if there is a high level of variability and upon Dr Webber's calculation there is that level. Mr Brett made concessions to that effect. The reason it is so highly variable is that the rate of growth in the value of residential units in Surfers Paradise depends upon a number of economic variables, the value of which change over time. The fifteen variables listed by him include interest rates, borrowings, cost of borrowing money and inflation. It is necessary to undertake a statistical relationship between the building unit values and those economic variables. Around trends, the time path of price levels are cycles which represent the growth rates. What one is concerned to do is to model the forces that drive a trend in conjunction with the forces that drive a cycle. None of these analyses was undertaken by Mr Brett. Further, Mr Brett's approach contains a sampling error in Dr Webber's view. He uses 10 points in time and there would be a high standard of deviation in such a sample. I conclude that Mr Brett's evidence cannot be regarded as probative. Dr Webber did not himself undertake an analysis to support the figure of 8 per cent or more. In the result, and regardless of Mr Brett's evidence, it has not been shown that NAPC and Investlend had any reasonable grounds for the representation. 248 It is necessary then to turn to the liability of the corporate respondents for this conduct and of any accessorial liability on the part of the personal respondents." 20 Contrary to what is stated in the foregoing passage, Mr Brett accepted in cross-examination that the market for residential units on the Gold Coast tended to follow the whole of the market. 21 We think that in her Honour's reasons, read as a whole, the question whether the representation of an eight per cent growth rate was misleading because made without reasonable grounds, an objective test, tended to merge with the question whether the appellant was subjectively aware that the grounds he in fact relied on were unreasonable.. 22 Thus the comment that the REIQ figures were "not apparently applicable to units" might be a valid enough criticism, but it is not necessarily inconsistent with Mr Bilborough and the appellant holding an honest, even if unreasonable, belief that the experience in the past with small area dwellings was a relevant guide as to what might happen to values for units in the future. After all, Mr Brett accepted that there was such a connection. Moreover, even if the REIQ figures on their face "did not pretend to be a proper analysis for the purpose of future prediction", they did represent what had happened in the past. As far as the evidence goes, there was no reason to doubt their accuracy. They were published by a reputable body. Mr Bilborough and the appellant might themselves therefore have honestly used the evidence of the figures as a guide to the future. The fact that experts, such as Dr Webber, the consultant micro-economist and statistician called by the Commission, might say that a prediction so based was unscientific according to theoretical principles of statistical prediction does not necessarily make the prediction one which, to the knowledge of the maker, lacked reasonable grounds. Future predictions in the form of business plans are a routine and unavoidable part of business life in Australia today. Not infrequently, such predictions do not come to pass. It would be surprising if liability under s 75B or s 80 would attach to a person involved merely because such predictions had not been made with methodologies of the kind discussed by Dr Webber. 23 Accordingly there appear to be two closely related errors. The question of reasonable grounds was treated as an issue to be objectively determined and the onus of proof was reversed. Identification of these areas leads us to conclude that the declaration is based upon flawed findings of fact. It must be set aside. However the facts must then be re-considered in accordance with our understanding of the law. We could remit the matter for re-consideration at first instance, or we could determine the matter ourselves. We are inclined to the latter course. The Commission's case against the appellant was substantially based upon the transcript of a hearing held pursuant to s 155 of the Act. The appellant was examined on oath by an officer of the Commission and by his own counsel. He did not give evidence at the trial. In that respect, the primary judge enjoyed no particular advantage in assessing the appellant's credibility. Further, the matter has already consumed large amounts of time and money. To the extent that we can, we should dispose of it. 24 We have, in any event, formed the view that the evidence was insufficient to persuade a tribunal of fact, on the balance of probabilities, that the appellant knew that the relevant representation was misleading or that the corporation had no reasonable ground for making it. We have already outlined the evidence and need only add a few further comments. 25 The Commission bore the onus of proof and sought to discharge it by relying on the evidence given at the s 155 hearing and by attacking the REIQ figures which the appellant had advanced as the basis for the representation. The appellant did not give evidence, and the primary judge was entitled to consider that matter in drawing inferences as to his state of mind at all relevant times. However the onus remained upon the Commission to prove its case. It had the benefit of having examined the appellant pursuant to s 155. In those circumstances not too much could reasonably be made of his failure to give evidence. 26 At this point in the long history of the proceedings, it is possible to identify the ultimate question concerning the appellant as being whether or not he knew that the representation as to "capital growth" was misleading or that the corporation had no reasonable ground for making it. Both questions depend upon whether the appellant knew that the REIQ figures did not offer a reasonable basis for such representation. They demonstrated an average annual capital growth over 20 years of 10.3 per cent. For reasons which we have already given, we are not satisfied on the balance of probabilities that the appellant knew that the REIQ figures were other than a reasonable basis for the representation made as to future growth rates. 27 We should also observe that the declaration made against the appellant was that he was knowingly concerned in the relevant contraventions (s 75B(1)(c) and s 80(1)(e)) and that he conspired with others to effect such contraventions (s 75B(1)(d) and s 80(1)(f)). However, in the course of argument before us, no distinction was drawn between the two aspects. In any event, it is clear that conspiracy could only be demonstrated if it were proven that the appellant knew that the representation as to future capital growth was incorrect or made without reasonable grounds. 28 Finally, an important aspect of the case at first instance was to be found in minutes of meetings at which sales methods were developed and refined. These played a large role in her Honour's conclusion that the appellant was aware of the ways in which units were being marketed. However we were not referred to any particular aspect of this evidence. The primary judge did not refer to any aspect of it as relevant to the appellant's knowledge concerning capital growth rates. 29 We think therefore the appellant is entitled to succeed. For the sake of completeness, we should say that we see nothing in the Briginshaw point. The errors we have identified in the judgment at first instance are not concerned with the standard of proof. In our own assessment of the facts it has not been necessary to address the question. 30 In view of the conclusion to which we have come on grounds of appeal (b) and (e), it is unnecessary to deal with the other grounds set out at [3]. 31 The appeal must be allowed with costs. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey, Sundberg and Dowsett.

Counsel for the Appellant: AJH Morris QC, D Atkinson and L Jurth

Counsel for the Respondent: S Couper QC and KN Wilson SC

Solicitor for the Respondent: Australian Government Solicitor