Federal Court of Australia|1990-12-20|Before: French J

These proceedings are brought by the Crown in right of the State of Western Australia against Bond Corporation Holdings Ltd, Wardley Australia Ltd, Lawrence Robert Connell and Wardley Australia Securities Ltd. They arise out of a decision said to have been taken on 26 October 1987 by the then Premier and Treasurer of the State, Brian Thomas Burke. The decision was to execute a deed by which it is said the State undertook to indemnify the National Australia Bank Ltd ("NAB") against any net loss arising from the NAB granting financial accommodation of up to $150 million to the merchant bank, Rothwells Ltd, which is now in liquidation. On the following day, according to the statement of claim, Rothwells drew down $150 million pursuant to the NAB facility. On 17 October 1988 it repaid that sum to NAB. Just over a fortnight later, on 3 November 1988, provisional liquidators were appointed to Rothwells. They subsequently contended that the Rothwells repayment to NAB constituted a voidable preference. Their claim led to a dispute between NAB and the State in which the State claimed that the Rothwells repayment had discharged the indemnity. This dispute and the provisional liquidators' claim were said to have been settled on the basis that the State pay $22.5 million to Rothwells plus interest on $10.5 million from 30 May 1989 to 8 December 1989.

2. The State contends that it was induced to provide the indemnity by various representations made to at least one of its ministers and other officials at meetings held on Saturday, 24 and Sunday, 25 October 1987. Broadly speaking, it alleges that the representations were false and constituted misleading or deceptive conduct in trade or commerce in contravention of of the . It claims damages against all respondents under of the Act and damages for fraud against the third respondent.

3. The proceedings were instituted as 116 of 1990 on 24 October 1990. Subsequently separate proceedings were instituted against Wardley Australia Securities Limited in 118 of 1990. On 19 November 1990, orders were made consolidating actions 116 and 118 of 1990, so that Wardley Australia Securities Limited became fourth respondent in the consolidated action. A minute of the consolidated statement of claim was filed and stood as the statement of claim in the consolidated action. Programming orders were made, including orders for the filing of defences and any cross-claims by 21 December 1990, replies by 18 January 1991 and particulars by 28 February 1991. The directions hearing was adjourned to 11 March 1991. On 14 December 1990, Bond Corporation Holdings Ltd filed a motion returnable on 17 December seeking orders that two paragraphs of the statement of claim be struck out on the basis that they disclose no reasonable cause of action and have a tendency to cause prejudice, embarrassment or delay in the proceedings. The motion was heard on 17 December and the decision reserved until today.

4. The motion attacks paras. 11(a)(iii) and 15(b) of the statement of claim. Paragraph 11 sets out representations said to have been made at a meeting on Saturday, 24 October attended by David Parker, a Minister of the Crown, John Horgan, Chairman of the Western Australian Development Corporation, and Anthony Lloyd, a Senior Government Advisor, all of whom, it is said, were representatives of the State. They met, among others, Connell, Alan Bond, Chairman of Directors of Bond Corporation Holdings Ltd, and Peter Beckwith, one of its officers. Also present was James Yonge, an officer of Wardley and Wardley Securities. Paragraph 15 concerns representations said to have been made on Sunday, 25 October 1987 by Beckwith on behalf of Bond Corporation. The representations were allegedly made to the Budget Sub-Committee of the State Government. It is convenient to set out paras. 11 and 15 in full:

"11. Further, during the Saturday Meeting

and, in the presence of Connell, the following

representations were made to the representatives of

the State by the following persons in order to induce

the State to provide a guarantee or indemnity to NAB

of financial accommodation to Rothwells of an amount

of $150 million:

(a) Bond represented ("the Bond Saturday

Representations"):

(i) that Rothwells was a very sound

financial institution which had very, very

substantial assets which were very, very good in

terms of the receivables from various borrowers;

and

(ii) that there were not any substantial

amounts of loans by Rothwells to Connell or

Connell related entities; and

(iii) that Bond Corporation would

contribute about $20 million.

(b) Yonge represented ("the Wardley

Representations"):

(i) that Rothwells had very substantial

net assets and that the problems at Rothwells

were not problems of capital deficiency but

simply ones of liquidity; and

(ii) that there were not any substantial

amounts of loans by Rothwells to Connell or

Connell related entities.

.

.

.

15. During the Budget Sub-committee Meeting

the following representations ("Bond Sunday

Representations") were made to the members of the

budget sub-committee of the Government of the State

by Beckwith on behalf of Bond Corporation in order to

induce the State to provide a guarantee and indemnity

to NAB in relation to the granting by NAB of

financial accommodation to Rothwells of an amount of

$150 million:

(a) Beckwith represented that Rothwells

was a sound financial institution;

(b) Beckwith represented that the

guarantee or indemnity which the State was

requested to provide would not be called upon."

Paragraph 18 of the statement of claim pleads that the representations in paras.11 and 15 and other representations made on behalf of Rothwells were not true and the basis of their falsity is set out. The paragraph is in the following terms:

"18. The Bond Saturday Representations, the

Wardley Representations, the Rothwells Representation

and the Bond Sunday Representations were not true in

that:

(a) by 24 October 1987, Rothwells was

insolvent and was not a sound financial

institution which had substantial assets and

recoverable receivables;

(b) there were a substantial amount of

loans by Rothwells to Connell or Connell related

entities; and

(c) Bond Corporation was to

receive a fee of $16 million from Rothwells,

which fact was not communicated to any of the

representatives of the State."

Bond Corporation's motion attacks paragraph 11(a)(iii) on the basis that it is vague and embarrassing. The point is also made that, as a matter of logic, it is not falsified by para.18. I think the point is well made. The pleaded representation is that "Bond Corporation would contribute about $20 million". The relevant allegation relied upon in para.18 to demonstrate its falsity is that Bond was to receive a fee of $16 million. But that allegation does not falsify the pleaded representation. While it may be more blessed to give than to receive, it is at least logically possible to do both.

5. The State submitted that the sense of the alleged representation was clear when read in the context of the statement of claim as a whole. In my opinion it is not. It is of course open to the State to plead that what appears in para.11(a)(iii) is what was actually said at the Saturday meeting. But it is apparent from its submission on the motion that the State relies upon implied representations arising from the words used in para.11(a)(iii) and their context. If implied representations are part of the case, they must be clearly pleaded out along with the facts and matters relied upon to support the implications. As it presently stands, the allegation in para.11(b)(iii) does not connect logically with the allegation as to falsity in para.18 and therefore does not support any reasonable cause of action.

6. The terms of the representations pleaded in para.15(b) and attributed to Beckwith at the Sunday meeting also fail to form any logical connection with para.18 which purports to set out the bases upon which that and other representations were not true. Although para.18 alleges, inter alia, that the Bond Sunday representations were not true, it does not assert any matter which falsifies the promise pleaded in para.15(b) "that the guarantee or indemnity which the State was requested to provide would not be called upon". The complaint against para.15(b) is made good. The deficiencies thus identified relate to para. 18 as well as paras.11(a)(iii) and 15(b) and all may need to be recast to make clear any implied representations and to set up logical bases for their falsity.

7. In the course of argument on para.15(b) counsel for the State suggested that it was not necessary to expressly plead a basis on which the representation was said to be false. This was because it was a representation of a future matter and therefore deemed, by virtue of s.51A of the Trade Practices Act to be misleading unless the representor had reasonable grounds for making it. And it was contended that it was not for the applicant to plead absence of reasonable grounds, but for Bond Corporation to plead in defence the reasonable grounds it had for Beckwith's statement.

8. Section 51A of the Trade Practices Act provides:

"51A(1) For the purposes of this Division,

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

sub-section (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.

(3) Sub-section (1) shall be deemed not to

limit by implication the meaning of a reference in

this Division to a misleading representation, a

representation that is misleading in a material

particular or conduct that is misleading or is likely

or liable to mislead."

The point now taken by the State arose for consideration in interlocutory proceedings in Adelaide Petroleum N.L. v. Poseidon Ltd (1988) ATPR 40-901 and I repeat what I said there at 49,200:

"Prima facie the effect of that section is that

every representation with respect to any future

matter is misleading or deceptive unless there are

reasonable grounds for making it at the time that it

is made. The burden of establishing the existence of

reasonable grounds is on the party making the

representation. It was submitted by the respondents

that the applicants should be obliged to plead as

material facts the reasonable grounds said to be

lacking. In my opinion that is not a requirement of

a viable plea in reliance upon s.51A. It may be

however, that to avoid the abuse of the section by

persons making the bald assertion that promises or

predictions lack reasonable grounds, particulars may

be ordered."

In my opinion a party invoking the application of s.51A to a representation as to a future matter should make clear that it is doing so. In that way the respondent will know that, if the representation was made, it has the burden of showing, and must plead, that it had reasonable grounds for making it. The duty of the applicant to make clear that it invokes s.51A is discharged if it pleads that the respondent did not have reasonable grounds for making the representation and that it was thereby misleading or deceptive. Alternatively, the applicant can plead the representation and say simply that it was misleading by virtue of s.51A. This approach is probably logically more consistent with the structure of the section. The statement of claim in this case fails to invoke s.51A in relation to the representation in para.15(b) and it should do so if that be the applicant's case.

9. In the result I will order that paras. 11(a)(iii) and 15(b) of the statement of claim be struck out, but that the State have leave to file an amended statement of claim.

Re Western Australia v Bond Corporation Holdings Ltd; Wardley Australia Ltd; Lawrence Robert Connell and Wardley Australia Securities Limited [1990] FCA 522; (1991) 13 Atpr 41-081; 99 ALR 125 (20 December 1990)

Re Western Australia v Bond Corporation Holdings Ltd; Wardley Australia Ltd; Lawrence Robert Connell and Wardley Australia Securities Limited [1990] FCA 522;

At a glance

Court

Decision date

Before

Source

Judgment (17 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (1)

Re Western Australia v Bond Corporation Holdings Ltd; Wardley Australia Ltd; Lawrence Robert Connell and Wardley Australia Securities Limited [1990] FCA 522; (1991) 13 Atpr 41-081; 99 ALR 125 (20 December 1990)