Decision
159 The evidence established and I find the following facts:
(a) In early April 2001, at a meeting held at the home of Mona Kady's parents at which Ray Roumanus, Mona Kady and Sarkis were present, one or other or both of Mona Kady and Sarkis told Ray Roumanus that the venture which they had in mind to exploit the property needed $3.5 million to obtain the necessary development consent and to build the required infrastructure. They said that, once these steps had been completed, the property would be worth $30 million.
(b) At that meeting, and relying upon those statements, Ray Roumanus agreed to cause Waratar to take one share in the corporation that would be acquired or incorporated for the purpose of carrying out the venture at a cost of $200,000. As at the date of that meeting, Orchard had not been incorporated.
(c) One fully paid ordinary share in Orchard was acquired by Waratar on 27 June 2001.
(d) Waratar paid $200,000 to Advanced Earthworks Pty Ltd on 5 October 2001 as the acquisition cost of that share.
(e) Between 16 December 2002 and 7 January 2003, Ray Roumanus procured various persons and entities to pay a total of $200,000 to Orchard. At the time that these monies were paid to Orchard, they constituted loans to Orchard made by Waratar as lender.
(f) In February 2003, Ray Roumanus agreed to "convert" the debt which Orchard then owed to Waratar into equity in Orchard. To this end, Waratar purchased an additional share in Orchard. The vendor was Sarkis. The purchase price was $200,000.
(g) In acting as he did in February 2003, Ray Roumanus relied upon statements from Sarkis made to him directly at that time to the effect that the DA was "looking good" and that the purchase price which Waratar paid to Sarkis for this additional share would be put back into Orchard in order to assist with payment of the costs and expenses incurred and to be incurred by Orchard in obtaining the requisite development consent.
(h) Shortly after February 2003, Ray Roumanus passed on to Arthur Roumanus and Anthony Maroon the information which he had been given by Mona Kady and Sarkis in February 2003 about Orchard's need for further funds and the use to which the proceeds of any sale of shares in Orchard would be put by Sarkis.
(i) In mid 2003, Sarkis told Morris Maroon that he wished to sell down his shares in Orchard at $200,000 per share. He also said that all of the proceeds of such sales would be put into Orchard in order to assist it to secure the requisite development consent.
(j) Arthur Roumanus persuaded his wife Sandra to invest in Orchard. Anthony Maroon persuaded his wife Mary to invest in Orchard. This led to the Observatory Hotel meeting.
(k) Before any cheques were handed to Sarkis at the Observatory Hotel meeting, Sarkis told Ray Roumanus, Arthur Roumanus, Anthony Maroon and Morris Maroon at that meeting that the proceeds of the sale of five shares in Orchard then held by him, which were to be sold to Arthur Roumanus, Sandra Roumanus and Mary Maroon at that time, would be used to defray Orchard's costs of obtaining the requisite development consent. The inference was that Sarkis would lend these proceeds to Orchard.
(l) In acting as they did at the Observatory Hotel meeting, those persons who handed over cheques (Arthur Roumanus and Anthony Maroon) relied upon the statements made to them by Ray Roumanus which I have recorded at subpar (h) above and also relied upon statements to the same effect made by Sarkis at the meeting itself.
(m) Prior to June 2001, Morris Maroon arranged with his wife, Rose Maroon, to purchase one share in Orchard for $200,000 for which she paid on 11 October 2001. She purchased that share relying upon statements made to her by her husband to the effect that Orchard needed funds to finance the obtaining of a development consent to permit the dumping of non-VENM material at the property and, when that consent was obtained, the property would be very valuable. She also relied upon the statements made by Sarkis at the site inspection held in 2001 which I have extracted at [142] above.
(n) Mary Maroon relied entirely on her husband, Anthony Maroon. Anthony Maroon was told of the venture by Ray Roumanus and Morris Maroon. Anthony Maroon was also told by Sarkis that Orchard had applied for the requisite development consent; that Orchard needed funds to progress its DA; that the proceeds of sale received by Sarkis for the sale of his shares in Orchard to Mary Maroon would be used to assist Orchard to fund its DA; and that, once the development consent was obtained, the value of the property would increase substantially.
(o) Anthony Maroon relied upon these statements in handing over cheques totalling $600,000 to Sarkis at the Observatory Hotel meeting.
(p) In February 2004, Sarkis told Arthur Roumanus that further funds were required in order to progress the DA which was, according to him, "on track". Sandra Roumanus gave evidence to similar effect. Arthur and Sandra Roumanus relied upon these statements when they purchased one additional fully paid ordinary share from Sarkis in February 2004.
(q) No DA was ever lodged by or on behalf of Orchard.
160 I am satisfied that the representations attributed to Mona Kady and Sarkis in the evidence of the plaintiffs which I have summarised at [109]-[159] above were made substantially in the terms alleged and at the times alleged. Insofar as some of the information was conveyed by a direct representee (such as Ray Roumanus) to one or more of the other investors, I am satisfied that it was conveyed accurately.
161 There is no doubt that the statements made by Mona Kady and Sarkis directly to the investors from time to time which suggested that a DA would be lodged or had been lodged and was "progressing well", was "close", was "on track", or the like, were false and thus misleading and deceptive.
162 I also find that each of the investors relied upon these false statements when each of them made the investments which they made in Orchard. Some investors gave specific evidence that they relied on the misrepresentations made by Mona Kady and Sarkis. In other cases, reliance is to be inferred.
163 Each of the investors lost his, her or its entire investment. The shares acquired by the investors were probably worthless when acquired and were certainly worthless by early 2003 when Orchard was unable to repay its loan to Waratar.
164 The last issue to be determined, therefore, is whether Mona Kady and Sarkis acted as agents of Orchard on each occasion that they made the statements which I have found they made with the consequence that Orchard is liable as principal for those statements or whether, in making those statements, Mona Kady and Sarkis were the corporation, Orchard, in the sense that they constituted the relevant manifestation of the corporation for the purpose of making those statements.
165 It was submitted on behalf of the plaintiffs, in the alternative, that, if I should find that the representors were Mona Kady and Sarkis, and not Orchard, I should nonetheless hold Orchard liable as an accessory to the contravening conduct of Mona Kady and Sarkis pursuant to s 75B of the TPA and its analogues in the Corporations Act and in the ASIC Act.
166 The share transactions which the investors undertook, with the possible exception of the first acquisition by Waratar, were all purchases from Sarkis or, perhaps in one case, from another vendor. Whilst it is true that, in order to persuade the investors to part with their money and to buy shares in Orchard which Sarkis wanted to sell, Sarkis assured the investors that, by some means or another, he would put the proceeds which he personally received from the sale of those shares into Orchard in order to assist Orchard to progress and ultimately secure the development consent of which he often spoke, the sale of shares in Orchard by an existing member to another member or an outside investor, without more, would have produced no money for Orchard. It is the sweetener constituted by the promise to put the proceeds into Orchard which might have resulted in a potential benefit to Orchard. But that sweetener was offered by Sarkis in order to secure the sale of his shares in Orchard. It was not offered by Orchard but by Sarkis. It was not a necessary or ordinary incident of the share purchase transactions undertaken by the investors.
167 In my judgment, the share sale transactions undertaken by the investors were intended to be for the benefit of the vendor and the purchasers of the shares. The sweetener was directed at locking in the transaction. These transactions were not part of Orchard's business. It was not a party to any of them. It had no role to play in any of them.
168 There is no doubt that the actual representors were Mona Kady and Sarkis. The issue is: In what capacity did they make the representations? In the case of Sarkis, was it purely to advance his own cause or was it on behalf of Orchard? In the case of Mona Kady, was it to assist Sarkis, or was it on behalf of Orchard?
169 There is no evidence that either or both of Mona Kady or Sarkis had the express authority of Orchard to make the statements which they made.
170 Furthermore, although from 7 June 2001 until 8 February 2006, Mona Kady and Sarkis were the only directors of Orchard, the mere fact that they were the only persons who occupied that position would not be a sufficient basis for finding that they had some implied or ostensible authority to make the statements which they made on behalf of Orchard or that it was an ordinary incident of the office of director of Orchard to make representations to potential purchasers of shares already issued in Orchard in order to assist the vendor of those shares to secure a sale of those shares. The simple fact is that it was no part of Orchard's business to encourage someone to buy shares from one of its existing members and no part of the directors' duties to do so on its behalf.
171 The reasoning in Sons of Gwalia Ltd does not assist the investors. In Sons of Gwalia Ltd, it was the conduct of the corporation itself which had been relied upon by the investor. The observations which the High Court made in that case were put forward upon the assumption that it was the conduct of the corporation itself which constituted the actionable contravention. In that case, the conduct relied upon was a failure to comply with the relevant non-disclosure requirements found in the Corporations Act and in the ASX Listing Rules. In that case, the result would have been the same if the corporation itself had made an untrue public announcement that it had found gold in a specific location and if, on the strength of that account, the claimant had purchased shares and lost money. If, on the other hand, in order to induce a sale of his shares in the corporation, one of the directors of the corporation, even in the presence of all of the other directors, had misrepresented to a potential investor that the corporation had made a gold discovery, when it had not, this would not be conduct for which the corporation could be held liable unless liability can be sheeted home to it by reason of ordinary agency principles.
172 Orchard was not registered until 7 June 2001. None of the statements made by Mona Kady and Sarkis prior to that date could conceivably have been made by Orchard. Those early statements were probably not as significant as the representations which were made later, in any event.
173 For all of the above reasons, I have come to the conclusion that the representations made after 7 June 2001 were not made by Orchard, as representor. Orchard was not, therefore, the primary contravenor.
174 I will now consider whether it can be held liable as an accessory.
175 Under s 1041I(1) of the Corporations Act and s 12GF(1) of the ASIC Act, a claimant may recover his loss or damage by action against the primary contravenor of (by action against) "… any person involved in the contravention …".
176 The phrase "… involved in the contravention …" in those provisions denotes accessorial liability. In s 9 (Dictionary) of the Corporations Act, the phrase is defined by reference to s 79 of the Corporations Act. Section 79 provides:
79 Involvement in contraventions
A person is involved in a contravention if, and only if, the person:
(a) has aided, abetted, counselled or procured the contravention; or
(b) has induced, whether by threats or promises or otherwise, the contravention; or
(c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention.
177 By dint of the operation of s 5(2) of the ASIC Act, the phrase "… involved in the contravention …" has the same meaning in the ASIC Act as it has in the Corporations Act.
178 That section is relevantly identical to s 75B(1) of the TPA. The jurisprudence developed by the courts in respect of s 75B is apposite. In Yorke v Lucas (1985) 158 CLR 661 at 667, the plurality (Mason ACJ, Wilson, Deane and Dawson JJ) said that, for the purposes of subpar (a) of s 75B(1), the alleged accessory must have intentionally participated in the contravention by the primary contravenor. The plurality held that, to form the requisite intent, the accessory must have knowledge of the essential matters which go to make up the contravention. At 668, their Honours observed that subpar (c) of s 75B imported into the TPA an existing concept from the criminal law. At 669, the plurality said of s 75B generally that it operates as an adjunct to the imposition of civil liability and that its derivation is to be found in the criminal law. At 669-670, their Honours said:
So far we have dealt only with par.(a) of s.75B which refers to involvement of persons who are accessories. The appellants also rely upon par.(c) of the same section which extends the definition of a person involved to a person who has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention. There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention. It cannot, therefore, be suggested that Lucas falls within the first limb of par.(c). It might be thought possible to construe the express requirement of knowledge as extending not only to being "concerned in" but also to being "party to" a contravention. However, there are two reasons, in our view, why it is inappropriate to do so.
First, the natural construction of par.(c) is to regard the word "knowingly" as qualifying only the words "concerned in" which immediately follow it. The punctuation strongly suggests such a construction. Secondly, the word "knowingly" would be an unnecessary qualification of the words "party to". In the context of the paragraph, a person could only properly be said to be "party to" a "contravention" if his participation was in the context of knowledge of the essential facts constituting the particular contravention in question. Whilst it is not a contradiction in terms to speak of a person being "party to" something of which he is unaware, some indication is needed to convey such a meaning. There is nothing in the paragraph itself which would point to any conclusion other than that the words "party to" are used to refer to a participant in the nature of an accessory. Moreover, the wider context of the whole section leads to the same conclusion. We have already indicated why par.(a) requires knowledge. Paragraph (b), which speaks of inducing a contravention by threats, promises or otherwise, and par.(d), which speaks of conspiring with others to effect a contravention, both clearly require intent based upon knowledge and there is force, we think, in the observation made in the judgment of the Full Court below [(1983) 80 FLR at p.152; 49 ALR 672, at p.682] that there is -
... no reason why Parliament would have intended that a section which renders natural persons liable for a contravention by a corporation should require some mental element or absence of innocence in every case to which it refers except one which itself requires in its first limb that the person was "knowingly" concerned in the contravention.
In our view, the proper construction of par.(c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.
179 At 673-674, Brennan J, as he then was, said:
Section 75B governs civil liability but it is couched in the language of the criminal law: cf. Crimes Act 1914 (Cth), ss.5, 7A and 86. Its terms are substantially repeated in s.76(1)(c) to (f). Section 76(1) defines the persons who are liable to pay a pecuniary penalty for contravention of Pt IV. The terms of s.75B are also substantially repeated in s.78(c) to (f). Section 78 precludes the bringing of criminal proceedings for contraventions of Pt IV. As substantially the same terms are used in ss.75B, 76(1) and 78, the meaning of the corresponding terms in the three sections is substantially the same. Clearly the meaning ordinarily attributed to those terms by the criminal law should be attributed to them in ss.76(1) and 78, and that meaning should be attributed to those terms in s.75B. The provisions of s.75B should therefore be construed as though they were defining the persons criminally liable for contraventions of the provisions of Pt IV and s.52 and for offences created by the other provisions of Pt V. Such a construction effects a substantial symmetry between the classes of persons criminally liable for offences created by Pt V (other than s.52) and the classes of persons who may be civilly liable for contraventions of Pt V, though there may be some disconformity between those whose criminal liability arises only from s.7A of the Crimes Act and those who fall only within s.75B(c).
Construing s.75B in that way, civil liability is imposed only on those who, if the particular contravention in Pt IV or Pt V were an offence, would be held criminally liable for it. Civil liability is thus imposed only on those who engage in the conduct prescribed by s.75B with the state of mind which the criminal law calls mens rea. In the criminal law, provisions which extend liability for statutory offences to such persons as are defined by s.75B are not understood as creating separate offences, but as making persons falling within the provision liable for the principal offence once it is committed: per Isaacs J. in Walsh v. Sainsbury [(1925) 335 CLR 464 at p.477]. A person whose act or omission brings him within the literal terms of the provision is not held liable, however, unless he engaged in the conduct therein specified (aiding, abetting, etc.) with a state of mind that amounts to mens rea. The appellants sought to make Mr. Lucas liable either as one who "aided, abetted, counselled or procured the contravention" under par. (a) of s.75B or as a "party to the contravention" under par. (c). In Giorgianni v. The Queen [(1985) 156 CLR 473], this Court decided that a person cannot be held liable for aiding, abetting, counselling or procuring the commission of an offence, even a statutory offence involving strict liability, without intent based upon knowledge of the essential facts which constitute the offence [(1985) 156 CLR, at pp.488, 495, 505-508].
180 At 677, his Honour said:
In determining who is civilly liable for a s.52 contravention under s.75B(a) no question arises as to whether the person upon whom liability is sought to be imposed knew that another person would or might be misled or deceived by the contravening conduct. But s.75B(a) does require knowledge of the acts constituting the contravention and of the circumstances which give those acts the character which s.52 defines, namely, "misleading or deceptive or ... likely to mislead or deceive". As the net of civil liability for a contravention does not catch those who would not be caught if s.52 created an offence, honest ignorance of the circumstances which give a representation a misleading or deceptive character or the character of a representation which is likely to mislead or deceive is inconsistent with civil liability under s.75B(a). The operation of s.75B(a) in conjunction with s.52 may be incongruous, for s.52 throws a strict liability on a corporation, but s.75B(a) does not extend liability for a s.52 contravention to a person who procures the corporation to engage in contravening conduct if that person is honestly ignorant of the circumstances that give that conduct a contravening character.
Nor, in my opinion, does par. (c) of s.75B impose a stricter liability. The juxtaposition of "knowingly concerned in" and "party to" in a statute defining criminal liability (e.g., s.5 of the Crimes Act) would deny to the latter term a construction equivalent to "unknowingly concerned in". A "party to" an offence is one who, by the principles of the common law, would be held to be criminally liable for the offence. The term adds little to the more specific terms to be found in s. 5 of the Crimes Act, but it ensures that none is omitted from the net of criminal liability whom the common law would include. As s.75B transports the criteria of the criminal law into the definition of the parties who are civilly liable for contraventions of Pts IV and V, the criminal law definition of parties to an offence furnishes the definition of those who are civilly liable as a party to a contravention under s.75B(c). The requirement of knowledge under par.(a) is no less stringent under par.(c).
181 In the present case, Orchard played no role in the making of the statements which were made by Mona Kady and Sarkis and played no role in the share acquisition transactions until it came time to register the relevant transfer. There is no conduct on the part of Orchard which facilitated or procured the contraventions which I have found were committed by Mona Kady and Sarkis. There is nothing to which the principles articulated by the High Court in Yorke v Lucas can attach.