RTL Australia Pty Ltd v Younane Baker Pty Ltd in its capacity as trustee for the Younane Baker Trust [2025] FCA 1287

1. This proceeding concerns the sale of a retail business by the first, second and third respondents (the sellers) to the applicant by way of transfer of securities in the entities that conduct the business. The sale occurred via a Share and Unit Sale Agreement (SUSA) which contained certain warranties and representations.
2. In the proceeding, the applicant alleges that the sellers breached the SUSA and contravened s 12DA of the ASIC Act or s 18 of the ACL by disclosing misleading or incomplete financial information and failing to disclose financial information.
3. Relevantly to this interlocutory application, the PASOC identifies two acts by the sellers that give rise to the impugned representations. First, the sellers provided a completion certificate under cl 2.5(b) of the SUSA which certified that each of the conditions precedent under the SUSA had been satisfied. This included a condition that there had been no breach of a material warranty. Second, the sellers provided a warranty at Sch 2, item 23.1 of the SUSA, to the effect that the materials disclosed to the applicant prior to the sale of the business contained all material information (the item 23.1 warranty).
4. The prospective respondents are directors and indirect shareholders of the second and third respondents. The sixth respondent was the sellers' representative in the transaction and is also the Chief Financial Officer of a related entity to the second and third respondents. The applicant alleges that the JLG individual respondents were "involved" in the sellers' contraventions of the ASIC Act or the ACL within the meaning of s 12GF of the ASIC Act or s 236 of the ACL and are thereby liable for damages.
5. The PASOC pleads that the JLG individual respondents had actual knowledge of the essential elements of each contravention by virtue of their involvement in or knowledge of the acts mentioned at paragraph 9 above. In some instances, the particulars to the pleadings of knowledge rely on inferences to support the pleading of knowledge, including inferences drawn from what a reasonable person in the position of the JLG individual respondents would have known.

1. The JLG individual respondents opposed the application for leave to amend, and for leave to join the prospective respondents, on the basis that the PASOC fails to disclose an arguable cause of action such that it is liable to be struck out or summarily dismissed: Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; (2012) 293 ALR 537 at [6]; Saffari v Latitude Financial Services Australia Holdings Pty Ltd [2024] FCA 573 at [11]- [16].
2. It was common ground that the accessorial claims require the applicant to prove that the JLG individual respondents engaged in acts which constituted intentional participation in the sellers' contraventions of the ASIC Act or the ACL, as explained by the High Court in Yorke v Lucas (1985) 158 CLR 661 (Yorke v Lucas). This requires proof that the JLG individual respondents had knowledge of the essential facts constituting the contravention (at 670 per Mason ACJ, Wilson, Deane and Dawson JJ); in other words, the JLG individual respondents had knowledge of the acts constituting the contravention and of the circumstances which give those acts the character of being misleading or deceptive (at 677 per Brennan J). Those principles were most recently discussed by the High Court in Productivity Partners Pty Ltd v Australian Competition and Consumer Commission [2024] HCA 27; 419 ALR 30 at [82] (Gageler CJ and Jagot J), [146] (Gordon J), [266] (Edelman J) and [339] (Beech-Jones J).
3. The JLG individual respondents also acknowledged that, in the PASOC, the applicant alleged that the JLG individual respondents participated in the sellers' contraventions and knew that the alleged representations had been made and knew of the circumstances that rendered the alleged representations misleading. The complaint of the JLG individual respondents concerned the pleaded particulars of knowledge. The specific complaint was that the particulars depended upon inferential reasoning, including inferences drawn from what a reasonable person would have known in the circumstances.
4. The JLG individual respondents referred to several examples of accessorial liability pleaded in the PASOC. It is only necessary to refer one such example. Paragraph 132 of the PASOC pleads that Mr Scott Barber participated in the sellers' contravention relating to the item 23.1 warranty. Paragraph 133 alleges that Mr Barber knew the representation was made. The particulars to that allegation were to the effect that Mr Barber's knowledge can be inferred from the following circumstances:

(a) First, that Mr Barber was aware of the terms of the SUSA as he signed it.

(b) Second, that he was therefore aware of cl 2.5(b) of the SUSA which required the sellers to certify that the conditions had been satisfied via issuing a completion certificate. Further or alternatively, it can be inferred that Mr Barber was aware of the actual terms of that certificate as he was a director of one of the selling entities and it can be inferred that he was consulted prior to the issuing of the certificate or that he approved it.

(c) Third, a reasonable person who knew the terms of cl 2.5(b) or of the completion certificate would have known that that by issuing the certificate, the sellers were making the representation in the item 23.1 warranty.

(d) Fourth, it can be inferred that Mr Barber would have understood matters that a reasonable person in his position would have understood.

1. The JLG individual respondents submitted that, as a matter of law, those particulars are insufficient to sustain an allegation of knowledge as they impermissibly rely on inferences. Further, the JLG individual respondents submitted that the reliance on what a reasonable person in the circumstances would have understood is an impermissible reference to constructive rather than actual knowledge.
2. In support of this argument, the JLG individual respondents relied on the following passage from the decision of the High Court in Pereira v Director of Public Prosecutions (1988) 82 ALR 219 (Pereira) at 219-220:

Even where, as with the present charges, actual knowledge is either a specified element of the offence charged or a necessary element of the guilty mind required for the offence, it may be established as a matter of inference from the circumstances surrounding the commission of the alleged offence. However, three matters should be noted. First, in such cases the question remains one of actual knowledge_: Giorgianni v R_ [1985] HCA 29; (1985) 156 CLR 473 at 504-7; [1985] HCA 29; 58 ALR 641; He Kaw Teh (CLR at 570). It is never the case that something less than knowledge may be treated as satisfying a requirement of actual knowledge. Secondly, the question is that of the knowledge of the accused and not that which might be postulated of a hypothetical person in the position of the accused, although, of course, that may not be an irrelevant consideration. Finally, where knowledge is inferred from the circumstances surrounding the commission of the alleged offence, knowledge must be the only rational inference available.

1. The JLG individual respondents submitted that the foregoing passage establishes three legal rules or principles concerning proof of knowledge for the purposes of accessorial liability. First, it is necessary to prove actual knowledge, and anything less than actual knowledge is insufficient. Second, it is impermissible, as a matter of law or proof, for the Court to have regard to what a hypothetical reasonable person might be expected to know in the circumstances. Third, if reliance is to be placed upon circumstantial evidence from which to draw an inference of actual knowledge, the inference must be the only rational inference available.
2. Although Pereira was a case involving accessorial liability for a criminal offence, the JLG individual respondents submitted that the three legal rules or principles stated above were equally applicable in the context of civil liability. It is uncontroversial that the first principle is applicable to the accessorial liability provisions in the ASIC Act and the ACL, following Yorke v Lucas. In respect of the second principle, the JLG individual respondents referred to statements of the Court in Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 (Quinlivan) at [9] and Compaq Computer Australia Pty Ltd v Merry and Others [1998] FCA 968; (1998) 157 ALR 1 (Compaq) at 5. In respect of the third principle, the JLG individual respondents rely on the following obiter dictum statement of the Court in Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177; (2019) 377 ALR 234 (Lloyd v Belconnen) at [321]:

Relevant in the present case, proof of carelessness or recklessness will not be sufficient to establish involvement under the ACL, although actual knowledge may be inferred from ignorance dishonestly and deliberately maintained or wilful blindness, such "knowledge must be the only rational inference available" for that conclusion to be drawn: see Pereira v Director of Public Prosecutions (1988) 82 ALR 217 at 220 per Mason CJ, Deane, Dawson, Toohey and Gaudron JJ; WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd [2009] NSWSC 728 at [34] per Barrett J.

1. As already noted, it is uncontroversial that the accessorial liability provisions in the ASIC Act and the ACL, on which the applicant relies, requires proof that the JLG individual respondents had actual knowledge of the essential matters constituting the contravention. However, the second and third rules or principles that the JLG individual respondents seek to draw from Pereira are misstated.
2. As to the second rule or principle, the High Court in Pereira did not state that, in the proof of actual knowledge, it is impermissible for the Court to have regard to what a hypothetical reasonable person might be expected to know in the circumstances. The High Court emphasised that what a hypothetical reasonable person might be expected to know in the circumstances is not the question to be determined but expressly noted that this is not an irrelevant consideration. It is a circumstance from which a finding of actual knowledge may, in an appropriate case, be made by way of inference. The validity of inferential reasoning of this kind is expressly recognised elsewhere in Pereira. The cases referred to by the JLG individual respondents (Quinlivan and Compaq) do not support a contrary conclusion. They merely restate that the accessorial liability provisions in the (then named) Trade Practices Act 1974 (Cth) require proof of actual knowledge, not constructive knowledge.
3. As to the third rule or principle, that where knowledge is sought to be inferred from the surrounding circumstances it must be the only rational inference available, the principle is applicable to criminal liability, not civil liability.
4. It has been long recognised that, in the case of civil proceedings, circumstantial facts can be relied upon to prove another fact if the inference is the most likely inference on the balance of probabilities. It is unnecessary to exclude all other available inferences. In Luxton v Vines [1952] HCA 19; (1952) 85 CLR 352 (Luxton v Vines), Dixon, Fullagar and Kitto JJ said (at 358, emphasis added, citations omitted):

The test to be applied in determining in cases like this whether circumstantial evidence suffices to support a finding that negligence for which the defendant is responsible vicariously or otherwise occasioned the injury complained of was restated recently by this Court in Bradshaw v. McEwans Pty. Ltd., and for the purposes of this case it is enough to set out the following passage from the judgment: "Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture: see per Lord Robson, Richard Evans & Co. Ltd. v. Astley. But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise: cf. per Lord Loreburn".

1. The applicable principle was restated by Dixon CJ in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 (Jones v Dunkel) at 305 (citations omitted):

It is true that "you need only circumstances raising a more probable inference in favour of what is alleged". But "they must do more than give rise to conflicting inferences of equal degree of probability so that the choice between them is mere matter of conjecture". These phrases are taken from an unreported judgment of this Court in Bradshaw v. McEwans Pty. Ltd. which is referred to in Holloway v. McFeeters by Williams, Webb and JJ. The passage continues: "All that is necessary is that according to the course of common experience the more probable inference from the circumstances that sufficiently appear by evidence or admission, left unexplained, should be that the injury arose from the defendant's negligence. By more probable is meant no more than that upon a balance of probabilities such an inference might reason ably be considered to have some greater degree of likelihood." But the law which this passage attempts to explain does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others. The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied.

1. With great respect, the statement in Lloyd v Belconnen, which cited the third proposition from Pereira in a civil liability context, is erroneous. It is inconsistent with the applicable principles stated by the High Court in Luxton v Vines and Jones v Dunkel.

1. Applying the principles explained above to the PASOC, the particulars of circumstantial facts are sufficient, as a matter of pleading, to sustain the allegation that the JLG individual respondents had knowledge of the matters alleged. The pleading is not liable to be struck out or summarily dismissed and, in those circumstances, leave to amend was granted.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.

YOUNANE INVESTMENTS PTY LTD (ACN 163 488 819) IN IN ITS CAPACITY AS TRUSTEE OF THE YOUNANE FAMILY TRUST