Semantic Software Asia Pacific Ltd v Ebbsfleet Pty Ltd

Solicitors: Silberstein & Associates (Appellants) Robert James Lawyers (Respondents) File Number(s): CA 2017/79111 Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity - Commercial List Citation: Ebbsfleet Pty Ltd as trustee for Ebbsfleet Superannuation Fund v Semantic Software Asia Pacific Ltd (No 3) [2017] NSWSC 78 Date of Decision: 15 February 2017 Before: Stevenson J File Number(s): SC 2015/15374

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] Semantic Software Asia Pacific Ltd ("Semantic"), the first appellant, is a software development company. In 2012 and 2013 Semantic raised money from investors to fund research and the development of its software, principally for the purpose of enabling the sale of Semantic's business to a large technology company. At all material times, Mr Mark Bradley, the second appellant, was the managing director of Semantic. Ebbsfleet Pty Ltd (the first respondent) and McGee Pty Ltd (the second respondent) are the trustees of superannuation funds established for the benefit of Mr Simon Vinson and Ms Theresa Vinson. Pursuant to 10 Share Issue Agreements entered into in 2012 and 2013, Ebbsfleet and McGee subscribed for a total of 6.5 million shares in Semantic. Their investments were preceded by communications between Mr Bradley and Mr Vinson, and Semantic's provision to Mr Vinson of an "Investor Pack". In proceedings commenced in the Equity Division, the respondents made two claims against the appellants. The first was a claim in contract that Semantic and Mr Bradley breached promises made by them in the Share Issue Agreements that the shares in Semantic for which the respondents subscribed would triple in value within two years of their issue. The respondents claim that after two years the shares were, and remain, virtually worthless. The respondents' second claim was that Mr Bradley and Semantic engaged in misleading and deceptive conduct by representing to the respondents, without any reasonable basis, that the shares would triple in value within two years. Following a six day hearing at which Mr Bradley represented both himself and Semantic, Stevenson J upheld both claims: [2017] NSWSC 78. Subsequently his Honour directed the entry of judgment in favour of the respondents against both Semantic and Mr Bradley. His Honour also made costs orders in favour of the respondents. In this Court, the appellants challenged the primary judge's decision in relation to both the contract and the misleading and deceptive conduct claims. On the contract claim, the Court held that: a) The primary judge erred in holding that not only Mr Bradley, but also Semantic, gave a warranty in the Share Issue Agreements that Semantic's share value would triple in the two years following the respondents' investments, b) The primary judge did not err in concluding that the share transfer remedy expressly given in the Agreements for breach of this warranty was not exclusive, c) The appellants were not denied procedural fairness which resulted in them not being able to rely on share valuation evidence indicating that there was no breach of the warranty. The appellants had argued that the primary judge erred in not raising with Mr Bradley the possibility of the appellants seeking an adjournment to enable them to make arrangements to call an expert, Dr Herscovici, who could give evidence relevant to the value of Semantic's shares, d) The primary judge did not err in accepting the evidence of Ms Elizabeth Smith, who gave expert evidence regarding the value of Semantic's shares. As to the misleading and deceptive conduct claim, the Court held that: a) The appellants were not denied procedural fairness on the basis as set out in c) above, b) The primary judge did not err in accepting the evidence of Ms Elizabeth Smith, c) (per Macfarlan JA and Sackville AJA; White JA contra) The primary judge erred in finding that the respondents relied on the appellants' representation that Semantic's shares would triple in value in two years. Accordingly the Court allowed Semantic's appeal against the judgment against it on the contract claim and, by majority, allowed Semantic and Mr Bradley's appeal against the judgment against them on the misleading and deceptive conduct claim.

Judgment

1. MACFARLAN JA: The first appellant, Semantic Software Asia Pacific Ltd ("Semantic"), is a software development company which owns patents and patent applications concerning data integration. In 2012 and 2013 Semantic raised money from investors to fund research and the development of its software. This was principally for the purpose of enabling the sale of Semantic's business to a large technology company, rather than Semantic's exploitation of the software. At all material times, Mr Mark Bradley, the second appellant, was the managing director of Semantic.
2. Ebbsfleet Pty Ltd, the first respondent, and McGee Pty Ltd, the second respondent, are the trustees of superannuation funds established for the benefit of Mr Simon Vinson and Ms Theresa Vinson. Pursuant to 10 written agreements entered into between 31 May 2012 and 26 March 2013, Ebbsfleet and McGee subscribed for a total of 6.5 million shares in Semantic, which was then named Tralee Technology Holdings Pty Ltd (the "Share Issue Agreements"). Their investments were preceded by communications between Mr Bradley and Mr Vinson, and Semantic's provision to Mr Vinson of an "Investor Pack" which included an Information Memorandum.
3. In the present Equity Division proceedings, the respondents claim damages and other relief against Semantic and Mr Bradley. Their first claim is a claim in contract that Semantic and Mr Bradley breached promises made by them in the Share Issue Agreements that the shares in Semantic for which the respondents subscribed would triple in value within two years of their issue. They claim that after two years the shares were, and remain, virtually worthless.
4. The respondents' second claim is that Mr Bradley and Semantic engaged in misleading and deceptive conduct by representing to the respondents, without any reasonable basis, that the shares would triple in value within two years. As clarified on appeal, the respondents rely on s 1041H of the Corporations Act 2001 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) in this respect (see In the matter of William Enterprise Holdings Pty Ltd [2017] NSWSC 38 at [18]).
5. Following a six day hearing, at which Mr Bradley represented both himself and Semantic, Stevenson J upheld both claims (Ebbsfleet Pty Ltd v Semantic Software Asia Pacific Ltd (No 3) [2017] NSWSC 78). Subsequently his Honour directed the entry of judgment in favour of Ebbsfleet against Semantic and Mr Bradley for the amount of $4,364,055, and in favour of McGee against Semantic and Mr Bradley for the amount of $1,262,271. His Honour made costs orders in favour of Ebbsfleet and McGee.
6. The appellants' contentions on their appeal to this Court were essentially as follows: As to the contract claim: 1. The primary judge erred in holding that, under the Share Investment Agreements, not only Mr Bradley but also Semantic gave a warranty (also referred to in the proceedings as a guarantee) that Semantic's share value would triple in the two years following the respondents' investments. 2. The primary judge erred in not concluding that a share transfer remedy expressly given in the Agreements for breach of this warranty was exclusive, and therefore precluded the respondents' claim for damages. 3. The appellants were denied procedural fairness, resulting in them not being able to rely on share valuation evidence indicating that there was no breach of the warranty (and no misleading and deceptive conduct). 4. The primary judge erred in accepting Ms Elizabeth Smith's share valuation evidence. As to the misleading and deceptive conduct claim, the appellants advanced (c) and (d) above. They also contended that the primary judge erred in finding that the respondents relied on the appellants' representation that Semantic's shares would triple in value in two years.
7. The appellants' contention regarding procedural fairness referred to in [6(c)] above was that the primary judge did not raise with Mr Bradley the possibility of the appellants seeking an adjournment to enable them to make arrangements to call an expert, Dr Herscovici, who could give evidence of the value of Semantic's patents (and therefore evidence relevant to the value of Semantic's shares). They contended that, had his Honour raised that possibility, an adjournment would have been sought and granted, with the result that Dr Herscovici's report would have been admitted into evidence and the respondents' damages claims would have failed on both bases. The appellants submitted that they were therefore denied a fair trial.

Pre-contractual representations

1. At first instance the respondents pleaded that Mr Bradley, on behalf of himself and Semantic, made the following presently relevant representations: "That the value of the shares in the Company would increase." "That he [Mr Bradley] guaranteed a minimum threefold increase in the value of shares purchased in the Company within a two year period from the date of purchase."
2. In their pleading in answer, the appellants admitted that these representations were made.
3. At the hearing in this Court however, the parties accepted that the hearing at first instance was conducted on a broader basis than that indicated by these pleadings; namely that the parties agreed that Mr Bradley, acting on his own behalf and on behalf of Semantic, made a pre-contractual representation to the respondents that "the shares in Semantic would triple in value in two years". The primary judge dealt with the misleading and deceptive conduct claim on this basis. (Judgment [88]).

The Investor Pack

1. The primary judge summarised the contents of the Investor Pack as follows: 16 The Investor Pack that Mr Vinson received included the Information Memorandum and the two 'Pre - IPO Offering' documents … 17 The Information Memorandum is dated January 2012. Mr Bradley was its author. 18 It contained the following statements: 'We currently earn income by selling shares in the company for 25 cents in the expectation the shares will be worth at least $2.50 in three years'; '[Semantic] believes our patents and patents pending have considerable value and that some of that value will crystallise for Shareholders in 2012'; '[Semantic] is currently selling shares to raise capital of up to $500,000 from private investors. We anticipate substantial returns for these investors, including a minimum three-fold return guarantee within two years as described in our Share Issue Agreement'; and 'It is unusual for Australian private investors to have an opportunity to participate in such a transaction, where we believe substantial investment returns can be gained in a relatively short timeframe. I commend this investment opportunity to you without hesitation.' 19 The Information Memorandum stated that one aim for 2012 was to 'sell the company to a US software industry leader' and that 'we believe it is likely' that IBM, Microsoft, Oracle, HP or Google 'will seek to purchase [Semantic] in 2012'. 20 The latter statement was consistent with a statement Mr Vinson reported Mr Bradley to have made at the 29 May 2012 meeting …, to the effect that the sale of Semantic some time in 2012 was a 'very real prospect' (with a resultant 'sizeable return' to shareholders) and with a statement Mr Bradley made to me during the hearing that 'our strategy is not to build a profitable company in the short term; our strategy is to get bought'. 21 The Information Memorandum emphasised the dealings that Semantic claimed it had had with various US software industry leaders and stated that: (1) during the 'past two years we have been in dialogue with IBM, Microsoft, Oracle, HP... and others'; (2) 'our technology has attracted the attention of software industry leaders including IBM, Microsoft and HP'; (3) IBM had stated it was 'studying Semantic for a 'potential acquisition or partnership'; (4) during 2011 Semantic had 'meetings with Microsoft, Oracle, HP and Google at senior executive levels'; and (5) 'IBM in particular has devoted considerable resources to evaluating the potential to utilise [Semantic] technology in their products'. 22 The Tralee Software Pre-IPO Offering (dated May 2012) stated, inter alia: 'It is not proposed that there will be any further capital raisings prior to the trade sale/IPO'. 23 The Tralee Software Pre-IPO Offering (Short Summary) stated, inter alia: 'We have raised substantial capital during the past twelve months and this is the final round. … Shares in the company are priced with an expectation of a five-fold to ten-fold return within three years or sooner. Investors are offered a guaranteed minimum threefold increase in value within 2 years as detailed in our standard Share Issue Agreement. This is considered a low risk investment with high returns. … An attractive Trade Sale in 2012 would see high returns within a year.'"
2. The Share Issue Agreements to which the respondents were parties are each in the same form. In them, Semantic is referred to as the "Company", Mr Bradley as the "Guarantor" and Ebbsfleet or McGee, as the case may be, as the "Investor".
3. Relevant provisions in the body of the Agreements are as follows: "1 Interpretation … 'Disclaimer' means the Investor acknowledgments contained in Schedule 2. … 'Purchase Price' means the total price paid today for the Issue Shares. 'Issue Shares' means one million (1,000,000) ORDINARY shares of A$0.25 each being the shares agreed to be subscribed for by the Investor and issued by the Company under this agreement. … 'Warranties' means the warranties and undertakings of the Company contained in paragraphs 6 and 7 and Schedule 1. … 5 Warranties applicability and limitation … 5.2 The Investor acknowledges that they have not been induced to enter into this agreement by any representation or warranty other than the Warranties. … 6 The Warranties The Company warrants to the Investor that: 6.1 there is no charge over or affecting any of the Issue Shares; 6.2 the Company is entitled to transfer the Issue Shares to the Investor on the terms of this agreement without the consent of any third party; 6.3 all of the information given in the Schedules is true, full, accurate, complete and not misleading; 6.4 the Warranties are true and accurate in all respects; 6.5 The Warranties in Schedule 1 are limited in time to 12 months from the signing of this agreement and to a monetary value equal to the Purchase Price plus 25%. … 15 Buyers declaration By signing this agreement the Investor declares that: … 15.4 It has read and acknowledges the Disclaimer in Schedule 2."
4. Relevant provisions in the Schedules to the Agreements are as follows: "Schedule 1 - The Warranties … Effect of this agreement 2 The Shareholders have no knowledge, information or belief that as a result of the Investor having bought the Issue Shares in the Company: 2.1 any arrangement may be terminated or changed; 2.2 the Company will lose the benefit of any right or privilege which it enjoys; 2.3 any officer or senior employee of the Company is likely to leave. … Seller structure and operation 4 The Company has issued approximately 135 million ordinary shares to existing shareholders. … 11 The Company has in its possession: 11.1 all documents of title relating to its assets; 11.2 an executed copy of all agreements to which it is a party; 11.3 original copies of all other documents which are owned or should be kept by it. Cash flow 12 The Company has not made nor agreed to make any capital expenditure, nor disposed of any capital asset. … Assets 18 The Company is the sole beneficial owner of the assets. … Limited Guarantee and Guarantor 46 The Director of the Company, Mark William Bradley, a Party to this Agreement as Guarantor in respect of this clause, warrants that Investor's Issue Shares shall triple in value within two years from the date of this Agreement and should Issues [sic] Shares not so triple in value, Mark William Bradley must transfer additional shares from his personal and/or beneficial shareholdings sufficient to effect said tripling in the value of Investor's Issue Shares. The company and Mark William Bradley warrant that Mark William Bradley is the beneficial owner of 53,362,987 shares in the company, excluding options mentioned earlier. Mark William Bradley further warrants that he must retain at least 10,000,000 shares in his beneficial ownership to satisfy this Guarantee until such time as Investors Issue Shares have a freely tradable market value of at least triple the Purchase Price, at which time the effect of this clause will cease. … Schedule 2 - Disclaimer … • Whilst this advice, which contains forward looking statements, has been prepared with reasonable care, neither of the companies, nor their officers, employees or the professional advisers of the companies make any representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the information contained in this advice or subsequently provided to the Investor by any of the above including, without limitation, any historical information, the estimates and projections or any other financial information, and that nothing contained in this advice is, or shall be relied upon as, a promise or representation, whether as to the past or the future, with the exception of the Warranties provided under this Agreement."

The proper construction of the Share Issue Agreements

1. The primary judge commenced by stating that it was common ground that the warranty that the shares issued to Ebbsfleet and McGee "would triple in value within two years" meant that the shares "would become worth 75 cents" within two years (Judgment [39]). His Honour found that this warranty was given by Mr Bradley in clause 46 of Schedule 1 to the Agreement. In a finding that is in issue on appeal, his Honour also concluded, without elaboration, that Mr Bradley's warranty was "in turn, warranted by Semantic to be 'true and correct in all respects'" (meaning thereby that the warranty was given by Semantic as well as Mr Bradley). His Honour referred to clauses 6.3 and 6.4 of the Share Issue Agreements in this respect (Judgment [29], [30] and [39]).
2. His Honour also found that the temporal restriction stated in clause 6.5 did not limit the operation of the warranty contained in clause 46 of Schedule 1. His Honour held that "the general words of clause 6.5 must give way to the particular words of the warranty in clause 46 and not operate to, in effect, deprive it of any substantial meaning" (Judgment [51]).
3. The primary judge then found that the promise made by Mr Bradley (and thus, he considered, by Semantic) that, in the event that the shares in Semantic did not triple in value within two years, Mr Bradley would transfer sufficient shares to effect the tripling, was not intended to constitute an exhaustive statement of the remedies available to the respondents. His Honour considered it significant that clause 46 did not say that the remedy was exclusive. In his Honour's view, if it were exclusive, clause 46 would be deprived of any substantial operation "as, to the extent that the shares did not increase in value, the promise by Mr Bradley to transfer 'additional shares' would decline" (Judgment [59]).

Did the shares triple in value within two years?

1. The primary judge noted that the respondents called evidence as to the value of the shares from a forensic accountant, Ms Elizabeth Smith, and that the appellants called such evidence from another forensic accountant, Mr Matthew Gwynne. His Honour also noted that Mr Gwynne relied in his report upon the correctness of an opinion of Dr Herscovici, a resident of the United States, as to the value of the patents owned by Semantic's wholly owned subsidiary. As his Honour rejected the tender of Dr Herscovici's report for the reasons described at [47] below, an assumption critical to Mr Gwynne's opinion was not established. As a result, the only expert evidence before his Honour as to the value of Semantic's shares was that of Ms Smith.
2. The primary judge accepted Ms Smith's opinion that at all relevant times after their issue Semantic's shares were of negligible or no value (Judgment [80]-[85]). His Honour noted the following aspects of Ms Smith's evidence: 1. Semantic's financial statements showed that it had incurred substantial losses in each year of its existence. 2. Although Semantic's balance sheets showed an excess of assets over liabilities in those years, they failed to take into account Semantic's liability for breaches of warranties, given to the respondents and other investors, as to its share value. 3. No significant value should be attributed to the patents as their value was speculative, Semantic having earned no income, secured no contracts to exploit the patents, and made no arrangements to sell them.

Whether there were reasonable grounds for the representation that the shares would triple in value in two years

1. In his evidence, Mr Bradley referred to various matters that, he claimed, provided a reasonable basis for his representation as to the future value of Semantic's shares. The primary judge found that these matters were inadequate to support Mr Bradley's claim. In particular his Honour found that, contrary to Mr Bradley's evidence, IBM had not shown interest in acquiring Semantic, and Semantic's approaches to other "industry leaders" had been unsuccessful. Accordingly, his Honour held that Mr Bradley did not have any reasonable basis for making the representation as to the future value of the shares. As a result, the representation constituted misleading and deceptive conduct (s 1041H Corporations Act and of s 12DA ASIC Act).

Reliance

1. The primary judge gave the following reasons for finding that Mr and Mrs Vinson relied on Mr Bradley's representation: 119 I have no doubt that Mr Vinson, and through him Ms Vinson, relied on Mr Bradley's representation when making his (and thus her) decision to cause the plaintiffs to invest in Semantic. 120 Mr Bradley did not challenge the evidence given by both Mr and Ms Vinson that had the representation not been made, they would not have caused Ebbsfleet and McGee to execute the various Share Issue Agreements. 121 In any event, that evidence of reliance is inherently probable. Mr Bradley's representation was unequivocal and it was backed up [by] the promise he made, in the same terms, in the Share Issue Agreements. 122 In answer to questions from me, both Mr and Ms Vinson agreed that they understood that there could be a relationship between return and risk and that the high return the subject of Mr Bradley's representation and promise bespoke the possibility of a commensurate risk. 123 But that evidence points strongly to the probability that, as they said, they relied on Mr Bradley's representation and promise."
2. The respondents conceded on appeal that at first instance the appellants submitted that Mr and Mrs Vinson's evidence did not establish relevant reliance. Accordingly, on appeal the appellants are able to contend that there was no reliance (see [62]ff below).

Causation

1. His Honour found that, but for the representation, the respondents would not have entered into the Agreements. His Honour also found that it was unnecessary for the respondents to prove what would or might have happened in relation to any alternative investment they would have made if they had not entered into the Agreements.

Damages

1. On the contract claim, the primary judge held that the respondents were entitled to "damages sufficient to place them in a position as if the contract had been performed" (Judgment [126]). On the misleading and deceptive conduct claim, his Honour held that the respondents were entitled to damages equivalent to the value of their investment, as the shares they purchased were worthless, or practically worthless.

Whether both Semantic and Mr Bradley gave the contractual warranty

1. The relevant warranty is contained in the first sentence of clause 46 of Schedule 1 to the Agreements (see [14] above). It is expressly stated to be given by Mr Bradley, in contrast to the warranty given in the second sentence, which is stated to be given by both Semantic and Mr Bradley. The warranty in the third sentence is also stated to be given by Mr Bradley, with no mention of Semantic.
2. If clause 46 were considered alone, there would be no doubt that the warranty in the first sentence was only given by Mr Bradley. This would follow from the express identification in each of the sentences of the clause of the giver of the particular warranty.
3. The existence of clause 6 in the body of the Agreements however, raises an issue as to whether Semantic also gave the warranties in the first and third sentences of Clause 46. Clause 6.4 relevantly provides that "The Company warrants to the Investor that … the Warranties are true and accurate in all respects" (see [14] above). The "Warranties" are defined to mean "the warranties and undertakings of the Company contained in [clauses] 6 and 7 and Schedule 1". The primary judge held that the effect of clause 6 is that the Warranty given by Mr Bradley by the first sentence of clause 46 is given by Semantic as well.
4. The "Warranties" in Schedule 1 include many assertions of fact, for example, as to the number of shares on issue (clause 4), the documents in Semantic's possession (clause 11) and Semantic's beneficial ownership of the patents (clause 18). Clause 6.4 operates sensibly in respect of such "Warranties" by constituting a promise by Semantic that those facts are true.
5. Likewise, clause 6.4 operates as a promise by Semantic that the warranties stated in clause 46 are in fact given. Thus clause 6.4 constitutes a promise by Semantic that Mr Bradley has given the warranty stated in the first sentence of clause 46, that both Mr Bradley and Semantic have given the warranty stated in the second sentence, and that Mr Bradley has given the warranty stated in the third sentence.
6. I do not however consider that there is anything in the language of clause 6.4, or that of any other part of the agreement, that requires or justifies a conclusion that, by means of clause 6.4, Semantic gave a warranty that is stated in the Schedule to be given only by someone else, namely Mr Bradley. Whilst it is no longer impermissible for a shareholder to obtain damages from a company in relation to the company's breach of a contractual promise as to the value of its shares (see s 247E of the Corporations Act), the law as it stood until 2010 prohibited claims for such damages (see Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317). This pre-existing law may well provide an explanation for the careful identification in clause 46 of Schedule 1 of each giver of the respective warranties, and the omission of a statement that Semantic gives the warranty contained in the first sentence of clause 46. Later forms of share issue agreements, between Semantic and other investors, provided for the relevant warranty to be given by Semantic, as well as Mr Bradley. They perhaps reflect a newly acquired awareness of the draftsperson of the legislative change in 2010.
7. In support of their submissions, the respondents relied upon the statement in the Information Memorandum issued by Semantic (described on its coversheet as having been authored by Mr Bradley) that "[w]e anticipate substantial returns for these investors, including a minimum three-fold return guarantee within two years as described in our Share Issue Agreement". The respondents submitted that this statement did not "specify that the 'guarantee' was a promise made by the director, or seek to isolate the Company from that particular feature of the investment" (written submissions [17]). Assuming (but not deciding) that the Information Memorandum is able to be used as an aid in construing the Share Issue Agreements, the statement relied upon does not in my view assist the respondents. It stops short of adding to the promises made in the Agreements, and directs investors to those Agreements to determine the nature of the "guarantee" to be provided. For the reasons I have given above, recourse to the Agreements reveals that the relevant "guarantee" or warranty was given only by Mr Bradley, and not by Semantic.
8. For these reasons I conclude that Semantic did not give the relevant contractual warranty.

Whether the remedy specified in clause 46 is the exclusive remedy for breach

1. The first sentence of clause 46 states that, if the promised increase in share value does not occur, Mr Bradley "must transfer additional shares from his personal and/or beneficial shareholding sufficient to effect said tripling in the value of Investor's Issue Shares". In my view, as the primary judge held, an order that Mr Bradley transfer the requisite number of shares is not the only remedy available to the respondents for a breach of the relevant warranty.
2. But for the reference in the first sentence of clause 46 to Mr Bradley transferring shares in the event of breach, it would be beyond argument that the respondents would, in principle, be entitled to damages for breach of the promise as to share value stated in the first part of that sentence.
3. As stated by Lord Diplock in Gilbert-Ash (Northern) v Modern Engineering (Bristol) [1974] AC 689 at 717, there is a presumption "that neither party [to a contract] intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption" (cited with approval in Concut Pty Ltd v Worrell (2000) 75 ALJR 312; [2000] HCA 64 at [23] and Downer EDI Ltd v Gillies (2012) 92 ACSR 373; [2012] NSWCA 333 at [142]). As observed in Concut (at [23]), "an express provision for termination for breach in certain circumstances may be regarded as designed to augment rather than to restrict or remove the rights at common law which a party otherwise would have had on breach".
4. There is no express, or implied, indication in clause 46, or elsewhere in the Share Issue Agreements, that in the event of breach of the share value warranty, Mr Bradley's performance of his obligation to transfer shares was intended to be an exclusive remedy. As the authorities to which I have referred indicate, the identification of one remedy is not in itself sufficient to impliedly exclude other remedies.
5. Accordingly when, two years after their issue, the shares did not triple in value, the respondents acquired a right to damages for breach of the warranty given by Mr Bradley. In addition, (as I indicate in [39]-[40] below), a further right to damages arose upon Mr Bradley's breach of his obligation to transfer shares. In both instances, a secondary obligation to pay damages arose on breach of the primary obligation (Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 273; [1988] HCA 11).
6. In these circumstances, it is unnecessary for the respondents to rely upon a breach by Mr Bradley of his obligation to transfer shares. Nevertheless I deal as follows with the appellants' submission that no such breach was proved.
7. The appellants submitted that clause 46 of Schedule 1 of the Share Issue Agreements did not stipulate when Mr Bradley had to transfer the "additional shares", that his obligation to transfer had therefore not yet arisen, and that his transfer of shares to a trustee of a discretionary trust did not put the relevant shares out of his control so as to render him incapable of effecting the transfer in the future.
8. There are a number of answers to these submissions. First, as I have indicated above, these submissions do not contradict the proposition that there has been a breach of the first part of the first sentence of clause 46 because the shares did not reach the promised value within two years of their issue. It is open to the respondents to base their claim for contractual damages on this breach as Mr Bradley's obligation to transfer shares is not the exclusive remedy for such breach (see above at [35]-[36]). Secondly, whilst the Share Issue Agreements do not specify a date for the relevant transfer, that clearly should have occurred within a reasonable time after the expiration of the two year period. As the two year period in respect of the most recent Share Issue Agreement concluded on 26 March 2015, that reasonable time has expired. Thirdly, contrary to the appellants' submission, Mr Bradley did not retain the shares as his "beneficial shareholdings", to use the words of clause 46. His status as one of the objects of the discretionary trust to which he transferred the shares did not give him the beneficial interest in the property owned by the trust. Fourthly, the shares being worthless, or virtually so, at the time the obligation to transfer additional shares arose, there was no number of shares that could have effected "a tripling in the value of Investor's Issue Shares" in accordance with clause 46. As a result Mr Bradley could not, and therefore did not, fulfil his promise.
9. For these reasons, the respondents established that Mr Bradley breached both the warranty as to increased share value and his obligation to transfer "additional shares" in the event of breach of that warranty, rendering him liable to pay the contract damages that the primary judge awarded.

Breach - whether procedural unfairness

1. As indicated earlier (see [18]) Mr Gwynne's expert evidence as to share value, which was tendered by the appellants, was rendered nugatory by the primary judge's rejection of Dr Herscovici's report concerning the value of the patents, upon which Mr Gwynne had relied. The appellants accept that it was appropriate for Dr Herscovici's report to be rejected as he was not available for cross-examination. They nevertheless contend that the primary judge should have suggested that they seek an adjournment to enable them to arrange for Dr Herscovici to be available and that, as a result of that not occurring, they were denied procedural fairness.
2. The appellants rely in this context upon the following matters: "a. The Appellants had legal representation up until shortly before the trial commenced. The commercial list response and evidence (including the retainer of Dr Herscovici and service of his report) were prepared with the assistance of solicitors. The circumstances of those solicitors ceasing to act [were] indicated to the trial judge at the commencement of the trial. There [was] then an initial discussion between the trial judge and Mr Bradley about the availability of Dr Herscovici, who resided in Boston, and the desirability of a joint report and concurrent evidence. The trial judge raised with Mr Bradley what arrangements had been made for Dr Herscovici to attend and the following Monday was nominated for the experts' concurrent evidence. During those discussions the trial judge confirm[ed] his assumption that Mr Bradley was not legally qualified. b. At the conclusion of the housekeeping matters on the first morning the trial judge indicate[d] that whilst he [could not] give legal advice, he would explain procedural matters to ensure a fair trial, and later he indicated that normally an expert should be in Sydney for cross examination. c. On the second and fourth days of the hearing the trial judge queried with Mr Bradley when Dr Herscovici would be available to give evidence in Sydney, the arrangements for the joint report and warned Mr Bradley that he may exclude Dr Herscovici's evidence. d. On the nominated Monday Mr Bradley sent an email to the trial judge's associate identifying that Dr Herscovici had not travelled to Sydney because all costs had not be paid in advance for either travel to Sydney or a video link. His Honour then immediately indicated that 'What that means is I will not permit you to read his report', and thereafter there was no further argument on the use of Dr Herscovici's report or the joint report" (Appellants' written submissions [20]).
3. In response, the respondents referred to the following additional circumstances: "23. Notice was given of the need for Dr Herscovici to attend for cross examination some 3 months before the trial. During the trial the second appellant advised the Court that Dr Herscovici would attend to give evidence, and arrangements were made to suit his convenience. However the day before Dr Herscovici was due to give his evidence the second appellant informed the Court that he had not in fact travelled to Australia and would not be testifying, 'in person or by media'. … 28. … Dr Herscovici informed the second appellant (who in turn informed the Court) that he would not be testifying 'in person or by media' unless all expected costs associated with his appearance had been paid in advance. The appellants were apparently unwilling or unable to meet his expected costs, and there is no evidential basis to infer that anything would have been different in the event of an adjournment. The second appellant indicated on the second day of the trial that it was going to cost $100,000 to secure Dr Herscovici's attendance, however only $25,000 was advanced by the appellants on account of Dr Herscovici's costs" (Respondents' written submissions).
4. As the appellants submitted, "[a] trial judge has an obligation to take appropriate steps to ensure that an unrepresented litigant has sufficient information about the practice and procedure of the court, so far as is reasonably practicable for the purpose of ensuring a fair trial" (Hamod v State of New South Wales [2011] NSWCA 375 at [311]). As was also emphasised in Hamod however, "[t]he application of that principle will vary depending upon the circumstances of the case" (ibid).
5. It is important that notice requiring Dr Herscovici's attendance for cross-examination was given some three months before the trial, at a time when the appellants had legal representation. That representation did not cease until shortly before the trial. Moreover, the primary judge warned Mr Bradley on the first day of the trial, Monday 30 January 2017, that it was likely that Dr Herscovici's report would be excluded if he were not made available for cross-examination (transcript p 14). His Honour repeated the warning the next day in response to Mr Bradley's indication that: "I will … contact the other members of our board and tell them that I have told Mr Herscovici that he will pay the $100,000, as far as I'm concerned I'm going to try to get him here. I will do whatever I can to get him here next Tuesday" (transcript p 87).
6. On the next Monday, 6 February 2017, Mr Bradley told the primary judge that Mr Gwynne would not be at Court the following day to give evidence. The following exchange then occurred: "HIS HONOUR: So you can't get Dr Herscovici here in person or by video link, is that - SECOND DEFENDANT: Correct. HIS HONOUR: What that means is I will not permit you to read his report. SECOND DEFENDANT: Right."
7. Mr Bradley's response concerning Dr Herscovici's unavailability was unqualified. Mr Bradley did not suggest that there was any possible circumstance in which he might be able to arrange for Dr Herscovici to be available, nor did he ask for further time to explore the possibility of that occurring. As Mr Bradley is an intelligent and experienced businessperson, the primary judge was entitled to assume that if Mr Bradley foresaw the possibility that Dr Herscovici could be made available, Mr Bradley would have said so. As Mr Bradley gave no such indication, the obvious inference was that the appellants could not, or would not, pay the amount that they were told was necessary to procure Dr Herscovici's attendance either in person or by video link.
8. In these circumstances, the primary judge had no obligation to say more than he did. In particular, his Honour had no obligation to advise Mr Bradley that he should consider seeking an adjournment. In any event, even if such advice should have been given, there is no evidence from Mr Bradley, or any other source, to indicate that an adjournment would have made any difference to the appellants' position. For example, there is no evidence that, if given more time, the appellants could, and would, have paid the requisite funds to Dr Herscovici. I note that the party who obtains the benefit of any procedural unfairness experienced by the other party has the onus of establishing that the unfairness had no bearing on the result (see for example, Boyd v Thorn [2017] NSWCA 210 at [60]). Nevertheless the facts that were here relevant (namely, those regarding the appellants' willingness and capacity to pay the requisite funds to Dr Herscovici) were solely within the appellants' knowledge. In my view, in the absence of evidence given by the appellants as to these matters, it should be inferred that the outcome of the proceedings was not affected by the alleged unfairness, which in any event has not been established.
9. This ground of appeal therefore fails because there was no procedural unfairness. Alternatively, even if there was, it was not material.

Whether the primary judge erred in accepting Ms Smith's share valuation evidence

1. The appellants advanced four submissions in support of this ground. First, the appellants submitted that Ms Smith's evidence of the value of Semantic's shares should have been rejected because "she did not have experience in valuing patents which did not yet generate income" (submissions [25]). However Ms Smith did have experience valuing intangible assets, including patents (transcript 406-7). That she may not have previously valued patents which had not yet generated income does not mean that she did not have relevant expertise. An expert in a relevant field is not in my view disqualified simply because he or she has not previously encountered the particular circumstances before the court.
2. Secondly, the appellants challenged the primary judge's finding "that the company's liability under the warranties should have been brought to account in its balance sheet as current or non-current liabilities, with a significant effect on the balance sheet" (Judgment [70]). The appellants submitted that if (as I have found to be the case) they are successful in contending that only Mr Bradley, and not Semantic, gave the warranty as to future share value in the Share Issue Agreements, there were no such company liabilities to be included in Semantic's balance sheet. They contend that in these circumstances his Honour's finding is erroneous.
3. It is plain however from the previous paragraph in the primary judgment ([69]) that his Honour's reference to Semantic's liabilities in this context was not to liabilities arising under agreements in the form of the Share Issue Agreements relevant here. Rather it related to a different and later form of share issue agreement which Semantic utilised in respect of other investors from and after the 2013-2014 financial year. In that other form of share agreement, Semantic expressly assumed a relevant warranty obligation, unlike the position under clause 46 of Schedule 1 of the respondents' Share Issue Agreements (see [30]-[32] above). Although the number of shares issued under that later form of share issue agreement could not be quantified on the evidence, it was clearly considerable. Accordingly, his Honour's finding was appropriate.
4. Further, the primary judge based his finding on Ms Smith's evidence that Semantic's warranty liabilities should be taken into account. Like his Honour, Ms Smith did not attempt to quantify those liabilities. Nonetheless, her evidence had a rational foundation because Semantic clearly had substantial warranty liabilities under the later form of share issue agreement.
5. In any event, there is no reason to conclude that if Ms Smith had not expressed the relevant opinion, and if the primary judge had not accepted it, his Honour's conclusions as to valuation would have been any different. If, as Ms Smith opined, it was appropriate to value Semantic's shares on a net asset backing basis and to attribute no significant value to the patents, it was clear that the shares were worthless, or virtually so. This conclusion would be reached whether or not the company's liabilities arising from warranties given to other investors concerning the future value of its shares were taken into account.
6. It is significant that the primary judge, when accepting Ms Smith's evidence as to the value of the patents, said that her opinion was "inherently probable" (Judgment [81]). His Honour found that Semantic had earned no income from its patents, had secured no contracts to "commercialise" any of the patents and had obtained no commitments from any third party to acquire or invest in Semantic's intellectual property (Judgment [82(b)]).
7. The primary judge also found that the dealings, such as they were, that Semantic had with IBM and other "industry leaders" did not provide a reasonable basis for the predictions made in the Information Memorandum (Judgment [93]). Those dealings included a written statement by IBM as early as 2010 indicating that it had no interest in acquiring Semantic's US patent (Judgment [113]). Semantic's efforts to interest other large corporations, such as Microsoft, Oracle and HP, had been similarly unsuccessful (Judgment [112]).
8. These findings provide an evidentiary basis, even without relying on expert evidence, for the conclusion that Semantic's principal assets were essentially worthless at the relevant times and thus its shares were also essentially worthless.
9. Thirdly, the appellants submitted that Semantic's shares should have been valued by reference to the price of $0.25 at which they were issued to investors other than the respondents in 2014 and 2015. This argument should be rejected for at least two reasons. First, this approach is different to the method of valuation by reference to net asset backing that both Ms Smith and Mr Gwynne accepted was appropriate, and neither suggested that the shares should be valued on the basis of the issue price to other investors. Secondly, the evidence provides no basis for a conclusion that any market for the issue of Semantic's shares at the price of $0.25 was a fully informed market. On the contrary, it can be inferred that share issues to other investors at that price would likely have been affected by similar misleading and deceptive conduct to that referred to in [62] below.
10. Finally on this topic, I note the appellants' submission that Ms Smith's valuation evidence was defective because, in valuing Semantic's shares, she did not take account of the value to the shareholders of Mr Bradley's triple-in-value warranties, which were provided to investors under the various share issue agreements. This submission fails because there was no evidence of Mr Bradley's financial position, and therefore no evidence that his warranties were of any value to shareholders.
11. For these reasons, the challenges to the primary judge's assessment of the respondents' claim for contract damages should be rejected. As I have found that only Mr Bradley, and not Semantic, made the relevant contractual promise, the damages are payable by Mr Bradley only.

THE MISLEADING AND DECEPTIVE CONDUCT CLAIM

1. As noted earlier, the hearing at first instance proceeded upon the basis that the appellants made a pre-contractual representation "that the shares in Semantic would triple in value in two years" (see [10] above). On appeal, they did not contend that they did not make the representation, and did not challenge the primary judge's finding, that they did not have a reasonable basis for making it. Moreover, in dealing with the contract claim, I have rejected the appellants' claim of procedural unfairness and their challenge to the primary judge's finding that Semantic's shares had no significant value at any relevant time, including at the expiration of the two year period referred to in the representation. My conclusions on these matters are equally applicable to the respondents' claim for reliance damages arising from misleading and deceptive conduct. As the shares are effectively worthless, the respondents lost the value of their investment (their reliance loss), and did not obtain the tripled value that they were promised (their contractual expectation loss). Only the former is recoverable under the misleading and deceptive conduct claim.
2. It follows from these conclusions that if the primary judge's finding that the respondents' investments were caused by their reliance upon the misleading and deceptive representation is upheld, they have otherwise made good their claim for reliance damages. It is therefore necessary to turn to the question of reliance.

Whether reliance established

1. Mr Vinson gave affidavit evidence that he received the Investor Pack on 24 May 2012, met with Mr Bradley on 29 May 2012, and had email communications with Mr Bradley in the period 24 to 30 May 2012.
2. He continued: "20 On the basis of the above referenced emails which I received between 24 and 30 May 2012, and on the basis of the 29 May 2012 Meeting, I understood that Mr Bradley had represented to me: a. that the Company has strong prospects of success; b. that the value of the shares in the Company would increase; and c. that he guaranteed a minimum threefold increase in the value of the shares purchased in the Company within a two year period from the date of purchase (together, the Representations). 21 In reliance upon the Representations and the Clause 46 Guarantee, on 31 May 2012, I signed the SIA on behalf of Ebbsfleet and emailed a scanned version to Mr Bradley at 4.24pm … Had the Representations not been made to me, or the Clause 46 Guarantee not formed part of the SIA, I would not have executed this SIA."
3. His evidence in respect of the remaining Share Issue Agreements that the respondents entered into was to similar effect.
4. Neither of the representations referred to in 20 and (b) of Mr Vinson's affidavit quoted in [65] above is to the effect of that upon which the primary judge based his conclusion, namely that the shares in Semantic would triple in value in two years (see [10] above). On appeal, the respondents did not file a notice of contention seeking to uphold the judgment by reference to any other representation.
5. In these circumstances, the only part of Mr Vinson's evidence-in-chief of arguable relevance is his assertion that he relied on a representation by Mr Bradley "that he guaranteed a minimum threefold increase in the value of the shares purchased in the Company within a two year period from the date of purchase" (emphasis added). That representation is only found in Mr Vinson's evidence by way of his identification of the Investor Pack that he received, which made two references to such a guarantee being given "as described in our Share Issue Agreement" or "as detailed in our standard Share Issue Agreement" (see paras 18 and 23 quoted in [11] above).
6. There was nothing misleading about the appellants' statements that a guarantee was given in the Share Issue Agreements, because it was. The problem for the respondents is that the guarantee was not fulfilled.
7. Analysed in this way, it is apparent that Mr Vinson's evidence-in-chief did not assert that he relied on the triple-in-value representation upon which the judgment was founded. Rather, he relied upon the fact that Mr Bradley gave the guarantee described in the Share Issue Agreements.
8. In cross-examination Mr Vinson gave the following evidence, to this effect. These answers were given in response to questions the primary judge asked after Mr Vinson said that he only made a limited inquiry into the viability of the investment: Q. And a fairly limited inquiry you were able to make that you described to me before? A. That is correct. But I found it compelling that Mr Bradley had put a guarantee in writing into the share issue agreement, it indicated to me that he was so sure that his company would be sold, at the time he said, that year in 2012, and he's giving himself a two year buffer in which to do that or else this clause would have effect. And this clause had the effect of diluting his own shareholding, and I took that to mean he must be extremely confident that he can pull this off-- Q. He's putting his money where his mouth is? A. Absolutely. And so, when he made - and when there were additional representations that this was the last round of capital raising, your Honour I took that to mean he is so close, he just needs enough money to get to the next hurdle to make it all happen."
9. The same point emerged from Mrs Vinson's affidavit evidence of her discussion with Mr Vinson about the investment: "11 On 4 August 2012, Simon gave me a Share Issue Agreement (SIA) completed with McGee's details. I read the SIA and was surprised by the guarantee given by Mr Bradley in clause 46 of Schedule 1 to the SIA (Clause 46 Guarantee). 12 Simon and I had a conversation in words to the following effect: Me: 'This clause about the guarantee is surprising. Clause 46. Have you seen it?' Simon: 'Yes.' Me: 'That's amazing. I can't believe Mark Bradley would make a promise like that. Isn't that legally binding?' Simon: 'Well, it's there.'" 13 On the basis of what Simon had told me about the Company and about Mr Bradley, I understood that it had been represented to me: a. that the Company has strong prospects of success; b. that the value of the shares in the Company would increase; and c. that Mr Bradley guaranteed a minimum threefold increase in the value of the shares purchased in the Company within a two year period from the date of purchase."
10. To similar effect was her evidence in cross-examination (transcript 112-3), where Mrs Vinson confirmed that her sole reliance was on what Mr Vinson said to her (and, presumably, the terms of the written guarantee that she read) (transcript pp 92, 94).
11. As the primary judge concluded, it was "inherently probable" that had the representation not been made, Mr and Mrs Vinson would not have caused Ebbsfleet and McGee to enter into Share Issue Agreements (see [21] above). However the question is what was "the representation" that Mr and Mrs Vinson relied upon. The primary judge assumed that it was a representation that the shares would triple in value within two years. For the reasons I have given however, the only representation that Mr and Mrs Vinson's evidence indicates they relied upon was that a contractual guarantee that the value of the shares would triple was given by Mr Bradley in the Share Investment Agreements. That representation was not misleading, rather it represented the fact. The fact that the promise embodied in the guarantee was not fulfilled gave them a contractual claim against the promisor (who I have held to be Mr Bradley only), but not a claim based on misleading and deceptive conduct by either Semantic or Mr Bradley.

CONCLUSIONS AND ORDERS

1. For the above reasons: 1. The respondents' contract claim against Semantic fails because Semantic did not give a contractual guarantee or warranty that its shares would triple in value within two years. 2. The respondents' contract claim against Mr Bradley succeeds as Mr Bradley's claim of procedural unfairness and challenges to the primary judge's findings on the contract claim fail. 3. The respondents' misleading and deceptive conduct claims against the appellants fail as the respondents did not prove that they relied on conduct of the appellants that was misleading or deceptive.
2. I propose the following orders: 1. Appeal allowed in part. 2. Set aside the following judgments and order entered or made at first instance: 1. The respondents' judgment against Semantic on the respondents' contract claim. 2. The respondents' judgments against Semantic and Mr Bradley on the respondents' misleading and deceptive conduct claims. 3. The order that Semantic pay the respondents' costs of the proceedings at first instance. 1. Appeal otherwise dismissed. 2. Order the respondents to pay Semantic's costs of the proceedings at first instance and on appeal. 3. Direct that the respondents receive a certificate under the Suitors' Fund Act 1951 (NSW), if qualified. 4. Order Mr Bradley to pay the respondents' costs of his appeal.
3. WHITE JA: I agree with Macfarlan JA and Sackville AJA that Semantic did not give the warranty in the first sentence of clause 46 of Schedule 1 to the Share Issue Agreements. In its express terms the warranty that Investor's Issue Shares would triple in value within two years was given by Mr Bradley. The relevant warranty given by Semantic in clause 6 set out at [13] of Macfarlan JA's reasons was that in clause 6.3. The warranty in clause 46 of Schedule 1 was not information that was capable of being true or untrue, full or partial, accurate or inaccurate, complete or incomplete, or misleading. It was not a statement of existing fact, unlike other warranties in Schedule 1.
4. The warranty given by Semantic in clause 6.4 was that its warranties and undertakings in paras 6 and 7 of Schedule 1 were true and accurate in all respects. Clauses 6 and 7 of Schedule 1 related to extraneous matters.
5. I also agree for the reasons given by Sackville AJA that Mr Bradley's promise to transfer additional shares from his personal or beneficial shareholdings if the Investor's shares did not triple in value was not the exclusive remedy for breach of the warranty that the shares would triple in value within two years.
6. I agree with the reasons of Macfarlan JA that Semantic and Mr Bradley were not denied procedural fairness and that the primary judge did not err in accepting Ms Smith's share valuation evidence.
7. I take a different view in relation to the misleading and deceptive conduct claim. In my view the appeal in respect of that claim should be dismissed. The result should be that judgment for reliance damages should be entered in favour of the respondents against Semantic.
8. The primary judge held (at [88]): "I have found that Mr Bradley made a number of representations, but in view of my findings about the value of the shares, I need only deal with his admitted representation that the shares in Semantic would triple in value in two years."
9. The express representations made by Semantic and Mr Bradley in an information memorandum dated January 2012 and a document called "Tralee Software pre-IPO offering" included the following: "We currently earn income by selling shares in the company for 25 cents in the expectation the shares will be worth at least $2.50 in three years" "Tralee believes our patents and patents pending have considerable value and that some of that value will crystallise for Shareholders in 2012" "Tralee is currently selling shares to raise capital of up to $500,000 from private investors. We anticipate substantial returns for these investors, including a minimum three-fold return guarantee within two years as described in our Share Issue Agreement" "… we believe substantial investment returns can be gained in a relatively short timeframe" and "Shares in the company are priced with the expectation of a five-fold to ten-fold return within three years or sooner. Investors are offered a guaranteed minimum three fold increase in value within 2 years as detailed in our standard Share Issue Agreement. …"
10. The respondents did not plead the making of a representation either in the terms, as found by the primary judge or in the precise terms of the written representations in the Investor Pack provided to Mr Vinson. They pleaded: "19 In the course of negotiations leading up to the entering into of the Share Issue Agreements and in order to induce Ebbsfleet and McGee to enter into the Share Issue Agreements with the Company and Mr Bradley, Mr Bradley, both in his personal capacity and on behalf of the Company, made the following representations to Mr Vinson both in his capacity as director of Ebbsfleet and, as agent for McGee, in trade and commerce: a. that the Company had strong prospects of success; b. that the value of the shares in the Company would increase; c. that he guaranteed a minimum threefold increase in the value of shares purchased in the Company within a two year period from the date of purchase; d. that Shareholders would realise significant benefits in 2012; and e. that there would not be further capital raisings by the Company. (together, the Pre-Contractual Representations)."
11. In their Amended Commercial List Response, Semantic and Mr Bradley admitted that Mr Bradley, acting in his capacity as an officer of Semantic and on its behalf, made representations to the effect of those pleaded at para 19(a), (b) and (c). They did not admit that representations were made to the effect of those pleaded at subparas (d) and (e). But those statements were expressly made in documents prepared by Mr Bradley and provided to Mr Vinson.
12. Macfarlan JA has set out (at [65]) evidence given by Mr Vinson in his affidavit of 9 July 2015 that he understood that Mr Bradley had represented to him that Semantic had strong prospects of success, that the value of its shares would increase, and that Mr Bradley guaranteed a minimum threefold increase in the value of the shares within two years. In a further affidavit sworn on 27 June 2017 Mr Vinson deposed that in signing Share Issue Agreements and causing Ebbsfleet to subscribe for further shares he also relied on the statements that "it is not proposed that there will be any further capital raisings prior to the trade sell/IPO" and that "we have raised substantial capital during the past 12 months and this is the final round".
13. Mr Vinson was not directly cross-examined on this evidence.
14. The respondents also pleaded that in the course of negotiations leading up to the purchase of additional shares by Ebbsfleet and McGee, further representations were made by Semantic through Mr Bradley that the company had strong prospects of success, that the value of its shares would increase, and that he guaranteed a minimum threefold increase in the value of shares purchased in the company within two years. Semantic and Mr Bradley admitted the first two alleged representations and in respect of the third, stated that Mr Bradley guaranteed a minimum threefold increase in the value of shares purchased in the company from time to time.
15. Mrs Vinson said in substance that she relied on Mr Vinson's business acumen in making her investment decisions and relied on him to bring any salient information to her attention to enable her to do so. She said that Mr Vinson told her that Tralee owned a number of very valuable patents from which it would make a lot of money; that its technology was fascinating and innovative and he was impressed by it. He recommended that Mrs Vinson, through her super fund, invest in it. She was shown a copy of the Share Issue Agreement on 4 August 2012 and said to her husband: "Me: 'This clause about the guarantee is surprising. Clause 46. Have you seen it?' Simon: 'Yes.' Me: 'That's amazing. I can't believe Mark Bradley would make a promise like that. Isn't that legally binding?' Simon: 'Well, it's there.'"
16. She deposed that on the basis of what her husband had told her about the company and about Mr Bradley she understood that it had been represented to her that: "a. that the Company has strong prospects of success; b. that the value of the shares in the Company would increase; and c. that Mr Bradley guaranteed a minimum threefold increase in the value of the shares purchased in the Company within a two year period from the date of purchase (together, the Representations)."
17. On the first day of the trial, during Mr Bradley's opening there was the following exchange: "HIS HONOUR: … the issues are, as I see it and you'll explain it to me more if it's different, the proper construction of the share sale agreement. There seem to be some issues there as to how I have to read some of the courses [scil. clauses] together and did their shares triple in value, that's the other issue. SECOND DEFENDANT: Yes. Its-- HIS HONOUR: So do you agree that - did you accept that what the plaintiffs have to - what your side promised was that the shares would triple in value, that is will become worth 75 cents within-- SECOND DEFENDANT: Correct. HIS HONOUR: All right. There's no dispute about that? SECOND DEFENDANT: No. COLLINS: If that assists. HIS HONOUR: Your case I think is well they did? SECOND DEFENDANT: Yes. And the three representations that the plaintiff relies on, we accept."
18. The primary judge's remarks appear to have been directed to the contractual claim.
19. Mr Vinson was cross-examined by Mr Bradley in relation to Mr Vinson's involvement in Semantic's affairs after he had become an investor. Many of the questions related to events that had no apparent relevance to any of the issues in the case. When asked by the primary judge what was the relationship between the questions and the issues, Mr Bradley said that: "The value of the company, your Honour. Throughout 2012 to 2014 Mr Vinson advised people to buy shares for 25 cents on the basis that the shares were going to triple in value.
20. There was the following further exchange: "HIS HONOUR: What if it were true that Mr [Vinson] did, or did not, do something which has affected the value of the shares - what has that got to do with what they are worth now? Or what has it got to do with the issues in this case?" SECOND DEFENDANT: Because in the two years that Mr [Vinson] was involved in the company he continued to provide documents to people, and those documents said that the shares would triple in value. HIS HONOUR: Well, he passed on your investor pack, in which you said just that. COLLINS: He wrote - yes. SECOND DEFENDANT: Yes. No-one, your Honour, approached the company and said, 'Is this true?' These people, apparently, just read these documents and said, 'Whoopee-do - it's going to triple in value.' HIS HONOUR: If they had, I have no doubt you would have said, 'Yes, it is'. SECOND DEFENDANT: Yes. HIS HONOUR: Wouldn't you? SECOND DEFENDANT: Yes. Yes, as presumably would Mr [Vinson] - I think that's really just what I'm trying to ascertain."
21. Thus, Mr Bradley himself identified that the documents in the Investor Pack contained a representation that the shares would triple in value, a view with which the primary judge agreed.
22. Later in the course of Mr Bradley's cross-examination of Mr Vinson, there was the following further exchange: "HIS HONOUR: Mr [Vinson] had made his decision to make the first investment the day after this 29 May 2012 meeting so what happened months and months later I just can't see how it can be relevant. SECOND DEFENDANT: I guess I'm attempting to make the point, you know, I'm going to be very clear about what representations I made and the nature of my confidence in my representation-- HIS HONOUR: It's admitted on the pleadings that you in your own capacity, and on behalf of the company, represented that the shares would triple in value in two years, so there's no doubt about that. SECOND DEFENDANT: Correct. HIS HONOUR: The critical question is whether you had a reasonable basis for that. SECOND DEFENDANT: Yes, that's right."
23. Macfarlan JA observes (at [62]) that Semantic and Mr Bradley did not contend on appeal that they did not make a representation that the shares in Semantic would triple in value in two years. Not only was this not a contention advanced on appeal, the appellants' written submissions stated that: "5. It was common ground at the trial that the Appellants represented to Mr Vinson that shares in Semantic would triple in value within a two year period (J[24]-[25]). That representation was in addition reinforced by a contractual warranty in each Share Issue Agreement between Semantic and the Respondents. The [principal] dispute at the trial was the value of Semantic shares 2 years after their issue in May 2014 to March 2015."
24. Semantic and Mr Bradley abandoned grounds of appeal that contended that the primary judge erred in finding that Mr Bradley did not have reasonable grounds for representing that the shares would triple in value in two years.
25. There is no doubt that the pleaded representations on which Mr and Mrs Vinson said they relied did not literally convey the representations that the primary judge found. The statements in the documents set out at [85] above also do not convey literally the representation identified by the primary judge at [86] and [88] of his Honour's reasons.
26. But a representation can be made by implication and not just by express words. A document may convey a false impression even though everything stated in it is literally true (Peek v Gurney (1873) LR 6 HL 377 at 386; Aaron's Reefs Ltd v Twiss [1896] AC 273 at 281; The King v Kylsant (Lord) [1932] 1 KB 442 at 445, 448-449).
27. There is no issue on this appeal whether the particular express representations that the respondents pleaded did impliedly give rise to the representation that the primary judge found had been made. The primary judge's finding of reliance on the implied representation was based upon Mr Vinson's evidence of his understanding of what was represented to him and Mrs Vinson's reliance on her husband's recommendations.
28. The primary judge's findings on reliance were as follows: "119 I have no doubt that Mr Vinson, and through him Ms Vinson, relied on Mr Bradley's representation when making his (and thus her) decision to cause the plaintiffs to invest in Semantic. 120 Mr Bradley did not challenge the evidence given by both Mr and Ms Vinson that had the representation not been made, they would not have caused Ebbsfleet and McGee to execute the various Share Issue Agreements. 121 In any event, that evidence of reliance is inherently probable. Mr Bradley's representation was unequivocal and it was backed up the promise he made, in the same terms, in the Share Issue Agreements. 122 In answer to questions from me, both Mr and Ms Vinson agreed that they understood that there could be a relationship between return and risk and that the high return the subject of Mr Bradley's representation and promise bespoke the possibility of a commensurate risk. 123 But that evidence points strongly to the probability that, as they said, they relied on Mr Bradley's representation and promise."
29. The "representation" referred to in these paragraphs was the representation identified at [88] of the primary judge's judgment. His Honour equated the implied representation that Mr Bradley identified, and with which his Honour agreed, with the representations on which Mr and Mrs Vinson said they relied, either directly or indirectly, and he accepted their evidence.
30. There was no ground of appeal that the respondents did not give evidence that they relied upon the representation that the primary judge found had been made.
31. The notice of appeal filed before the hearing of the appeal included the following ground: "9. That the trial judge was in error in concluding that the respondents relied on the appellants' representations when making their investments in the first appellant. a. The trial judge gave inadequate weight to the respondents' evidence that any investment in the first appellant had significant risk. b. That the trial judge gave inadequate weight to clause 5.2 of the Share Issue Agreements and the disclaimer in Schedule 2 to the Share Issue Agreements."
32. In the written submissions of Mr Cox, counsel for Semantic and Mr Bradley, a different argument was advanced. He submitted that the critical inducement for Mr and Mrs Vinson to invest was Mr Bradley's guarantee that he would transfer further shares if the price did not go up in two years. Mr Cox submitted that it was the contractual guarantee that was the causative inducement to invest, not the representations as to future performance.
33. This was not a ground of appeal, but the respondents had fair notice of it and did not oppose the application to amend the grounds of appeal to raise that issue.
34. On the first day of the hearing of the appeal questions were raised from the Bench as to whether the representations pleaded gave rise to the representation found by the primary judge at [88] of his judgment. In his oral submissions Mr Cox, who appeared for Semantic and Mr Bradley, was quizzed about the grounds of appeal and confirmed that: "The ground of appeal is put in the context of reliance and causation, that what the respondents were indeed relying on was the existence of a guarantee rather than something that had been indicated earlier."
35. Mr Cox was invited to consider his grounds of appeal, including the absence of any ground of appeal in relation to the representation allegedly conveyed. Notwithstanding the indications from members of the Bench that the representation found by the primary judge did not accord with what was pleaded, Mr Cox did not seek leave to amend the grounds of appeal to include a ground that the representation found was not that which was pleaded, nor that which was conveyed by the documentation upon which the respondents said they relied. This was to be commended. Mr Cox correctly recognised that from at least the second day of the trial, the case had been conducted on the basis that the documents impliedly conveyed that the shares would triple in value in two years.
36. Mr Cox proposed an amended paragraph 9 of the grounds of appeal. He said: "I understand there is a problem with one of the parts of the grounds. I just need to indicate the basis on which I put one of them, which I think removes part of the issue." He said that the amended grounds were intended to catch up with the submissions that he had put the previous day, and that he did not wish to put any further submissions in chief on the question of reliance. He had not to that point submitted that the respondents' evidence as to the representations on which they relied did not accord with the representation found by the primary judge.
37. The amended paragraph 9 of the ground of appeal was as follows: "9. That the trial judge was in error in concluding that the respondents relied on the appellants' representations when making their investments in the first appellant. a. The trial judge gave inadequate weight to the respondents' evidence that any investment in the first appellant had significant risk. b. That the trial judge gave inadequate weight to clause 5.2 of the Share Issue Agreements and the disclaimer in Schedule 2 to the Share Issue Agreements. c. The trial judge erred in concluding that the respondents relied on a representation by the appellants that the shares in the first appellant would triple in value in two years. The trial judge ought to have found that the respondents solely relied on the existence of guarantees by the second appellant in clause 46 of the Share Issue Agreements. d. The trial judge erred in considering the respondents' reliance on each of the ten Share Issue Agreements together. The trial judge ought to have considered reliance and causation separately for each agreement. Further the trial judge failed to consider Mr Vinson's active involvement in marketing shares in the first appellant for commission."
38. Ms Collins SC, who appeared with Mr Gee for the respondents, clarified the basis upon which the respondents did not oppose the grant of leave to amend. She said: "COLLINS: In relation to 9(c), we've had some discussions about 9(c), and my friend will tell me if this isn't right, but as I understand it, 9(c) is not a contention that there was an error in making a conclusion as to reliance on a representation that the shares in the first appellant would triple in value in two years because no such representation was made. He does not say that. What he says is that effectively the two sentences ought to be rolled together and, if my understanding is right, on that basis we wouldn't object to 9(c). We do however object to 9(d)."
39. Mr Cox accepted that the understanding to which Ms Collins referred in relation to ground 9(c) was accurate.
40. Accordingly, ground 9(c) is to be read as if it provided that: "The trial judge erred in concluding that the respondents relied on a representation by the appellants that the shares in the first appellant would triple in value in two years [in that] the trial judge ought to have found that the respondents solely relied on the existence of guarantees by the second appellant in clause 46 of the Share Issue Agreements."
41. This follows from Mr Cox's statement that the amended ground was intended to catch only the submissions he had put and from Ms Collins' statement that Mr Cox confirmed that the two sentences in ground 9(c) were to be read together.
42. I disagree with Sackville AJA (at [177]) that Ms Collins did not suggest that the amendment to ground 9(c) should be understood as entitling the appellants to succeed only if the evidence established that the sole inducement for the respondents to invest was Mr Bradley's offer of a personal guarantee.
43. The respondents accepted that they would not be prejudiced by an amendment to the grounds of appeal that included para 9(d) and leave to appeal on that ground was also granted.
44. In response to questions from the Bench, Ms Collins submitted that the case that was run at trial was that the representation that Mr Bradley guaranteed that the shares would triple in value in three years conveyed the opinion of Semantic that the shares would triple in value over that period.
45. In Mr Cox's submissions in reply he was asked by Sackville AJA: "SACKVILLE AJA: Do you make a submission, I thought you had but I may be wrong, that if you can't possibly make out a case, that they relied specifically upon the terms of the guarantee in cl 46 and on nothing else relevantly, nonetheless, they have not established on the balance of probabilities that they relied upon the representation as found in para 88? COX: Yes, your Honour."
46. In fact that submission had not been put, although Mr Cox then sought to adopt it. To be fair to him, he did so only in response to questioning by the Bench. The point was not open as it had been expressly disclaimed.
47. If the point were available to be taken, it does not follow that the respondents' claim for damages for misleading and deceptive conduct by Semantic (and Mr Bradley) should be dismissed. To conclude that Mr and Mrs Vinson did not give evidence of reliance on the representation that the primary judge found, implicitly is to assert that the representation the primary judge found does not arise from the representations on which Mr and Mrs Vinson said they relied. Macfarlan JA says (at [67]) that the representation found is to different effect from the representations on which Mr and Mrs Vinson said they relied. But there is no challenge to the primary judge's finding that the representation identified at [88] of his Honour's reasons was conveyed. It was conveyed (or is to be taken as having been conveyed) by the documents read by Mr Vinson from which he drew his understanding to which he deposed and on which he relied. Mr Vinson was not cross-examined on that evidence. I infer from the fact that he did not identify the express and implied representations in the documents he read and say that he relied on them, e.g. that the company anticipated a minimum threefold return within two years (implied) or that it expected a five to tenfold return with three years or sooner (express), that he took the predictions with a grain of salt. Nonetheless, he understood that Semantic was representing that the company had strong prospects and its shares would increase in value. It was with the belief that the company had strong prospects and that the value of its shares would increase, supported by Mr Bradley's guarantee, that he caused Ebbsfleet to subscribe for shares and recommended the investment to Mrs Vinson.
48. Inducement is a question of fact. As French CJ said in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [28] if the person to whom a misstatement of fact disbelieves what is represented, the misstatement would not ordinarily be causative of any loss or damage. In the present case Mr Vinson's evidence is not that he unquestioningly accepted the reasonableness of all of the predictions of future financial performance contained in the Investor Pack. But the effect of his evidence was that those predictions did influence his decision to invest and to recommend the investment to Mrs Vinson. No case was put that Mr Vinson disbelieved what was represented to him. To the contrary, Semantic's case at trial was that there were reasonable grounds for the prediction his Honour found.
49. To allow the appeal on the ground that Mr and Mr Vinson did not give evidence of reliance on the representation found by the primary judge, would mean that the respondents' case that they were misled by the representations on which they said they did rely would be dismissed without its having been addressed.
50. In this respect, it is important that the representations that the company had strong prospects of success and that the value of the shares would increase, were admitted. The primary judge accepted Ms Smith's evidence that all relevant times after their issue the shares were of negligible or no value. Macfarlan JA accepts (at [58]) that there was an evidentiary basis, even without relying on expert evidence, for concluding that the shares were essentially worthless. It would be but a short step to conclude that there was not a reasonable basis for the pleaded representations.
51. It is true that the respondents did not file a notice of contention seeking to uphold the judgment by reference to any other representation. They had no occasion to do so, given the grounds of appeal. Even if ground 9(c), that was added on the second day of the hearing of the appeal, is sufficient to support the contention that the respondents had not established that they relied on the representation as found by the primary judge, it was too late for the respondents to file a notice of contention. It was not until Mr Cox's reply, that is, after Ms Collins' submissions were completed, that he adopted the submission referred to at [119].
52. The Court cannot order a new trial unless there has been a substantial wrong or miscarriage (Uniform Civil Procedure Rules, r 51.53). Subject to considering the grounds of appeal that were relied upon, there would be no substantial wrong or miscarriage of justice if the appeal in respect of the misleading and deceptive conduct claim were dismissed. As noted above, the primary judge distilled or implied the representation as found at [88] of his Honour's reasons from the documents from which the representations that the respondents had pleaded were drawn. His Honour's finding that they relied upon the representation as found means that they relied upon the particular representations from which the representation as found was implied. His Honour noted that Mr and Mrs Vinson were not challenged in cross-examination on their evidence of reliance.
53. In my view there would be a substantial miscarriage of justice if the appeal in respect of the misleading and deceptive conduct claim were allowed on the ground identified in paras [67]-[74] of Macfarlan JA's reasons and in paras [169]-[186] of the reasons of Sackvile AJA. The respondents' case advanced at trial would not have been dealt with.

Reliance - The Grounds of Appeal

1. Mr Cox's principal submission was that it was the contractual guarantee offered by Mr Bradley in clause 46 of the Share Issue Agreements that induced Mr and Mrs Vinson to subscribe for shares and not the representations as to future performance made prior to 30 May 2012 (Ground 9(c)). There was nothing misleading or deceptive about the representation that Mr Bradley would provide the guarantee.
2. For the respondents to be entitled to damages for Semantic's contravention of s 1041H of the Corporations Act or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) they must demonstrate that they suffered loss or damage "by" the conduct of Semantic and Mr Bradley that contravened those provisions. The misleading and deceptive conduct was the representation as to future financial performance found by the primary judge for which there was no reasonable basis. The loss and damage suffered was the difference between the moneys paid to acquire the shares in Semantic and the value of what was received in return. To establish that that loss was suffered "by" the misleading and deceptive conduct it is sufficient for the respondents to show that the misleading representation was a cause that materially contributed to the decision to invest. The respondents do not have to show that the representation found by the primary judge was the sole inducement for their investment (I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 132 [62]; [2002] HCA 41).
3. Both Mr and Mrs Vinson undoubtedly did rely on the fact that Mr Bradley was willing to provide the guarantee in clause 46 of the Share Issue Agreement. It does not follow that they relied solely on that matter. Mrs Vinson told her husband that it was amazing that Mr Bradley would be offering his guarantee that the shares would triple in value in two years. Mrs Vinson was not cross-examined on that evidence. She gave the following evidence in relation to the evidence set out at [89] above as to her being amazed that Mr Bradley would offer his guarantee: "HIS HONOUR: Q. Now, was your surprise and amazement because you had been told that Mr Bradley had offered to triple your investment in two years? A. Yes. I felt it was - I'm not used to investing in shares - that's not my thing. I've had my own business for years - and also property is my other thing - but shares isn't, so on Simon's advice, and reading that, it was like, 'Oh wow - it's gilt-edged.'" Q. Too good to be true? A. Yeah - pretty much … Q. 'So did it occur to you that an investment which promised to treble your money in two years was risky? A. But it was in - I'm kind of one of those people - if it's in - if it's in a contract, it's like, wow, that's - you know - that's, that's, that's the, you know, the agreement - it has to be right. And I was - it was, wow, but I thought, well, that's what it says - fantastic. Q. So you thought it was risky, but there's a promise? A. Yeah."
4. There was some debate in the course of Mr Cox's submissions as to what Mrs Vinson meant by "gilt-edged" in so describing her reaction. The ordinary meaning of that expression when applied to securities is that the securities are of the highest order or quality (Macquarie Dictionary). The effect of the representation that Mr Bradley would be offering his guarantee was to emphasise the predictions as to the future value of shares in Semantic that the primary judge characterised as being a representation that the shares would triple in value in two years. Mr Bradley's guarantee gave apparent credence to that prediction.
5. Mrs Vinson did not give evidence of having read the promotional literature that Mr Vinson received and read. She said that she relied upon his business acumen in making her investment decisions and relied on him to bring any salient information to her attention in order to enable her to do so. Mr Vinson, after meeting Mr Bradley, told Mrs Vinson that Tralee (the former name for Semantic) owned a number of very valuable patents and he thought there was a very good prospect that the company would be worth a lot of money soon. Mr Vinson said that Tralee was going to make a lot of money out of its patents and was going to be an incredibly successful company.
6. Mr Vinson gave evidence that on 24 May 2012 he received the Investor Pack that included the information memorandum dated January 2012 signed by Mr Bradley and various "Tralee Software Pre-IPO Offering" documents. He attended a meeting with Mr Bradley and others on 29 May 2012. He deposed to understanding that Mr Bradley had represented to him that Semantic had strong prospects of success, that the value of its shares would increase, that Mr Bradley guaranteed a minimum threefold increase in the value of the shares within two years. He also deposed that he relied upon the statement in the information memorandum that Tralee believed its patents that were pending had considerable value, some of which would crystallise for shareholders in 2012. He said he relied on other statements to the effect that shareholders would not have to wait for long for a return on their investment. He deposed that he relied upon statements that it was not proposed that there would be any further capital raisings prior to a trade sale or IPO and that this was the final round of capital raising.
7. As noted above the primary judge evidently accepted this evidence. Save in one respect, it was unchallenged in cross-examination.
8. In response to questions from the primary judge both Mr and Mrs Vinson acknowledged the relationship between return and risk. Mr Vinson said: "I found it compelling that Mr Bradley had put a guarantee in writing into the share issue agreement, it indicated to me that he was so sure that this company would be sold, at the time he said, that year in 2012, and he's giving himself a two year buffer in which to do that or else this clause would have effect. And this clause had the effect of diluting his own shareholding, and I took that to mean he must be extremely confident that he can pull this off-- Q. He's putting his money where his mouth is? A. Absolutely. And so, when he made - and when there were additional representations that this was the last round of capital raising, your Honour I took that to mean he is so close, he just needs enough money to get to the next hurdle to make it all happen."
9. This evidence indicates that Mr Vinson relied upon the representations contained in the Investor Pack provided to him, and that the proffered guarantee enhanced the credibility to be given to the representations. The fact that Mrs Vinson relied upon her husband's recommendation does not mean that the loss suffered by McGee (the trustee of her superannuation fund) was not caused by the misleading and deceptive conduct (ABN Amro Bank NV & Others v Bathurst Regional Council & Ors (2014) 224 FCR 1; [2014] FCAFC 65 at [1375]-[1376]).
10. There was some cross-examination of Mr and Mrs Vinson in relation to a disclaimer page in the Information Memorandum of January 2012. The clause was to similar effect to the disclaimer contained in the Share Issue Agreements. Mr Vinson was cross-examined as to whether such a disclaimer was standard practice to his knowledge. He was asked if he obtained independent advice and said that he had not. He was then asked "So, you just relied on your own skills and experience? A. Correct." In the context in which that answer was given, Mr Vinson was not saying that in relying on his own skills and experience he did not rely upon the information in the Investor Pack. It was not put to Mr Vinson that knowing of the disclaimer clause he did not rely upon the representations in the Investor Pack. The disclaimer did not break the nexus between the misleading and deceptive conduct and the respondents' entry into the Share Issue Agreements (Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 at 559-561; 79 ALR 83 at 97-99; Campbell v Backoffice Investments Pty Ltd at [130] per Gummow, Hayne, Heydon and Kiefel JJ).
11. Ebbsfleet entered into seven Share Issue Agreements between 31 May 2012 and 30 August 2012. McGee entered into three agreements on 4 August and 29 August 2012 and 26 March 2013. All shares were issued at a price of 25 cents. Ebbsfleet paid $1,250,000 for five million shares. McGee paid $375,000 for 1.5 million shares.
12. Ground 9(d) asserted that the primary judge ought to have considered the issue of reliance separately for each agreement. However, Mr Cox did not point to any matter occurring between May 2012 and March 2013 that detracted from the effect of the representations upon which Mr and Mrs Vinson relied. To the contrary, the post-contractual representations made from June 2012 reinforced the earlier representations.
13. Mr Vinson deposed that between March and April 2013 he assisted Semantic in raising $450,000 in funds from other investors whom he knew and to whom shares were issued at 25 cents per share. He deposed that he requested commission for arranging those investments and requested that the commission be paid by shares in lieu of cash, which was done. McGee invested $125,000 on 26 March 2013. Mr Vinson's active involvement in marketing shares in Semantic for commission is consistent, not inconsistent, with his continuing to hold the belief about the future value of Semantic's shares to which he deposed.
14. For these reasons the challenge to the primary judge's finding on reliance is not made good.

Quantification of Damages

1. Ms Smith valued the Semantic shares at the time of their acquisition by Ebbsfleet and McGee at between .0022 and .0025 cents per share. The respondents did not establish that at the time of their acquisition the shares were worth less than .0025 cents.
2. The property obtained by the respondents in return for their payment of $1,250,000 and $375,000 was not only the shares in Semantic. It was also the choses in action against Mr Bradley pursuant to his guarantees. The value of those guarantees was not in issue on the hearing before the primary judge. It was a ground of appeal that the primary judge erred in concluding that the shares were worthless or practically worthless. It was not a ground of appeal that the value of Mr Bradley's guarantee should be taken into account in assessing damages for misleading and deceptive conduct. Nor did Semantic make that submission. In any event, the rule against double satisfaction of judgments applies. Any amounts that the respondents might recover from Mr Bradley pursuant to the judgment against him based on his guarantee will go to reduce the damages payable by Semantic and for which it is liable by reason of its misleading and deceptive conduct.
3. For these reasons the following orders should be made: 1. Appeal allowed in part. 2. Set aside the orders made on 24 February 2017 to the extent that judgment was entered in favour of the first respondent against the first appellant in the sum of $4,364,055 plus interest. 3. Set aside the orders made on 24 February 2017 to the extent that judgment was given in favour of the second respondent against the first appellant in the sum of $1,262,271 plus interest. 4. In their place: 1. give judgment in favour of the first respondent against the first appellant in the sum of $1,237,500 plus interest at the rates prescribed for the purposes of s 100 of the Civil Procedure Act in accordance with order 4(d) below; 2. give judgment in favour of the second respondent against the first appellant in the sum of $371,250 plus interest at the rates prescribed for the purposes of s 100 of the Civil Procedure Act in accordance with order 4(d) below. 3. order that the judgments in 4(a) and (b) above have effect from 24 February 2017; 4. interest be calculated from the dates of payment by the first and second respondents for the subscription of shares in the first appellant to 24 February 2017, and be calculated on 99 per cent of the sums paid. 1. Otherwise order that the appeal be dismissed.
4. Notwithstanding that Semantic has succeeded on the contract claim and the judgment entered against it on that claim has been overturned, there is no reason to overturn the costs order below. Most of the trial was concerned with questions of fact relevant to the claim based on misleading and deceptive conduct. In my view, the first appellant and the respondents have both been partially successful and partially unsuccessful on appeal. I would make no order as to the costs of appeal as between the first appellant and the respondents. The second appellant should be ordered to pay the respondents' costs of his appeal.
5. SACKVILLE AJA: I agree with the orders proposed by Macfarlan JA and, subject to what follows, with his Honour's reasons.

The warranty

1. I agree with Macfarlan JA that the primary Judge erred in concluding that the first appellant (Semantic) "joined in" the making of all the warranties comprised in clause 46 of Schedule 1 to the Share Issue Agreement dated 31 May 2012 (Agreement). [1]
2. As Macfarlan JA points out, clause 46 clearly distinguishes between the warranty given to "the Investor" by the second appellant (Mr Bradley) alone (the first sentence of clause 46) and the warranty given by both Semantic and Mr Bradley (the second sentence of clause 46). The express warranty in the first sentence of clause 46, that the "Investor's Issue Shares shall triple in value within two years from the date of [the] Agreement", is given only by Mr Bradley.
3. Contrary to the respondents' submissions, clause 6.3 of the Agreement does not have the effect that Semantic, as well as Mr Bradley, warrants that the shares will triple in value within two years. Clause 6.3 states that Semantic warrants to the Investor that "all of the information given in the Schedules is true, full, accurate, complete and not misleading". Most - indeed nearly all - of the clauses in Schedule 1 give "information" in the sense of "knowledge communicated or received concerning some fact or circumstance". [2] The effect of clause 6.3 of the Agreement is that Semantic warrants the truth, completeness and accuracy of the information given in these clauses.
4. The first sentence of clause 46 of Schedule 1 does not give "information" in the relevant sense. It contains a contractual promise by Mr Bradley as to the future value of the shares. Clause 6.3 of the Agreement therefore does not apply to the first sentence of clause 46 of Schedule 1, so as to subject Semantic to the warranty.
5. Clause 6.4 of the Agreement is a rather curious provision. Pursuant to clause 6.4, Semantic warrants that "the Warranties are true and accurate in all respects". The term "Warranties" is defined to mean, relevantly, the warranties "of the Company [that is, Semantic] contained in [clauses] 6 and 7 and Schedule 1".
6. The warranty contained in the first sentence of clause 46 of the Schedule, as distinct from the warranty in the second sentence of clause 46, is not a warranty "of the Company". It is a warranty given only by Mr Bradley. Thus, the language of clause 6.4 is not apt to create a warranty enforceable against Semantic that the shares will triple in value within two years.
7. There may well be some questions as to the precise operation of clause 6.4 and its relationship with clause 6.3. Whatever the answers to those questions, clause 6.4 does not have the effect attributed to it by the respondents.

Exclusive remedy?

1. Mr Bradley submitted that the requirement in the first sentence of clause 46 that he transfer additional shares sufficient to effect a tripling in value of the "Investor's Issue Shares" was the exclusive remedy available to the respondents for breach of Mr Bradley's warranty that the Investor's Issue Shares would triple in value within two years. Whether this submission is correct depends on the construction of clause 46. For this purpose it is necessary to ask what a reasonable business person would understand clause 46 to mean. The inquiry requires: "consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract." [3]
2. In my view, the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law is of limited assistance in construing the first sentence of clause 46 of the Schedule. [4] The question is what remedies the parties to the Agreement intended should be available to the Investor if Mr Bradley's contractual promise that the shares could increase in value was not fulfilled.
3. Clause 8.1 of the Agreement provided as follows: "The Company has set itself the business goal of reaching a market value in excess of US$500 million by enhancing and adding to its intellectual property asset portfolio and pursuing opportunities to make its technology available to customers via licensing agreements with large hardware and software vendors who provide global reach, or via acquisition."
4. The Schedule to the Agreement stated that Semantic was the sole beneficial owner of "the assets" (clause 18). This expression was defined to mean certain Australian, United States and international patents relating to software. Clause 27 of the Schedule recorded that Semantic: "is seeking interest from large software and hardware vendors based in the United States of America in acquiring or licensing the assets, those vendors including IBM, HP, Microsoft, SAP, and Salesforce.com. The company is currently in discussions with IBM and Microsoft and has been offered 'Privileged Access' to Intel's Embedded Technology Center. The Company is seeking interest from leading North American Patent Licensing and Assertion companies. Interest is being sought from the above companies by issue of a 'Request for Expressions of Interest' in early 2012."
5. The first sentence of clause 46 contained the warranty by Mr Bradley that the shares "shall triple in value within two years" and provided that Mr Bradley, should the shares not triple in value, had to transfer additional shares from his personal or beneficial shareholdings "sufficient to effect said tripling in the value of [the shares]". The terms of the Agreement clearly implied that the promised increase in the value of the shares would be achieved by exploiting the patents held by Semantic. Clause 8 of the Agreement and clause 27 of the Schedule made it clear that Semantic proposed to exploit the patents by assigning or licensing them to large offshore technology companies.
6. The commercial object of the Agreement was to raise funds from the Investor by issuing shares on terms that included Mr Bradley's warranty that the shares would increase threefold in value within two years. While Mr Bradley may have been confident that the shares would increase in value, the Investor's subscription for shares in Semantic, independently of any warranty given by Mr Bradley, plainly involved significant commercial risks. The Agreement recorded that Semantic had already issued 135 million shares to existing shareholders, [5] so that the patents would have had to be of considerable value for the shares simply to maintain the issue price of $0.25 per share. The risk of loss to investors was increased, given that the Agreement expressly recognised that: [6] "The Company raises capital from time to time to provide adequate working capital to carry on its normal business by issue and sale of new shares which shares are offered to shareholders with shareholders having first right of refusal."
7. The warranty given by Mr Bradley personally no doubt afforded some comfort to the Investor that the shares would increase substantially in value over the two year period. If the promised gains did not eventuate, the Investor had the benefit of Mr Bradley's promise. Of course, the commercial value of the warranty depended on whether it could be enforced against Mr Bradley should the occasion arise.
8. In construing clause 46 of the Schedule it is necessary to take into account the language used in the Agreement to describe Mr Bradley and to identify the nature of his obligations. The first sentence of clause 46 stated that Mr Bradley was "a Party to this Agreement as Guarantor in respect of this clause". In that capacity he warranted that the Investor's shares would triple in value within two years. Mr Bradley also warranted that he would: "retain at least 10,000,000 shares in his beneficial ownership to satisfy this Guarantee until such time as Investors Issue Shares have a freely tradable [sic] market value of at least triple the Purchase Price, at which time the effect of this clause will cease".
9. Clause 46 used the expressions "Guarantor" and "Guarantee" in an unconventional way. In Sunbird Plaza Pty Ltd v Maloney, [7] Mason CJ explained that: "a contract of guarantee is, subject to any qualifications made by the particular instrument, a collateral contract to answer for the debt, default or miscarriage of another who is contemplated to be or to become liable to the person to whom the guarantee is given". (Emphasis added.) It is for this reason that a person cannot guarantee performance of his or her own obligation to pay money. [8]
10. The effect of clause 46 of the Schedule was not that Mr Bradley was guaranteeing the performance of a promise made by Semantic. The Company did not undertake in the Agreement that its share price would triple within two years or, indeed, that the shares would increase in value over any particular period. Mr Bradley was making a contractual promise to the Investor independent of the contractual arrangements between Semantic and the Investor (except to the extent that both Semantic and Mr Bradley gave a warranty as to the extent of his shareholding).
11. Although the language used in clause 46 was anomalous, it evinced an intention that Mr Bradley's personal shareholding (or part of it) was to be set aside as a form of security for the performance of his promise to the Investor. The second sentence of clause 46 required him to set aside a parcel of shares "to satisfy this Guarantee" until such time as the parcel had a freely tradeable market value of at least triple the "Purchase Price". If the Investor's shares did not triple in value as Mr Bradley promised, he was obliged to transfer sufficient shares from his personal holding "to effect [the] said tripling".
12. Whether the shares retained by Mr Bradley would be worth enough "to effect [the] tripling in the value of [the] Investor's Issue Shares" at the expiration of two years could not be known. No matter how many shares Mr Bradley retained, they would not be worth three times the price paid by the Investor for its shares unless Semantic's patents and other intellectual property rights proved to be capable, or at least potentially capable of commercial exploitation. Moreover, there was the difficulty that Semantic, as both parties were aware, intended to continue to raise capital on the faith of contractual arrangements containing terms similar to those in the Agreement.
13. The anomalous language used in clause 46 must be understood in the light of the commercial purpose of the Agreement and the obvious risk that any shares retained by Mr Bradley might not be of sufficient value to satisfy his promise that the Investor's shares would triple in value within two years. So understood, clause 46 did not provide the only remedy available to an Investor if Mr Bradley's warranty as to the value of the Investor's shares was not fulfilled. Rather, Mr Bradley's promise to set aside and, if necessary, transfer shares to the Investor should be construed as providing a form of security for the performance of Mr Bradley's principal obligation, namely his undertaking that the value of the Investor's shares in Semantic would triple in value within two years.
14. The provision of security for the performance of a contractual promise does not ordinarily relieve the promisor from personal liability for breach of contract. Of course parties to an agreement may agree that the provision of security by the promisor or a term contemplating that repayment of a loan will be made out of a particular fund will have this effect, as is the case with a non-recourse loan. [9] But clause 46 contained no such term. The only circumstance in which the clause (including Mr Bradley's warranty as to the value of the shares) ceased to have effect was when the shares retained by him reached a market value of at least triple the Purchase Price. That never happened.
15. For these reasons, I agree with Macfarlan JA that the respondents are entitled to damages against Mr Bradley for breach of the warranty contained in the first sentence of clause 46 of the Schedule to the Agreement.

Reliance

1. Since preparing the above reasons, I have read White JA's judgment in draft. I make the following comments on the question of reliance.
2. The primary Judge considered it necessary to make only one finding concerning the representations made by Mr Bradley on his own behalf and on behalf of Semantic. The finding was that Mr Bradley represented to the respondents that the shares in Semantic would triple in value in two years. [10] This finding was not strictly within the terms of the respondents' pleadings but nothing turns on this.
3. The primary Judge's finding that the respondents relied on representations made by the appellants was confined to the representation that the shares in Semantic would triple in value. No finding was made that the respondents relied on any of the specifically pleaded representations.
4. His Honour's findings on reliance were expressed as follows: "[119] I have no doubt that Mr Vinson, and through him Ms Vinson, relied on Mr Bradley's representation when making his (and thus her) decision to cause the plaintiffs to invest in Semantic. [120] Mr Bradley did not challenge the evidence given by both Mr and Ms Vinson that had the representation not been made, they would not have caused Ebbsfleet and McGee to execute the various Share Issue Agreements. [121] In any event, that evidence of reliance is inherently probable. Mr Bradley's representation was unequivocal and it was backed up [sic] the promise he made, in the same terms, in the Share Issue Agreements."
5. In this passage his Honour did not analyse the evidence given by Mr and Mrs Vinson on the issue of reliance. His Honour seems to have assumed, rather than demonstrated, that Mr and Mrs Vinson gave evidence that had the representation (that the shares would triple in value in two years) not been made, they would not have caused the respondents to execute the Share Issue Agreements.
6. The notice of appeal challenged the primary Judge's finding on reliance, but did not identify the alleged error as a failure to find that the respondents relied solely on the existence of the guarantees given by Mr Bradley himself.
7. The written submissions filed on behalf of the appellants squarely raised the contention that the critical inducement for the respondents to invest was Mr Bradley's offer of a guarantee that he would transfer further shares if the price did not go up in two years. The submissions contended that: "the contractual guarantee was the causative inducement to invest, not the representations as to future performance of the company made prior to 30 May 2012".
8. Not for the first time in this case, the issues raised in argument went beyond the pleadings, in this case the notice of appeal. The disparity was identified in argument on the first day of the appeal and Mr Cox, who appeared for the appellants, sought leave to file the amended notice of appeal on the second day of the hearing. The terms of the amendment are set out in White JA's judgment. [11]
9. Ms Collins SC, who appeared with Mr Gee for the respondents, expressed concern that the proposed amendment might be intended to challenge the primary Judge's finding that the appellants represented that the shares would treble in value within two years. Ms Collins' entirely reasonable concern is apparent from the passage of transcript quoted in White JA's judgment. [12] Ms Collins did not suggest that the proposed amendment had to be understood as entitling the appellants to succeed only if the evidence affirmatively established that the sole inducement for the respondents to invest was Mr Bradley's offer of a personal guarantee. There was not - and could not have been - any dispute at trial that the respondents bore the onus of proving that they had suffered "loss or damage because of the conduct" of the appellants. [13]
10. Ms Collins' concerns were addressed in an exchange which took place between Macfarlan JA and Mr Cox: "MACFARLAN JA: Mr Cox, the understanding that Ms Collins outlined in relation to [para 9(c) of the proposed amended Notice of Appeal] is accurate, is it? COX: Yes, your Honour. To be precise about it, the appellant accepts that the case was conducted on the basis of the representation described by his Honour in para 88 of the judgment and here is no challenge to that representation being made by both appellants in this appeal."
11. With respect, I do not accept that the amended notice of appeal, properly understood, entitles the appellants to succeed only if the evidence affirmatively establishes that the respondents relied solely on the proffered written guarantee and nothing else in making the decision to invest. The critical question raised by the amended notice of appeal is whether the primary Judge correctly found that the appellants discharged the burden of showing that they had suffered loss or damage because of the representation that the shares would triple in value within two years. No other representation was invoked by the respondents on the appeal and they did not file a notice of contention.
12. Mr Cox returned to the issue in his oral reply submissions. The exchange recorded in White JA's judgment [14] took place in the course of a discussion designed to clarify precisely what the appellants were putting, having regard to the terms of the amended notice of appeal.
13. In his reply submissions Mr Cox reaffirmed that there was no challenge to the primary Judge's finding that the appellants had represented that the shares would triple in value within two years. Mr Cox then sought to restate the appellant's case on reliance: "COX: …In considering the reliance referable for that found representation, the respondent's evidence was in effect reliance on the existence of the guarantee and not the particular representation that his Honour had found. SACKVILLE AJA: I thought you actually said that your case is that if they relied on anything they relied upon the guarantee. COX: I suspect if I did say that, I said it more precisely the first time. I'm grateful to your Honour. That what - yes, your Honour, and that is the appellant's case on reliance. And in that circumstance [the respondents] did not rely on the representation found by his Honour. Now, other materials are said in the notice of appeal … to have been relevant to reliance, and in a sense, they have been overtaken by the [respondents'] own evidence because the relevance of the disclaimer in cl 5.2 don't [sic] really come into it if they're not suggesting they relied on a representation of tripling in value, what they relied on was the existence of the guarantee. That's how the appellant puts that part of the case. SACKVILLE AJA: Do you make a submission, I thought you had but I may be wrong, that if you can't possibly make out a case, that they relied specifically upon the terms of the guarantee in cl 46 and on nothing else relevantly, nonetheless, they have not established on the balance of probabilities that they relied upon the representation as found in para 88? COX: Yes, your Honour. WHITE JA: You did put that, did you? COX: I believe I did, your Honour. WHITE JA: It had certainly been put by members of the Bench, but I wasn't aware that it had come from your side. COX: In a sense, if I didn't, I'll adopt it now, your Honour. My memory is not perfect. I apologise if I'm taking credit for something I didn't say…"
14. For whatever reason, relatively little attention seems to have been paid at the trial to identifying which of the appellants' representations, if any, the respondents relied on when deciding to invest. Mr Vinson's affidavit evidence was given in rolled up form and did not specifically address whether he relied on the particular representation his Honour found had been made by the appellants. His oral evidence took the matter no further and indeed suggested that the "compelling" factor in his decision was that Mr Bradley was willing to give a written guarantee. Ms Vinson's evidence was no more favourable to the respondents' case.
15. It may be that the respondents could have established that they relied on one of the expressly pleaded representations to which Mr Vinson did refer in his evidence in chief. But that contention, if put at the trial, was not the subject of findings and the respondents have not sought to advance such a case on appeal.
16. The respondents had to establish at trial that they relied, at least in part, on the appellants' representation that the value of the shares would triple within two years. In order for the appellants to succeed in their challenge to the primary Judge's finding that the respondents relied on that representation, the appellants do not have to secure an affirmative finding that the respondents made their investment decision in reliance on Mr Bradley's proferred guarantee to the exclusion of all other considerations. It is enough for them to show that the evidence does not support the primary Judge's finding that the respondents, to some extent at least, on the appellants' representation that the shares would triple in value within two years.
17. As Macfarlan JA has explained, Mr Vinson identified in his affidavit three representations on which he said he relied in deciding to invest. [15] Each of these representations was materially different to the representations found by the primary Judge. The first two (that Semantic had strong prospects of success and that the value of the shares would increase) lacked a critical element in the representation found by the primary Judge, namely that the shares would treble in value within two years. The third representation identified by Mr Vinson was not that the value of the shares would treble within two years. Rather the representation was to the effect that Mr Bradley guaranteed that the shares would treble in value within two years. That representation was not misleading or deceptive because Mr Bradley intended to provide and did provide a written guarantee that the shares would treble in value within two years.
18. In short, Mr Vinson did not give evidence that he relied on or was influenced by the particular representation that the primary Judge found the appellants had made. Mr Vinson certainly gave evidence indicating that he had been influenced by Mr Bradley's promise of a written guarantee. But that was not the critical question.

Endnotes

1. Ebbsfleet Pty Ltd as trustee for Ebbsfleet Superannuation Fund v Semantic Software Asia Pacific Ltd (No 3) [2017] NSWSC 78 (Primary Judgment) at [30]. It was common ground that the respondents executed a total of 10 Share Issue Agreements in substantially identical form.
2. Macquarie Dictionary.
3. Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47] (French CJ, Nettle and Gordon JJ); see also at [109] (Kiefel and Keane JJ), both citing Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ).
4. See, for example, Downer EDI Ltd v Gillies [2012] NSWCA 333 at [142] (Allsop P, Macfarlan and Meagher JJA agreeing). Compare Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312 at [23], where the issue was whether a fresh employment contract was intended to expunge rights available to the employer under a pre-existing employment contract.
5. Clause 4 of the Schedule.
6. Clause 14 of the Schedule.
7. (1988) 166 CLR 245 at 254; [1988] HCA 11 (Deane, Dawson and Toohey JJ agreeing).
8. Bank of New South Wales Ltd v Permanent Trustee Co of New South Wales (1943) 68 CLR 1 at 11 (Latham CJ, McTiernan J agreeing); NZI Capital Corporation Ltd v Child (1991) 23 NSWLR 481 at 484 (Rogers CJ Comm D).
9. See, for example, R v New Queensland Copper Co Ltd (1917) 23 CLR 495; [1917] HCA 34 (repayment of a loan "out of profits"); NZI Capital Corporation Pty Ltd v Child at 489-490, 494; Perpetual Trustee Company Ltd v HIH Holdings (NZ) Ltd (in liq) [2013] NSWCA 47 at [18] (Macfarlan JA, Beazley P and Sackville AJA agreeing); Righi v Kissane Family Pty Ltd [2015] NSWCA 238 at [94] (Emmett JA, Ward and Gleeson JJA agreeing).
10. Primary Judgment at [88].
11. See at [111] above.
12. See at [112] above.
13. Australian Consumer Law s 236(1). Other provisions relied on by the appellants are to the same effect: see, for example, Corporations Act 2001 (Cth), ss 1041H, 1325.
14. See at [119] above.
15. See at [65] above. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 February 2018