Willett v Thomas - [2012] NSWCA 97 - NSWCA 2011 case summary — Zoe

NSWNSWCA

Willett v Thomas

[2012] NSWCA 97

Court of Appeal (NSW)|2011-10-12|Before: Basten JA, Macfarlan JA, Young JA

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Source facts

Court

Court of Appeal (NSW)

Decision date

2011-10-12

Before

Basten JA, Macfarlan JA, Young JA

Catchwords

EQUITY - fiduciary duty - accountant - whether fiduciary obligations owed - breach - whether loss suffered

Source

Original judgment source is linked above.

Catchwords

EQUITY - fiduciary duty - accountant - whether fiduciary obligations owed - breach - whether loss suffered

Judgment (47 paragraphs)

[1]

Gould v Vaggelas [1985] HCA 75; 157 CLR 215 Hagan v Waterhouse (1992) 34 NSWLR 308 Houghton v Arms [2006] HCA 59; 225 CLR 553 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; 149 CLR 191 Pilmer v The Duke Group Ltd (In Liq) [2001] HCA 31; 207 CLR 165 Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175; 160 FCR 1 Sanderson v Blyth Theatre Company [1903] 2 KB 533 Sykes v Reserve Bank of Australia (1998) 88 FCR 511 Watson v Foxman (1995) 49 NSWLR 315 Yorke v Lucas [1985] HCA 65; 158 CLR 661 Category: Principal judgment Parties: Gregory Paul Willett (Appellant) Eric Clyde Thomas (First Respondent) John Leslie Sullivan (Second Respondent) Softsand Design Investments Pty Ltd (Third Respondent) Deborah Willett (Fourth Respondent) Representation: Counsel: Mr R J Weber SC/Mr I R Pike SC (Appellant) Mr B Coles QC/Mr P E King (First, Second and Third Respondents) Mr R J Weber SC/Mr I R Pike SC (Fourth Respondent) Solicitors: Moray & Agnew (Appellant) Hayes & Partners (First, Second and Third Respondents) Moray & Agnew (Fourth Respondent) File Number(s): CA 2003/85446 Decision under appeal Citation: Thomas v SMP International (No 4) [2010] NSWSC 984 Thomas v SMP (International) No 5 [2010] NSWSC 1263 Thomas v SMP (International) No 6 [2010] NSWSC 1311 Before: Pembroke J File Number(s): SC 2003/85446

[2]

HEADNOTE [This headnote is not to be read as part of the judgment] Mr Eric Thomas and Mr John Sullivan, the first and second respondents, were injured in accidents and received large amounts by way of compensation. On the recommendation of Mr Greg Willett, the appellant, they invested these amounts in a business conducted by SMP (International) Pty Ltd ("SMP"). After the business failed and the investments were lost, Messrs Thomas and Sullivan commenced the present proceedings against Mr Willett claiming that he had breached fiduciary obligations owed to them and had engaged in misleading and deceptive conduct. They also claimed that Mr Willett's wife, Mrs Deborah Willett, and a person associated with SMP, Mr Eugene King, had engaged in misleading and deceptive conduct. The primary judge found in favour of Messrs Thomas and Sullivan on their fiduciary claim but rejected their misleading and deceptive conduct claims. His Honour declined to order that Messrs Thomas and Sullivan pay Mrs Willett's costs. Instead he made a Sanderson order requiring Mr Willett to pay those costs. On appeal the Court held (unanimously except where otherwise indicated) that: (1) Mr Willett owed fiduciary obligations to Messrs Thomas and Sullivan. (2) (By Macfarlan JA; Young JA contra and Basten JA not deciding) the primary judge's finding that Mr Willett breached those fiduciary obligations was flawed. (3) Messrs Thomas and Sullivan did not prove that they suffered loss as a result of any breach of those fiduciary obligations. (4) The fiduciary claims should accordingly be dismissed. (5) Mr Willett made representations in trade and commerce concerning future matters. These representations induced Messrs Thomas and Sullivan to invest in the SMP business. (6) Mr Willett did not show that he had reasonable grounds for making those representations. (7) Mr Willett accordingly engaged in misleading and deceptive conduct. (8) (By Basten JA; Young JA agreeing; Macfarlan JA contra) Messrs Thomas and Sullivan's investments were made directly in SMP and not through a company named Softsand Design Investments Pty Ltd ("SSDI"). As their investments in SMP were not recoverable, Messrs Thomas and Sullivan demonstrated that they suffered loss as a result of Mr Willett's misleading and deceptive conduct and were entitled to damages. (9) (By Macfarlan JA dissenting on this point) Messrs Thomas and Sullivan did not establish that they suffered loss in reliance upon Mr Willett's representations as they did not prove that their investments were irrecoverable from SSDI. (10) Messrs Thomas and Sullivan were entitled to simple interest only, and not to the compound interest awarded by the primary judge following his finding that Mr Willett was liable for breach of fiduciary obligations. (11) Neither Mrs Willett nor Mr King were shown to have engaged in misleading and deceptive conduct. (12) The primary judge erred in declining to order that Messrs Thomas and Sullivan pay Mrs Willett's costs of their unsuccessful claim against her.

[3]

Judgment 1BASTEN JA: At the heart of this case was the outlay of funds in an attempt to revive a failing business. The sources of the funds were two friends, Eric Clyde Thomas and John Leslie Sullivan. Each had, prior to 1998, suffered serious personal injuries, resulting in payment to them of large amounts of compensation. The failed business involved the distribution of recreational clothing by a company, SMP (International) Pty Ltd ("SMP"). The party from whom Messrs Thomas and Sullivan sought to recover their losses was, primarily, Gregory Paul Willett, their accountant between 1998 and 2002, who recommended putting money into SMP. 2The primary causes of action involved alleged breaches of fiduciary duty owed by Mr Willett to Messrs Thomas and Sullivan and alleged misleading and deceptive representations made by Mr Willett to Messrs Thomas and Sullivan. 3Before the provision of financial accommodation to SMP, Mr Willett had arranged for Messrs Thomas and Sullivan to purchase a number of properties through a corporate vehicle, Softsand Design Investments Pty Ltd, referred to in the course of the proceedings as "SSDI". Whether the funds paid to or for the benefit of SMP were provided directly by Messrs Thomas and Sullivan or through SSDI, will be discussed below. At all material times, there were four shares in SSDI, one being held by each of Messrs Thomas and Sullivan and two by Mr Willett. The relevant beneficial interests in the company were a matter of dispute. 4The primary judge, Pembroke J, upheld the claims for breach of fiduciary duty, but rejected the claims in respect of the alleged misleading and deceptive representations. 5The principal appeal was that of Mr Willett. He sought the following orders:

Appeal allowed.
Judgment and orders of the Court below be set aside and in lieu thereof: (a) there be judgment for the appellant; (b) the first to third respondents pay the appellant's costs of the proceedings.
In the alternative to order 2, the proceedings be remitted to the Equity Division of the Supreme Court for rehearing by the Court differently constituted.
The first to third respondents pay the appellant's costs of the appeal. 6The first, second and third respondents were, respectively, Mr Thomas, Mr Sullivan and SSDI. (The fourth respondent was Deborah Willett, the appellant's wife, who brought a separate appeal in respect of a costs order only.) Despite the suggestion that order 3 was by way of alternative to order 2, it should be inferred that the appellant sought to have the orders of the Court below set aside in any event. That claim for relief requires identification of the orders made below. However, the focus of attention on the appeal was on the "findings" of the primary judge, with little reference to the orders made. 7Messrs Thomas and Sullivan and, following the hearing of the appeal, SSDI, challenged the rejection of their claims based on Mr Willett's misleading or deceptive conduct.

[4]

Orders made in the Equity Division 8The principal judgment in the Equity Division was delivered on 22 September 2010: Thomas v SMP International (No 4) [2010] NSWSC 984 (the principal judgment). Although orders were foreshadowed, they were not made, further submissions being anticipated in respect of the calculation of interest and the proper orders as to costs. 9In the principal judgment, the trial judge proposed making orders that Mr Willett pay equitable compensation to Mr Thomas and Mr Sullivan "in the amounts specified in paragraph [76]": at [110]. He further noted that compound interest should be calculated on those amounts, from the date of each payment. At [76] he had identified the losses in question as "the amounts specified in paragraphs [48], [50(o)] and [59 (b)-(f)]". At [48] the trial judge identified payments made by Mr Thomas totalling $1.4 million. He further stated that "[o]n 12 October 2000, Mr Thomas made a further payment of $75,000 for SMP's benefit at Mr Willett's request and direction". At [59(b)] there was reference to a payment of $73,000 on 12 October 2000, by Mr Thomas into SSDI's account. The separate reference to two payments on 12 October in similar but not identical amounts was curious and suggested double counting. A further payment by Mr Thomas, referred to at [59(f)] was in the amount of $92,000. The inclusion of that sum appeared to be erroneous: the amount claimed in (f) had been rejected as not recoverable from Mr Willett. 10The accounting in respect of Mr Sullivan was also anomalous. The amount referred to at [50(o)] was an amount of $500,000 obtained by Mr Sullivan by way of loan from Perpetual Trustees Victoria (at [50(f)]) and paid to the bank account of SMP. Although this was said to have been included in the amounts of equitable compensation payable to Mr Sullivan, in fact it appears that this amount was dealt with separately in the orders. The further amounts referred to at [59(c)-(e)] were payments by Mr Sullivan totalling $214,373. 11On 6 October 2010, further reasons were given in respect of the losses suffered: Thomas v SMP (International) No 5 [2010] NSWSC 1263 (the supplementary judgment). First, his Honour referred to a payment by Mr Thomas of "$1,306,588 to discharge the NAB overdraft", being an overdraft facility obtained by SSDI: at [22(a)]). The judge noted that he had referred to the overdraft "in paragraphs 53(a) and (f) of the principal judgment". He did, but had not identified the precise amount. At [53(a)], there was reference to an overdraft facility in an amount of $800,000, guaranteed by Mr Thomas and Mr Sullivan and secured by a mortgage over SSDI's assets. At [53(f)] it had been noted that the overdraft facility was increased in May 2001 to $1.2 million. Although it was said in the supplementary judgment that there was "no dispute that Mr Thomas paid that sum", when and in what circumstances he did so was not then explained. 12Secondly, the supplementary judgment referred to a claim by Mr Thomas in respect of "the proceeds of sale of the Marlo Road properties": at [22(b)]. The reference to "properties" was obscure, only one having been purchased. Further, the property was not owned by Mr Thomas but by SSDI. It was apparently purchased partly with an amount of $547,000 deposited by Mr Thomas into the SSDI bank account. The loss asserted by Mr Thomas appears to have been a result of the proceeds of sale being transferred, at Mr Willett's direction, to SMP or its creditors. Unless the property had been transferred by SSDI to Mr Thomas, this must have been a payment by SSDI to SMP. 13These two additional amounts total $1,853,588. The order in favour of Mr Thomas was in an amount of $3,326,588. A reconciliation of these figures suggests that the amount brought forward from the first (principal) judgment was $1,473,000. That appears to have been a calculation based on there being only one payment made on 12 October 2000, in an amount of $73,000, as identified in [59(b)], not the amount of $75,000 identified at [48]. The $92,000 figure was not referred to, but was evidently excluded, the error noted above having been identified. 14Thirdly, the supplementary judgment addressed further the loan of $500,000 originally thought to have been made by Mr Sullivan by payment into the HSBC bank account of SMP on 4 September 2000. Taking into account further submissions by Mr Willett the judge said, at [22(c)]: "The evidence did not go far enough to identify the real loss suffered by Mr Sullivan as a result of that loan. There was no evidence from which I could infer that the capital amount of that loan, as distinct from some of the interest, had been paid in reduction of the loan by SMP or SSDI. There was not even evidence as to whether the loan was an interest only, or principal and interest loan. Nor in fact was there evidence from Mr Sullivan that he actually repaid the loan." 15One might have expected evidence from Mr Sullivan, who was claiming the loan as a loss, that he had actually not been repaid. In any event, that amount was removed from the quantification of the claim and referred to an Associate Justice for inquiry. 16Leaving aside the costs orders and incidental orders, two substantive orders were made on 6 October 2010, namely: (1) That [Mr Willett] pay to Mr Thomas $3,326,588. (2) That [Mr Willett] pay to Mr Sullivan $214,373. 17It was anticipated that compound interest would be calculated on each amount, but that interest was not then quantified: order (3) being a note to that effect. The orders were entered that day, as directed by the trial judge: order (10). 18The orders of 6 October had anticipated that final orders would be made in respect of the claims against SMP and Mr Eugene King, the latter having not appeared, and in relation to the two shares in SSDI held by Mr Willett: order 11(a) and (b). Further, the orders of 6 October had anticipated that final orders would be made "in relation to compound interest": order 11(c). 19On either 5 or 8 November 2010 (the Court records are unclear), the following substantive orders were entered: "1. That the fourth defendant (Gregory Paul Willett) pay to the first plaintiff (Eric Clyde Thomas) pre-judgment interest on the judgment sum mentioned in Order 1 made 6 October 2010 ($3,326,538) in the sum of $4,382,291. 2. That the fourth defendant (Gregory Paul Willett) pay to the second plaintiff (John Leslie Sullivan) pre-judgment interest on the judgment sum mentioned in Orders made 6 October 2010 ($214,373) in the sum of $257,789. 3. That the third plaintiff (Softsand Design Investments Pty Ltd) buy back one of the shares recorded in the name of the fourth defendant (Gregory Paul Willett) at nominal value, pursuant to s 257A of the Corporations Act 2011 (Cth) and in accordance with the procedures set out in Division 2 of Part 21.1 of that Act. 4. The Court grants leave for the First Plaintiff [Thomas] and Second Plaintiff [Sullivan] to file a notice of motion and affidavit in support in relation to seeking judgment against the First and Second Defendants [SMP and Eugene King], such motion to be heard on 18 November 2010 at 10:15am." Although Mr Willet sought an order in effect setting aside all orders made in the Court below, he did not identify what those orders were. He identified some 76 grounds (with some further sub-grounds) but none addressed order 3 above. 20A further judgment was delivered on 16 November 2010, dealing with the question of compound interest, but no order appears to have resulted: Thomas v SMP (International) No 6 [2010] NSWSC 1311. There is, in this Court's papers, a document said in the index to have been dated 15 December 2010 (although no date appears on the document) with the following "declaration", signed by solicitor and counsel for Mr Thomas and Mr Willett respectively: "That in addition to the orders made on 6 October 2010 and 16 November 2010, the amount payable by [Mr Willett] to [Mr Sullivan], inclusive of interest, is in the sum of $1,100,775.57." 21Curiously, the declaration was purportedly signed by the solicitor for Mr Thomas, but not for Mr Sullivan. Reference to orders made on 16 November is unexplained. The order is ambiguous: was the figure additional to the amount in order 2 made on two separate occasions so far, or was it the total amount payable, to be substituted for the earlier figure? No order in that form has yet been entered. 22On 18 November 2010, the trial judge refused an application for default judgment against SMP (International) Pty Ltd and Mr Eugene King. 23For reasons which are obscure, on 20 April 2011, the judge made orders in chambers in accordance with an attachment, which included the 12 orders previously made and added two further orders dismissing the proceedings against the third and fifth defendants, being David Joseph King and Deborah Willett. Fourteen orders were purportedly made, some by then superfluous, 12 thus being entered twice. 24Apart from the fact that an appeal is brought against orders, not reasons and that the Court must know what orders it is invited to set aside, the exercise set out above has significance in two respects. First, if, as Macfarlan JA concludes, Messrs Thomas and Sullivan are entitled to recover damages for misleading or deceptive conduct, but not for breach of fiduciary duty, it may not matter whether their payments were channelled through SSDI. Secondly, if Messrs Thomas and Sullivan are entitled to judgments against Mr Willett in their favour, it is inappropriate that the amounts be paid to SSDI.

[7]

(1) and (2) Making and timing of representations 31The relevant representations are set out below at [100]. Those identified as (b), (e) and (f) may be disregarded, the trial judge not being satisfied that statements to similar effect had been made by Mr Willett: at [92]. Somewhat unhelpfully, the discussion of the statements in the principal judgment was not addressed by reference to the pleaded representations and in some respects the findings made must be inferred. Thus, although it appears that he rejected the proposition that Mr Willett had told Messrs Thomas and Sullivan that he would "personally guarantee" moneys which they outlaid, at [92], he expressly accepted the proposition that Mr Willett had agreed to repay Mr Sullivan personally for a debt incurred on his Mastercard account on 18 September 2001 in an amount of $14,060: [59(d)], and see [60]. 32Although the trial judge did not identify the representation in terms, the statements in the first half of [92] accept, in summary terms, that Mr Willett represented that "SMP required short term finance to overcome cash flow problems" as alleged at par 35(a) of the statement of claim. The first part of paragraph 35(g), alleging representations that SMP was a business "in fantastic order" and "is booming" were clearly accepted by the trial judge: at [43] and [93]. Although there appears to have been no specific discussion of the second part of the sub-paragraph, namely that "gross annual sales" exceeded $10 million, Mr Willett gave evidence that he thought the business ought to have been generating a gross annual profit of about $5.5 million, which would have been consistent with gross annual sales in excess of $10 million: at [41]. Although his Honour made no express finding as to a statement to that effect, the evidence which he did accept made it clear that the evidence of Mr Thomas and Mr Sullivan in this regard should be accepted, as it appears to have been implicitly. Further, it is clear that the trial judge accepted, the statements alleged at (m), (o) and (u): at [43]. Apart from sub-paragraphs (a) and (g), the representations made were all as to future matters.

[8]

(3) Were representations misleading? 33The trial judge rejected the misleading and deceptive conduct case based on these representations on the basis that the "various acclamations and enthusiasms" set out at [43] were not false or misleading: at [93]. 34This conclusion lacks a sound basis in the relevant elements of s 52 of the Trade Practices Act or s 42 of the Fair Trading Act. To identify the factual issues, it is convenient to set out the key representations and the respects in which they were said to involve conduct that was misleading or deceptive or likely to mislead or deceive (statement of claim, pars 35 and 113 respectively): "(a) SMP required short term finance to overcome cash flow problems;

contrary to the representation set out at par 35(a) above, at the time the SMP representations were made SMP was under such financial pressure that an injection of short term finance would not have been sufficient for it to overcome its financial problems, which were not limited to liquidity concerns; (g) That SMP was a business 'in fantastic order' and 'and is booming' with the Australian arm of SMP, SSS, generating over AUD$10,000,000 of gross annual sales in Australia;
Contrary to the representation set out at par 35(g) above, at the time the SMP representations were made SMP was not in 'fantastic order' as a business and it was not 'booming', it then being unable to pay its debts as [and] when they fell due; (m) That SMP would improve its business performance as a result of Willett & Associates becoming involved as financial consultants and advisors to SMP, and that in particular it would improve as a result of Willett's managerial skills and know-how; (o) That SMP was in its global infancy as a business and 'was rocketing in the right direction'; (u) That SMP will be as big as Billabong one day
in respect of the future SMP representations [(m)-(w)] the plaintiffs rely upon the deeming provisions of s 51A of [the Trade Practices Act and] s 41 of [the Fair Trading Act] in respect of deemed falsity." 35The pleaded representations were not in terms as to Mr Willett's belief, but as to the matters asserted. Nor, in discussing what Mr Willett said, did the trial judge make findings in terms of his beliefs. Whether the statements were misleading or deceptive, or likely to mislead or deceive, does not depend upon the state of mind, intention or motivation of the representor, but on an objective assessment of the conduct in question: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; 149 CLR 191 at 197 (Gibbs CJ). Thus, at least in relation to representations (a) and (g), the question of whether they were misleading or not appears to have been approached on an incorrect premise. 36In respect of representations (a) and (g), there was evidence to support the conclusion that Mr Willett had made statements reflecting a "business plan" prepared for SMP for the years 2000-2005, the financial standing of which was inconsistent with the picture of the company presented in a report dated 7 February 2002, prepared by Knights Insolvency Administration. That report identified the principal business of SMP, Surf Snow & Skate Pty Ltd (SSS), as having a deficiency in the realisable value of its assets of about $1.4 million: report, par 4.8. (A second version of the page contained in the same report, identified the deficit as a little over $1.5 million.) 37The trial judge made no findings in this regard and this Court was not taken through the evidence to demonstrate the financial status of SMP at the time of the representations, namely, at least in respect of Mr Thomas, between July and September 2000. The major additional contributions made by Mr Sullivan occurred in September and December 2001.

[9]

(4) Were representations as to future matters misleading? 38There remain the representations as to future matters. There was no finding that Mr Willett was acting on behalf of SMP in making the representations: indeed, the trial judge's findings were that Mr Willett was acting as a financial advisor to Messrs Sullivan and Thomas at [67] (and possibly implicitly SSDI) and treating SMP as a potential vehicle in which, relevantly, Messrs Sullivan and Thomas could invest: at [44]. Accordingly, the representations were made by Mr Willett on his own account. The relevant statutory cause of action must therefore arise under s 42 of the Fair Trading Act. The provisions in respect of future matters are as follows: "41 Interpretation (TPA s 51A) (1) For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person." 39In his defence, Mr Willett did not plead reasonable grounds, presumably because he denied making the representations at all. That was the position he maintained at the hearing of the appeal. Further, on appeal, Mr Willett contended that representations (m), (o) and (u) did not constitute statements as to future matters, but were statements as to Mr Willett's beliefs, namely as to his then existing state of mind. 40These submissions should not be accepted. In the terms accepted by the trial judge, they were not statements as to his state of mind, except in the general sense that all predictions of the future could be so characterised. 41The next step is to address the apparent dilemma faced by a putative representor who seeks to deny making a representation but also to rely upon the defence of reasonable grounds. (That s 41(2) imposes a legal or persuasive onus on the representor is the accepted reading of the section in this Court: Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300 at [20] and [31] (Allsop P, Macfarlan JA and Handley AJA agreeing). The forensic difficulty is highlighted by the summary of the issues to be demonstrated by the representor, set out by Heerey J in Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513, namely: (1) some facts or circumstances; (2) existing at the time of the representation; (3) on which the representor in fact relied; (4) which are objectively reasonable, and (5) which support the representations made. 42The difficulty for the representor who denies making the representation is (3). In written submissions of 17 October 2011, filed after the hearing, Mr Willett sought to obtain support from the reasoning of Mason P in City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94; [2001] ATPR (Digest) 46-210 at [83]-[85], in relation to the application of Sykes, in circumstances where the putative representor denied making the representation. However, there is a level of ambiguity about the legal proposition for which this aspect of Jazabas stands: Mason P appears to have accepted that the representor was the Council and that it could demonstrate that it had reasonable grounds, without relying on the testimony of the officer who made the representation: at [82]. That is not a point which will assist Mr Willett. Nor is it correct to say as Mr Willett submitted, that the approach he identified as available according to Jazabas, was approved by Allsop P in Dib. Dib acknowledged the potential difficulty raised by Jazabas but did not grant leave to reargue its correctness, because the issue was found not to require resolution: at [53]. Given that there was a challenge which was not resolved, it would be erroneous to infer some implicit approval of Jazabas. 43The issue therefore remains: is it possible for a representor who denies making the representation otherwise to invite the Court to infer that, had he made the representation, he would have had reasonable grounds on which he would in fact have relied? The submission went no further than to assert that the injustice which supposedly arises in such a case "is ameliorated by the fact that the Court is not confined to the express evidence of the representor as to a reasonable basis for any representation which has been established to have been made": submissions, 17 October 2011, par 6. That amelioration was, it was submitted, to be found in Cummings v Lewis (1993) 41 FCR 559 at 566 (Sheppard and Neaves JJ). 44The question raised by Sykes and Jazabas, expressly and clearly identified by Allsop P in Dib at [35]-[36], is not a matter as to the means by which a representor can demonstrate, objectively, that reasonable grounds existed, but as to the difficulty (which is not so much practical as legal) in demonstrating subjective reliance. The difficulty appears to constitute an insurmountable obstacle in cases where the representor is an individual and, for whatever reason, gives an unequivocal denial of making any relevant representation, which is rejected. 45In fact, Mr Willett is in a somewhat more difficult position than a putative representor who merely denies making the representation. His evidence, as demonstrated at [161] below, was to the effect that he would not have made unqualified affirmative representations as to the future of SMP, because his own inquiries did not support such a belief. The written submissions of 17 October 2011 seek to steer an impossible course between the propositions that: (a) no representation as to future matters was made; (b) if some representation were made, it was qualified in its terms, despite the findings of the trial judge, and (c) so long as the qualifications were taken into account, such a representation was based on reasonable grounds. Neither the content of the representations, nor Mr Willett's own evidence permit acceptance of this approach. In effect his evidence indicated those matters upon which he did rely, which would not have provided reasonable grounds for any unqualified representation.

[10]

(5) Reliance 46In analysing the fiduciary relationship, the trial judge stated at [61]: "61 What Mr Willett did was enthuse Mr Thomas and Mr Sullivan in order to advance his own financial interests. He encouraged them with the acclamations about SMP's prospects which I described in [43] and [44] above. He made clear that he was now in control. He sought and obtained their trust and confidence. He relied on his superior financial expertise, his long experience of accounting practice, his supposed business management credentials and his past connection with, and knowledge of, Eugene King and SMP. He built on his established relationship with Mr Thomas and Mr Sullivan .... He made clear that he was in a position, as the new Chairman of the SMP group, to exercise control over its direction. 62 The impression that Mr Willett made on Mr Thomas and Mr Sullivan was that, in a sense, he now represented and stood behind the SMP group. This was, of course, more metaphorical than real. In late July 2000, Mr Willett had not put, or promised to put, any of his own monies or assets on the line. But these circumstances and expressions explain why Mr Thomas and Mr Sullivan believed that Mr Willett was 'guaranteeing' their investment. They were following him, accepting his recommendations and taking him on trust. Mr Willett knew this." 47In identifying the relevant legal principles to be applied in respect of the cause of action under the Fair Trading Act, the trial judge referred to the statement of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318 to the effect that, "[w]here the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances." 48As a general statement, this proposition (and those which followed in the much cited passage) provides an elegant statement of an important principle. It does not follow that the principle will always have application. The statute refers to "conduct" which may, but need not, be and be only, a representation. The conduct by which Mr Willett "conveyed the impression" to which the trial judge referred at [93] involved a complex net of circumstances, trust and statements. If what was said was, as his Honour stated at [94], "interwoven with puffery, eagerness and undue optimism" that may all properly be understood to be part of the misleading conduct. That the eagerness and other characteristics were "transparent to Mr Thomas and Mr Sullivan" may demonstrate why they relied on Mr Willett's statements, rather than the contrary. The eagerness of a trusted advisor who is believed to have intimate knowledge of an investment opportunity, and to have assessed it carefully, may do more to induce reliance on a recommendation than the actual words of the recommendation. 49It may be, as Macfarlan JA infers at [166] below, that the trial judge made a finding to the effect that there was no reliance. If he did, for the reasons given and for those given by Macfarlan JA at [166]-[168] that conclusion was not only inconsistent with other aspects of his reasoning but was erroneous. There should be an affirmative finding of reliance on the part of Messrs Thomas and Sullivan in relation to each of the representations which were made and have been shown to be misleading.

[11]

(6) Assessment of loss 50There are a number of questions to be addressed under this heading. One, which is not in doubt, is that all of the moneys advanced by Messrs Thomas and Sullivan directly or indirectly for the benefit of SMP are unrecoverable. 51Secondly, the quantification of those moneys, subject to a question of the proper way to assess interest, is not in dispute. The sums provided by Mr Thomas total $1,473,000, and the amounts provided by Mr Sullivan an additional $714,373, including the $500,000 which was the subject of the referral to Macready AsJ and accepted (in an unreported judgment of 15 December 2010) as the capital loss suffered by Mr Sullivan. 52Thirdly, there is a question as to identification of the party making the loans to SMP. There is no unequivocal finding that the amounts were in each case paid to or at the direction of SSDI. Some of the evidence militates in favour of such a conclusion, some is equivocal and some tends in the other direction. 53Favouring such a finding, the trial judge appears to have accepted that, when recommending investment by Messrs Thomas and Sullivan in SMP, Mr Willett made it clear that "the vehicle for the investment in SMP would be SSDI": at [44]. However, care must be taken with this finding. Mr Willett said in his affidavit of 22 June 2010 (par 187), after noting that SMP required approximately $1 million to keep it afloat, "Sullivan, Thomas and I came up with these funds which were invested in SMP through SSDI". First, the trial judge did not accept that Mr Willett came up with part of the funds: rather, Messrs Thomas and Sullivan came up with a little under $2 million. Secondly, the term "invest" has a variety of connotations. It may mean purchasing equity, as opposed to making a loan entitling the lender to some return, by way of interest. In any event, the next paragraph in the affidavit stated: "At or about this time [early to mid-August 2000] Thomas, Sullivan and I had a conversation in which I said words to the following effect: 'Whatever we each put in will be recorded in our loan accounts with SSDI and reconciled at the end.' Both Thomas and Sullivan said that they agreed." 54The representations were clearly intended to enthuse Messrs Thomas and Sullivan as to the possible return available from "investing in" SMP. However, the precise nature of the transactions by which this was to be achieved was, at least at that stage, undefined. 55There was evidence which supported the view that the contributions made by Messrs Thomas and Sullivan were channelled through SSDI, but which was rejected. In discussing the question of "loss and compensation", at [78], the trial judge stated: "The monies which they outlaid at Mr Willett's request during 2000 and 2001 for the benefit of SMP, were used and dissipated in the business of the SMP group. The legal status of those payments was opaque at the time and remained so. It is clear however that these monies will never be recovered. ... In any event, the SMP losses were suffered by Mr Thomas and Mr Sullivan, not by SSDI. They paid the monies from their own resources or borrowings." 56There was a set of financial statements prepared for SSDI for the period ending 31 December 2001. (These appear not to be in the appeal papers.) Of them, the trial judge stated at [81]: "This was done under pressure from, and at the insistence of, Mr Frykberg or his accountant. I can have no confidence in those pieces of paper prepared by Mr Willett. I would not be prepared to act on the basis of the information recorded in them. No attempt was made during the hearing to verify, sustain or uphold them." 57There was also a set of accounts for SSDI contained in the reports prepared by Knights Insolvency, dated 7 February 2002, apparently on the basis that SSDI constituted part of the "SMP group". The SSDI accounts bear a facsimile header, apparently emanating from Mr Thomas, and dated 8 February 2002. They purport to include trading, profit and loss figures for the year ended 30 June 2002. They identify the current liabilities of the company as including shareholders' loan accounts in the name of Messrs Frykberg, Sullivan, Willett and Thomas. Of these accounts, the trial judge stated at [81]: "Knights' instructions were to investigate the financial affairs of the SMP group. It was not instructed to investigate SSDI. Further, the investigations were not undertaken as an audit and they were not exhaustive." 58One might add that, absent some further explanation, the dates noted above suggest that the accounts were, at least in part, fictitious. 59Having rejected, correctly, the material which might have supported the view that loans were in fact made through or at the direction of SSDI, it was necessary to consider the countervailing material, which may have supported the view that there was to be an investment in SMP. 60On the letterhead of Willett & Associates, there is a minute of meeting of directors of SMP said to have been held on 24 July 2000, attended by Mr Sullivan, Mr Willett and Mr Eugene King, Mr Willett being chairman. The item of business concerned payment of royalties within the group. On the same letterhead, and dated the same day, is a document entitled "Minutes of Meeting of Directors" of SSDI. The meeting was attended by Mr Sullivan and Mr Willett, Mr Willett being the chair. The minute read as follows: "It is agreed that we will take equity in [SMP] ... and that we will receive 50% of all the companies and all the international companies. Our aim is to reduce the loans to the Honk [sic] Kong Bank by $500,000.00, injecting approximately $600,000.00 cash flow as well as if we develop Bando Road, Eugene is to get a share of profits, which is yet to be decided. There is to be a wavering [sic] of all royalty payments as the company [sic] is in an insolvent position. This is the consideration for our entry into the SMP group. A telephone linkup with our other director, Mr Clyde Thomas, who has conferred [sic] the agreement." 61The "agreement" was confirmed by letter from Mr Willett to the directors of SSDI (including himself), the following day. There were further exchanges of letters between SSDI and SMP in September 2000, which identified the benefit to Mr Eugene King as being "25% of the profits made from the Bando Road property development operated by [SSDI]". Solicitors (who had a prior relationship with Mr Thomas) wrote to Mr Sullivan "care of SMP International" setting out the non-specific terms of the share transfers which were proposed and asking that he arrange to have Mr Eugene King "sign a copy of this letter of intent for our records and for taxation purposes of [SSDI]". 62It is not necessary to record here the subsequent events between September 2000 and February 2002. It is sufficient to note, as set out by the trial judge at [56]: "On 12 February 2002, an agreement was entered into for the transfer to Mr Frykberg, Mr Willett, Mr Thomas and Mr Sullivan of 85% of the remaining 50% of the SMP group still held by the King Family Trust. The agreement was predicated on SSDI having already acquired the other 50% of the SMP group in September 2001 - although no documentation relating to the transfer of shares to SSDI had ever been lodged with ASIC. The February 2002 agreement was never implemented and nothing eventuated." 63It may be added that, although a selection of ASIC records were tendered, the evidence before the Court revealed no completed transfer of shares in SMP (or any of its associated companies) to SSDI or to any other person associated with SSDI. The shares in SMP may well have been worthless by February 2002 (at which point the principal company appears to have required an immediate injection of $3 million to continue trading) but it is clear that the "loans" made by Messrs Sullivan and Thomas, whether on their own behalf or on behalf of SSDI, were not identified at any stage as being payments for any equity in SMP. Further, it should be noted that the agreement of February 2002, as noted by the trial judge at [56], involved the transfer of shares to, amongst others, Messrs Sullivan, Thomas and Willett, SSDI not being a party to the agreement. 64Interestingly, the purported balance sheet for SSDI as at 30 June 2002 recorded as an asset, "investment SMP group" - $5,520,656.39. 65Finally, it is convenient to refer back to the specific payments made by each of Mr Thomas and Mr Sullivan. Each of the payments made by them after July 2000 was identified by the trial judge as being made to or for the benefit of SMP - at [48], [50(o)]: none (with the possible exception of $73,000) was made to SSDI: see [59(b)], but see [48]. There is no finding, nor basis for a finding, that Mr Willett was acting as agent for SSDI in requesting that Messrs Thomas and Sullivan make payments to SMP. That is not to say that SSDI did not make payments to SMP. In November 2000, Mr Willett organised an $800,000 overdraft facility for SSDI, secured over SSDI's properties at Bando and Marlo Roads: [53(a)]. In May 2001, Mr Willett caused the overdraft facility to be increased from $800,000 to $1.2 million: [53(f)]. Mr Willett drew cheques on the SSDI bank account for SMP's purposes: [54]. Voluntary administrators were appointed to the main trading company of SMP, SSS, on 27 May 2002. Two days later NAB appointed receivers of its assets: [57]. 66It appears that all of the payments to or for the benefit of SMP were organised and arranged by Mr Willett. The terms of the payments and documentation of the arrangements pursuant to which they were to be made and repaid, were apparently non-existent. There appear to have been no relevant minutes of meetings of SSDI suggesting its involvement with any of the arrangements, although it clearly was involved in providing funds through the overdraft facility secured over its properties. 67In the circumstances set out above, there is an absence of evidence supporting the view that the payments from Messrs Thomas and Sullivan were made to or at the direction of SSDI. The alternative view, which should be accepted, was that the payments were made by Messrs Thomas and Sullivan directly in favour of SMP and constituted loans by them to SMP or its associated companies. Each payment was made in reliance on representations with respect to SMP (not SSDI) made by Mr Willett. Accordingly, the losses suffered through the failure of SMP were, on the probabilities, suffered by Messrs Thomas and Sullivan directly. The terms of the loans are otherwise immaterial; absent the misleading conduct of Mr Willett, they would not have been made. 68That leaves open a question as to the possible claims of SSDI in respect of money advanced by it to SMP. However, its appeal appears to have been intended as supportive of the rights of Messrs Thomas and Sullivan against the possibility that they had made payments at the direction of SSDI.

[15]

Orders 73The following orders should be made: (1) In respect of the appeal by Gregory Paul Willett: (a) Allow the appeal in so far as it concerns the order for payment of compound interest and set aside orders 1 and 2 made on 5 or 8 November 2010. (b) Otherwise dismiss the appeal. (c) Order the appellant to pay the costs of the first, second and third respondents in respect of the appeal. (d) Direct that the parties file amended amounts in respect of orders 1 and 2 made on 6 October 2010, calculating interest on the constituent parts of those amounts from the dates on which the amounts were paid until 6 October 2010, in accordance with the rates prescribed by the rules from time to time. (e) Direct the Registrar to amend the amounts referred to in orders 1 and 2 made on 6 October 2010, so as to include the amounts of interest payable in respect of each order. (f) In the event of the relevant amounts not being agreed within 28 days of the date of this judgment, direct that the matter be relisted before a judge of the Court for further directions. (2) Dismiss the application for leave to cross-appeal of Softsand Design Investments Pty Ltd with no order as to costs. (3) Dismiss Mr Thomas' cross-appeal with costs. (4) In respect of the appeal of Deborah Willett: (a) Allow the appeal and set aside order (5) made on 6 October 2010. (b) In lieu thereof, order: 5. The plaintiffs to pay the costs of the fifth defendant. (c) Order that the first, second and third respondents pay the appellant's costs of the appeal. 74MACFARLAN JA: TABLE OF CONTENTS Summary of case and conclusions [75] SSDI's shareholding [89] The judgments at first instance [94] The issues on appeal [113] The fiduciary claim [114] Fiduciary obligations [114] Breach of fiduciary obligations [124] Whether loss caused [136] Conclusion on fiduciary claim [152] The misleading and deceptive conduct claim [153] Whether representations were made [153] Were the representations misleading and deceptive [157] Reliance upon the representations [166] Whether loss was suffered [169] SSDI's cross-appeal [178] SSDI's shareholding [183] The claim against Mrs Willett [187] The claims against Mr Eugene King [194] The Sanderson costs order [208] Orders [214]

[16]

SUMMARY OF CASE AND CONCLUSIONS 75Mr John Sullivan, the second respondent, was a commercial diver. As a result of suffering injury in a diving accident he received compensation of about $316,000 in 1994 and $450,000 in 1995. Mr Greg Willett, the appellant, is an accountant whom Mr Sullivan first met at school in Cronulla. For many years Mr Willett's firm, Willett & Associates, prepared Mr Sullivan's tax returns. Between 1984 and 1997 Mr Sullivan made various loans on Mr Willett's recommendation, including to persons and businesses associated with Mr Willett. 76Mr Eric Thomas, the first respondent, was a commercial fisherman when in 1989 he suffered a serious motor vehicle accident. He subsequently received in excess of $5,000,000 as compensation. Mr Thomas met both Mr Sullivan and Mr Willett whilst at school. 77The primary judge referred to Mr Sullivan and Mr Thomas as "men of limited education with substantial monies at their disposal, who regarded Mr Willett as financially astute, materially successful and well positioned to assist them by advancing their financial interests" (Judgment [19]). Mr Willett contested the accuracy of these propositions. 78In their Third Further Amended Statement of Claim (the "Statement of Claim") in the present proceedings, filed in its original form in 2003, Mr Sullivan and Mr Thomas alleged that: "In or around mid 1998, Willett gave Sullivan and Thomas advice the substance of which was that it would be advisable for Thomas to set up a company through which to purchase properties he was considering buying, for the reason, amongst others, that it would offer Thomas certain taxation advantages" (at [29]). 79On 24 September 1998 Mr Willett caused a shelf company that he named Softsand Design Investments Pty Ltd ("SSDI"), the third respondent, to issue one ordinary share to each of Mr Willett, Mr Sullivan, Mr Thomas and a builder, Mr Hankinson. On 1 October 1998 Mr Willett caused Mr Hankinson's share to be transferred to him. Mr Willett's entitlement to the two shares that he came to hold in SSDI was in issue in the present proceedings. 80In the period September 1998 to June 1999 SSDI purchased three properties in Bando Road and one property in Marlo Road, all in Cronulla. Mr Thomas provided to SSDI just under $3,000,000 to enable it to effect those purchases. 81Commencing in the period July to October 2000 Mr Thomas and Mr Sullivan provided significant sums of money to SSDI for the purpose of investment in a business of manufacturing surf, ski and skateboard clothing conducted by a subsidiary of SMP (International) Pty Ltd ("SMP"). SMP was at that time effectively controlled by Mr Eugene King whom Mr Willett had known for a number of years in both social and business contexts (Judgment [39], [100] - [101]). 82In mid-2000 SMP had severe cash flow problems but, according to the primary judge's findings, Mr Willett regarded it as "an investment opportunity" and "recommended and encouraged" Mr Thomas and Mr Sullivan to invest in it (Judgment [40] and [1]). SMP's business collapsed in May 2002 when voluntary administrators and receivers were appointed. 83Thereafter Mr Thomas, Mr Sullivan and SSDI (collectively, "the plaintiffs") commenced the present proceedings against, inter alia, SMP, Mr Eugene King, Mr Greg Willett and Mrs Deborah Willett (Mr Willett's wife). 84The claims made in the Statement of Claim that have continuing relevance are in essence: (a) That Mr Willett owed fiduciary obligations to the plaintiffs which he breached, first, in connection with the plaintiffs' provision of funds for investment in SMP, and secondly, by profiting at the plaintiffs' expense and allowing his interests to conflict with theirs. (b) That SMP, Mr and Mrs Willett and Mr Eugene King made misleading and deceptive representations to the plaintiffs concerning the financial position and prospects of SMP (and/or were knowingly concerned in the making of such representations) and that these induced the plaintiffs to provide funds for investment in SMP. 85The primary relief sought was equitable compensation or damages equivalent to the amounts that the plaintiffs provided for investment in SMP. 86The proceedings were heard by Pembroke J, sitting in the Equity Division of the Court. The hearing lasted five weeks. References in this judgment to the judgment at first instance are to the principal judgment, delivered on 22 September 2010. Also relevant to the issues on appeal are judgments dated 6 October 2010 (the "Costs Judgment"), 16 November 2010 (the "Interest Judgment") and 18 November 2010. The primary judge's findings were in essence as follows: (a) Mr Willett owed fiduciary obligations to Mr Thomas and Mr Sullivan which he breached by dishonestly concealing from them that he had caused two shares in SSDI to be allocated to him. (b) If that breach had not occurred, Mr Thomas and Mr Sullivan would not have provided monies to SSDI for investment in SMP. As the investments in SMP were lost, Mr Thomas and Mr Sullivan were entitled to compensation in amounts equivalent to those monies (Judgment [76]). These amounts were $3,326,588 in the case of Mr Thomas and $214,373 in the case of Mr Sullivan (Orders (1) and (2) made on 6 October 2010). A further amount of $497,964.92 was awarded to Mr Sullivan pursuant to a consequential judgment of Macready AsJ dated 15 December 2010 (the "Macready AsJ Judgment") ([8]). (c) Mr Thomas and Mr Sullivan were entitled to compound interest on the judgments in their favour (Interest Judgment). (d) Mr Thomas and Mr Sullivan's misleading and deceptive conduct claims against Mr and Mrs Willett failed (Judgment [92] - [99]). (e) Mr Thomas and Mr Sullivan's application for the entry of default judgment against Mr Eugene King and SMP should be dismissed (Judgment dated 18 November 2010). (f) A Sanderson order (see Sanderson v Blyth Theatre Company [1903] 2 KB 533) should be made in relation to Mrs Willett's costs, with the result that she obtained an order for costs against Mr Willett but not against the plaintiffs (Costs Judgment). 87The parties challenged these findings as follows: (a) By Notice of Appeal Mr Willett challenged the findings against him concerning breach of fiduciary duty and the primary judge's decisions to award compound interest and to make a Sanderson order; (b) By Notice of Cross Appeal Mr Thomas (but not Mr Sullivan or SSDI) appealed against the decision in favour of Mrs Willett and against the primary judge's decision not to enter judgment against Mr Eugene King; (c) By Amended Notice of Contention the plaintiffs contended that the judgment in favour of Mr Thomas and Mr Sullivan against Mr Willett could be justified on the alternative basis that he had engaged in misleading and deceptive conduct; (d) By an application made after the appeal hearing Mr Thomas and SSDI sought leave for SSDI to be added as a cross-appellant to enable it to contend that judgment should be entered in its favour against Mr Willett and Mr Eugene King on the basis that they had engaged in misleading and deceptive conduct; and (e) By Notice of Appeal Mrs Willett challenged the Sanderson order made in relation to her costs. 88My conclusions in relation to the matters that were in issue on the appeal are as follows: (a) Mr Willett did not succeed in his challenge to the primary judge's finding that he owed fiduciary obligations to Mr Thomas and Mr Sullivan (see [114] - [123] below) but did demonstrate that the primary judge's finding that he breached those obligations was flawed (see [124] - [135] below). (b) The primary judge's finding that Mr Thomas and Mr Sullivan suffered loss as a result of Mr Willett's breach of his fiduciary obligations was erroneous. As the proper conclusion on the evidence is that they did not prove that they suffered such loss, their claim against Mr Willett for breach of his fiduciary obligations fails (see [136] - [152] below). (c) Representations that Mr Willett made to Mr Thomas and Mr Sullivan concerning the prospects of SMP's business were representations as to future matters and, as Mr Willett did not show that there were reasonable grounds for the making of those representations, they constituted misleading and deceptive conduct (see [153] - [165] below). (d) In reliance on that conduct Mr Thomas and Mr Sullivan advanced money to SSDI for investment in SMP (see [166] - [168] below). (e) Mr Thomas and Mr Sullivan did not establish that they thereby suffered loss because they did not demonstrate that the loans that they made to SSDI are wholly or partly irrecoverable (see [169] - [180] below). Their claims against Mr Willett therefore fail, as does (for the same reason) Mr Thomas' claim against Mr Eugene King. I note that Mr Sullivan did not seek to pursue his claim against Mr Eugene King on appeal. (f) SSDI's application to be joined as a cross-appellant to enable it to contend that judgment should have been entered in its favour against Mr Willett on the basis of his misleading and deceptive conduct should be granted (see [178] - [181] below). (g) Mr Willett's misleading and deceptive conduct caused loss to SSDI: if Mr Thomas and Mr Sullivan had not been induced to advance money to SSDI for investment in SMP, SSDI would not have invested that money in SMP and those investments are worthless (see [176] - [177] below). (h) SSDI is therefore entitled to judgment against Mr Willett for the amount of those investments, which equates to the total of the sums that Mr Thomas and Mr Sullivan lent to SSDI to enable it to make those investments (see [177] below). (i) The misleading and deceptive conduct claim against Mrs Willett fails as she was not proved to have made relevant representations (see [187] - [193] below). (j) Leave should not be given to SSDI to join in the cross-appeal for the purpose of pursuing its pleaded claim against Mr Eugene King. That claim therefore fails (see [194] - [207] below). (k) The Sanderson costs order that the primary judge made should be set aside (see [208] - [213] below).

[18]

Mr Sullivan's version 90In his affidavit of 15 December 2009 Mr Sullivan said that in July 1998 Mr Willett, in Mr Sullivan's presence, recommended to Mr Thomas that he invest in property in Sydney and that on 18 September 1998 Mr Willett recommended to Mr Thomas the purchase of properties in Bando Road, Cronulla. Mr Sullivan went on to depose as follows: "1398. [On or about 20 September 1998] Willett was explaining to Thomas the tax advantages in buying the properties in a company. 1399. Willett then said to Thomas words to the effect: 1400. 'The best way to buy these properties is through a company so I will set one up for you'. 1401. Thomas said to Willett words to the effect: 1402. 'Yes, go ahead'. ... 1404. On 23 September 1998 I was at Willett & Associates office. 1405. In my presence Willett said to his secretary words to the effect: 1406. 'Can you complete the forms to set up the company for Thomas. The company is in the name of Softsand Design Investments Pty Ltd (SSDI).' 1407. Willett's own company (his family company) is called Softsand Design Pty Ltd. 1408. In my presence Willett then rang Thomas and there was a conversation on speaker phone between the three of us. 1409. Willett said to Thomas words to the effect: 1410. 'I have set up a company for you, its all ready to go'. ... 1441. On 4 October 1998 Thomas arrived in Sydney. We went to Bando Road to look at the houses. Thomas was really impressed. We talked about which one would be the best one to renovate for him to live in. ... 1442. On 5 October 1998 I was with Thomas, after looking at Bando Road we went to Willett's house. We had lunch with Deb [i.e. Mrs Willett] and Willett. 1443. Willett said to Thomas words to the effect: 1444. 'We can go into partnership to develop Bando Road between you, me, Deb, John and the builder Rob Hankinson'. ... 1450. At no stage did Willett or his wife mention that the arrangement included them owning half of the SSDI shares or that I would have a share in SSDI."

[19]

Mr Thomas' version 91Mr Thomas' affidavit of 16 December 2009 included the following: "24. ... [On or about 3 July 1998] I ... said to Willett (words to the effect), 'As you know I am living in Eden on a deer farm and have a fishing business. My wife and daughter have both been very sick, I am looking at buying a house somewhere close to a good hospital. I think Sydney is the most logical place for us to move to, given our health situation and the fact that our parents both live here.' Willett then said (words to the effect), 'I've got clients in Eden, it's the dead end of the world, Sydney is the place to be and Cronulla is the best place in Sydney, this is where it's all happening, if you want I'll try and find you a nice place, just leave it to me.' Willett then left the worksite. ... 26. On or around 3 to 6 July 1998 I had several conversations with Willett about properties. Willett was very keen to find me something. Willett said (words to the effect), 'Willett and Associates can look after all your accounting needs and I am happy to be your financial adviser.' ... 34. [Between 19 and 24 September 1998] Willett said to me (words to the effect), 'If you're successful at the auction you should buy these properties through a company.' I queried Willett and said (words to the effect) 'Why should I put the properties into a company?' Willett said (words to the effect), 'Whether you develop them or not, by combining the purchasing and doing the DA requirements and then selling the properties through a company, you will realise the best taxation advantages and return on your money.' I said (words to the effect) 'OK, but how do I do this before the auction?' Willett then said (words to the effect) 'Don't worry; I've set up dozens of companies for my clients over the years, I can set up a company in a day for you.' I said (words to the effect) 'I will talk to my wife and get back to you.' I then phoned Willett and said (words to the effect) 'OK. Could you set up the company for me?' Willett said (words to the effect), 'I will set it up straight away.' ... 36. Willett formed SSDI On or about 24 September 1998 Willett formed a company for me; he named it Soft Sand [sic] Design Investments Pty Ltd (SSDI). Willett chose the name and I was unaware that his own company was called Soft Sand Design Pty Ltd. Willett issued 4 shares in total, 2 shares to himself, 1 share to John Sullivan and 1 share to me. I never authorised Willett to issue himself or John Sullivan shares in my company. ... 37. On or about 25 September 1998, Greg Willett phoned me and said (words to the effect): 'I've formed the company for you but I haven't got the banking sorted yet, so could you put the money for the deposits in our Willett and Associates trust account for now and I'll sort it out later.' At Willett's request, I transferred $130,000.00 from my CBA Account to the 'Willett and Associates Trust Account'. ... 48. I agree to do a joint venture with Willett. On or about the 5 October 1998 I met Sullivan at his home. We then drove to Bando Road for another look at the properties [which had been purchased at auction on 26 September 1998]. From there we went to Willett's house at Lugarno Road Cronulla. We had lunch with Willett and his wife Deborah at their house and discussed Bando Road. Willett said at this lunch / meeting (words to the effect), 'We could do a partnership together on Bando Road with Deb myself and John along with Rob Hankinson who would be our builder.' Willett described what he thought could be built on the site. He said (words to the effect), 'We can build around nine townhouses we think, and we could build a magnificent town house for you, specially designed for your needs. If you decide to go ahead with us we will raise the funds for the building as our share, Rob Hankinson will build them for his share, you can put the land up as your share the rents will cover the cost of the DA and design and we'll divide the profits equally after everyone's costs have been met. Deb and Terry (Willett) and myself will do the selling of the properties, we could have them all sold before we lay a brick. I sold the last townhouse off the plan. Meanwhile, I will look after renting the houses and your rental money will go into your company bank account for maintenance, the DA and design costs. Willett and Associates will handle all of your financials accounting and taxes for this project. I will start talking to my clients straight away and I can probably get some of them to put up some of the funds now if we give them a discount.' I said (words to the effect), 'The main reason for buying a property in Cronulla is my family and I need somewhere to stay in Sydney, not just for development.' Willett said (words to the effect), 'Don't worry Rob Hankinson could do up one of the houses for you until we can develop the units and build a unit for your needs, it will be at least a year to get the plans passed and to raise the funds to build.' 49. I ask Willett about contracts I then asked about a contract saying (words to the effect), 'We need a contract between us to do this development.' Willett said (words to the effect), 'I didn't have a contract with Sullivan, while building XX Kirkwood Road and everything worked perfectly, I do all my deals on a handshake, my footballer management and my clients['] investments, but if your [sic] not happy we can put something together. Just remember I'm going to be putting my money into the project as well. We can talk about contracts and agreements when the plans are passed.'"

[20]

Mr Willett's version 92In his affidavit of 22 June 2010 Mr Willett said that he had discussions in mid-1998 with Mr Sullivan concerning the possible purchase of properties in Bando Road. Mr Willett continued: "57. My intention was to pursue the development jointly with Sullivan and divide any profit equally between us, just as we had on the Kirkwood Road property. My early intention was to have equal shareholding in the new company: 50% Sullivan and 50% myself. From discussions with Sullivan at the time in words I no longer specifically recall, he said that he agreed with this approach. 58. I decided that we would call the new company Softsand Design Investments Pty Ltd because it was to be an investment company [original emphasis]. ... 63. During this process [of seeking finance], Sullivan came to me and said words to the following effect: Sullivan: 'Clydie would like to come in. Clyde could finance us the purchase price interest free and after we sell he gets his money back and he gets a quarter of the profit.' 64. I understood the reference to 'Clydie' to be a reference to Sullivan's old friend Thomas, who he had reintroduced to me. Thomas had been involved in a very significant car accident and was a quadriplegic. Sullivan told me words to the effect that: Sullivan: 'Clyde has heaps of cash from the payout of his court case'. ... 68. At around that time, Sullivan and I had discussions about involving a local builder, Robert James Hankinson. I said to Sullivan words to the effect: Willett: 'I should get a share, you get a share, Thomas gets a share and then we get a builder in. Why don't we use Rob Hankinson.' ... 71. Shortly after ... discussions [with Mr Hankinson] I had a conversation with Sullivan to the following effect: Willett: 'Hankinson say's [sic] he'll do it. I think it makes sense to have him in as a shareholder from the start.' Sullivan: 'I agree.' 72. Based on this conversation and others before it, I intended that, when it came time to incorporate the new company for the Bando Road development, the corporate structure would be that each of Hankinson, Sullivan, Thomas and I would be shareholders, with 1 share each. Any profit on the venture would be split equally: each of us would receive a 25% share of the net profit of the venture. This is because Thomas was in effect acting as the banker but not receiving interest. Sullivan would run the development as he had with Kirkwood Road; Hankinson would do the building without a builder's margin and I had found the properties. 73. I therefore arranged for Thrifty Shelf Companies to incorporate a proprietary company which: (a) was named Softsand Design Investments Pty Limited; (b) Had 4 shares which were intended to be issued to each of Sullivan, Thomas and Hankinson and me; (c) Had 4 directors which were intended to be Sullivan, Thomas, Hankinson and me. BUILDER NO LONGER INVOLVED - PROFIT TO BE SPLIT 3 WAYS 74. Shortly after this time I had a conversation with Sullivan. We had recently had an argument with the builder on Kirkwood Road, who was someone named McCarthy. Sullivan: 'What if we have a fall out with the builder on this new job? What happens?' Willett: 'We have to think about that. If we don't have the builder in, we can divide any profits three ways rather than four.' 75. A few days later I was present when Sullivan and Hankinson had a conversation to the following effect: Sullivan: 'It's not going to work. Because Clyde put the money up, he doesn't want someone else in.' Hankinson: 'That's fine. I will build it anyway.' 76. At around this date Sullivan and I had a conversation to the following effect: Willett: 'Ok. So we're in this as a three way thing. I've found the properties, Thomas will provide the funds and you'll do the running around and get the development done. We all take a third each of the profits.' Sullivan: 'Yep. That's what Clyde says too.' ... 78. On a date between 24 September 1998 and 1 October 1998 I had a meeting with Sullivan and Thomas to sign the company registration. To the best of my recollection, we may have been in my office talking to Thomas on the phone. 79. Amongst other things we discussed was what was to happen to the share which had been intended for Hankinson. Either Sullivan or Thomas said words to the effect: 'Leave the two shares with you. We can sort it out later.' 80. On a date between 24 September 1998 and 1 October 1998 Thomas executed various documents in the blue book formalising the company arrangements, including an application for shares in share certificate number 4. ... 83. At no stage did I ever discuss or intend SSDI to be set up for the benefit or use of Thomas alone. SSDI was not created for Thomas but rather was created as the vehicle through which Thomas, Sullivan and myself would make joint investments in xx, xx, and xx Bando Road. 84. I did not incorporate the company solely for the benefit of Thomas. The name of the company was my idea and was similar to our other company, SDPL [ie. Softsand Design Pty Ltd]. If SSDI was created solely for Thomas, I would not have used this name, given its history and personal association with my family, nor would I have been involved with SSDI to the extent to which I was. 85. As set out above, the original plan was for Hankinson to have the fourth share. When he dropped out, although four shares had been issued and I held two, I only ever regarded myself as having an equal one third interest with Thomas and Sullivan, and intended, if the development proceeded, that any profits or losses would be split in this manner."

[21]

The primary judge's findings 93The primary judge referred to the initial shareholdings in SSDI and then to the allocation of Mr Hankinson's share to Mr Willett. His Honour then continued: "23 ... The reason for the establishment of the company, at least initially, was the investment of Mr Thomas' personal injury monies. That was the only money realistically available to SSDI from the shareholders at that stage. Somewhat surprisingly, shortly after its incorporation, Mr Willett owned 50% of SSDI's issued capital. 24 Mr Willett says that this situation came about because, within a few days of the company's incorporation on 24 September, it was decided that Mr Hankinson should not be a director or shareholder. He says that he discussed with Mr Thomas and Mr Sullivan what was to happen to Mr Hankinson's share and that either Mr Thomas or Mr Sullivan said words to the effect: "Leave the two shares with you. We can sort it out later." I reject this evidence. It is inconsistent with the explanation given by Mr Willett in proceedings in the District Court in 2008. I have grave doubts about the honesty of Mr Willett's evidence on this issue. In the District Court proceedings, his explanation was that SSDI was initially established as a joint venture between him and Mr Sullivan. In these proceedings, he has said that from the outset, it was established as a joint venture of which Mr Thomas was a part. 25 Mr Willett's evidence in the District Court was as follows: Q. You made yourself a shareholder in this company without telling either Mr Sullivan or Mr Thomas didn't you? A. No Mr Thomas wasn't coming into it at that time. The person who found the land was a man called Kas James and he told us after we'd done the development of Kirkwood Road, there was three blocks of land up in Bando Road that we should buy for a development. So I formed a company and there was going to be two shares Sullivan and two shares me. Then what happened was Sullivan said, 'Mr Thomas wants to come in', and so we went up there and we bought the land in the - but we'd already - because there was going to be four shares issued and that's how come the four share part came about, and I had two and they had one each. Because he told me all Mr Thomas was going to be was we were going to do the deal with the St George Bank and he told me that Mr Thomas would come in and he'd finance the development. So they got a share each for their half and I got my two shares. 26 It is not possible to reconcile the explanation given by Mr Willett in the District Court proceedings with the evidence which he has given in these proceedings. Mr Willett also confirmed in his District Court evidence that at the time, he had no money to contribute to SSDI; that Mr Thomas was primarily putting the money in; and that he (Mr Willett) knew what a fiduciary was. For reasons which will become clear, I regard Mr Willett's conduct in connection with his acquisition of a second share in SSDI as amounting to double-dealing. ... 32 In these proceedings, Mr Willett characterised SSDI as a corporate vehicle that was established at the outset for the shared commercial exploitation of mutual investment opportunities - in which Mr Willett, Mr Thomas and Mr Sullivan were co-venturers, on an equal footing, who were prepared to take higher risks in return for higher correlative rewards. 33 On the other hand, in 1998 Mr Thomas was the recipient of very substantial monies from his personal injury verdict. Since 1997, those monies had been placed on deposit with Mr Thomas' bank. In contrast, Mr Willett had no available monies. And Mr Sullivan had no immediate intention of investing monies in SSDI. It is understandable that Mr Thomas was open to suggestions and recommendations from Mr Willett about more effective investment. As Mr Thomas subsequently provided almost all of the funds for the properties purchased by SSDI, it is also understandable that he may have convinced himself that SSDI was his company - especially in the process of reconstruction by him since 1998, overlaid as it no doubt was, by his sense of injustice and perceptions of self interest, conscious or sub-conscious. He says he knew that the three of them were directors, but that he did not know they were all shareholders. Mr Sullivan's evidence was to the same effect. 34 The truth, I think, was somewhere in between Mr Willet's characterisation and the reconstruction of Mr Thomas and Mr Sullivan. In reaching my conclusion, I have had regard to the documentary evidence and the probabilities, the evidence of other witnesses that I accept, and my assessment of Mr Thomas, Mr Sullivan and Mr Willett. It necessarily requires me to reject Mr Willett's explanation and much of the reconstruction of Mr Thomas and Mr Sullivan. The principal relevant factors are as follows: (a) First, Mrs Liddlelow recalls, at the time of the establishment of SSDI, that Mr Willett said to her words to the effect: 'Clydie needs his own company'. Notwithstanding his statement that Mr Thomas needed his own company, he then told her that there would be four shareholders and directors, Mr Thomas, Mr Sullivan, Mr Willett and Mr Hankinson; (b) Second, Mr Thomas and Mr Sullivan each received numbered share certificates. And in November 1998, after several requests of Mr Willett, Mr Thomas and his wife received a draft balance sheet of SSDI showing that the issued capital of the company was $4 constituted by four $1 shares. Mr Thomas and Mr Sullivan must have understood at the time that they and Mr Willett were not only directors, but also shareholders, of SSDI; (c) But third, I do not think that Mr Thomas and Mr Sullivan understood the implications. They assumed, I am satisfied, that their respective interests in the company were equivalent, at least initially, to the investment (if any) which each of them made. Hence in 1998, Mr Thomas rationalised that the company was for his benefit. And Mr Sullivan believed that he was assisting his friend, Mr Thomas, in a vehicle primarily designed for his benefit, but with some expectation of profit for himself. In my view, neither Mr Thomas nor Mr Sullivan, or for that matter Mrs Thomas, had an adequate understanding of the significance of ownership through a corporate vehicle. They started off thinking that the Bando Road properties might be redeveloped but did not know, or understand, how any redevelopment would be funded or how any profits on resale would be shared through SSDI. 35 But whatever view is taken of the matter, Mr Willett's conduct in bringing about a situation, within a short time after incorporation, where he held 50% of the issued shares of SSDI, was not honest. It was contrary to the natural expectations of Mr Thomas and Mr Sullivan and occurred without any meetings of the company or its directors being held. Mr Willett did not inform Mr Thomas and Mr Sullivan or obtain their consent. Nor did he contribute any significant monies to the purchase of the properties which SSDI acquired. He was, in my view, engineering an opportunity for himself. He perceived that it was not in his interest to be full and frank or to deal openly and directly with Mr Thomas and Mr Sullivan. He saw advantage to himself in opacity, obscurity and non-disclosure."

[26]

Compensation for breach of fiduciary duty 99The primary judge's reasoning on this topic included the following: "78 As I have already mentioned, Mr Thomas and Mr Sullivan should never have been in the position in which they found themselves. The monies which they outlaid at Mr Willett's request during 2000 and 2001 for the benefit of SMP, were used and dissipated in the business of the SMP group. The legal status of those payments was opaque at the time and remained so. It is clear however that these monies will never be recovered. It is neither appropriate nor necessary to take into account the profits, if any, that SSDI made on the re-sale of the Bando Road properties. The evidence did not reveal the prices at which the properties were sold or the net profit to SSDI, if any. This would require an accounting of all holding costs, charges and expenses during the period of ownership by SSDI. In any event, the SMP losses were suffered by Mr Thomas and Mr Sullivan, not by SSDI. They paid the monies from their own resources or borrowings. Any net profit that may have been earned by SSDI from the Bando Road properties is a separate matter. It is extraneous to my consideration of the position of Mr Thomas and Mr Sullivan. ... 80 SSDI was not a regular company, properly managed. Its records were not properly maintained. That was entirely Mr Willett's fault. Shortly after it was established, it became a cloak for Mr Willett's subterfuge, as a vehicle for advancing his own financial interests. There is no reasonable or equitable basis for requiring, as a condition of equitable compensation, that Mr Thomas and Mr Sullivan engage in the speculative exercise of seeking to recover from SSDI monies that may or may not be standing to their credit in loan accounts with SSDI. Further, and in any event, there was no adequate evidence of the maintenance or the amount of any loan accounts held by Mr Thomas or Mr Sullivan with SSDI. No person on behalf of SSDI was in a position to give reliable evidence of its current financial position or the reality of any loan accounts supposedly existing for the benefit of Mr Thomas and Mr Sullivan."

[27]

The misleading and deceptive conduct claim 100The following representations alleged in the Statement of Claim to have been made by SMP (inter alia, through Mr Eugene King), Mr Willett and Mrs Willett remain of potential relevance on appeal: "(a) SMP required short term finance to overcome cash flow problems; (b) Willett was a 10% shareholder in SMP; ... (e) Re-payment of any monies which Softsand [ie SSDI], Thomas or Sullivan might loan to SMP, advance for the benefit of SMP, or invest in SMP would be secured and was 'safe and sound'; (f) That the repayment of any monies that Softsand, Thomas and Sullivan might loan to SMP, advance for the benefit of SMP, or invest in SMP was 'absolutely fool proof'; (g) That SMP was a business 'in fantastic order' and 'and is booming['] with the Australian arm of SMP, SSS, generating over AUD $10,000,000.00 of gross annual sales in Australia; ... (together the 'SMP Representations') (m) That SMP would improve its business performance as a result of Willett and Associates becoming involved as financial consultants and advisers to SMP, and that in particular it would improve as a result of Willett's managerial skills and know how; ... (o) That SMP was in its global infancy as a business and 'was rocketing in the right direction'; (p) That if Softsand, Thomas or Sullivan should either loan funds, advance funds for the benefit of SMP, or invest in SMP, it presented an ideal opportunity for Thomas and Sullivan to secure the long term financial security of their families, and in particular, that their daughters could obtain future employment with that company; ... (s) That Willett would personally guarantee the repayment of any funds loaned to SMP, or advanced for the benefit of SMP; ... (u) That SMP will be as big as Billabong one day; ... (together the 'Future SMP Representations') (Statement of Claim [35]). 101The primary judge's conclusions in relation to the misleading and deceptive conduct claim were expressed as follows: "40 There is no doubt that by mid-2000, Mr Willett regarded SMP as an investment opportunity. He knew that it was under pressure from its banker, HSBC. He believed that it was not well managed under Eugene King. He considered whether the group should be allowed [to] sink and the business bought back from the bank. He had formed the view that the brand was exciting and the cash flow substantial. He not only thought, but also told Mr Sullivan, and probably also Mr Thomas, that: ... everyone reckons SMP is a terrific brand and maybe this is a chance to invest at a good time and get in there early before it gets really big. 41 At around this time, Mr Willett was provided with turnover figures for the SMP business. It is more probable than not that he looked at other books and records of SMP. He asked for a list of debtors and creditors. As with some other areas of his evidence, and given the allegations of misrepresentation against him, he was predictably circumspect about what he saw, saying that he could no longer recall the figures with which he was provided. However, he acknowledged that the figures demonstrated to him that the business ought to have been generating a gross profit of about $5.5 million for the next 12 months. It is obvious that Mr Willett analysed the figures and reached a considered conclusion. He regarded the turnover as 'huge'. He formed the view that the business had short term cash flow problems but was otherwise sound; that it had significant prospects; and that it was a potentially attractive investment opportunity. As usual however, Mr Willett himself had no available funds for investment. 42 Mr Willett had a number of discussions about investing in the SMP brand, first with Mr Sullivan and then with Mr Thomas. I have no doubt that he encouraged and enthused them. In a sense, he had nothing to lose as he had already made clear, at least to Eugene King, that all his funds were tied up, that he did not have a 'cracker' and that he was not personally able to help. I do not think however that Mr Willett made a number of the specific representations that Mr Thomas and Mr Sullivan allege against him. There is no contemporaneous written corroboration of what Mr Willett is alleged to have said but Mr Thomas' and Mr Sullivan's account of Mr Willett's representations tended towards hyperbole. The evidence of each of them on this issue was not, I think, knowingly false. But it was affected by their sense of grievance and the process of constant reconstruction and reaffirmation which they had undertaken since 2002. 43 For the reasons that I will make clear however, it is just as much what Mr Willett did not say, as what he did say, that justifies the claims against him. As to what he did say, I am quite satisfied that in July 2000, Mr Willett said to Mr Thomas and Mr Sullivan words to the effect that SMP was still in its global infancy and rocketing in the right direction; that it just needs our financial guidance; that Willett & Associates will now be involved as accountants; that SMP will perform a lot better with our management and accountancy skills; I have reviewed the figures and the turnover is huge; that the potential growth looks fantastic; and we are now in full financial control of SMP. I am also satisfied that he said that the SMP brand would be as big as Billabong. Nor do I have any doubt that after 24 July 2000, Mr Willett was in the habit of saying words to the effect that - we saved SMP; I am in control; SMP is my company; and without me SMP would no longer exist. 44 I am satisfied that Mr Willett conveyed to Mr Thomas and Mr Sullivan that he was offering them a special opportunity. He said that he could do the SMP investment with his footballers and clients, but that he wanted to do it with Mr Thomas and Mr Sullivan. In fact, he also obtained monies for investment in SMP from some of his clients. Mr Willett also made clear that the vehicle for the investment in SMP would be SSDI. Mr Thomas and Mr Sullivan remained unaware that Mr Willett held 50% of SSDI's issues shares. Mr Willett said that whatever each of them put in would be 'recorded in our loan accounts with SSDI and reconciled at the end.' ... 92 On the other hand, there is no doubt that Mr Willett made many encouraging statements about SMP. For that matter, so did Eugene King who may well have been just as culpable. Mr Willett believed that SMP's problems could be rectified and that it had a reasonable prospect of turning the corner with sound financial management and cash flow control. He was genuinely impressed and excited by the cash flow. He conveyed to Mr Thomas and Mr Sullivan that SMP represented a good opportunity, that the brand was exciting and that the cash flow was very encouraging. Mr Sullivan was easily enthused. And he conveyed that enthusiasm to Mr Thomas. However, I do not think that Mr Willett told them that the investment was risk-free, that they would receive interest at 10% and that he would personally guarantee the monies which they outlaid. Nor do I think that Mr Willett said that he had an existing 10% interest in SMP or that he held a charge over its assets. 93 Mr Willett certainly conveyed the impression to Mr Thomas and Mr Sullivan that he was prepared to invest in SMP and that his existing knowledge and understanding of SMP and Eugene King put him in an advantageous position in making his assessment of its prospects. These statements were not false or misleading. Nor were the various acclamations and enthusiasms that I set out in paragraph [43]. They may not have carried much weight with a prudent investor but they were essentially a true statement of his beliefs at the time they were made. 94 When so understood, I am not prepared to find that the pleaded misrepresentations alleged against Mr Willett have been established. What was said by Mr & Mrs Willett was heavily interwoven with puffery, eagerness and undue optimism. But this would have been transparent to Mr Thomas and Mr Sullivan. They knew that Mr Willett was not warranting the unqualified success of the SMP group. They knew that the three of them were in it together and had the same ambitions for SMP's success. They also knew there were risks involved. Having regard to my assessment of the reliability of the evidence of Mr Thomas and Mr Sullivan, insofar as it attributes misrepresentations to both Mr and Mrs Willett, and taking into account the probabilities and the contemporaneous documents, I do not feel an actual persuasion about the pleaded misrepresentation case."

[33]

Fiduciary obligations 114Mr Willett challenged the primary judge's finding that he owed fiduciary obligations to Mr Thomas and Mr Sullivan (see [96] above) on a number of bases. 115First he contended that the primary judge erred in finding that there was a relationship of trust and confidence between Mr Willett on the one hand, and Mr Thomas and Mr Sullivan on the other. The essence of Mr Willett's contention was that the primary judge understated the intelligence, business acumen and experience of Mr Thomas and Mr Sullivan. He submitted that the primary judge should have found that they were well capable of understanding matters of business and in looking after their own interests, and that there "was no relationship of trust and confidence or dependence or vulnerability, there was no inequality of bargaining power" (Appellant's Factual Narrative [11(c)]). 116At the hearing of the appeal the Court was taken to many parts of the evidence that were said to support these submissions. None of them, either individually or in combination, indicated to me that the findings his Honour made on this topic were not open to him. The findings were necessarily subjective ones drawing on the considerable advantage that the primary judge had over this Court in seeing and hearing the witnesses give evidence over a period of weeks. It may be that Mr Thomas and Mr Sullivan were somewhat more astute than his Honour found. However his Honour's findings were in my view not unreasonable and any overstatement of the position was at most only a limited one that would not affect his Honour's conclusion as to the existence of fiduciary obligations. The proposition would remain true that Mr Thomas and Mr Sullivan justifiably regarded Mr Willett as a more experienced and astute businessman in whom they could repose their trust and confidence. 117Secondly Mr Willett submitted, in reliance on Pilmer v The Duke Group Ltd (In Liq) [2001] HCA 31; 207 CLR 165 at [70] - [71], that a person could not be a fiduciary unless he or she pledged himself or herself to act in the best interests of the other; that Mr Willett had never pledged himself to do so to the exclusion of acting in his own best interests; and that the primary judge failed to address this issue (Outline of Submissions of the Appellant [17] - [18]). 118However in my view it is implicit in the primary judge's findings that he considered that Mr Willett made such a commitment because his Honour held that Mr Willett "voluntarily assumed the function of advising and assisting Mr Thomas and Mr Sullivan in relation to the advancement of their financial interests" (Judgment [67]) and that they were "following [Mr Willett], accepting his recommendations and taking him on trust. Mr Willett knew this" (Judgment [62]). The trust to which the primary judge referred was trust that Mr Willett would act in their best interests. 119Thirdly Mr Willett contended that the factors of "control and power" and "recognised vulnerability" to which the primary judge referred (Judgment [69]) were not pleaded and were not in any event established on the evidence. 120Again I reject this submission. I do not understand his Honour's reference to those factors to have been any more than an elaboration of the "circumstances of trust and confidence" to which his Honour referred (Judgment [69]). These were expressly pleaded (Statement of Claim [130]). In other words, the "trust and confidence" that his Honour found that Mr Thomas and Mr Sullivan had in Mr Willett inevitably gave Mr Willett a measure of "control and power" and gave rise to a degree of "vulnerability" on the part of Mr Thomas and Mr Sullivan. 121Fourthly Mr Willett contended that he was not, as the primary judge found he was, an investment adviser to Mr Thomas and Mr Sullivan. This submission should also be rejected. The history of Mr Willett giving advice to Mr Sullivan (see [75] above), the advice given to Mr Thomas and Mr Sullivan in connection with the acquisition of properties (see [90] - [92] above) and in connection with their investment in SMP (see [101] above) indicate that there was a substantial basis for the finding that Mr Willett was an investment adviser to Mr Thomas and Mr Sullivan. 122Fifthly I reject Mr Willett's submission that the primary judge failed to consider separately the positions of Mr Thomas and Mr Sullivan and that (by inference) that failure vitiated his Honour's conclusions on this topic. His Honour's description of the factual circumstances culminating in the disputes between the parties distinguished between the different roles that Mr Thomas and Mr Sullivan played. I see no reason why his Honour was not entitled in expressing his conclusions to refer to Mr Thomas and Mr Sullivan together if, as he considered to be the case, their differing connections with Mr Willett led to fiduciary relationships of the same character. 123In my view the challenges to the primary judge's finding that Mr Willett owed fiduciary obligations to Mr Thomas and Mr Sullivan fail.

[34]

Breach of fiduciary obligations 124The primary judge found that Mr Willett breached fiduciary obligations that he owed to Mr Thomas and Mr Sullivan by concealing from them his acquisition of two of the four shares in SSDI (see [97] above). That finding was based upon the primary judge's rejection of Mr Willett's evidence that that acquisition occurred with the concurrence of Mr Thomas and Mr Sullivan. It is accordingly necessary to consider whether his Honour properly rejected that evidence. 125The primary judge's rejection of the evidence appears to have been principally based upon inconsistency between that evidence and Mr Willett's earlier evidence in unrelated proceedings in the District Court (see [93] above). The thrust of Mr Willett's evidence in the District Court was that he had had an arrangement with Mr Sullivan that they would each have two shares in SSDI and that SSDI would buy the Bando Road properties for development. He said that when they decided to include Mr Thomas, Mr Thomas was given one of Mr Sullivan's shares. 126This evidence reflected Mr Willett's affidavit evidence in the present proceedings that the original arrangement in relation to the Bando Road properties was that he and Mr Sullivan would purchase them through SSDI, in which he and Mr Sullivan would each hold 50 per cent of the shares (Affidavit [57] and [58] quoted in [92] above; compare the primary judge's comments at the end of Judgment [24] quoted in [113] above). However the District Court evidence omitted reference to Mr Hankinson's inclusion, and then exclusion, with the result that it gave a different explanation to that given in these proceedings about how the two shares came to be in Mr Willett's name. 127Although there was an inconsistency between the evidence that Mr Willett gave on these two occasions, I do not consider it to have been so stark and incapable of explanation by honest error of recollection that it warranted rejection of Mr Willett's affidavit evidence without further deliberation. It is significant in this regard that Mr Willett gave the District Court evidence in April 2008, nine and a half years after the events to which it related. In such circumstances there was a significant prospect of confusion and forgetfulness on his part. 128In light of these matters, the primary judge should have examined the alternative versions of Mr Thomas and Mr Sullivan and considered, inter alia, which account of events accorded best with other circumstances that were in evidence. 129The primary judge did refer to evidence of Mrs Liddlelow (who was Mr Willett's secretary) of a conversation with Mr Willett (Judgment [34(a)] quoted in [93] above) but referred to only part of that relevant conversation. 130The full conversation that Mrs Liddlelow deposed to was as follows: "I recall Willett said to me words to the effect, 'Clydie needs his own company'. I said to Willett words to the effect, 'Clydie sole director/secretary - 1 share?' Willett said to me words to the effect, 'No. I will be a shareholder and we'll make Sully one and the builder Rob Hankinson and we will each have a share.' I said to Willett words to the effect, 'If it is Clyde's company how come you are all shareholders?' Willett said to me words to the effect, 'I will be investing in this too.'" (Affidavit of 18 July 2010 [7.2]) 131In cross-examination Mrs Liddlelow said twice that (although she could not recall if she had in fact done so) she would have spoken to Mr Sullivan about the matters that she discussed with Mr Willett in this conversation (Transcript pp 819.27, 825.11). She also said that Mr Willett said to her that each of the four persons were to be shareholders because they would be investing in the company (Transcript p 809.33). 132Taken as a whole Mrs Liddlelow's evidence did not strongly undermine Mr Willett's evidence. Whilst the reference to Mr Thomas needing his own company tended to do that, the references to Mr Hankinson, the likely discussion with Mr Sullivan and the intended contributions of each of the four persons provided some support for Mr Willett's version of events (see Affidavit [68], [71] and [72] quoted in [92] above). 133Of prime importance in the examination referred to in [128] above should have been that, as the primary judge found elsewhere in his judgment, at least until January 2002 Mr Willett led Mr Thomas and Mr Sullivan "to believe that the three of them were co-venturers, on an equal footing, with equal shares in SSDI" (Judgment [95]) and that Mr Thomas and Mr Sullivan "knew that the three of them were in it together and had the same ambitions for SMP's success" (Judgment [94]). These findings reflected Mr Willett's affidavit evidence that his arrangement with Mr Thomas and Mr Sullivan was that the three of them would share equally in the investments undertaken by SSDI (see [74], [76] and [85] quoted in [92] above). In particular it also accorded with Mr Willett's affidavit evidence as to how he came to hold two shares in SSDI (see [74] - [79] quoted in [92] above). 134The primary judge did not suggest that there was any change in the arrangements between the three men after September 1998 that would have warranted the view that whilst Mr Willett, Mr Thomas and Mr Sullivan at a later time agreed to be equal shareholders, the arrangement was different earlier. Nor did the parties suggest at the appeal hearing that that may have been the case. As a result those findings appear inconsistent with the evidence of Mr Sullivan and Mr Thomas that SSDI was owned by Mr Thomas alone (see [90] - [91] above). 135The primary judge's absence of consideration of these circumstances is of such significance that it vitiates his Honour's conclusion that Mr Willett breached fiduciary obligations that he owed to Mr Thomas and Mr Sullivan. As reconsidering that conclusion would involve examination of the credibility of witnesses, it would ordinarily be necessary to remit the fiduciary claim for re-hearing in the Equity Division. However as I am of the view, for reasons relating to causation of loss that I give below, that Mr Willett is entitled to judgment in his favour on the fiduciary claim, such remission need not occur.

[35]

Whether loss caused 136As to the principle to be applied in considering causation, the primary judge referred to Re Dawson (dec'd) [1966] 2 NSWR 211 and concluded: "Thus, it remains necessary to consider what would have happened if the fiduciary duty had been performed: Beach Petroleum v Abbott Tout (1999) 48 NSWLR 1 at 93 (CA); O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 274 (CA). If the plaintiffs would have acted in the same way even if full disclosure had been made, they are not entitled to recover compensation. As was neatly explained in Swindle v Harrison (1997) 4 All ER 705 at 733: 'There is no equitable by-pass of the need to establish causation.'" (Judgment [73]). 137None of the parties to the appeal challenged this statement of principle. I shall therefore proceed upon the basis that it is correct. 138Applying this principle the primary judge concluded that "if the disloyalty constituted by Mr Willett's material non-disclosure had been revealed in July 2000", Mr Thomas and Mr Sullivan's trust in Mr Willett would have evaporated and "their payment of monies for the benefit of SMP would not have occurred" (Judgment [76]). 139The primary judge's reasoning on this topic was founded upon his rejection of Mr Willett's version of what occurred in relation to his acquisition of two shares in SSDI (see [98] above). Thus his Honour spoke of Mr Willett, by procuring two shares for himself in SSDI, "engineering a situation of potential advantage for himself" at the expense of Mr Thomas and Mr Sullivan and behaving dishonestly "by taking positive steps to conceal his interest" in SSDI (ibid). For the reasons that I have given above, his Honour's decision to reject that evidence of Mr Willett was flawed and his conclusion on breach of fiduciary duty was therefore vitiated. The question then arises whether this Court is in a position to determine the issue of causation or whether that issue, or the fiduciary claim generally, should be remitted to the Equity Division for redetermination. 140In my view Mr Thomas and Mr Sullivan did not establish that any loss that they suffered as a result of providing funds for investment in SMP was caused by the breach of fiduciary duty that I shall assume for this purpose was committed by Mr Willett in the manner that his Honour found. 141I do not consider that the primary judge's factual findings support his Honour's conclusion in favour of Mr Thomas and Mr Sullivan on the issue of causation. Indeed I consider that these findings require the opposite conclusion, that is, that Mr Thomas and Mr Sullivan did not establish that they would have had any particular interest or concern as to the identity of the registered shareholders of SSDI: on his Honour's findings, Mr Thomas and Mr Sullivan understood that they and Mr Willett were co-venturers with equal one-third interests in SSDI and did not understand the implications of persons being registered as shareholders (Judgment [34], [94], [95]). 142This conclusion is supported as follows by the terms of Mr Thomas and Mr Sullivan's pleadings and evidence. 143Of the eight fiduciary obligations that paragraph 131 of Mr Thomas and Mr Sullivan's Statement of Claim alleged that Mr Willett owed, none related expressly to the shareholdings in SSDI. Six of the obligations alleged were expressed to relate to the SMP investment. The remaining two were simply alleged general obligations of Mr Willett not to allow his interests to conflict with those of the plaintiffs and not to profit at their expense. The same comments are applicable to the allegations of breaches of these alleged fiduciary obligations (Statement of Claim [132]). Furthermore, the allegation of loss flowing from Mr Willett's alleged breaches of fiduciary obligations related only to the SMP investment. 144Mr Willett's acquisition of two shares in SSDI was the subject of a fraudulent representation claim (which is not pursued on appeal). However it is notable that the pleading does not allege that the plaintiffs relied upon this allegedly fraudulent conduct in deciding to provide funds for investment in SMP or that those funds would not have been provided if the fraudulent representation, or Mr Willett's acquisition of two shares in SSDI, had not occurred. 145In his affidavit of 16 December 2009 Mr Thomas stated that he never authorised Mr Willett to issue shares in SSDI to himself or Mr Sullivan ([36]) and recorded a conversation in April 2002 with Mr Willett in which Mr Thomas said he complained about Mr Willett acquiring two shares in SSDI ([359]). The conversation however occurred after difficulties with SMP's business had emerged and the parties had otherwise fallen into dispute ([298] - [358]). 146Mr Thomas swore an affidavit of 19 May 2010 that identified matters that he relied upon in making funds available for investment in SMP and identified circumstances of which he was not aware but knowledge of which would have led him not to make the funds available for SMP. However Mr Thomas did not suggest that if he had known that Mr Willett had acquired two shares in SSDI that he would not have made the funds available for the SMP investment. 147Mr Sullivan's evidence is likewise bereft of assertions that would support the causation case presently under consideration. He did no more than say in his affidavit of 15 December 2009 that neither Mr nor Mrs Willett mentioned "that the arrangement included them owning half of the SSDI shares or that I would have a share in SSDI" ([1450]). 148This being the case that Mr Thomas and Mr Sullivan presented to the primary judge, it is not in my view possible to conclude that they established that knowledge of the true shareholding in SSDI would have resulted in them not making funds available for investment in SMP. 149Another matter is that in light of the primary judge's finding that Mr Thomas and Mr Sullivan must have understood that they and Mr Willett were the shareholders of SSDI (inferentially, on an equal basis) (Judgment [34(b)]), the most that knowledge of Mr Willett having two shares in SSDI would have told them was that Mr Willett had a 50 per cent interest in SSDI rather than the 33⅓ per cent interest that they understood he had, that is an additional interest of approximately 17 per cent. There is nothing in Mr Thomas or Mr Sullivan's evidence that would justify a conclusion that this difference would have been of critical concern to them. 150Finally, even if it be assumed that Mr Thomas and Mr Sullivan would not have provided funds for investment in SMP if they had known that Mr Willett held two shares in SSDI, they have not, for the reasons that I give later in connection with their misleading and deceptive claim (see [169] -[175] below), proved that they have in consequence suffered any loss. This is in essence because their funds were provided by way of loan to SSDI (rather than directly to SMP) (Judgment [44]) and they did not prove that those loans were irrecoverable. 151The Statement of Claim alleged that Mr Willett owed fiduciary obligations not only to Mr Thomas and Mr Sullivan but also to SSDI. The primary judge did not find that any such obligations were owed to SSDI and such a conclusion would not in my view have been open on the evidence. In particular there would have been no basis for a finding that Mr Willett owed fiduciary obligations to SSDI concerning SSDI's own shareholding. If obligations of that type were owed, they were owed by Mr Willett to Mr Thomas and Mr Sullivan and arose out of the circumstances in which Mr Willett agreed, in the context of his pre-existing relationship with Mr Thomas and Mr Sullivan, to set up the company.

[37]

Whether representations were made 153It is first necessary to consider the primary judge's reasons for rejecting the misleading and deceptive conduct claim (see [101] above). His Honour in essence found that whilst Mr Willett made various relevant statements to Mr Thomas and Mr Sullivan encouraging them to provide funds for investment in SMP, the claim failed because the statements were not false or misleading and/or were not relied upon. 154In Judgment [43] (see [101] above) the primary judge found that statements were made to the effect of the representations pleaded in subparagraphs (m), (o) and (u) that I have set out in [100] above. His Honour confirmed this finding in Judgment [93]. The finding that these specific statements were made accords with his Honour's comments that Mr Willett "encouraged and enthused" Mr Thomas and Mr Sullivan (Judgment [42]) and made "many encouraging statements about SMP" (Judgment [92]; see also Judgment [61]). That this occurred cannot be doubted. In his own evidence, Mr Willett, although asserting that he communicated a number of caveats about the prospective investment in SMP, said that he told Mr Sullivan that "everyone reckons SMP is a terrific brand and maybe this is a chance to invest at a good time and get in there early before it gets really big" (Affidavit of 22 June 2010 [160]). 155Mr Willett contended that if (as he submitted) the primary judge erred in accepting the evidence of Mr Thomas and Mr Sullivan and rejecting that of Mr Willett concerning the establishment of SSDI, his Honour's acceptance of Mr Thomas and Mr Sullivan's evidence concerning their misleading and deceptive conduct case should be regarded as unsound. I do not agree. 156For the reasons that I gave in [154] above, there was very little difference between, on the one hand, such of Mr Thomas and Mr Sullivan's evidence concerning statements that Mr Willett made to them as was accepted by his Honour and, on the other hand, Mr Willett's evidence on this topic. It is not apparent to me that his Honour's acceptance of Mr Thomas and Mr Sullivan's evidence concerning SSDI's formation played any significant role in his assessment of the evidence of the various witnesses concerning the investments in SMP. Indeed the primary judge approached Mr Thomas and Mr Sullivan's evidence as to the latter with a good deal of circumspection, rejecting significant aspects of it (Judgment [90] - [91]).

[38]

Were the representations misleading and deceptive 157The representations alleged in subparagraphs (m), (o) and (u) were, along with others, described in the Statement of Claim as the "Future SMP Representations". The following paragraph ([36]) expressly alleged that those representations were with respect to future matters within the meaning of the then operative s 51A Trade Practices Act 1974 (Cth) and s 41 Fair Trading Act 1987. Paragraph 114 alleged that Mr Willett did not have reasonable grounds for making those representations and the particulars to that paragraph referred to s 51A(2) Trade Practices Act and s 41(2) Fair Trading Act. The terms of these provisions were as follows: "51A Interpretation (1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation." "41 Interpretation (TPA s 51A) (1) For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person. (3) Subsection (1) shall not be taken to limit by implication the meaning of a reference in this Part to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead." 158As the primary judge found that certain of the representations were made and the plaintiffs clearly pleaded a case that those representations were with respect to future matters, to avoid liability it was incumbent upon Mr Willett to prove on the balance of probabilities that there were reasonable grounds for the making of the representations (see Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300 at [31] - [34]). Current authority (see Dib at [35] - [36]) indicates that in discharging that onus only grounds that Mr Willett in fact relied upon are relevant, even if the evidence revealed that other grounds were available. The distinction is not however of importance in the present case as it was not argued on Mr Willett's behalf that there was evidence of facts or circumstances unknown to Mr Willett which constituted reasonable grounds for the making of the relevant representations. 159The primary judge did not deal with the question of whether there were reasonable grounds for the making of the representations as to future matters, presumably because that issue raised by the pleadings was not drawn to his attention. Nevertheless Mr Willett did not contend on appeal that it was not open to Mr Thomas and Mr Sullivan to rely upon their case as pleaded. 160Mr Willett however submitted on appeal that the relevant statements were not "with respect to any future matter" within the meaning of s 51A and s 41 because they were statements of Mr Willett's belief at the time that they were made. I reject this submission because the fact that they were statements of Mr Willett's belief or opinion does not mean that the representations were not also with respect to future matters. Whether an expressed belief related to a future matter depends on the words used and the context in which they were used (see Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; 62 IPR 184 at [99] - [102]). Here representations (m) and (u) clearly concerned the future performance of SMP's business and thus related to future matters. Representation (o) did also, at least in part; the proposition that SMP was in its global infancy implied that it was likely to grow substantially in the future. The same implication was implicit in the statement that it was "rocketing in the right direction". 161In written submissions on appeal dated 17 October 2011 Mr Willett identified various steps that he had taken in connection with the investments in SMP, which he submitted demonstrated that he had had a reasonable basis for the statements that he was found to have made. These steps included meetings with Mr Eugene King and with SMP's accountant, CEO and internal accounts staff (Submissions [11] and see also Judgment [41] quoted in [101] above). However the following evidence that Mr Willett gave in his affidavit of 22 June 2010 in my view indicates that what he ascertained from these steps were not facts constituting reasonable grounds for making the encouraging statements that he was found to have made: "159. Sullivan and I had a number of discussions about the possibility of investing in the SMP brand. While I do not specifically recall, it is possible I may have also discussed the venture with Thomas directly. Whenever Thomas came to Sydney, he, Sullivan and I would often meet at South Cronulla beach for a coffee. However, it is my recollection that Sullivan primarily spoke to Thomas initially about investing in the SMP brand. All week I kept saying to Sullivan words to the effect, 'This is a punt.' 160. Later in that week I said word[s] to the following effect to Sullivan: Willett: 'We would be going in on trust. There is no way we can verify the accounts that Donna and Eugene are showing to us without spending months and months in there and working out what has been happening. Even their own accountant says the company is bust. But everyone reckons SMP is a terrific brand and maybe this is a chance to invest at a good time and get in there early before it gets really big. We do have the properties to back us up I suppose. They're increasing in value all the time just by sitting there.' ... 162. I also said words to the effect: Willett: 'The whole thing's bust. It's a gamble. But possibly it could be pretty good. It could work. If we get cash in and pay for the stock, there is a 100% mark-up. The sales are already there, we just need the cash. The turnover looks huge'" (emphasis added). 162The primary judge did not find that Mr Willett made the negative statements that I have emphasised in these extracts. Indeed, although the primary judge found that Mr Willett did not tell Mr Thomas and Mr Sullivan that the investment was risk-free or that he would personally guarantee repayment of their investments (Judgment [92]), his Honour's findings that Mr Willett enthused about SMP and encouraged Mr Thomas and Mr Sullivan's investments are inconsistent with Mr Willett's evidence that he made the statements that I have emphasised in the excerpt above. The proposition that Mr Thomas and Mr Sullivan would have made the investments that they did if Mr Willett had made to Mr Sullivan the statements that he asserts that he made, including the statements that "there is no way we can verify the accounts" (within a sensible time frame) and "[e]ven their own accountant says the company is bust" defies common sense. 163Whilst Mr Willett did not make to Mr Sullivan these statements that I have emphasised, Mr Willett's evidence remains as evidence of his state of mind at the time that Mr Thomas and Mr Sullivan were contemplating providing funds for investment in SMP. That evidence indicates that Mr Willett did not have reasonable grounds for making the encouraging statements that he made. No-one in their right mind would have hazarded compensation monies such as Mr Thomas and Mr Sullivan had obtained in the face of knowledge of the propositions in Mr Willett's evidence that I have emphasised. On the other hand Mr Willett was not hazarding any significant money of his own but stood to obtain a third of the profits obtained from use of Mr Thomas and Mr Sullivan's money if the investment happened to succeed. There was accordingly no reason other than morality why knowledge of those propositions should have deterred Mr Willett from proceeding. 164For these reasons Mr Willett did not discharge his onus of showing the existence of reasonable grounds and the statements that he made are deemed by the statutes to have been misleading and deceptive. 165I add in conclusion on this topic that I do not consider that there is in this context any significant difference in the position of Mr Thomas and Mr Sullivan. It is apparent from Mr Willett's evidence that he was well aware that the substance of what he said concerning the proposed SMP investment, even if not said directly to Mr Thomas, would be passed on to him by Mr Sullivan (Affidavit of 22 June 2010 [133], [137] - [139], [159] - [164]).

[39]

Reliance upon the representations 166The primary judge appears to have found that Mr Thomas and Mr Sullivan did not rely upon the statements that the primary judge found he made because it "would have been transparent" to them that what Mr and Mrs Willett said "was heavily interwoven with puffery, eagerness and undue optimism" and that they "knew there were risks involved" (Judgment [94]). However the fact that Mr Thomas and Mr Sullivan may have appreciated these matters did not belie the fact that Mr Willett (I leave Mrs Willett aside for separate consideration) was in "an advantageous position in making his assessment of [SMP's] prospects" (Judgment [93]), speaking positively about SMP's prospects and encouraging Mr Thomas and Mr Sullivan to provide funds for investment in it. Further, the fact that Mr Willett did not tell them that the investment was "risk-free" (Judgment [92]) does not mean that they were not encouraged to act by what Mr Willett said. 167A moment's reflection on the circumstances relating to Mr Thomas and Mr Sullivan's provision of funds for investment in SMP indicates the high probability of their reliance upon what Mr Willett said, notwithstanding that they may have recognised that there was an element of exaggeration in his statements. Mr Willett was an experienced accountant, whom on the primary judge's findings, "Mr Thomas and Mr Sullivan regarded ... as having skills, expertise, financial training and contacts that were beyond their own capacity or experience" (Judgment [21]). Mr Thomas and Mr Sullivan had available for investment substantial compensation monies that they had received as a result of suffering serious injuries. Mr Willett had had a connection with SMP for some time and had considerably greater knowledge of its business than Mr Thomas and Mr Sullivan. On Mr Willett's recommendation, they provided substantial funds for investment in it. 168The only sensible explanation for their provision of funds for investment in SMP was that they were encouraged to do so by the statements of Mr Willett, who had much greater knowledge of SMP than they did and whose opinion and advice they trusted and respected. That view, which is in my opinion the correct view, accords with the primary judge's general conclusions although it is difficult to reconcile with the finding of non-reliance that seems to be embodied in Judgment [94].

[40]

Whether loss was suffered 169The primary judge's findings indicate that the funds that Mr Thomas and Mr Sullivan made available for investment in SMP should be regarded as loans to SSDI, which in turn invested them in SMP (Judgment [44]). 170In written submissions dated 19 November 2011 Mr Thomas and Mr Sullivan submitted that, at least in the case of Mr Sullivan, the contributions were direct investments in SMP and not ones made through SSDI. They referred to Judgment [50(f)], [59], and to the Macready AsJ Judgment (given pursuant to a reference that Pembroke J made in the Costs Judgment at [22(c)]). Whilst these references indicate that Mr Sullivan's contributions were, or may have been, paid directly to SMP, that fact does not in my view negate the possibility that such payments were made at the direction of SSDI and therefore constituted loans by Mr Sullivan to SSDI, albeit that the proceeds were to be used by SSDI to invest in SMP. In Judgment [44] the primary judge expressly referred to both Mr Thomas and Mr Sullivan in finding that Mr Willett made it clear to Mr Thomas and Mr Sullivan that "the vehicle for the investment in SMP would be SSDI". As a result I consider that the investments of both must be regarded as having been found to have been made by way of loans to SSDI. No basis for interfering with this finding has been shown. 171There is no doubt on the primary judge's findings that the amounts paid by or on behalf of SSDI to SMP, whether by loan or other form of investment, are irrecoverable. However SSDI was not simply a vehicle for investments in SMP: it was also a vehicle for substantial property investments (see [90] - [92] above). 172The action that Mr Thomas and Mr Sullivan took in reliance on Mr Willett's misleading and deceptive conduct was to lend money to SSDI. Those loans have not been repaid but whether they suffered any loss is dependent upon SSDI's ability to repay the loans. In my view Mr Thomas and Mr Sullivan did not prove that the loans were irrecoverable in whole or in part. 173Where a person has been induced by misleading and deceptive conduct to make a loan to an independent third party and the loan has not been repaid, sufficient evidence of loss may well exist if a significant period of time has elapsed after demand has been made for repayment. However Mr Thomas and Mr Sullivan took over the running of SSDI when Mr Willett resigned as a director in July 2002 (Judgment [31] and [79]) and may not have had any incentive to cause SSDI to repay the loans made to it. In these circumstances I do not consider that an inference of irrecoverability (such as might be able to be drawn where the borrower is an independent third party) can be drawn here. 174Furthermore, irrecoverability of the loan was not proved by direct evidence. As the primary judge held "[n]o person on behalf of SSDI was in a position to give reliable evidence of its current financial position or the reality of any loan accounts supposedly existing for the benefit of Mr Thomas and Mr Sullivan" (Judgment [80]). 175In these circumstances my view is that Mr Thomas and Mr Sullivan have not proved that they suffered any loss as a result of their reliance upon Mr Willett's misleading and deceptive conduct. 176The position of SSDI is however different. The Statement of Claim alleged that the relevant representations were made not only to Mr Thomas and Mr Sullivan but also to SSDI ([35]) and that SSDI provided to SMP the monies that Mr Thomas and Mr Sullivan had provided to it ([116]). It is clear that SSDI would not have invested these monies if Mr Willett's encouragement had not persuaded Mr Thomas and Mr Sullivan to provide their monies to SSDI for investment in SMP. Without the loans from Mr Thomas and Mr Sullivan, SSDI would not have had the funds to lend to SMP. Furthermore, Mr Thomas and Mr Sullivan comprised the majority of directors of SSDI (Mr Willett being the other director). 177SSDI has established that it suffered loss because, as I have noted above, it is clear that its investment in SMP has been lost. Its loss as a result of its reliance on Mr Willett's misleading and deceptive conduct is therefore the amount of the payments it made to, or for the benefit of, SMP. This is the total of the amounts (before interest) that the primary judge awarded to Mr Thomas and Mr Sullivan on their breach of fiduciary duty claim.

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SSDI's cross appeal 178At the hearing of the appeal, counsel for the plaintiffs put as his "fall-back position" that if Mr Thomas and Mr Sullivan were held not to have a claim for misleading and deceptive conduct, SSDI should be held to have such a claim (Appeal Transcript 12 /10/11 pp 16 - 17; and see Appeal Transcript 11/10/11 pp 54 - 55). 179After the Court reserved judgment, it noticed that whilst SSDI was a respondent to the appeal and a party to the Amended Notice of Contention (see [87(c)]), SSDI had not filed a Notice of Appeal contending that judgment should have been awarded in its favour against Mr Willett for misleading and deceptive conduct. This was brought to the attention of the parties. SSDI and Mr Thomas then sought leave for the Notice of Cross Appeal to be amended to add SSDI as a cross-appellant, primarily to enable it to seek judgment against Mr Willett (draft Amended Notice of Cross Appeal, [2] under the heading relating to Mr Willett). The proposed amendment also incorporated a claim by SSDI for judgment against Mr Eugene King as a result of his alleged misleading and deceptive conduct. 180By leave, the parties lodged written submissions concerning SSDI's application. Mr Willett contended in his written submissions dated 25 November 2011 that SSDI's misleading and deceptive conduct claim was "never opened, nor in any way advanced below" ([8]; and see [13]) and that the application should be refused. However SSDI clearly pleaded the claim and Mr Willett did not suggest in his submissions that he would be prejudiced if SSDI were permitted to advance the claim on appeal. Indeed after the plaintiffs advanced the claim as their "fall-back position" in oral argument on the appeal, Mr Willett did not contend in the oral argument that followed that it was not open to the plaintiffs to put that contention. 181In these circumstances I consider that leave should be granted to amend the Notice of Cross Appeal by adding SSDI as a cross-appellant and adding paragraph 2 that appears in the draft Amended Notice of Cross Appeal under the heading relating to Mr Willett. 182Leave should not in my view be granted to include paragraph 1 that appears under that heading and contends that judgment should have been entered in SSDI's favour on its fiduciary claim. For reasons that I have given above (see [151]) that contention would not have a sound foundation and there is in my view no reason why it should be permitted to be pursued, particularly at this stage of the appeal proceedings. Similarly I consider that paragraph 3 under that heading should not be allowed. The contention in that paragraph that the Court should declare that any judgment obtained by SSDI against Mr Willett would be held on trust for Mr Thomas is an entirely new contention that was not pleaded or litigated at first instance and was not the subject of argument at the hearing of the appeal.

[42]

SSDI's shareholding 183SSDI's success in its claim against Mr Willett may render ownership of SSDI's shares important, although Mr Thomas and Mr Sullivan's positions as creditors of SSDI may give them effective recourse to any judgment monies received by SSDI from Mr Willett. Whether that will be so will depend upon the extent of any other assets and liabilities of SSDI. 184In the plaintiffs' Statement of Claim Mr Thomas (but not Mr Sullivan) sought a declaration that Mr Willett holds the two shares in SSDI that are recorded in the register in his name on trust for Mr Thomas and an order that Mr Willett transfer those shares to Mr Thomas. On appeal the parties agreed that the prayers for this declaration and order remain to be dealt with by the primary judge (although this seems not to be entirely the case in light of order 3 referred to in [19] of the judgment of Basten JA). This having become apparent, the Court asked Mr Willett to identify the extent, if any, to which he opposed the making of this declaration and order. Mr Willett's response was that he would consent to a declaration that he holds one of the two shares on trust as to one-third in favour of Mr Thomas and as to another third in favour of Mr Sullivan (Appeal Transcript 12/10/11 p 39). It follows that Mr Willett's position is that he is entitled to hold one-third of that share beneficially for himself and to hold the whole of the other share in his name beneficially for himself. This is consistent with Mr Willett's continuously maintained position that from the outset he, Mr Thomas and Mr Sullivan had equal shares, through SSDI, in the investments in property and in SMP. 185As the parties are therefore not in agreement concerning these prayers, it will be necessary to remit them to the Equity Division for determination. Any determination of the claims will require resolution of the conflict between these parties as to their arrangements concerning SSDI's shareholding. As the primary judge has already expressed a view on that matter (which is vitiated by error for reasons that I have given), a further hearing would have to occur before a different judge. 186A consequence of the recognition that there was in the proceedings a significant claim that the primary judge did not determine is that the principal judgment of 22 September 2010 must be regarded as interlocutory rather than final. As a result the appellants and cross-appellants need leave to appeal and cross-appeal respectively. However all parties indicated that they consented to the grant of appropriate leave. As it is convenient for the issues that have come before this Court to be determined at this stage, leave should be granted.

[43]

The claim against Mrs Willett 187I do not agree with the first reason that the primary judge gave for rejecting the misleading and deceptive conduct claim against Mrs Willett (see [104] above), namely, that even if Mrs Willett did make the statements she (as distinct from Mr Willett) was alleged to have made, they were not made in trade or commerce, as required for the application of s 52 Trade Practices Act or s 42 Fair Trading Act. 188As the High Court held in Houghton v Arms [2006] HCA 59; 225 CLR 553: "statements made by a person not himself or herself engaged in trade or commerce may answer the statutory expression if, for example, they are designed to encourage others to invest, or to continue investments, in a particular trading entity" (at [34]). The primary judge was therefore in error in considering it necessary that Mrs Willett herself be engaged in trade or commerce. It was sufficient that her alleged statements, if made, were made in relation to Mr Thomas and Mr Sullivan's prospective investment in SSDI/SMP, that being clearly in trade or commerce. 189As to the primary judge's second reason, Mr Thomas contended that, contrary to the primary judge's finding, Mrs Willett did make relevant representations. He submitted that her denial that she was present during any telephone call between Mr Willett and Mr Thomas, and therefore that referred to in [104] above, was "inconsistent with her own earlier evidence that she had not much recall of conversations with Mr Thomas at the relevant time" (Cross Appellant's Factual Narrative [11]). 190The submissions concerning this conversation culminated with the proposition that "the probability that Mr Thomas' evidence as to what occurred should be accepted" (sic, ibid). This did not provide any basis for finding, in accordance with the principles stated in Fox v Percy [2003] HCA 22; 214 CLR 118, that the primary judge's decision should be reversed. Neither in relation to this alleged conversation nor in relation to the alleged conversation in the car (as to which see [104] above), did Mr Thomas demonstrate that the primary judge's findings were contrary to "incontrovertible facts or uncontested testimony", "glaringly improbable" or "contrary to compelling inferences" (ibid [28] and [29]). 191As Mr Thomas did not identify any other specific statement that Mrs Willett was alleged to have made and which he contended that the primary judge should have found was made, the claim that she engaged in misleading and deceptive conduct must fail. 192An alternative claim was made against Mrs Willett on the basis that she was knowingly concerned in Mr Willett's and SMP's misleading and deceptive conduct (Statement of Claim [117]). To establish such accessorial liability it would have been necessary for Mr Thomas to demonstrate that Mrs Willett had knowledge of all the essential elements of the other person's contravention (Yorke v Lucas [1985] HCA 65; 158 CLR 661). Where the primary liability is in respect of misleading or deceptive conduct, the accessory must know that the conduct was misleading or deceptive or, in the case of future matters, know that there were no reasonable grounds to support it (Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175; 160 FCR 1: see [200] below). The primary judge made no finding to that effect and Mr Thomas gave no credible reason to this Court why such a finding should be made against Mrs Willett. In fact, the primary judge's findings in Judgment [97] (see [103] above) appear to contradict the proposition that Mrs Willett knew that statements that Mr Willett and SMP made were misleading or deceptive or made without reasonable grounds. (I note that elsewhere in his judgment ([50(g)]) his Honour found that Mrs Willett travelled with Mr Sullivan to the United States, inter alia, to review SMP's business operations. Apparently his Honour did not consider that this resulted in her acquiring any significant information beyond that which she acquired from Mr Willett). 193It is unnecessary in these circumstances to consider the further basis of Mr Thomas' challenge to the primary judge's decision that, even if the alleged statements were made, Mr Thomas did not rely upon them (Judgment [99]).

[44]

The claims against Mr Eugene King 194For the purposes of the appeal, Mr King was personally served with various documents including the Notice of Cross Appeal naming him as a cross-respondent. Arguably that Notice of Cross Appeal was an "originating process" that Uniform Civil Procedure Rules 2005 ("UCPR") r 11.3(1) required contain a note that it was intended to be served outside Australia. It did not contain that note. As I cannot see that Mr King would have suffered any prejudice by the Notice of Cross Appeal not bearing that note, I would regard the omission as an irregularity within the meaning of s 63(2)(a) Civil Procedure Act and therefore of no consequence. 195On the hearing of the cross-appeal, Mr Thomas (then the only cross-appellant) contended that he had established his case against Mr King for the same reasons that he had established it against Mr Willett. This contention was founded upon the proposition, which I consider to be correct, that the primary judge found that Mr King made statements to Mr Thomas and Mr Sullivan to the same effect as those that Mr Willett made to them (see [107] above). My reasoning above concerning Mr Thomas' claim against Mr Willett applies equally to the claim against Mr King save in relation to the question of whether Mr King had reasonable grounds for making the statements that he was found to have made. 196As Mr King did not appear at first instance, there was no affidavit of Mr King in comparable terms to that of Mr Willett to which I have referred above (see [161] above). However the affidavit of Mr Willett was before the Court and was evidence available to be used against Mr King. Although it would be possible for the Court to find that Mr King had discharged his onus of proof in relation to the existence of reasonable grounds even though Mr King did not appear either at first instance or on the appeal, the evidence before the Court, particularly that of Mr Willett, in my view indicates that that onus was not discharged (see my reasoning at [162] - [164] as to why Mr Willett did not have reasonable grounds for making the statements he made). 197There are however in my view hurdles in Mr Thomas' path to success in his claim against Mr King. 198In contending that the primary judge erred "in not finding primary or accessorial liability" against Mr King, the Notice of Cross Appeal assumes that the claim made against him at first instance had been put on both bases. The primary judge's judgment of 18 November 2010 does not examine the basis or bases of Mr King's alleged liability but appears to assume that the claim against Mr King at least included a claim that he had a primary liability for misleading and deceptive conduct. 199The final form of the Statement of Claim, namely the Third Amended Statement of Claim, does not however include such a claim. The paragraph in which the allegations of representations are made ([35]) refers to Mr King only as an agent through whom SMP made representations (see [100] above). The paragraph expressly states that SMP also made representations through Mr and Mrs Willett as its agents, but asserts as well that Mr and Mrs Willett made the representations in their own right. There is no corresponding alternative allegation in respect of Mr King. Paragraphs 111 (alleging that the representations were made in trade or commerce) and 114 (alleging that the representors did not have reasonable grounds) are expressed in a fashion that is consistent with paragraph 35. 200The claim that is relevantly made in the Statement of Claim against Mr King is that he was knowingly concerned in the misleading and deceptive conduct of SMP and Mr Willett in that he knew that the conduct was misleading or deceptive or that the representations alleged were made without reasonable grounds ([113], [114] and [117]). This pleading reflects the position established by Quinlivan and summarised in that case as follows: "15 Accordingly, where s 75B or s 80 accessorial liability is in issue in relation to a representation with respect to a future matter, the existence or otherwise of reasonable grounds will be relevant. If reasonable grounds exist, there will have been no contravention and thus no question of accessorial liability will arise. However, as against the accessorial respondent, the onus will be on the applicant to show the respondent had actual knowledge that the representation was made and it was misleading or the corporation had no reasonable grounds for making it". 201The primary judge's findings to which I have referred above (see [107] and [195]) establish that Mr King himself made relevant representations (whether or not he did so as an agent of SMP is presently beside the point). But no claim was pleaded against him on the basis of those representations. So far as the claim that was made is concerned, namely, the accessorial liability claim, his Honour did not make the detailed findings that are necessary to determine whether the principles stated in Quinlivan were satisfied. In relation to the claim that Mr King was knowingly concerned in Mr Willett's contraventions it was, for example, necessary to make findings as to whether Mr King was aware of particular misleading and deceptive statements that Mr Willett made and aware that they were misleading or deceptive or that they lacked reasonable grounds to found them. The position is similar in relation to the claim that Mr King was knowingly concerned in SMP's representations although to the extent that Mr King himself made those representations on behalf of SMP, he would obviously know of them having been made. 202This Court cannot resolve these issues. They involve considerations of credit (particularly that of Mr Thomas, Mr Sullivan and Mr Willett); they have not been the subject of findings by the primary judge and to make them would require detailed consideration of a large amount of evidence. 203A further difficulty for Mr Thomas is that his claim against Mr King is bound to fail for the same reason that his claim against Mr Willett fails, that is that he has not proved that he suffered loss as a result of the alleged misleading and deceptive conduct: his investments were made by way of loans to SSDI which he has not proved are worthless (see [175] above). Mr Thomas' claim should not therefore be remitted for further findings to be made at first instance and Mr Thomas' cross-appeal in relation to Mr King should be dismissed. 204There is no claim by Mr Sullivan against Mr King extant as Mr Sullivan did not cross-appeal (or appeal) against the primary judge's refusal to enter default judgment against Mr King in favour of Mr Sullivan. 205Whilst SSDI pleaded a misleading and deceptive conduct claim against Mr King, it seems from the primary judge's judgment of 18 November 2010 (see [2] - [3]) that only Mr Thomas and Mr Sullivan, and not SSDI, applied by Notice of Motion for default judgment against Mr King. 206Furthermore SSDI was not a cross-appellant named in the Notice of Cross Appeal that was served on Mr King (see [194] above). SSDI did not therefore, until the recent application to amend that notice, seek judgment against Mr King. Whilst in the draft Amended Notice of Cross Appeal, SSDI does seek such a judgment, that has not been served on Mr King and the appeal proceedings have concluded. I do not consider that it would be appropriate to further delay resolution of these proceedings to enable that to occur or to permit SSDI to pursue a claim against Mr King on appeal when the notification that has been given to Mr King of the appeal proceedings has indicated that Mr Thomas is the only person pursuing a claim against him on appeal. 207In these circumstances the grant of leave to amend the Notice of Cross Appeal should not extend to permitting SSDI to make this claim. It follows that SSDI's pleaded claim against Mr King fails: SSDI did not seek judgment against Mr King at first instance and in any event has been unsuccessful in seeking to pursue a claim against him on appeal.

[45]

THE SANDERSON COSTS ORDER 208As a successful defendant Mrs Willett was entitled to have her costs paid by the three unsuccessful plaintiffs unless it appeared to the Court "that some other order should be made as to the whole or part of [those] costs": UCPR r 41.1. 209In my view the primary judge erred in concluding that a different order should be made (see [110] - [112] above). I do not agree with him that the principles stated in Gould v Vagellas at 229 - 230 and Turano (No 2) at [16] were satisfied. 210In essence those principles require that the court find that "the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on it for the costs of the successful defendant" (Gould v Vagellas at 230 per Gibbs CJ; see also the third consideration referred to in Turano (No 2) at [16]). Such conduct cannot, contrary to what is implicit in the primary judge's reasoning, comprise the conduct of the unsuccessful defendant that gave rise to the unsuccessful defendant's liability. If that was so it would be appropriate to make a Bullock (see Bullock v London General Omnibus Co [1907] 1 KB 264) or Sanderson order in most, if not all, cases in which a plaintiff had acted reasonably (although unsuccessfully) in suing another defendant. 211Gibbs CJ remarked on the type of conduct to which the principles refer as follows: "In my respectful opinion, however, the mere fact that the joinder of two defendants was reasonable does not mean that the unsuccessful defendant should be ordered to pay, directly or indirectly, the costs of the successful defendant. Obviously a judge should make a Bullock order only if he considers it just that the costs of the successful defendant should be borne by the unsuccessful defendant, and, if nothing that the unsuccessful defendant has said or done has led the plaintiff to sue the other defendant, who ultimately was held not to be liable, it is difficult to see any reason why the unsuccessful defendant should be required to pay for the plaintiff's error or overcaution" (Gould v Vaggelas, p 229). 212Thus, if when sued or threatened with suit, a defendant tells a plaintiff that it is suing the wrong party and gives reasons why the plaintiff should sue another party, the foundation for a Bullock or Sanderson order will often exist if the plaintiff acts on this encouragement and sues another party but succeeds against the first party but not the second. 213There was no suggestion that circumstances of this type existed in the present case. Accordingly I do not consider that the Sanderson order that the primary judge made was properly made. It should thus be set aside. In re-exercising the discretion I would order that the unsuccessful plaintiffs, Mr Thomas, Mr Sullivan and SSDI, pay Mrs Willett's costs at first instance.

[46]

ORDERS 214For the reasons that I have given, SSDI should have judgment against Mr Willett for the total of the principal amounts that the primary judge awarded to Mr Thomas and Mr Sullivan, $3,326,588 in the case of Mr Thomas and $712,337.92 in the case of Mr Sullivan (see [86] above). 215As the fiduciary claim has failed, interest should not be calculated on a compound basis. The claims against Mr Eugene King fail and the costs orders in relation to Mrs Willett should be varied in the manner that I have indicated. The parties should be given an opportunity to lodge written submissions concerning the appropriate order or orders relating to the costs of the appeal. 216I accordingly propose the following orders: (1) Appeal allowed. (2) Grant leave to amend the Notice of Cross Appeal to include SSDI as a cross-appellant and add paragraph 2 as it appears under the heading relating to Mr Willett in the draft Amended Notice of Cross Appeal annexed to the affidavit of Mr D A Hayes filed on 16 November 2011. (3) Otherwise, dismiss the Notice of Motion of Mr Thomas and SSDI seeking leave to amend the Notice of Cross Appeal. (4) Cross-appeal allowed in part. (5) Direct that the parties confer as to the amount of interest that should be ordered to be paid by Mr Willett to SSDI in addition to the principal amounts of $3,326,588 (referable to Mr Thomas' loans to SSDI) and $712,337.92 (referable to Mr Sullivan's loans to SSDI) to be paid by him to SSDI, in lieu of the amounts of interest ordered to be paid on 5 or 8 November 2010. If the parties are able to agree, they should submit a form of consent order for the Court to make. If they are unable to agree: (a) SSDI should lodge Written Submissions as to the appropriate amounts within seven days of the date of this judgment; (b) Mr Willett should lodge a response within a further seven days; and (c) SSDI should lodge any reply within a further seven days. The Court will then determine the issues between the parties upon the basis of these submissions. (6) Direct that the cross-appellants file and serve an Amended Notice of Cross Appeal complying with Order (2) above within 14 days of the date of this judgment. (7) Direct that the parties lodge in accordance with the timetable specified in Order (5) above written submissions and draft orders relating to the orders that should be made, in light of the terms of this judgment, as to costs at first instance and on appeal, and as to the orders made below that should be set aside. (8) To the extent necessary, grant leave to appeal to Mr Willett and leave to cross-appeal to Mr Thomas and SSDI. (9) Remit for determination in the Equity Division Mr Thomas' claims for a declaration that Mr Willett holds the two shares of SSDI registered in his name on trust for Mr Thomas and an order that Mr Willett transfer those shares to Mr Thomas. 217YOUNG JA: I am indebted to Macfarlan JA for his thorough exposition of the basal facts relevant to this appeal and for his recitation of the material portions of the primary judge's reasons. 218I agree with Macfarlan JA that Mr Willett owed fiduciary duties to each of Messrs Thomas and Sullivan. 219However, I respectfully disagree with his Honour on the issue of breach of that duty. In my view it was within the mandate of the primary judge to use the inconsistent evidence given by Mr Willett in the District Court as a major step in rejecting Mr Willett's evidence. Particularly in the light of Mrs Liddlelow's evidence, even if one discounts this as Macfarlan JA did. 220The primary judge at [34] shows he did give deep consideration to the factual issues before him and although he found Mr Willett's evidence unreliable, he did not accept the reconstruction of Messrs Sullivan and Thomas. 221However, if Macfarlan JA's view on causation is correct, then, this difference of opinion is of no significance in the result. As noted below, I respectfully adopt that view. 222It will be remembered as Macfarlan JA has set out in [98], that at the end of his [66], the primary judge found that the trust and confidence of Messrs Sullivan and Thomas in Mr Willett "would have evaporated, just as it did when they learned the true facts in January 2002." 223The primary judge said at [76] which Macfarlan JA has quoted in his [98] that he did not perceive any causation problem for this reason. 224For the present I will put aside the pleadings and consideration as to how the case was run below. The case now being argued by Messrs Sullivan and Thomas was that Mr Willett said that he would set up a corporate vehicle which would be theirs. Mr Willett claimed that from the inception the SSDI company was a corporate vehicle for mutual investment opportunities. The primary judge found the true facts somewhere in the middle. He found that up until January 2002 Messrs Sullivan and Thomas each believed that they were co-venturers with Mr Willett in equal shares and that SSDI was the joint venture's corporate vehicle ([95]). In reality Mr Willett treated SSDI as his own [79]-[80]. 225The principal thrust of the appellant's submissions was that the case which the primary judge found established: (a) was not pleaded; (b) was not advanced by the plaintiffs below; (c) was unsupported by any evidence; (d) was not put to Mr Willett in his oral evidence or to his counsel during the course of the hearing. 226Mr Willett's counsel put (Orange 161 para 37) that the primary judge rejected the plaintiffs' case, but notwithstanding this, found that Mr Thomas and Mr Sullivan did not understand the implications of that shareholding and that they assumed that their respective interests in the company were equivalent, at least initially, to the investment (if any) which each of them made. 227Appellant's counsel continued at paras 38-39: 38. There are a number of fundamental problems with this finding, any one of which is sufficient to undermine the entirety of the findings on breach of fiduciary duty:- (a) neither Mr Thomas or Mr Sullivan gave evidence to this effect and thus were open to be tested on the logic/or lack of logic of it; (b) neither Mr Thomas or Mr Sullivan said that they did not understand what was meant by owning a share in a company and in particular that an interest in a company was not represented by shareholding; (c) both Mr Thomas and Mr Sullivan said that only Mr Thomas had invested moneys in SSDI and therefore a finding that each "assumed" that their respective interests in SSDI were equivalent to what each had invested was fundamentally inconsistent with a finding that Mr Willett and Mr Sullivan were shareholders at all; (d) neither Mr Thomas or Mr Sullivan said that they understood that the respective interests of Mr Willett, Mr Sullivan or Mr Thomas changed over time - their case was clear and simple, that they did not know that either Mr Willett or indeed Mr Sullivan owned any shares in SSDI until 2002; (e) it is inherently illogical to conclude, on the one hand, that Mr Thomas and Mr Sullivan must have been aware that Mr Willett was a shareholder in SSDI but then, on the other hand, to conclude that Mr Willett deliberately concealed from Mr Thomas and Mr Sullivan that he owned 2 shares in SSDI. This is in circumstances where the shareholding of SSDI, and in particular Mr Willett's 2 shares, was readily ascertainable by performing a search with ASIC and where Mr Sullivan was responsible, as a director of SSDI, for signing documents that went to ASIC to notify it of SSDI's shareholding. 39. A further fundamental problem of his Honour's finding in this regard is that it was never put to Mr Willett that he had deliberately concealed from Mr Thomas and Mr Sullivan that he (Willett) owned 2 shares in SSDI (as opposed to one) and that this was because he wanted to bring about a financially advantageous position at the expense of Mr Thomas and Mr Sullivan. This omission is easily explained: such a contention was never part of the case advanced at trial. 228At the commencement of Mr Cole's submissions Basten JA said: BASTEN JA: The point that was made for most of the day I think really Mr Coles was that his Honour neither found at the case pleaded nor the case to which the plaintiff's evidence had been directed but constructed a case which was internally inconsistent. COLES: Dealing with both parts of that proposition your Honour as I understood our friends they were putting that. Another view may be of course and I'm not answering your Honour's question otherwise than by way of preface but another view of course may be that he did, as he was entitled to do, select those features of the evidence that produced the outcome which generated his conclusion. BASTEN JA: I'm really asking you how you're going to respond. 229Mr Coles understandably took a considerable time to reply. When he did he referred to paras 130-131 of the final version of the statement of claim. These read: 130. In the circumstances there set out, in his capacity as investment adviser in respect of the moneys of Thomas, Sullivan and Softsand, or alternatively joint venturer or partner with Thomas, Sullivan and Softsand in respect of SMP, or alternatively by virtue of the trust and confidence reposed in him by Thomas, Sullivan and Softsand, in respect of the moneys of Thomas Sullivan and Softsand Willett was in a fiduciary relationship with Thomas, Sullivan and Softsand with respect to matters in connection with Softsand and SMP. 131. In the premises, Willett had fiduciary obligations to Thomas, Sullivan and Softsand as follows: i. to not provide inaccurate financial information about SMP; ii. to provide full and frank disclosure of material information in connection with SMP, including as to its level of indebtedness; iii. to not make false representations in relation to SMP; iv. to act with the utmost good faith in the provision of financial information in relation to SMP as plaintiffs; v. to not make inaccurate and careless comments in respect of the future direction and prospects of SMP as a business; vi. to properly account and lodge documentation concerning the plaintiff's interests in SMP; vii. to not let his interests conflict with those of Thomas, Sullivan and Softsand; and viii. to not profit at the expense of Thomas, Sullivan and Softsand. 230Paragraph 132 then alleged breach by acting contrary to para 131(i)-(vii) and para 133 alleged loss being the sum total of the loans made plus loss of dividends from SMP. 231Macfarlan JA's paras [143]-[149] correctly summarize the situation. The alternate case was not pleaded and the evidence, not being directed to it, did not support it. Thus I agree with Macfarlan JA's [152]. 232Accordingly, the breach of fiduciary duty claim did not result in provable loss. 233I then turn to the alternate claim in respect of misleading and deceptive conduct. 234I agree with the conclusion as to liability reached by both Macfarlan JA and Basten JA. However, my brethren disagree on the matter of whether Messrs Sullivan and Thomas suffered loss. Macfarlan JA's view that they did not meant that he had to consider the further matter of loss by SSDI. 235Although my mind has wavered on this point, I have ultimately reached the view that Basten JA's opinion on this matter is the correct one and I respectfully agree with his Honour on this matter. 236It follows that I respectfully agree with the orders proposed by Basten JA.

Willett v Thomas

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Cases Cited (22)