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High Court of Australia Transcripts |
Sydney No S136 of 1997
B e t w e e n -
EFFEM FOODS PTY LIMITED trading as UNCLE BEN'S OF AUSTRALIA
Appellant
and
LAKE CUMBELINE PTY LIMITED
First Respondent
IDOBOOK PTY LIMITED
Second Respondent
PETER HORROBIN
Third Respondent
RICHARD SANDS
Fourth Respondent
RAYMOND PRIDMORE
Fifth Respondent
GLEESON CJ
GAUDRON J
KIRBY J
HAYNE J
CALLINAN J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 4 FEBRUARY 1999, AT 10.18 AM
Copyright in the High Court of Australia
MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR R.M. SMITH, SC, for the appellant. (instructed by Deacons Graham & James)
MR J.D. HEYDON, QC: I appear with MR J. STOLJAR for the respondents. (instructed by Blake Dawson Waldron)
KIRBY J: Mr Jackson, just before you start, I had drawn to the notice of the parties that in the dim and distant past I sat in a matter in the Court of Appeal of New South Wales in respect of an early phase of the litigation in these proceedings, and I do not feel in any way embarrassed. The issues raised there do not appear to be in any way really germane to the issues we are going to be discussing. I had that drawn by the Registrar to the notice of the parties and I understand there is no objection of either party to my sitting. I will sit.
MR JACKSON: That is so, your Honour.
GLEESON CJ: Yes, Mr Jackson.
MR JACKSON: Your Honours, in this case there is the appeal, the application for special leave to cross-appeal by our learned friends and the matters raised by their notice of contention. I propose to deal in-chief if I may with our appeal and then proceed to deal in reply with the other matters.
The appeal is from the order, if I could take your Honours to it immediately, the order which appears in volume 2 at page 402. As is apparent from the terms of the order, the effect of the Full Court's decision was that the appeal succeeded in part, and in part only - that is the respondents' appeal to that court. Your Honours will see orders 1, 2 and 3, in particular order 2, referring to the fact that:
There be a new trial of the claims made in paragraphs 3(b), (c) and (d) of the further amended statement of claim -
and then if I could go to the top of the next page:
3. The Appeal be otherwise dismissed.
The respects in which the appeal succeeded were in relation to three of 24 representations. I use the term in inverted commas, and I use it, indeed, your Honours, claiming no originality in so doing, because it is the term used by the respondents in their statement of claim to indicate the nature and content of the allegations which they were making.
GAUDRON J: It seems to me that that might be where this case started to proliferate. What is the conduct in question in relation to the representations (b), (c) and (d)?
MR JACKSON: If I may answer that, with respect, by saying it is very difficult to identify what that is, and I was going to say in a moment, if I may, that the Full Court said it was wider than, in effect, what was pleaded. There was conduct involved but if one looks to see what the conduct was - - -
GAUDRON J: It was silence, was it not?
MR JACKSON: I suppose it was silence, but it was really the absence of anything, as it were. If one looks at these representations they relate to the fact that there was an agreement - the W17, et cetera, agreement - which was entered into for the supply of goods on either 11 or 26 February. The agreement was there, and that is really all that happened. That is it. I am sorry to be putting it in a hesitant way, but I do propose to come to this in a little more detail in a moment, but if one is seeking to say what is the difference between the representation, what is the Full Court talking about in conduct, the answer is that it is very difficult, with respect, to see, and more than that, of course, your Honours, doing nothing.
KIRBY J: Is there something I have missed? This is just a question, a similar question at the threshold as to the facts being quite detailed, as to what was the suggested motivation on the part of your client to puff up the position of Trawl to its advantage? What is the suggestion that the respondents put forward as to why your client would have some business interest to make Trawl look a fatter, richer, bigger and more prosperous investment to the respondents?
MR JACKSON: Your Honour, it could no doubt be put in various ways but perhaps one might identify two aspects of it as being more capital, in effect, than might be thought to come into Trawl because there was some subscription for greater shares, and I do not mean that as being the only source of - - -
KIRBY J: What interest did UBA have in that?
MR JACKSON: Your Honour, only, I suppose, to have a more stable, more reliable potential supplier.
CALLINAN J: It was suggested at one stage that if Trawl were in business and operating then there would be more competition among suppliers and that might drive the price down. That was suggested in one place I saw.
MR JACKSON: Yes. Your Honour, the very significant difficulty with that, however, so far as its consistency with the other side's case was concerned was that a very significant part of the other side's case was that they were to have an exclusive right in relation to supply of fish of the relevant kinds, except for fish sourced from Western Australia, I think.
KIRBY J: I am sorry to take you off your course, but it was just a puzzle that I had in my mind as to understanding what it was suggested that was it in it Mr Lees and UBA to the misleading of investors as to the status of Trawl.
MR JACKSON: Well, your Honour, the answer is perhaps not a lot. I do not mean that in facetious way, but - - -
KIRBY J: Normally people do not do things, especially business people, unless there is some interest in it for them or their companies or shareholders. That is the whole point of business.
MR JACKSON: Well, indeed, your Honour, and your Honours will have seen that in the primary judge's reasons for judgment he discusses, in considerable length, what were at least the factors that on his findings motivated the respondents into entering into it. He looked at the fact that the oral communications between Mr Lees and the respondents were at a meeting which, in effect, was a meeting by chance and took place for a short time.
CALLINAN J: Mr Jackson, could I ask you a question that puzzled me about it and it is probably somewhere in the material. Does the evidence disclose whether Trawl or a receiver or liquidator ever sued the respondent for damages for breach of contract or, perhaps, for misrepresentation?
MR JACKSON: Well, there was some litigation, your Honour. It - - -
CALLINAN J: I saw that because witnesses were cross-examined about what they had said in the Supreme Court.
MR JACKSON: Your Honour, the precise nature of it, I think - and I may be corrected on this - does not go to the documents which are germane to the present case but rather to events which took place in relation to, I think, a later heads of agreement.
CALLINAN J: So, the answer to the question really is that there is no evidence that Trawl ever sued the respondent for breach of contract or any other breach of duty of any kind arising out of a failure to perform any agreement or any claim for damages, or anything of that kind, is that right?
MR JACKSON: That is so. I am sorry, your Honour, there is an element of complication - - -
CALLINAN J: You might want to think about it and answer it later if it is convenient, Mr Jackson.
MR JACKSON: Your Honour, it is probably easier if I put it on a bit of paper because Trawl was a party to these proceedings at some point but its claim was dismissed or knocked out in one way or another because of a res judicata and there had been some earlier proceeding but the precise nature of it I, perhaps, could give to your Honour later.
CALLINAN J: I am sorry, there is just one other question I wanted to ask you at the beginning. How is it put that the respondent should have, in effect, alerted your client to the possibility that if it could legitimately avoid any contract or arrangements with the respondent, if the respondent was not performing, it would do so, and that that is what it should have told the respondent? Is that what the case comes down to, in a sense?
MR JACKSON: Well, your Honour, there are really two cases now if I can put it this way. One case is the case that was decided in favour of the respondents in the Full Court. The other is the case in relation to which they failed and that is the one for which they seek special leave. So, if I can put it this way: it is representations (b), (c) and (d), which are the subject of the appeal, and 13 which is the subject of the cross-appeal. In relation to (b), (c) and (d) - and, your Honour, perhaps I could just indicate what they are as I speak because you will see at page 441 in volume 2 that the three representations that are the subject of the appeal are (b), (c) and (d) in paragraph - I am sorry, (b), (c) and (d), I should have said 441 - at page 441 in paragraph 3, and representation (a) was not pressed in the Full Court, so that is the case, (b), (c) and (d) so far as the appeal is concerned.
Now, your Honour, so far as the cross-appeal, the relevant representation, is number 13 which is in paragraph 20(b) at page 452. In relation to the first group, at page 441, now what your Honours will see in relation to that is that particulars are given, and the particulars at the bottom of page 441 are that the representations were contained or evidenced by the W contract, that is the fish supply contract. Then so far as they are to be inferred from conduct, it is, as your Honour Justice Gaudron put to me earlier, that we knew that shareholders would show that contract to people who it was - - -
GAUDRON J: Is knowledge conduct? This is pleaded without any reference to the terms of the statute.
MR JACKSON: Indeed, your Honour.
GAUDRON J: And your side of the record apparently took no objection.
MR JACKSON: Your Honour would appreciate, of course, that the way in which the pleading was put was a pleading that was one of fraud as well, so that the question of knowledge was germane to that, and your Honours will see the reference to fraud being in paragraph 4 at page 442. So that your Honour might see why, in a case that did involve fraud, there perhaps was not much point to be taken in the question whether knowledge is properly described as conduct. Of course the case on fraud failed. I am sorry, I am not answering Justice Callinan yet - but the case on fraud failed and that is why one sees a rather more anorexic - if I can put it that way - case being presented in the Full Court because all the meat has gone from it, and what was being sought to be done was to salvage something from the remains.
CALLINAN J: Mr Jackson, what I do not understand really, I think, follows on from what her Honour Justice Gaudron asked you. How should the vacuum of silence have been filled? What should the respondents have said? To take representation (b); is it put that the respondents should have said, "We don't intend to honour our obligations under the contract"?
MR JACKSON: Your Honour, something along those lines. Your Honour will see that the - - -
KIRBY J: It is the appellant, is it not, that should have said this?
MR JACKSON: Yes, your Honour.
CALLINAN J: Sorry, the appellant, quite. Thank you.
MR JACKSON: That somehow, if we had an agreement and in relation to that agreement we said nothing. Presumably we are supposed to say, assuming it be the fact, although there is this document which has the form of an agreement which obliges us to take this fish and pay for it at these prices, we do not really regard this as something by which we are bound.
HAYNE J: Did not the allegation fail at the logically anterior point, that the judge found as a fact there was an intention to perform and the contract was not thought to be a sham and was not a sham?
MR JACKSON: Indeed, your Honour.
HAYNE J: That was a finding founded in part at least upon his assessment of the witnesses.
MR JACKSON: Your Honour, the question - I will come to the detail of it in a moment - was put directly to Mr Lees. He said that he did intend to honour it and he believed it to be a .....and the judge accepted that evidence. That was oral evidence which he gave.
HAYNE J: So there was no misrepresentation on the primary judge's finding?
MR JACKSON: Yes, your Honour, in a case that went for weeks and where he saw the witnesses.
HAYNE J: A case which might be regarded as a monument to legal ingenuity rather than anything more.
MR JACKSON: Your Honour, I used in perhaps a flippant way the expression anorexia - anorexic before - but it does describe, if I say may say so with respect, the way in which the case now presents itself to the Court. What I mean by that is that your Honours have seen the nature of the pleading that was made. It was a case based on the fact that we were propping up a sham or proffering a kind of sham with a view, I suppose in one way or other, to get something more into Trawl and that case was one that failed because the judge just did not accept that.
Once one got to that position all you had - and I should also say, your Honours, once the judge disbelieved the case made against us of there having been oral misrepresentations made, the case is simply one where there are two documents, one document being the fish supply contract and the other being the heads of agreement. In relation to the fish supply contract the judge found that we did regard it as a contract and we were bound by it.
He thought in relation to the heads of agreement that it was one where we had the view that it was not legally binding and that was a view which might reasonably have been held and, your Honour, the relevant legal obligation was simply that we would go first to them and - - -
GLEESON CJ: Mr Jackson, to understand the allegation that has been sent back for retrial, could I just ask was it common ground in the Full Court of the Federal Court that contract W17299 was a binding contract?
MR JACKSON: Leaving aside any view about it, your Honour, any party's view about it - - -
CALLINAN J: Was the case conducted in the Full Court of the Federal Court and will the retrial be conducted on the basis that contract W17299 was a binding agreement?
MR JACKSON: Yes, your Honour.
GLEESON CJ: Then what choice did UBA have as to whether it would honour its obligations under that contract?
MR JACKSON: Well, your Honour, I suppose Hobson's choice in the sense that we honoured them or would be sued for them, but we had no legal choice.
GLEESON CJ: The alternative possibility is that the contract was a sham. Was that put?
MR JACKSON: Yes, your Honour.
GLEESON CJ: And the subject of a finding adverse to that proposition by the trial judge.
MR JACKSON: Indeed, your Honour.
GLEESON CJ: Was it put in the Full Court of the Federal Court that the Federal Court should overturn the finding and conclude that the contract was a sham.
MR JACKSON: Yes, that is so. Yes, it was, your Honour. The Full Court, of course, has not adopted that course.
KIRBY J: And not only on the basis of the assessment of credibility by the primary judge, but the primary judge rested his conclusion also on a list of 11 factors which had a much surer foundation, namely the logic and business efficacy of the arrangements between the parties. For example, as I understand it, in discharge or pursuit of the written contract, the fish was supplied and more fish was supplied and paid for.
MR JACKSON: Indeed, your Honour. One sees that at page 160 through to page 161 in volume 1.
GLEESON CJ: What I wanted to ask you was this: the contract was entered into on 11 February 1987?
MR JACKSON: Yes, your Honour.
GLEESON CJ: Presumably, either it was a sham on 11 February 1987, or it was not on 11 February 1987. As at 11 February 1987, were the respondents investigating the possibility of investing in Trawl?
MR JACKSON: Certainly as of the 26th they were. Your Honour, my cavilling is simply this: the contract bears the date 11th; you will see, however, a received stamp of 26 February on it. Mr Horrobin had not come onto the scene until 9 March, so that agreement was one in being at the time when the respondents came on the scene.
GLEESON CJ: It might be thought that a possible way of alleging misleading and deceptive conduct in this context would have been to allege that your client on 11 February entered into a sham contract with Trawl in the hope of thereby attracting potential investors. But that does not seem to be the way it is put.
MR JACKSON: Your Honour, one sees at the bottom of page 441 in the pleading that there is something along those lines, that is that we knew that then shareholders were going to show the contract to potential investors, and that, I think, reflects what your Honour was just putting to me.
What we would seek to say, if I can just go back for a moment to page 441, is that the Court will see pleaded there in paragraphs 3(b), (c) and (d) and 4 and 5 the exact case, as it were, an exact case that was being put against us. If I could just say in relation to what was said by the Full Court at page 391, line 40 in volume 2 - your Honours will see at page 391 at the bottom at line 40 in the passage which goes through to page 392, line 30 - this is I think the part to which your Honour Justice Gaudron was adverting earlier - their Honours say that:
the inquiry is necessarily a wider one: that is, whether in all the circumstances the respondent's conduct was misleading or deceptive -
Well, your Honours, as a broad and general proposition, so be it. One would not doubt - - -
GAUDRON J: Why is that wider than misrepresentation? It is a different one.
MR JACKSON: Your Honour, I can only answer by saying that if one looks at the remainder of the passage which goes through to page 392, line 29, no answer appears. It is impossible, with respect, to understand what the members of the Full Court were endeavouring to convey by the distinction which they sought to draw.
GLEESON CJ: But the essence of the conduct, as I understand it, is that on 11 February 1987 UBA and Trawl entered into a sham contract which was intended as window dressing to attract investors and that conduct then had a practical consequence in relation to the respondents when, in mid-March 1987, they began to investigate the possibility of investing. In other words, the bait was cast when a sham contract was entered into in February and the respondents rose to the bait in March.
MR JACKSON: Well, your Honour, yes.
GLEESON CJ: That case may be right or wrong but, in essence, it does not sound very complicated.
MR JACKSON: Well, your Honour, it is not. The difficulty with it so far as the case of the respondents was concerned was this, that, as very frequently happens, a plaintiff or applicant bears the burden of establishing all the elements in a cause of action. If one took, for example, the simple action in negligence, one would have to satisfy the court for a plaintiff on duty, breach, causation, loss and maybe one or two other things. But if one failed on one issue, the claim failed. A plaintiff may fail on more than one issue, and that often happens and that is what happened here.
Your Honours, it is frequently of course, as one sees, a reason why special leave is refused in this Court. The Court says, "Well, you might have a good point on there being an error of law on this element of the cause of action" - where there was a representation, for example, in a fraud cause - "but you failed on reliance, and so no special leave. You've got to get over that too". This is a case where there was failure on a number of elements and it is very difficult, with respect, to see - and I will come to the detail of it in just a moment - - -
GAUDRON J: But does it not fail really right at the beginning in this sense? Once the contract is held not to be a sham, how can it be a misrepresentation in the terms pleaded in (b), (c) and (d)?
MR JACKSON: Well, your Honour, in our submission, it simply could not because what you had was a situation where the only representation of any kind was that there was a subsisting contract between us and Trawl Industries in the terms of W17, et cetera.
HAYNE J: Well, is that right? As alleged there are two kinds of representation in (b), (c), (d), are there not? The first two about your client's intentions. As we have earlier discussed the judge found that your client, in fact, had the intentions that it was alleged it had represented to the other side. But the third one, (d), is of a different kind, is it not? It is not said to be a representation about your intentions, rather it is a representation about a party that owes you obligations under a contract and about its performance and capacity to perform its obligations.
MR JACKSON: Well, your Honour, that is how it was sought to be put, I would accept immediately. May I say, however, in relation to it, that if one is seeking to obtain that from the contract, and that is the relevant source of it, it is very difficult, with respect, to see, looking at the contract - I have not taken your Honours to that - that it says any more than that we have agreed to take from Trawl fish of these quantities.
HAYNE J: That brings me at once to the questions of the kind that Justice Gaudron was asking you: how can there be a representation of the kind alleged in paragraph (d) when all you have is the contract?
MR JACKSON: Well, your Honour, that is what we would seek to say. That is all there is; there is the contract. We could enter into a contract, your Honour, if I could put it this way, with someone which had no provision for itself catching - dealing with fish at all, but someone that was planning to or someone who had access to people who would, and if the question was asked is there a contract by which we are bound to take that tonnage of fish in that time, the answer is yes.
HAYNE J: The other side then seek to add to it the further fact, "You knew or suspected, or believed or something, that they could not, or might not, or would not perform", which again takes you to, well, let it be assumed for the purpose of argument that you knew, believed, suspected that they might not perform, what is the conduct on the part of your client that is then said to be misleading or deceptive?
MR JACKSON: Your Honour, the conduct could only come from one of two sources - and I am really endeavouring to answer the other side of the question, the other side in a sense - but the conduct, one, is there is the contract. Now one looks at the contract to see what it says. But the other thing is by not saying to people, even though we are bound and they are bound, we think they may not be able to perform, perhaps under the current management, I suppose one might answer.
KIRBY J: Mr Lees did say, did he not, or did concede, that he thought that the contract was not enforceable?
MR JACKSON: Not this agreement.
GLEESON CJ: That is the heads of agreement.
MR JACKSON: The heads of agreement was a different thing.
KIRBY J: Did he say anything about the contract W - - -
MR JACKSON: Yes, your Honour. His evidence that he believed it to be binding was accepted by the primary judge.
GLEESON CJ: The plausibility of the case put for the applicants at first instance, whichever way you look at it, depended, did it not, on the proposition that this was a phoney contract.
MR JACKSON: Your Honour, as a practical matter that is exactly correct and that is why one has a situation now where the case that is, in effect, found by the Full Court in their favour, and the one that is sought to be advanced, is one that is a kind of remnant of what was a larger, more substantial case.
CALLINAN J: Mr Jackson, I have trouble in understanding how an enforceable contract can ever be a sham contract. A party might hope, perhaps, if the other side falls into breach, of being able to take a commercial advantage of that, but an enforceable contract is going to expose the party to damages if there is a default.
MR JACKSON: Indeed, your Honour. Let us assume, for example, leaving aside the current parties altogether, that the Trawl Industries shareholders and directors had arrived at a situation where the shareholding of the company was sold and its control changed completely. Let us say they sold it to one of the very large fishers and processors in Australia, one of the large West Australian ones, for example. Now, your Honours, in those circumstances it may well be that a believed inability to perform is quite changed.
GLEESON CJ: Mr Jackson, it would be of assistance to us if you could just state in a summary form the issue that you see as thrown up by the Full Court's conclusion that there was some kind of fundamental misdirection of himself by the trial judge when he came to deal with the issue concerning these representations.
MR JACKSON: Your Honour, there are several elements, of course, and may I seek to deal with them separately. Now, there is the making of the representation on the one hand, there is the question of whether it was misleading, and the third thing is, whether there was reliance upon it. Now, may I say, your Honours, in relation to the question of reliance on it, there were findings of fact by the judge that in respect of these matters there was not reliance. The judge considered this at great length. I will come to the detail of it, if necessary, later. The judge considered that at great length and made specific findings that they did not rely on the representations.
CALLINAN J: The respondents were commercially fairly sophisticated people. They made all sorts of inquiries, did they not, themselves?
MR JACKSON: Indeed, your Honour, and the judge made specific findings about the factors that did motivate them to enter into them and they were that they saw it as a fantastic opportunity.
CALLINAN J: The lure of fabulous profits in the short term.
MR JACKSON: Yes.
GLEESON CJ: But it would not have been hard to conclude reliance if he had found that this was a phoney contract, would it?
MR JACKSON: No, your Honour, I do not suggest otherwise. So, that is one thing, if I could start at that end, reliance. There is a finding of fact by the judge which is inevitably based on, in some respects, credibility in respect of at least 3(b) and 3(c). Your Honour, so far as the question of misrepresentation is concerned, the judge specifically found that he did not accept the proposition and indeed accepted the reverse of the proposition that we did not intend to honour our obligations under the contract and the genuineness. That is (b) and (c). In respect of that he found there was no misrepresentation and indeed the evidence demonstrated that in the period up to the middle of the year we had in fact accepted all the fish they had been able to supply, in one respect there was more than what was required of a particular fish, and that they appeared to be in a situation where they were able and in fact supplying fish which complied with the terms of the contract.
So, those two aspects of the case, it is very difficult, with respect, to see now the matter to which I will now come which affected the Full Court played a part in relation to it. What the Full Court did was to say in relation to representations that the approach taken by the primary judge was an approach in which he had said that credibility was something that one had to look at with some care because of the length of time that had gone by, and so, one needed to look, hardly surprisingly, and as, in fact, he did, at documents - contemporaneous documents - he had to look at the probabilities of the matter.
They said, however, that when it came to these representations he had somehow failed to appreciate that the representations that were being relied on in 3(b) and 3(c), for example, and 3(d), were all representations which were based on documents, and that he was in error in that. The judge specifically did deal with the fact, did refer to the fact, that these representations - - -
GLEESON CJ: The representations relating to allegedly sham documents.
MR JACKSON: Yes.
HAYNE J: And representations as to intention.
MR JACKSON: Yes, your Honour. Perhaps if I could take you to our written submissions where we deal with this aspect in paragraphs 27 and following. I was just going to give your Honours two references - this is in relation to paragraph 32 - two references where the judge said specifically that these representations did not depend on oral conversations. You will see that in volume 1 at page 159 lines 10 to 25 and your Honours will see at the top of the page, speaking of these representations, the judge says:
These four representations are said to be in writing or alternatively partly in writing and partly to be inferred from conduct.
What he is doing is to paraphrase the particulars. It is clear from that passage that the judge understood how the representations were sought to be made. When one goes to page 164 about line 22 you will see that his Honour says:
I do not accept this submission for the reasons set out below:
And the first reason is this:
the representation is not said to come from anything stated to any of the applicants by UBA. It must be derived from the contract itself and silence on the part of UBA in the context of the circumstances in which it was signed and issued.
Now, your Honours, before the Full Court, when one looks at that, the first reason the judge states, when one looks at the view taken by the Full Court, that the Full Court saying somehow the judge's final conclusion on credit - - -
GLEESON CJ: The passage critical to this appeal is the paragraph that appears on the top of page 395, is it not?
MR JACKSON: Yes, your Honour. Indeed, your Honour, the first paragraph on page 395 and what their Honours are doing there is to say - they say:
There are, in our view, difficulties with this reasoning -
"this reasoning" being that immediately referred to on the preceding page, 394.
GLEESON CJ: In particular, 394, at lines 41 to 43.
MR JACKSON: Yes, your Honour. Now, they say, your Honours will see, at about line 15 on 395:
We acknowledge that such reasoning may have been appropriate in rejecting the appellants' case so far as it was based on the alleged oral misrepresentations -
and then their Honours proceed. But, your Honours, the two passages to which I referred a moment ago in the primary judge's reasons make it absolutely apparent, with respect, that the judge understood exactly the task upon which he was committed.
GLEESON CJ: But the proposition is that the claims with which we are concerned, that is the misrepresentations, (b), (c) and (d), are grounded on written material, the existence of which is not disputed.
MR JACKSON: Indeed, your Honour.
GLEESON CJ: But if, in essence, those are claims that a contract was a sham, that is a claim that necessarily goes beyond and can only be validated by reference to considerations outside the written material.
MR JACKSON: Quite, your Honour. That is in relation to whether it was a misrepresentation, so far as the making of the representation is concerned. If all that is said to consist of are the two things to which the judge referred and the two things particularised, namely the existence of the document, as it were, on the one hand and, on the other hand, saying nothing more about it, in the knowledge that it is to go to people who may be interested in buying. All the case was that was where one found it. The judge recorded that. That is how he dealt with the case.
GLEESON CJ: But was the judge's reasoning in relation to these three misrepresentations: one, there was no representation one way or the other made by UBA to the investors about the genuineness of this contract; two, in any event it was genuine contract; and three, in any event, there was no reliance by the investors upon any conduct on the part of UBA in relation to this contract?
MR JACKSON: Your Honour, certainly 2 and 3 of what your Honour put to me. The judge said that he found that there was no misrepresentation. It seems open that he was finding also that there was no relevant representation.
GLEESON CJ: Yes, to say that there was no misrepresentation is a compendious expression.
MR JACKSON: Indeed, your Honour.
GLEESON CJ: It could mean either there was no representation or it could mean the representation was not false, or it could mean both.
MR JACKSON: Yes. Your Honour, the point we would seek to make about it is that if it be that the representation is, as pleaded, to be contained from the two sources to which I referred, it is plain that the judge understood that to be the position and, with respect, the view taken by the Full Court ascribes to him a course of reasoning which he did not, in fact, adopt.
GLEESON CJ: We think that we would be assisted by hearing from Mr Heydon at this stage. Yes, Mr Heydon?
MR HEYDON: Your Honours, in view of some of the questions which have been addressed to Mr Jackson, particularly in relation to the question of what the conduct was and in relation to Justice Kirby's and the inquiries of other Justices about the motivation alleged, it might be convenient to put orally in short form what we have put in our notice of contention written submissions to indicate, as it were, the background to events at the time in mid-March when the W contract came into the hands of the present respondents. At that time Trawl had been in business for a couple of years. It had entered a number of contracts with UBA. It had only succeeded up to the beginning of February 1987 in producing 400 tonnes of fish against a very much larger contractual obligations to produce and Mr Lees accepted that they had performed very poorly.
The W contract, the date of which has variously been said to be 11 February or 26 February is, in truth, to be dated 26 February because that is when Mr Lees finally issued it. He had negotiated various aspects of it early in February as to both tonnage and price and though it is stamped 11 February it did not, in fact, come into the hands of the other side until the 26th. It was never signed by the other side but the parties acted on it and accordingly it came into contractual force. Six thousand two hundred and fifty tonnes are to be supplied under that contract which was a figure 15 times greater than the total tonnage that had ever been supplied before February.
GLEESON CJ: Was that the amount or the maximum amount?
MR HEYDON: It was the amount to be supplied. Uncle Ben's ordered a total of 6,250 made up in various categories for different types of fish, so it was both the maximum and the actual. The other agreement to which reference has been made was the heads of agreement. There had been earlier heads of agreement and one was in force, the third one, from September 1986. Between the heads of agreement with which we are concerned which was eventually executed on 26 March and the W contract was a close relationship, many of the terms of supply, many of the duties of the seller of the goods under W17299 and the buyer were found not in it but in the heads of agreement.
That W contract was treated by the parties as being the first in a series of six monthly W contracts to be issued under the heads. I will for other purposes perhaps go to the details of those contracts later. I will just flag if I may for the moment the fact that there was considerable emphasis and detail in both documents on the need for that which was supplied under the W contract to comply with specifications. The relevant specifications are essentially specifications for different types of fish to be frozen to specific temperatures in a specific number of hours.
Your Honours have been raising some questions about, as it were, the gap between the issuance of the W contract on 26 February and the fact that the investors did not come onto the scene until the middle of March. The position in a nutshell was this: though Mr Lees did not know about these investors until the middle of March and perhaps until he actually met them on 18 March, it was known to Mr Lees that investors generally were being sought to be interested in taking up shares in Trawl. On 19 January Mr Lees knew that Trawl was trying to buy a lease, a 56-year lease, or enter into a 56-year lease, of its blast freezer and cold store which up to that point it had no rights to use.
The position up to that point was that such fish as it was processing was brought there, gutted and headed, if the fish had to be, in a room which Trawl had some sort of lease or licence to use, and thereafter the fish were handed over to the Port of Geelong Authority and the Port of Geelong Authority, as it were, in their own right would do the blast freezing and the cold storage. The contemplation was on 19 January that Trawl would get a lease and in effect become a more integrated operation. The problem was it was going to cost 1.5 million to enter that transaction. Mr Lees was also aware around this time that Trawl had plans to try and improve and refurbish the plant.
Mr Lees in his evidence in-chief, his witness statement, accepted that on 28 February he had a conversation with the gentlemen who were then running Trawl, the people who were the shareholders in Atasco, its then proprietor, pointing out that they wanted to raise additional funding, they wanted to refurbish the plant, they wanted a long-term arrangement with Uncle Ben's. Mr Lees said he would give them a letter of intent or heads of agreement "which you can show to prospective investors or lenders to establish UBA's bona fide long-term commitment" and that - - -
KIRBY J: Just pause there. There was no corporate relationship between Trawl and the appellant? There was no common shareholding or common offices?
MR HEYDON: No, the relationship was purely contractual.
KIRBY J: They were at arm's length. One was, as I understand it, the Australian branch of a large multinational corporation with huge resources and one of the biggest of its kind in this part of the world and the other is a relatively small-time fishing operation.
MR HEYDON: That is so. There was no shareholding relationship or other structural relationship between them. Their only relationship was this series of contractual relationships and heads of agreement relationships.
KIRBY J: So just why would Mr Lees go about, quite apart from the judge's findings on this, puffing up Trawl to deceive investors who he did not know, against whom he had no animus? What is in it for the appellant or Mr Lees?
MR HEYDON: The argument put to the trial judge was this: Mr Lees and UBA - and Mr Lees is the relevant executive for all purposes. He was the senior wet raw materials buyer. UBA's policy was to increase the number of suppliers to it by the end of 1987, in other words the end of the year, the beginning of which we are examining events. A further aspect of its policy was to reduce dependence on imports. Mr Lees said in uncontroverted evidence that he told Horrobin and Pridmore that Uncle Ben's were concerned about the long supply lines from places like Thailand. He was concerned with problems of the Australian dollar fluctuating, this is 1987 shortly after Mr Keating spoke of the Banana Republic. The local supplier, accordingly, was much more attractive than imported supply. He agreed in evidence that he was seeking to develop local supply as an alternative to Asian supply. Another officer, Mr Armstrong, who was Mr Lee's superior, agreed that that was their policy.
Jack Mackerel was, according to Mr Lees who would know, a type of fish particularly suitable for pet food and was the largest resource of fish suitable for pet food in Australian waters. It had only one competing use and that was to make fishmeal. Jack Mackerel is fished in the only proven Mackerel grounds off the coast of Tasmania. Uncle Ben's had their pet food factory in Wodonga on the Victorian border. The Trawl plant, if you could call it their plant, as at January to March 1987, was at Geelong and the fish was off the coast of Tasmania. So Trawl, as it were, was geographically were located.
The Geelong complex, whatever its deficiencies and whatever the need to expand it, was regarded by Uncle Ben's has having a substantial cold store. The common ground in the evidence is that it was 1,500 tonnes capacity, and Mr Lees regarded cold storage as very hard to get, particularly for fish.
Mr Lees told the investors in uncontroversial evidence, that "Trawl is attractive to us because it is in the right place, it has a large cold storage and blast freezing capacity".
KIRBY J: Now, all of this is business sense.
MR HEYDON: Yes.
KIRBY J: It does not explain why hard-nosed businessmen like Mr Lees would take that extra step and move from something which is generally to its commercial advantage to, what is essentially, a fraudulent misrepresentation about - - -
MR HEYDON: The motivational picture is not quite complete, yet, but nearly completed. Despite the perceived advantages of Trawl it had disadvantages at this time. Disadvantage number one was that while the last freezer and cold store were run by the Port of Geelong Authority it was subject to operational constraints, namely, it only worked a nine-day fortnight and, secondly, it only worked for about eight hours a day, from 7.45 in the morning until 4.30 at night. When large quantities of fish are caught it is necessary to have, as it were, 24-hour freezing to try and get them frozen, according to specification, in the best volumes possible. If it were possible to get the Port of Geelong Authority out by reason of them only becoming a landlord, and Trawl in there as lessee, both those problems would go away, there would be no operational constraints and no working to rule. So, it would be advantageous if Trawl somehow or other could acquire the 56 year lease and somehow or other could carry out whatever refurbishment was necessary.
Now, the Full Court said that at this time Trawl was in a difficult financial position, and I will not weary the Court with it but there are a number of items of evidence to indicate that. It may be a matter of legitimate debate as to how acute their problems were, but they were in a difficult financial position and they unquestionably - the gentleman running the company wanted to get investors in to fund the company more fully in order to carry out the improvements and acquire the lease.
The case put to the trial judge was that Mr Lees wanted to ensure that investment came in because it was to Uncle Ben's advantage that that investment come in but Mr Lees knew, one, that the tonnage called for under the W contract was, to start with, considerably greater than the then existing W contract and, secondly, 15 times greater than whatever had been produced before; two, there had been at least four dramatic incidents indicating an inability on the part of the blast freezer at the Port of Geelong Authority to freeze to specification. Accordingly, the case was put that his motive was to try and induce the investment in to provide an improved heads of agreement and issue the W contract in order to help that investment come in.
He could not have had any genuine expectation that 6,250 tonnes would actually be produced but that did not matter very much to him because he had more than enough fish ordered with other suppliers. He was happy to take whatever fish Trawl would produce because it was in the long term interests of Uncle Ben's to get Trawl up as a reasonably competent and a reasonably - a supplier capable of supplying in adequate volume in the future. Accordingly, Mr Lees was not motivated by any sort of independent malignancy towards the investors.
Your Honour, the Chief Justice - if I can just clarify this - has been using expressions like "sham" and "phoney" and Justice Callinan observed that if you have a contract a contract is a contract and it is enforceable. The case abandoned, on appeal, which is the representation (a) or (i) case, was that it was a sham in what I will call the Snook's sense or the Sharman sense, namely, it was either a transaction of absolutely no legal force whatever or it cloaked some other real bargain. That was not in issue in the Full Court. What was in issue in the Full Court, flowing on from controversy at the trial, was that although it was a perfectly valid contract, it was not genuine from Uncle Ben's point of view in that they knew that the likelihood of it being fully performed was not great.
GLEESON CJ: If a contract is not genuine from the point of view of one of the contracting parties, it is a sham unless it is genuine from the point of view of the other contracting party. Are you suggesting that it was genuine from the point of view of Trawl but not genuine from the point of view of Uncle Ben's?
MR HEYDON: The evidence does not reveal what Trawl's attitude was, but let us assume that Trawl regarded it as a perfectly valid contract which they were going to try to perform. Uncle Ben's, too, regarded it as a valid contract, which, if they had been sued on it for breach, they would have to take the consequences.
HAYNE J: And upon which they could sue for breach.
MR HEYDON: On which they could sue for breach if Trawl was worth suing for anything.
GLEESON CJ: But that was your case. Your case was that Uncle Ben's regarded it as a contract which they would enforce if necessary.
MR HEYDON: Uncle Ben's regarded it as a contract which they would perform if they thought it necessary, but they would regard their own self-interests if they did not want to perform it. They were prepared to accept Trawl's performance, and if Trawl could supply reasonable volumes of fish at good quality, that would suit Uncle Ben's. It would get Trawl going for the future.
GLEESON CJ: I am just trying to understand the meaning of representation (c) on page 441. The alleged representation is:
that the contract was a genuine one intended to be fulfilled by the parties to it -
What was the true fact alleged?
MR HEYDON: The true fact alleged which, as it were, contradicted that, was that Uncle Ben's intended only to fulfil it should its self-interest from month to month make that appropriate.
CALLINAN J: But, Mr Heydon, you said a little while ago, and I took this to be your complaint, that Uncle Ben's knew that Trawl would not be able to perform the contract, and that that was the fact that should have been disclosed.
MR HEYDON: I may not have used those words, but your Honour has, I think, grasped the point of one aspect of our arguments, yes.
CALLINAN J: So that one party to a contract, with whom another party may be dealing, has to give an assessment.
KIRBY J: A little bit of financial advice.
CALLINAN J: But to make an assessment of the capacity of a party with whom it is dealing. Has to make an honest and accurate assessment to somebody else who might be affected if the contracting party cannot perform its contract.
MR HEYDON: In some circumstances, yes, and in some circumstances, no.
CALLINAN J: That is a fairly far-reaching commercial proposition, is it not?
MR HEYDON: It depends on the circumstances. We would submit, no.
GLEESON CJ: But bearing in mind that this is a case of fraud - - -
MR HEYDON: As to two of the representations, yes.
GLEESON CJ: Well, as to the ones we are now asking you about. We need to be clear in our own minds as to the precise nature of the fraud that is alleged. We start off with the existence as from 26 February 1987 of a contract for the supply and acceptance of fish - contract number W17299. Then investors arrive on the scene and one party to the contract, with the knowledge and approval of the other party to the contract, shows it to the investors in a context where the investors are likely to be encouraged by the existence of the contract.
MR HEYDON: Yes, your Honour.
GLEESON CJ: Those facts are simple and clear enough. Now, what is the nature of the fraud that was practised on those investors in relation to that contract?
MR HEYDON: The conscious non-disclosure of the fact that while the contract is saying, "Six thousand two hundred and fifty tonnes will be delivered and $4 million will be paid for them and that will cover your cash flow investors", the truth was otherwise because Uncle Ben's knew that the chances of anything like 6,250 being delivered were low, and the chances of any of it being delivered to specification were, on one view, zero, unless large sums were spent on blast freezing.
GAUDRON J: Well now, what is the conduct?
MR HEYDON: Can I answer that question by drawing a distinction? Assume that you just have the contract worked out between Uncle Ben's and Trawl and assume that it is a perfectly valid contract that either side can sue on if they wish and - - -
GAUDRON J: It is.
MR HEYDON: Yes, it is.
GAUDRON J: The findings are that it is.
MR HEYDON: And it is not in controversy. At that point there is no representation to any third party at all, but when the circumstances which constitute the conduct are: one, that - - -
GAUDRON J: Circumstances do not constitute conduct. What is the conduct?
MR HEYDON: The conducts is - - -
GAUDRON J: Conduct may take its character from the circumstances but conduct is doing something?
MR HEYDON: The conducting is permitting Trawl to show the contract - - -
GAUDRON J: Permitting?
MR HEYDON: Yes.
HAYNE J: How?
GAUDRON J: But how?
HAYNE J: What did they do?
KIRBY J: Could I just - - -
GAUDRON J: I mean, permitting is not necessarily conduct.
MR HEYDON: Permitting is a piece of behaviour. Conduct is behaviour, it is a general word - - -
HAYNE J: How did they permit? Why was their permission necessary? What did they do?
MR HEYDON: They acceded to requests from those who were running Trawl to increase the tonnages and increase the prices, knowing that the contracting question was going to be used for that purpose. They - - -
HAYNE J: No, I am sorry, your proposition as I understood it was that they permitted Trawl to show the contract. Have I misunderstood the proposition?
MR HEYDON: No, that is right.
HAYNE J: What is the permitting involved? What did they do that constituted permitting Trawl to show?
MR HEYDON: Handing it over and knowing, in the light of what had happened in the months of January and February, that it was then going to be handed over to investors.
HAYNE J: That is to say, making the contract knowing that it would be shown. Is that the proposition?
MR HEYDON: Yes.
KIRBY J: Shown to investors such as the respondents?
MR HEYDON: Yes.
KIRBY J: What is the state of authority on the Act? Does it contemplate misrepresentation or conduct that is, or includes, omission?
MR HEYDON: It does.
KIRBY J: That is to say, a failure to do something. Is there a positive duty on a business person, following up Justice Callinan's questions - - -
MR HEYDON: Section 52 speaks of - - -
HAYNE J: If I might add to that, if you would be good enough to relate that authority to the facts of the case so that you might tell us how that authority reveals the misleading conduct?
MR HEYDON: Can I start with one provision in the Act and then go to, in brief, the authority? Section 52, as we all know, deals with conduct. Conduct receives a form of definition in section 4(2) of the Trade Practices Act.
KIRBY J: Mr Heydon, I am missing some of your submissions. You have a mellifluous and deep voice and it may be the microphone and we will have a look at that at lunchtime, but I do not want to miss a word, especially now.
MR HEYDON: If your Honour just indicate when you cannot hear, I will - - -
KIRBY J: You had gone from facts on to law.
MR HEYDON: Section 4(2), does your Honour have that to hand, of the Trade Practices Act? It says that:
a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act -
and then there are various inclusory integers which are not really relevant to section 52 but are to section 45 for example -
(b) a reference to conduct.....shall be read as a reference to the doing of or the refusing to do any act, including -
and then various other things that are more relevant to 45 than 52 -
(c) a reference to refusing to do an act includes a reference to:
(i) refraining (otherwise than inadvertently) from doing that act; or
(ii) making it know that that act will not be done.
Then, paragraph (d) I do not think bears on the present problem. Now, his Honour - - -
GAUDRON J: But does it mean that absolutely? How has that been construed? At the present moment I am refraining from having lunch in a well-known restaurant. So what? Refraining, surely, only constitutes relevant conduct in a context in which you know or ought to know something, is that right?
MR HEYDON: Well, probably, no. I have not caught a question, though I think someone wants to ask one.
GAUDRON J: When do you say refraining takes on a relevant character to constitute conduct?
MR HEYDON: In the circumstances of this case, for example?
GAUDRON J: No, as a general proposition, as a principle of law.
MR HEYDON: Section 52 depends on there being some trade and commerce involved. In so far as what might be called pure silence is concerned, refraining involves advertently not disclosing something in that trading or commercial activity.
GAUDRON J: Advertently.
MR HEYDON: I say that because of - - -
GAUDRON J: Inadvertent - yes.
MR HEYDON: As your Honour follows. But you have now - - -
GAUDRON J: Advertently. That is to say you have to turn your mind to the question, does it mean that?
MR HEYDON: Yes. That is what the words would appear to mean.
GAUDRON J: So can you establish it - is there evidence that these people turned their minds to the question of telling the investors?
KIRBY J: You say it is an inference from the whole circumstances, I suppose.
MR HEYDON: Yes.
KIRBY J: There are no admissions, I imagine, from Mr Lees on that point, or were there?
MR HEYDON: I do not think there are any admissions from Mr Lees on the point as to the W contract. He accepted that the heads would be shown to investors to induce investment. The head - - -
KIRBY J: But as was accepted earlier, that is not really relevant to the contract.
MR HEYDON: It is, your honour, for this reason. As I said just tangentially earlier, the heads and the W contract are closely interlinked documents. The W contract, though earlier in date, was issued as an addendum to the heads, was expressed to be subordinated to the heads and was the first in the series of W contracts that, over the long term of the 26 March heads of agreement, would be successively made, and most of the trading obligations involved in the performance of the W contract, except the payment of price and the actual supply of the quantities of fish, were to be found in the heads. They were interlinked. One was a sort of umbrella contract beneath which a series of more specific sale of goods contracts proceeded.
GLEESON CJ: Mr Heydon, I understand from what you are telling us that there was a significant change in the nature of the case that was being made out on behalf of your clients in the Full Court of the Federal Court, that, at first instance, the allegation was that this W contract was a sham whereas, in the Full Court, the finding of the trial judge that it was not a sham was not challenged.
MR HEYDON: Yes, it was a change in this sense, your Honour: at trial all 24 representations were put, I suppose, additionally and alternatively. So that at trial allegation No 1 was it was a sham, a non-contract, but, 2, if it was, it was not genuine in the sense I have been describing. The change was in this respect, to abandon the contentions in relation to the first representation. So it was a change by reduction rather than transformation.
GLEESON CJ: But that carries this problem, does it not? I do not have any difficulty in understanding how you could relate to section 52 of the Act the following situation: suppose a person was contemplating investing money in a company that manufactured glass bottles and a brewery which had a commercial interest in encouraging investment in the glass company entered into a long-term supply contract for glass bottles with the glass manufacturing company which it knew and intended would be shown to potential investors and which contract was a sham. I do not have any difficulty there identifying conduct which is misleading and deceptive on the part of the brewery.
But the position becomes much more subtle once you accept that the contract was not a sham. When you then come to identify conduct that is misleading and deceptive, you have to say there is something about the behaviour of the brewery in relation to a valid and binding contract that constitutes conduct in contravention of section 52. Then you have the issue that brings us to this Court, that is to say a conclusion by the Full Court that in dealing with that question the trial judge misdirected himself in a fundamental manner by what he said. That is repeated in the passage to which attention was earlier directed.
MR HEYDON: Yes.
GLEESON CJ: So the two questions that we have to consider are: first of all, granted that the contract was a valid and binding contract and not a sham, what is the alleged misleading and deceptive conduct? Second, in the light of the answer to question one, where is the error in the approach that the trial judge took to the resolution of the issue?
MR HEYDON: I hope in due course to deal with both of those, not immediately. Can I just say this: in relation to your Honour's example, a contract for the long-term supply of beer bottles, attractive to an investor in the bottling company, which was a sham would be capable of causing very considerable injury to that investor. A contract which, though not a sham and perfectly binding, was regarded by one side as one which it would not perform if it did not want to and would not accept contractual performance if it did not want to, which piece of information was not disclosed to the investor in the bottling company, would also be capable of causing that investor a great deal of harm.
GAUDRON J: That just.....with of the whole nature of the law of contract. I mean, true it is that harm can come about in all sorts of ways for all sorts of reasons, but a contract is a contract. You do not perform your side of the bargain, you are liable in damages. The measure of damages in contract is that measure of damages which is intended to put you in the position you would have been if the contract had been performed.
MR HEYDON: Your Honour, what your Honour says is perfectly correct, but it, with respect - at least it does not torpedo the point I was just making. For Trawl to sue - - -
GAUDRON J: It certainly makes it more difficult to see.
MR HEYDON: For Trawl to enjoy the benefits of its rights under the law of contract against Uncle Ben's is not necessarily an easy thing to do. People like Uncle Ben's have to be - - -
GAUDRON J: You are trying to turn a contract into a lifelong marriage relationship.
MR HEYDON: No, your Honour. To say to Uncle Ben's, "You have just rejected some of our fish with no reason". And Uncle Ben's say, "Well, we are big and we can push you around". We will receive the retort, "Yes, I am afraid you are big, and so I have to be polite to you". There is no point in Trawl whose only real customer - at least in early '87 - was Uncle Ben's, and who was obviously an extremely attractive customer because of its size and needs - there would be no point in an organisation like Trawl standing its ground on contractual rights and seeking to get summary judgment from a court. That would be suicide.
GAUDRON J: And commercially sophisticated people would not know that?
MR HEYDON: The commercially sophisticated people who came in as investors did not know anything about this before they came in .
GAUDRON J: Would not know that there was an unequal bargaining position in the very nature of things? Is that what ultimately you are expected to disclose?
HAYNE J: And did not know what, and why should they have been told?
MR HEYDON: Can I seek to - - -
CALLINAN J: Your case goes further than the Chief Justice's example. Your case involves this: that say somebody is going to take over the bottle manufacturing company and the brewery knows about that, and the bottle manufacturing company has not been performing too well and the brewery does not think that it will be able to continue to perform its contract, then the brewing company has to tell the predator of the bottle company what its assessment is of the bottle company's capacity to perform the contract. That is your case here, really, is it not?
MR HEYDON: I do not necessarily embrace wholly the analogy but I am prepared to see some similarity. Can I go back to an earlier question of Justice Gaudron. She asked me for authority and I permitted myself to be diverted from that. If your Honours would go in volume 1 to page 223.
HAYNE J: I do not think there was too much choice about the diversion.
MR HEYDON: Page 223 is a place where the trial judge sets out some propositions about the law relating to silence and it is a convenient - do your Honour's see a reference to Demagogue Pty Ltd v Ramensky where the judge said that:
the question is whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive. Conduct answering that description may not always involve misrepresentation."
Then there is a quotation from Justice French.
GAUDRON J: All of that can be accepted and, indeed, I imagine everybody is familiar with that general line of authority but what are the circumstances that will constitute an omission or silence, conduct - false or misleading conduct beyond, if they not be knowledge or, let us call it imputed knowledge, that somebody might be misled or deceived? So, in essence, one gets to the sort of principle that invades estoppel and informs the law of negligent misstatement.
MR HEYDON: The fields are certainly related, your Honour. Can I try and put the facts of this case perhaps in a slightly different way. The trial judge found that Mr Lees, Mr Horrobin and Mr Pridmore met on 18 March and the trial judge rejected large amounts of what was allegedly said at that meeting but he agreed a meeting took place and he found that by that time the investors had obtained the W contract and he found that at that meeting a new draft heads of agreement was there and discussed, although not what was said in the discussion. Assume that some bystander had been present at that meeting. We would submit the bystander, looking at what the investors did not know and what Mr Lees did know, would have said, "These investors are being led into error, or they may be misled, because they have got a W contract which is linked to a heads of agreement. That W contract assumes capacity to produce 6,000 tonnes odd to certain quality specifications."
Mr Lees has never in his life had the pleasure of getting anything like that number of tonnes out of this company and he had probably never in his life, to his knowledge, had the pleasure of getting one fish that was prepared to specification. At least, he has known of a number of unpleasant incidents in that regard. Mr Lees may not be intending to do anything wrong but these people are being led into a grave commercial error. They think - - -
GAUDRON J: By whom?
MR HEYDON: They are being led into it by - - -
GAUDRON J: By Trawl?
MR HEYDON: No, by Uncle Ben's. Trawl was not in the room.
HAYNE J: What is the context that requires, in the circumstances you have described, that Uncle Ben's disclose its view of the likelihood of performance of another party that it had made a promise to it?
MR HEYDON: Because the party whose promised performance, the likelihood of which is in question, has asked Uncle Ben's for the beefed-up W contract for the very purpose of showing to a class of people, including these investors.
HAYNE J: So the bare making of the contract, knowing it is to be shown, obliges the party having the benefit of the promise to tell the investor to whom it is shown its assessment of the likelihood of performance of not its promise, but a promise made to it.
MR HEYDON: Yes, because the advantageous terms, if I can put them that way, were brought about with an eye on the coming investors.
HAYNE J: That is, the person having the benefit of the promise, a promise negotiated at arm's length, and thus in ignorance of the internal workings of the party making the promise, must from that position of ignorance give its view of the likelihood of performance of a promise made to it.
MR HEYDON: The defendant, if I can use that expression, in your Honour's example, was not ignorant of the internal workings of the party promising the performance.
HAYNE J: But, for example, it had no view, informed view, did it, of whether alternative arrangements, might, could, would be made, whether by the new investors, other investors or other commercial arrangements of which by necessity it was ignorant?
MR HEYDON: It had an informed view that there was going to be an attempt to get a 56-year lease and significant sums spent on the premises once that lease was obtained.
HAYNE J: But assume, even in your favour, that there was a settled, perhaps even reasonably based, view on the part of Uncle Ben's that performance by the party making the promise either was unlikely - let it be put even performance was virtually impossible. The proposition is that it must disclose its view of the likelihood of another party performing its promise.
GAUDRON J: And presumably to anybody who might be a potential investor, presumably by taking an ad in the financial pages.
MR HEYDON: Can I deal, perhaps, with Justice Hayne's scenario first.
HAYNE J: It might be easier.
MR HEYDON: The answer is, yes, there is such a duty. Can I try and establish a number of marking points. If A and B make a contract, which A does not think B will be able to perform, or, to take another aspect of this case, A is reserving unto itself a liberty as to whether it will itself perform, and A knows nothing as to what that contract will be used for, we would submit there is no breach of section 52.
If A makes the contract for some purpose of its own, either reserving a right to perform or not as it sees fit, or feeling that B may well not perform, and then it comes to hear that some investors in B are being shown the contract, it is a question not raised in terms by this case as to whether A should do something about it. But when you have A who has, not in a sense at arm's length with B negotiated this contract, but done it, bearing in mind potential fresh investment and where it does it because it wants the fresh investment to improve in the long term Trawl's position, our submission is that that is the conduct misleading in character. The third party investors are being led into a grave error.
HAYNE J: But the third party investors, you say, are led into error in circumstances amounting to a misleading and deceptive conduct, (a) because there is omission by Uncle Ben's, omission to disclose, yes?
MR HEYDON: And other circumstances, yes.
HAYNE J: And, second, the context is such that the person misled or deceived, namely the investors, had a reasonable expectation of disclosure of the circumstance that Uncle Ben's did not in fact disclose? Do you go that far?
MR HEYDON: We go that far. It is a reasonable expectation because it is really a moral imperative.
HAYNE J: That is, that a person should offer its view of the likelihood that someone else will perform its promise.
MR HEYDON: Yes, in the circumstances your Honour has been postulating during the course of that group of questions.
GAUDRON J: But does this not all go around in a circle, because it would only be a reasonable expectation if reasonable persons in the positions of the investors would take from the existence of the contract either faithful performance by one side - well both - in your case, faithful performance by one side of its obligations and ability by the other to perform? So you ultimately must go back and say would a reasonable person in the position of the investor take - well, merely from the existence of a contract. That is a big proposition, is it not?
MR HEYDON: Perhaps, but it is our proposition and, your Honour has made, with respect, a very important point that links into the second of those two questions that the Chief Justice invited attention to in due course. It is conventional to do what in part the pleader did in this case and conventional to do what in part his Honour did in this case, to divide misleading conduct up by analogy to its common law or equitable forebear, namely, misrepresentation. So, it is convenient to try and find something which is a representation, then it is convenient to try and analyse what the factual position is compared to what is contained in the representation, and then to see whether someone relied on it.
Another approach though, which is really embodied in - your Honour used the adjective "circular" but it, perhaps, points to the unity of the inquiry - a finding of misleading conduct depends on a relationship between what was done by the defendant and what was taken from it by the plaintiff, because what the plaintiff understood and what - - -
GAUDRON J: But we are talking in the case of an omission - - -
MR HEYDON: Partially an omission.
GAUDRON J: And refraining, and the line of authority referred to at pages 223 to 224. The question is not what was taken from it but what a reasonable person would take from it, or what, perhaps - - -
MR HEYDON: Well, I think it is both probably, your Honour. Can I put it this way? If the actual investors did not take what a reasonable person would take from it, they would never recover damages because there would not be any causation - no "by" under section 82. If they did take something from it but it was wholly irrational, then - - -
GAUDRON J: Wholly irrational is not the test; but it is not something that a reasonable person would have taken from it.
MR HEYDON: Yes, I agree that both limbs have to be satisfied. In our submission, to be shown a contract by B, with the knowledge of A that it is being shown to you, at a time when you are about to invest two million in the relevant business is - and to construe that contract as amounting to communication, statements, representations that it can be performed - is not unreasonable.
KIRBY J: It seems a somewhat paternalistic notion of the operation of the Act. It seems a mollycoddling operation whereby one corporation has to effectively give assistance, financial guidance, wise counsel to somebody who is at arms-length? It may be what the Act requires but it seems an odd result in the business world.
MR HEYDON: But, your Honour, when the Act was enacted, this part of it, section 52, caused considerable surprise and there was a lot of speculation as to whether it should not be read down so as to conform to the general law of misrepresentations. In particular, it is in large measure a statute of strict liability, save to the extent that one goes to 4(2). Its width - - -
KIRBY J: But what is the case that is closest to this case that suggests that that is how the Act has been held to operate and ought to operate in Australia?
MR HEYDON: There is no decided case of which I am aware that is - - -
KIRBY J: But if that is so, why would we push the Act into such unchartered territory as to impose on business people, who are at arms-length throughout this nation, with all sorts of transactions going on all the time, to be giving a little bit of friendly financial counselling to those who might be affected by their transaction?
CALLINAN J: It would paralyse commerce, surely.
MR HEYDON: No, your Honour.
GLEESON CJ: Mr Heydon, am I right in thinking that these were allegations of fraud?
MR HEYDON: Two and three, or (b) and (c) were fraudulent.
GLEESON CJ: Let us confine our attention for the moment to the allegations of fraud. It usually is not difficult to identify the manner in which fraudulent behaviour amounts to conduct within section 52 of the Trade Practices Act and either you made good your allegation of fraud or you fail to make good your allegation of fraud, and I make no comment one way or the other. But the case that you were seeking to make out, both at trial and in the Full Court, on the two misrepresentations I am now asking you about was not a case of negligence, it was a case of fraud.
MR HEYDON: Yes, that is so because of the nature of the representations alleged.
GLEESON CJ: Yes. We seem to be a long way from the area of fraud when we are talking about duties of disclosure in circumstances where there is nothing more involved than that one contracting party knows that somebody is going to invest money in the other contracting party. There has to be a great deal more to it than that to make out fraud, has there not?
MR HEYDON: We would submit not if to take - - -
HAYNE J: But representation (d) was not put as fraud, was it?
MR HEYDON: No, fraud - - -
HAYNE J: The capacity and ability allegation was never put as fraudulent.
MR HEYDON: That is so, your Honour.
GLEESON CJ: No, and (b) and (c) were.
MR HEYDON: Not so pleaded, but (b) and (c) were, yes.
HAYNE J: Which were about intentions of Uncle Ben's.
MR HEYDON: Yes, the subject matter of the representation is, in effect, as to UBA's state of mind in relation to the future performance of its contract. For that to be false necessarily involves a knowingly erroneous representation of their own state of mind.
Your Honour the Chief Justice a minute or so ago said we are a long way from fraud. We submit we are in the heartland of fraud. The unleashing into commerce, not generally, not to everyone who might read The Financial Review, but to a class of persons called investors, and in particular to some people who Mr Lees actually met on 18 March, where, on the assumptions on which the pleading depends or the case depends, was reserving to himself whether he would perform that contract ,is (a) to say something untrue; and (b) to be doing it knowingly.
GLEESON CJ: Putting it in what you described earlier as, I think, conventional terms, representations (b) and (c) were fraudulent representations, and representation (d) was an innocent misrepresentation. That was the case you were seeking to make out?
MR HEYDON: Yes.
GLEESON CJ: What was the error, or what was the misdirection in the approach that the trial judge took in finding whether or not the alleged fraudulent or innocent representations had been made; whether they were false, and whether they were relied upon by your clients?
MR HEYDON: This is the error that the Full Federal Court has - the misdirection the - - -
GLEESON CJ: Yes, this is the reason it has been sent back for a new trial.
MR HEYDON: In a nutshell - and I will go to the detail of this later - the error was this: his Honour propounded a general approach to fact finding based on testimony of the four main witnesses, and he, for various reasons that he gave, decided that he, as it were, could not accept them and, in many respects, in each case it was on demeanour-type based grounds, "judgments formed of them as men", to use Lord Sumner's expression in 1927 AC.
The error the Full Court said, or located, or contended for was that that approach is rational where you are talking about oral evidence about oral conversations. It is not so rational when you are talking about a case that turns essentially on contemporary documents. When they enter the shareholders agreement, clause 10.6 of it provided that they relied on various representations and warranties. One of the representations and warranties in that agreement was 4.1(m). Representation 4.1(m) said that they would cite before signature a contract - that is the investor - a contract acceptable to the investors, relating to the supply of fish between Trawl and Uncle Ben's. Looking at it as a matter of construction, that could mean the W contract, it could mean the heads, or it could mean both. If it meant just the heads, on examination of the heads you would see two references to the W contract.
The Full Court said this, or tried to make this point: his Honour's approach to fact finding based on oral testimony was entirely rational when one was dealing with conversations eight years after the event. It was not so appropriate when one was dealing with an interlocking series of contractual documents arrived at at the end of March 1987 - - -
GLEESON CJ: So what we have to address is what was the approach that he took and what was wrong with it?
MR HEYDON: Yes, and I should indicate a difference between the appellant and the respondents for clarification.
As we understand it, the appellant says that the trial judge's approach, described as the final conclusion by him, was limited to oral testimony about oral conversations, and nothing else. Our analysis of the trial - - -
HAYNE J: Or is perhaps directed to credit which is the heading appearing immediately above.
MR HEYDON: But I think the appellant's position is its credit in relation to oral testimony about oral conversations and nothing else.
GAUDRON J: I did not understand it that way. I understand it to go also to the question of intention and - well, certainly intention for the purposes of what has been identified as the fraudulent misrepresentations.
HAYNE J: Mr Jackson will correct me, no doubt, if I am wrong. Our position is a different one that that credit section is dealing with their oral testimony, not only about conversations but also about everything else that they gave oral testimony about, including things like reliance on oral and written representations. The Full Court took the view, because of the passages in which it explained that conduct was the appropriate test, not representation, that essentially the conduct has to be located in an interaction between what, as it were, Uncle Ben's did and what the investors responded to. That involved both what might conventionally called representation questions and reliance questions. The approach which is appropriate in some circumstances is not appropriate where you have the interlocking contractual arrangements of March 1987 to consider and in that sense he misdirected himself.
The judge's reasons in which he considers whether there was a breach of section 52 and then decides there was not are found in two parts of his reasons for judgment, a 20-page or so section on representations to the fore and a 15-page or so section on lack of reliance on any of the pre-30 March representations. If one analyses those pages, we submit that it is plain that what the trial judge has done corresponds to what the Full Court says he has done. What he has done is put off on one side any question as to what the witnesses actually said but rather to have examined the rival contentions thrown up by the pleadings, by reference to background, commercial circumstances, documents ,and to a limited extent, admissions, so, the division between the parties is as I have indicated on his Honour's approach.
There is another division that Mr Jackson flagged or foreshadowed and that is he says, "Let us assume that there was some misdirection. There was not but let us assume there was some misdirection, it only goes to the representation questions". The fact remains that the trial judge found that there was no reliance on any of the representations and, secondly, he found that Mr Lees thought the contract was genuine, therefore, UBA thought it was genuine and that was a credit-based finding and the reliance findings were credit-based findings. We submit they were not credit-based findings, they were findings made by his Honour by examining circumstantial evidence and background material.
GAUDRON J: Yes, but are you not perhaps conflating the representations sued upon with the existence of the contract? There would be no doubt whatsoever that the investors relied on the existence of a contract. It is quite another proposition to say that they relied upon their belief, induced by Uncle Ben's, that Uncle Ben's would faithfully perform its obligations and never engage in any breach of the contract and that Trawl had the capacity to perform it. You see, they are different propositions.
MR HEYDON: We submit that there is an analytical difference but not a substantive difference in - - -
GLEESON CJ: The practical difference is, is it not, that once you strip away the allegation that this was a sham contract and leave free standing representations (b), (c) and (d), the nature of the case becomes radically different and a great deal more subtle.
MR HEYDON: We accept it is different and perhaps it is more subtle but not radically. Let me take an extreme example. A and B make a contract which a court ultimately holds not to be a contract at all; there was no intent to effect legal relations or it is a sham and cloaks something else.
GLEESON CJ: It is all window dressing entered into to trick investors.
MR HEYDON: There is no practical difference between that contract and a real contract between A and B which A is resolved not to perform if it does not want to and which it knows that B will not perform either. It is not worthwhile if you - - -
GLEESON CJ: This is the difficulty I have at the moment. There seems to be a halfway house on this approach between a binding contract and a sham. There seems to be in the middle a contract as to which one of the parties has mental reservations.
MR HEYDON: Yes, that is a practical, factual proposition, that middle position. The point I was seeking to make a moment ago was simply that as a matter of value, as a matter of utility, there may be very little difference between a sham in the strict sense and the intermediate real contract as to which there are mental reservations. The permitting to pass out into intercourse of that intermediate conduct into the hands of third parties who are not in possession of the facts is commercially damaging. It would not stifle commerce, if I may say that to Justice Callinan, because one hopes these congeries of circumstances is relatively rare. It is not a general duty to speak to everyone who might have anything to do with one's opposing contracting party over time.
CALLINAN J: What are the particular rare features again? What distinguishes this? I know you said them before but perhaps I was inattentive.
MR HEYDON: In January 1987, Mr Lees became aware that Trawl was about to try and improve its position but he was also aware that it needed money for that purpose. He became aware that investors were going to be sought to raise that money. He was requested for the following things: one, a substantial increase in tonnage over the immediately preceding W contract from 4,000 to 6,250; two - - -
CALLINAN J: Who was requesting that, I am sorry?
MR HEYDON: Mr Fasham and the brothers Wilson. Two, he was requested for any increase in price which, to some extent, he acceded to; three, he was requested for what was called a stronger heads of agreement - a request which in due course he, to a limited extent, acceded to. He knew the heads of agreement was going to be used to entice investment, he denied appreciating that the W contract was going to be so used, but if there were another trial we would point to circumstances suggesting that he is not right on that. So, you, as it were, have a contract brought into being tailored to be sent out into the hands of the investors so as to part with $2 million.
CALLINAN J: I must say that none of that strikes me as commercially unique.
MR HEYDON: But we submit it may not be unique, but it is not lawful.
CALLINAN J: It is not?
HAYNE J: It is not lawful because you say Uncle Ben's might have thought, we might not perform this contract, and it should have told the other side and what is more, if we do not perform it, we are not going to roll over if you sue us. An unusual proposition.
MR HEYDON: No, your Honour, if - let us put it in terms of either letters or conversations. If someone had written to Uncle Ben's and said, "We have this W contract, it is very useful to us because it is going to generate four million gross in six months. You have no problem, do you, about performing this fully yourself and, secondly, you know of no reason, do you, why Trawl will not be able to perform it?". Now, if they wrote back and said, "We are going to perform it and we know of no reason why Trawl will not be able to perform it.", and it turned out that on four distinct occasions Uncle Ben's experts had discovered that the freezing was not working, et cetera, et cetera - - -
HAYNE J: Telling lies is not lawful. I can understand that proposition. Your proposition is much broader. Your proposition is that they should have volunteered this information.
MR HEYDON: You can tell a lie by conduct, your Honour.
HAYNE J: Yes, indeed, but first catch your conduct. What is the conduct that misleads or deceives?
MR HEYDON: I have described it in answer to Justice Callinan's question and the dates that follow it which your Honours are familiar with the formal details of.
GLEESON CJ: Mr Heydon, if Uncle Ben's had communicated to the investors and to Trawl the truth about the matters the subject of representations (b) and (c), that communication would have constituted a repudiation of the contract by Uncle Ben's, would it not?
MR HEYDON: It would, but that was a bed that Uncle Ben's, on these factual hypothesis, had made for itself. It would be an anticipatory breach of contract and a repudiation - - -
GLEESON CJ: Well, it would have been an announcement that it did not intend to perform the contract, entitling Trawl to terminate it.
MR HEYDON: Yes.
HAYNE J: It will hold Uncle Ben's to its contract and sue it.
MR HEYDON: Perhaps it had that right, but whether it would exercise it is another question. If your Honours would let me see where we are. We have been over quite a lot of the ground but not quite in the order I was - can I perhaps take this course. A more detailed analysis of what I will call the background and the motivation part of the case is to be found in our submissions of respondents in support of notice of contention, and I will just give your Honour the references so your Honours know what I have been talking about. The uncontroverted factual background begins at paragraph 5 and runs on until one gets to paragraph 59, and just so there is no misunderstanding, paragraph 59 asserts as an uncontroverted matter that Trawl was in danger of collapsing. On reflection, that is an exaggeration. They could not be said to be in danger of collapsing. But the Full Federal Court did say they were in a difficult financial position, at page 393.
Then 60 to 67 sets out in general terms the type of case that was put below and one other reference; 53 to 59 really describe an answer to Justice Kirby's questions about motivation. Now, that is the factual background to our case. I will not deal now with the notice of contention but, rather, attempt to complete submissions in relation to the appeal. Can I just say this about the notice of contention because there is one aspect of it that relates also to what we say about some of the appellant's points on the appeal proper.
What our notice of contention boils down to is a complaint about four failures of the trial judge to determine issues propounded for his consideration. I think I am correct in saying that the appellant, to a limited extent, accepts that his Honour did not make findings of the type requested but not completely, and the detail of that can be gone to in due course. The four key areas of controversy on which no finding was made, was first whether what we know as representation (d) or 4 was a representation not only about quantities to be supplied but also about the quality of any fish to be supplied, whatever its quantity. We submit it was so pleaded and there is no finding about it. A second and related matter, is this - - -
GAUDRON J: Can I just stop you there?
MR HEYDON: Yes, your Honour.
GAUDRON J: To some extent that raises the same question as is raised in part of the appeal proper, does it not? Really, whether the bare entry into a genuine contract is capable of - - -
MR HEYDON: Your Honour is quite right, because these four factual controversies are the subject of findings, are really matters set out in the bits of the pleading that your Honour has looked at. Yes, they do.
GAUDRON J: But if you were to lose on the appeal proper on the basis that it simply was not misleading in the manner pleaded to issue a contract in the circumstances, then this falls to the ground too, does it not?
MR HEYDON: That is a very depressing observation, your Honour, because it was not one of Mr Jackson's arguments. He has other arguments. But, if we lost on that basis then this would fall, too. What your Honour is really saying is that paragraph 3 is demurrable or liable to be struck out, it is not disclosing a cause of action. We do not accept that, of course, but the four factual deficiencies are matters pleaded or particularised in relation to which there was no finding. If your Honour were of the view that even if that case could be proved it would not be a breach of section 52, then it shortens debate. Can I just itemise the four points, now, because they have a certain relationship to the argument on the appeal?
The first point was, no finding as to representation four in relation to quality compliance. The second matter not found was, as it were, the truth of that question, namely, did Trawl have capacity to comply with product quality specifications and what, if anything, did UBA know about it. The third question is whether UBA knew that the shareholder's of Trawl were going to show the W contract to potential investors with a view to seeking to induce them to invest in Trawl, and the fourth controversy, not the subject of a finding, was whether UBA knew or ought to have known that the potential investors had little or no knowledge of Trawl or its ability or capacity to fulfil the contract and of the relationship between Trawl and Uncle Ben's.
Now, those latter two findings, of course, or those latter two areas, go to the question of conduct and representation because if Mr Lees had no knowledge and ought not to have known that the investors were going to be shown the W contract, that would move the case into a quite different area and if Mr - - -
GLEESON CJ: That is an important factual issue, that last one, is it not, in this sense, that as I understand the evidence, so far as Mr Lees was concerned, there was nothing at all to inhibit or limit the inquiries that the investors could make of Trawl. The corollary of that is that he was making these misrepresentations, two of them fraudulently, in circumstances where he had no way of preventing the truth being found out.
MR HEYDON: That is so as to (d) but it is not so as to (b) and (c) because Trawl would not necessarily know what UBA's attitude to future performance by UBA was.
GLEESON CJ: Is that one of the reasons why there is no allegation that representation (b) was fraudulent?
MR HEYDON: Well, I did not draft the pleadings, so I do not know historically what the reason was but - - -
GLEESON CJ: It seems to fit in.
MR HEYDON: I think it follows, from looking at it, that you could not win a (b) and (c) case without facing up to the fact that whether you called it fraud or not, it was fraud. You could win a (d) case at the lower level, ie, innocently rather than fraudulently.
GLEESON CJ: But you would have trouble making out a case of fraud in relation to (d) in circumstances where Mr Lees had no control over the discovery of the truth by the.....who were defrauded.
MR HEYDON: Deceitful people, often say deceitful things even though they may well be found out by means that they have no control over. Your Honours will stop me if I am going over ground that is fully understood. Can I indicate that on the appeal, as we understand it, the points of controversy between us and the appellant are these: the first question is, what was the "final conclusion" of the trial judge, because if Mr Jackson is right in his submissions about that, it would follow that there was no misdirection. If he is right that it is only a conclusion in relation to oral evidence about oral conversations, 2, 3 and 4 were not based on, in their essence, oral conversations. What I want to do is just take your Honours first to page 126 which is, as Justice Hayne has pointed out, the section headed "Credit", and I just want to indicate to the Court what the structure of the reasoning is at that point so that we know what the "final conclusion" is. He says at page 126, line 25:
Credit in this matter assumes a significant role because almost all of the representations alleged are specifically and categorically denied.
When he says "almost all of the representations" he must be talking about those half or so which were oral and the other half or so which were written. Towards the bottom the page he points out the eight year period that has elapsed between the events and conversations, not just conversations, and turns to explain that he wants to look at the objective circumstances:
the inherent commercial probabilities.....documentation.....In circumstances where the events -
not just conversations -
took place so long ago -
He comments that only exceptional people could be unreservedly relied on, and he points out that it would depend on differences of nuance and emphasis and is essentially difficult for everyone.
I draw attention to lines 29 and 30:
I had the opportunity to observe and appraise the reliability of their evidence.
That is not, "I have read and re-read the transcript of their evidence", but "I studied them in the box".
Then there is some material on Mr Horrobin. Over to page 128, there is a kind of demeanour-type finding at line 11:
The way in which his evidence was given indicated that he was arguing his case -
At line 22, it persisted over 13 days, and he argued it rather than giving evidence, he volunteered evidence. That sort of thing you can get off the paper, but you obviously often get it by observing witnesses. Lines 46 and 47:
he refused to admit the plain meaning of his statements made in the documents or attempted to talk around them.
Going over to page 130, his Honour drifts off partly into the area of Mr Lees. At line 15 there is a judgment of Mr Lees as a man via his demeanour:
reticent, hard-bargaining fish buyer.
Line 35 and following, there is a reference to assurances and conversations, but there is also a reference in line 39 to "assurances and reliance", pointing to the fact that his Honour is extending the final conclusion to a wider area. The last line - - -
GLEESON CJ: Whether he is right or wrong, and whether you are right or wrong, that page, 130, provides an excellent example of the approach that he foreshadowed at page 126. Each paragraph is introduced by a comment about what is objectively unlikely or improbable.
MR HEYDON: Yes, it is, that is so.
GLEESON CJ: That is a fairly orthodox technique of assessing credit, is it not?
MR HEYDON: Yes, it is far from uncommon. There is no objection to it in itself. The Full Court's point was that it is not an appropriate technique in the special context of 10.6, 4.1(m) heads of agreement and W17299. Line 50 on that page refers to "reliance". At 131, halfway down:
I had ample opportunity to observe the demeanour of Lees.....inclined much more to reticence.....marked lack of frankness. He was evasive and reluctant.....type of person.....completely out of character -
Those are all Lord Sumner judgment of the man-type remarks. Page 132 towards the bottom deals not just with what oral representations were made but with questions of, in part, reliance on them because of the failure to make notes and records can go partly to whether something was said and partly to whether it mattered. Similarly there is a reliance note at 45 about the lack of complaint. At 133 line 19, "oral or other assurance", ie, written assurances as well. At line 22, "falsity of most of the representations", ie, including written ones. Then there are various critical remarks about Mr Pridmore. On 134 there are some - - -
GAUDRON J: But let us be frank about this. You say, "ie, written ones". At least so far as this appeal is concerned, they are not written. They are implied from the writing, are they not? Let us be clear about this because - - -
GLEESON CJ: Implied from the writing and from silence.
GAUDRON J: Yes.
MR HEYDON: Or inferred perhaps.
GAUDRON J: The analysis of the Full Court might have some merit in the case of actual written representations but when you come to implications, it is a bit different, is it not, because the credit really is relevant to whether or not you actually took that implication?
MR HEYDON: Yes. Your Honour has, with respect, made a centrally important point, a point which requires a linking of the two parts of his Honour's reasons for judgment between where he deals with the representations and he deals with reliance. What was represented in a sense depends on what was relied on. When one knows - and up to a point the trial judge accepts this himself - that what was relied upon was the heads of agreement that refer to the W contract because of the contractual linkages in the shareholders' agreement, you can more confidently look at the evidence in a standard sort of way, by which I mean not relying on this final conclusion that really throws the witnesses out to one side for all purposes.
GAUDRON J: The question is whether they actually had that in their mind.
GAUDRON J: For present relevant purposes they had in mind that Uncle Ben's would faithfully perform its side of the obligation, that Trawl was capable of performing its side. That they had that in their minds, and they had it in their minds because of the existence of the documents. Credit must surely go to that issue, whereas it would not go to the existence of the document.
MR HEYDON: Credit goes to that issue, but it goes to it, as it were, against a less controversial-type of terrain than where you are merely looking at oral conversations and reliance on oral conversations.
GAUDRON J: I am not too sure that it is any different from intention, that its relevance to that issue is any different from its clear relevance to intention.
MR HEYDON: Intention to rely, your Honour means?
GAUDRON J: No, intention to honour the contract, or intention to - - -
MR HEYDON: UBA's and Trawl's respectively, or UBA's perception. We will be submitting that so far as the trial judge made, or appeared to accept one or two pieces of Mr Lees' evidence in relation to the representation question, he was actually not forming any favourable credit judgement because of his final conclusion which put all that on one side. Rather, he was drawing an inference from some surrounding circumstances that led him to accept what Mr Lees said as distinct from any credit analysis.
The sort of points I have been making just persist if one reads through at leisure these pages that run on via Sands at 139 to 141 where Mr Sands gave a certain impression to the judge, to 142 and 143 where Mr Lees receives analysis. The two points we make are, one, this is demeanour Abalos-type talk, and two, it relates to the whole of their oral testimony about every issue in the case, and that what his Honour did thereafter was to take their oral evidence as such out of consideration and reason more objectively.
One sees that by looking at the first of the two parts of the judgment that relate to these three representations. It begins on 158 where they are set out. At 159 the pleading is summarised, and at the bottom of the page, some findings of an uncontroversial character are made as to when Trawl got the W contract and when the investors got it, and so on.
At 160 there is a heading, Representations (i) - (iii), W1 was genuine and binding. Then he says:
The evidence of Lees, which I accept on this point, was that although he did not consider the Heads of Agreement imposed binding obligations, he regarded the "W" and "A" contracts -
of former years as binding:
Accordingly, in my view it is more likely than not that he regarded W17299 as a genuine binding contract.
Now, my submission, which I can put shortly, is that is not, as it were, a credit based Abalos finding at that point. It is a finding made for the reasons given in the succeeding paragraphs where he really points to a number of circumstances that cause him to come to that conclusion and accept that evidence. Circumstance number one was that for three months UBA did perform the contract and that is discussed in most of the page and it says it supports the conclusion that the contract was genuine and binding - - -
GLEESON CJ: But one of the interesting things that emerges from this is that he dealt with representations one to three which are (a) to (c), compendiously.
MR HEYDON: Yes, he did.
GLEESON CJ: He never had to consider a case in which representations (b) and (c) were considered without representation (a).
MR HEYDON: Correct.
GLEESON CJ: And, indeed, if you look at the pleading on the face of it, (b) and (c) look very much like elaborations of (a).
MR HEYDON: Well, I do not think they were so intended and I do not think the case was run that way - - -
GLEESON CJ: I am not suggesting that they are strictly confined to that, but that was what I had in mind earlier when I said the case took a very different direction on this issue when it went to the Full Court of the Federal Court.
MR HEYDON: Yes, it did by its narrowing, yes, and with respect, your Honour the Chief Justice is correct in saying that when one reads these passages, one has to bear in mind that his Honour was fighting on two fronts or dealing with two distinct - - -
GLEESON CJ: He was dealing with the case as it was put to him.
MR HEYDON: Yes, which had two prongs, because two and three are really reducible into one but one is not, it is distinct. The point I am simply making at 160 is that he points to a number of objective circumstances that support the view that the contract was regarded as a binding one and that goes on on 161, 162 to the top of 163. Now, near the top of 163 he sets out the submission that it "was issued to attract potential investors, to commit funds" and it was a representation "that Trawl would be able to satisfy its requirements". He then says:
In my view it was a binding, legally enforceable contractual commitment on the part of UBA.
We submit that is a rejection of representation one or at least a rejection of its falsity. He is saying it is true, that is what it was. Then there is another heading "Inability of Trawl to Supply or Process", and that would appear to be a reference to representation four, though it does not say that in the heading. He goes on to say if they "are not alleged to be fraudulent" and says "in the circumstances" he does not understand why. He puts the submission at the bottom of the page about issue of the contract with knowledge it would be handed to investors where there must have been doubts about ability to perform "amounts to a misrepresentation", and it is interesting for another purpose to note that about line 17 he speaks of "6,250 tonnes of fish contracted to the specifications of UBA".
His Honour is there correctly setting out the fact that this representation had two sides to it. One was volume, 6,250, the other one was whether the fish complied with the specifications, particularly freezing.
He then sets out a number of reasons for rejecting the submission, and the earlier of these reasons appear to be dealing with the question of whether it is a representation at all, and we would just make this short submission at this point. His Honour divides, as it were, the matter up into small parts and says, if you look at that part the representation cannot be found. If you look at another part, it cannot be found. The first part he looks at is it is not set to come from anything stated. It must come from the contract plus silence. Then he says - - -
GLEESON CJ: Mr Heydon, can I interrupt you to ask where we see the W contract?
MR HEYDON: Does your Honours have the folder which looks like this called "Joint Select Bundle", which is an attempt to save the Court and everyone else having to rummage through the appeal books to find important things? It is divided into tabs and there is a tab which says "W contract: Heads, Shareholders Agt", which is about halfway through. It is blue in my copy. That is volume 17/3888 of the appeal book itself. Can I just draw your Honours' attention to the structure. It is not easy - see its date "11 February". See halfway down it says "Received 26 February" that was. Just before the table in the first third of the page, it says:
Uncle Ben's of Australia hereby contracts with the Seller for the purchase of the following goods upon the terms and conditions stated herein and overleaf.
What is overleaf is the next page, it is not actually overleaf but it is just the next page. Your Honour sees four columns. A column headed "SQS". That is a reference to the quality specifications, A62, A63 and so on down. Then there are the types of fish; then there are the quantities; then there are the prices. What are the specifications? Line 30, says, or rather the contract says:
Fully in accordance with UBA specifications as listed above.
May I note in passing, that word "fully" had never appeared in any earlier W contract between Uncle Ben's and Trawl and it was an ingredient in the argument that that was Uncle Ben's making sure that if it wanted to cease to perform, it would have a chance of doing so lawfully by relying on non-compliance with specifications; packing as per specification.
Delivery. Now, I will just mention this. It is not actually important to any of the primary arguments that the Court will be troubled with.
Delivery. As scheduled by UBA from P2 to P13, 1987.
A "P" is approximately one month. It is a four weekly period. So, that that is as scheduled by Uncle Ben's from late January to late February and so on through the year. It is our submission that this is actually a six monthly contract. For various reasons his Honour came to the contrary conclusion and one of the reasons for that conclusion is the P2 to P13. We say that was superseded by the overriding heads. "Payment", "Notes" and so on. Your Honour sees at the bottom Mr Lees' signature but nothing from Trawl. Over the page, "Conditions of Contract".
1. Definitions....."Specifications" means the technical descriptions (if any) of the Goods contained or referred to in the Contract -
And dropping down to 3:
The Goods shall comply with the Specifications and the Seller is deemed to know the purposes for which the Goods are to be used and is deemed to be aware that UBA is relying on the Seller's judgment.....The Seller acknowledges that he is aware of and will comply with such Specifications.
That is a rather wordy way of taking your Honour to the W contract, but there it is. While one is in this area, two pages further on your Honour finds the "Heads of Agreement" of 26 March at page 3891 and if I could just indicate how that interconnects with the W contract. Halfway down there is a recital that Trawl:
has a modern fish processing plant designed to process product for and to the specification of UBA, and has contracted for the purchase of large quantities of fish for UBA requirements.
That is a reference to the W contract. At the bottom of the page, "the parties agree" to sell the product, "provide coldstore facilities", buy it and store it:
on the terms and conditions set out below -
On the next page at about line 20 there is reference to Trawl:
installing a processing plant to specifically meet UBA requirements -
On the next page, 3893, there is a reference to the material which is relevant to the cross-appeal. That is representation 13 which was said to be a requirement, as it were, of exclusive dealing between Uncle Ben's and Trawl, a representation his Honour did not find in those terms but rather said was an exclusive right of first negotiation. At 3894 your Honour sees various types of fish and then certain types of specifications down the bottom and it says:
Copies of which are annexed to these Heads of Agreement -
Mr Lees said in a later letter that they were in fact so annexed. At the next page 3895 is "Quality and Prices". I am sorry, it says, "Quality and Prices". In handwriting it says, "quantity and price" and indeed that is the topic that the various W contracts deal with each six months, quantity and price.
Commencing from February 1987 -
that is a reference to W 17299:
the parties shall fix both quantity and price for sale.....for each six month period, ensuring the expiration of each succeeding six month period.
Then there is a reference several times more to the six monthly periods. Can I draw attention at line 30, or around line 30:
The quantity and price agreed between the parties each six months shall be formalized and embodied in a six month contract form issued by UBA, and executed by both parties, each of which shall become an effective addendum to these Heads of Agreement.
Nextly it says:
The standard conditions of contract embodied on the UBA form -
which I took your Honours to clauses 1 and 3 of a moment ago -
shall be subordinated to these Heads of Agreement.
So the heads was, as I say, a kind of umbrella contract containing various terms that stipulated for the obligations between the parties and beneath that umbrella this six monthly renegotiated contract for actual sale of goods.
CALLINAN J: Mr Heydon, your side tried to argue, did they not, that the deficiency with respect to any mechanism for the fixing of price was cured by some kind of an understanding that there would be a cost plus price.
MR HEYDON: Yes, there was some oral - - -
CALLINAN J: And failed on that, I think, is that right?
MR HEYDON: There were oral representations about that that were rejected by the trial judge and not pressed on appeal.
GLEESON CJ: The reasoning from page 163 under the heading Inability of Trawl to Supply or Process deals, as I think you mentioned earlier, pretty clearly with representation 4 which is representation (d).
MR HEYDON: Yes, your Honour.
GLEESON CJ: It begins with a comment that it is puzzling as to why this is not alleged to be fraudulent, having regard to the allegation of sham. Then the reasoning, starting from page 164 line 20, whether it is right or wrong, deals with and rejects the proposition that a representation was made and also comes to the conclusion that there was no falsity of any such representation.
MR HEYDON: Yes, that is so - page 169.
GLEESON CJ: The reasoning that there was no representation made may be cogent or it may be erroneous, but what I cannot understand at the moment is how that reasoning is affected by the misdirection to which the Full Court referred.
MR HEYDON: We submit it is so affected because, with respect, his Honour erred in approach in dealing at this point in the reasons with what he styles the representation question and dealing at a later point in the reasons with what he calls a group of reliance questions. Our submission is - and Justice Gaudron has drawn attention to this in the course of questioning for other purposes - to the fact that in analysing section 52 conduct you have to look, as it were, at it as a whole and consider the interrelationship between what the defendant does or says and how the plaintiff responds to it. Reliance is integrally linked with the question of what is understood by the other party's conduct. If it is beyond reasonable bounds of behaviour, it would not be unlawful. If it is and there is reliance, it may be.
So, our submission is that the inquiry should have been pursued, as it were, as a whole. Had that been done, his Honour's mind would have been more sharply focused on shareholder's agreement 10641 W contract and heads. His Honour's mind may have been more sympathetic to the proposition that that group of contractual obligations at the end of March put the issue of what was understood by the conduct, ie what was represented by it or what could be taken from it into a different category from what could be taken from things Mr Lees did or did not say on 18 March. The fallacy or the related error in taking the final conclusion and applying it to this material, even though it is written material, is that the "final conclusion" was also applied by his Honour to reliance questions, as we shall see, appropriately, perhaps, for some purposes but not appropriately for representations two to four.
GAUDRON J: But that is not, in essence, the error that was identified by the Full Court, is it? The way you have put it is not what the Full Court said.
MR HEYDON: The Full Court, in volume 2 - it begins basically at the bottom of 391 over to 392 - and Mr Jackson has mentioned this - their Honours in the Full Court said that it was open to treat it as a conduct case:
circumstances were created by the respondent, or were allowed to be created by it, which amounted to conduct that could be characterised as misleading -
and their Honours then say, "We are going to talk about representations" but in that wider sense. Query, as has been raised, whether it is a wider sense. They note that there were 24, that 15 were conversations, and so on - - -
GAUDRON J: But can I take you back to 395?
There are difficulties, in our view, difficulties with this reason, when it is sought to be applied to the written material in question.
The case never was that it was to be applied to the written material. The case was that it was to be applied to an implication that might or might not have been contained in the documents which implication might or might not have been so understood by the investors, and if so understood by the investors, might or might not have induced them or acted in some way upon their minds in the decision to enter into the arrangements ultimately entered into. I mean, it seems to me whatever you might now wish to say about it, it is wrong - it was wrong at the Full Court to say that there were written materials to which - the written materials were just the sub stratum.
MR HEYDON: Well, they were part of the materials that had to be considered. Their terms had to be considered.
GAUDRON J: But they were just the sub stratum.
MR HEYDON: Well, the sub stratum can be very important. Buildings fall down without them.
HAYNE J: Where in the judge's reasons at 164 and following does he take the step attributed to him by the Full Court?
MR HEYDON: At 164 and following he does adopt the final conclusion which is, "I will put aside what these four people say about anything in oral testimony and consider the probabilities". For example, on a couple of occasions he says that certain things Mr Lees said are right but not because Mr Lees said them, rather because the circumstances pointed to it.
Secondly, in the reliance area of the judgment, which, in our submission, would have been more appropriately dealt with, if not side by side with this other passage, at least in the same vein, he adopts the same approach and he does not take into account anything, in particular the investors have to say in oral testimony, but he simply examines what he thinks they did rely on by reference to the background and objective circumstances. So in these two places he is applying his general approach.
What the Full Court is saying, in our respectful submission - and I would accept that it is no clear what they are saying, but we would submit it is inherent in what they are saying - what the Full Court is saying is, when you are considering whether conduct, alleged to be misleading, because it is either derived from certain written materials or the substratum for it is written materials, you need to treat that differently from where you are merely relying on oral testimony about other types of representation made in other ways. If not total validity, there is at least strength in the proposition that the investors relied upon the contract.
GAUDRON J: As a general proposition, that cannot be right. If it is a question whether or not the implication is taken, whether or not the implication was relied upon, it is a matter in which credit is in direct significance.
MR HEYDON: It can be, but what his Honour did - - -
GAUDRON J: And if it is a question whether the implication is available, and that is what seems to be dealt with at 164, then the way you deal with it, I would have thought, is precisely the way the trial judge did.
MR HEYDON: The question whether someone relied, or whether someone actually took something from some conduct is obviously a question that credit may go to. His Honour's approach in this case, and for the purposes of this appeal we are obviously not saying it is unjustified, was to say, "I will just put out of account what they actually said, as it were in-chief, orally about these things; there is no point in worrying about it; they cannot be relied upon for one reason and another. What I will do is look rather at objective circumstances." In our submission, because eight years is too long to remember conversations; eight years is too long to remember whether people relied; now they are all looking at each other across a court, whereas then they were not angling their lives from that perspective, what the Full Court is saying is - - -
KIRBY J: Did I misunderstand that - is it your submission that although credibility was mentioned, and although it is relevant to some decisions, when it came to the crunch his Honour put that to one side and addressed the objective probabilities as he saw it? Is that the way you -and that therefore this Court, in looking at the way the matter was determined, can do that for itself just as easily as his Honour could.
MR HEYDON: In part. That is part of a later submission.
KIRBY J: There was a case recently called Gray v The Accident Commission of South Australia. It has just been reported in the latest part of the Australian Law Journal Reports where credibility was mentioned but the Court, I think, took the view that the judge - that we had to look at it in terms of the objective facts. So we might just have a look at that.
MR HEYDON: Yes, we will.
KIRBY J: I mean the mere incantation of credibility does not stop the appellate court from its functions. It is a matter that has to be taken into account in the way it approaches the functions.
MR HEYDON: Can I try and just encapsulate or perhaps try and clarify the answer I have just given to Justice Kirby. As we read his Honour's judgment, he said, "We have had a lot of oral evidence from these four people about a number of things, one of them is oral conversations, another of them is reaction to writing and so forth. I am not going to delve through it all. I am just going to put it all on one side and test it by reference to contemporary circumstances, background material, commercial probability or admissions." And we submit he took that approach for all four of them in these two sections of the judgment. We submit the two sections of the judgment ought to be read together and perhaps ought to have been reasoned together, because the issue in relation to the conduct underlying these three representations, and in particular to what was taken from them, is an issue closely connected with a contemporary chain of contractual documents. In those circumstances, the total exclusion of any oral evidence was a misdirection. That approach was appropriate for other areas but not for this. That is what the Full Court is saying.
GLEESON CJ: Mr Heydon, I notice that it is a quarter to one. Is that a convenient for you?
MR HEYDON: Yes, it is, yes your Honour.
GLEESON CJ: Incidentally, how long did this trial last at first instance?
MR HEYDON: Thirty-three days, if the dates on page 276 are correct.
GLEESON CJ: Thank you. We will adjourn until 2.15.
MR HEYDON: If your Honour pleases.
AT 12.46 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.18 PM:
GLEESON CJ: Yes, Mr Heydon.
MR HEYDON: The Court asked a question fairly early on in the morning as to whether Trawl had sued anybody in relation to the events of 1987. Trawl instituted Supreme Court proceedings which were heard by Mr Justice Cole in 1989. There were two causes of action. One related to a breach of a contract made in 1988, which is not concerned with the present case. The other related to some section 52 allegations which were substantially similar to those run in this case. The Court decided that the contract point should be determined first and the representations point subsequently. He dismissed in effect the proceedings so far as Trawl was concerned on contract. A consent order was then made which, in later proceedings when these proceedings began in the Federal Court, Justice Gummow held prevented Trawl from proceeding with its section 52 case in the Federal Court. But the present respondents, who were the other applicants in the Federal Court, were not permitted to proceed with that case, so the answer to the question is that Trawl did sue on the representations.
CALLINAN J: I am sorry, I do not quite follow that, Mr Heydon. What happened? What was the last event that happened? What happened to the section 52 proceedings before Mr Justice Cole?
MR HEYDON: They were dismissed in consequence of a consent order. The next event that happened was that Trawl, together with the present respondents all as applicants, started a case in the Federal Court based on the present section 52 allegations which were more or less the same as the former ones. Uncle Ben's took the point that, whether by reason of Anshun or res judicata, Trawl could not sue on the same cause of action and that the present respondents were in effect no more than the controllers of Trawl at that stage and were in the same position, or privies in effect. Justice Gummow held that those arguments were good as to Trawl but were not good as to the present respondents.
CALLINAN J: It is a bit like Gould v Vaggelas where the personal shareholders recovered, notwithstanding the argument that the corporate personality could and should have been the plaintiff.
MR HEYDON: Yes, if it is of interest or assists, Justice Gummow's judgment was Trawl Industries of Australia Pty Limited v Effem Foods [1992] FCA 272; (1992) 108 ALR 335 and also at 353. If I can endeavour to fully answer what I think I did not fully answer this morning, a question of Justice Callinan's, the question was really for a simple point by point statement of the factual material going to the conduct of which the respondents complained. Point by point can I put it in this way: one, in January the Atasco people told Lees of their desire for a new investor and Lees agreed to give them a stronger heads of agreement to assist in that regard.
Two: in February, although Lees did not know this, Pridmore met Mr Fasham and Mr Wilson several times, Pridmore acting on behalf of the current respondents, and obtained a copy in draft of the new heads of agreement. His Honour records that on page 25 of the judgment.
Three: in early February Mr Lees increased the tonnages, or negotiated with Fashom and Wilson to increase the tonnages and the prices of the fish in the contract that became W17299.
Four: Mr Lees did not admit but it is said he knew or ought to have known that the W contract would be asked for by the potential investors, whoever they were.
Fifth: the heads of agreement, not only refers in the fashion I indicated this morning to the W contract, but to technical assistance with Uncle Ben's was to give Trawl. I will give you a page reference to that in the Joint Select Bundle, page 17/3899, Trawl agreed:
to maintain quality control procedures, to ensure that the product delivered to UBA shall accord with the UBA specification.
The next point, which I think is the sixth one: on 16 March by which time the W contract had come into the hands of these investors, these respondents, and also by 18 March when Mr Lees actually met Messrs Horrobin and Pridmore, Mr Lees knew the following things, among others. He knew that on 16 February 1987, some freezer trials - blast freezer trials - had confirmed, in effect, incapacity and confirmed that it was the same fault as it appeared in earlier freezer trials in September 1985.
Mr Lees also knew, or UBA knew, of 40 tonnes of defective salmon which had been found in 1986. Another thing he knew was that the 6,250 tonnes in the W contract was 15 times more than Trawl had ever been able to supply in the previous two years. Mr Lees knew that he had entered into contractual commitments, or had contractual intentions, which meant that taken with the W contract and the other arrangements UBA had over contracted, in other words, contracted for more than it needed in 1987.
Finally, Mr Lees knew that he had not investigated Trawl's capacity to supply 6,250 tonnes, but said that he regarded Uncle Ben's as protected against the risk of oversupply because Uncle Ben's could always reject fish which did not comply with specification. That is volume 10 page 2451 lines 25 to 28.
The final matter of fact is that on 18 March, as his Honour found, there was a meeting of 15 to 30 minutes in duration between Lees, Horrobin and Pridmore. Mr Lees admitted two, or one statement attributed to him by each of Horrobin and Pridmore. I will read out the two statements. They refer to the same event but it is just two of the applicant's witnesses remembering something in a particular way and Lees agreeing with both of them. He admitted that Pridmore said to him, "We are considering an investment in Trawl. As UBA are a significant customer of Trawl we would like to know what your long-term intentions are". The other version in which it is recorded by the witness Pridmore and Lees. "You will understand that we are interested in knowing what UBA's long-term intentions are, as we are interested in investing in this company". The learned trial judge found at page 60 lines 16 to 17:
There is no suggestion that Lees gave any detailed history of the previous relations between Trawl and UBA at this meeting.
KIRBY J: But that would merely mean Mr Lees would assume that they were corporations at arms-length pursuing their own separate objectives, and that any answer to that question would be given by a company whose officers' duties were always to pursue the best interests of their shareholders and the company as a whole, and that therefore any answer given would have to be subject to future vicissitudes - better deals by competitors; better opportunities in Sri Lanka, or somewhere else. You cannot expect an answer to such a question in the real commercial world to be locking somebody in to an arrangement for eternity.
MR HEYDON: I would not dissent from what your Honour has just said. I would say though that when such a question is posed whatever qualifications are put about it, and some of them might be the sort your Honour has indicated, some misleading conduct has occurred if the hearers are allowed to go away without being told of the history of capacity problems which might impact on the future. The fact that Mr Lees was of the view that if there was any difficulty in the over-contracting, he could always reject fish not complying with specifications, and so on. It is an occasion for disclosure. It brings close to Uncle Ben's the persons who are the victims of the conduct.
HAYNE J: How does the injection of this last or seventh fact sit with the pleadings, there being no reference, as I read the pleading, to any significance being attached to the conversation of 18 March?
MR HEYDON: The pleadings refer to silence and the significance of the conversation of 18 March was what was not said at the conversation by Mr Lees.
HAYNE J: Where in the pleadings is significance attached to silence in response to this conversation?
MR HEYDON: The conversation is not referred to in the particulars or elsewhere in the pleadings but particulars are particulars and evidence is evidence. Now, can I return, if I may, to where I think the submissions have got to just before lunch? The submissions have been intending that what troubled the Full Federal Court was that his Honour had applied the so-called final conclusion which was a satisfactory tool and technique in some areas of the case, to a particular area where it was not appropriate. Might I mention, since it comes in this part of the judgment - in the section of the trial judge's reasons for judgment dealing with reliance he mentioned on page 253 the so-called shareholders' agreement between Atasco and the new investors, and at line 16 he refers to the reference in clause 6:
to the representations.....made to Cumbeline being set out in the agreement, and that Cumbeline had entered into the agreement on the basis of, and in reliance on, those representations -
and his Honour observes:
That clause makes it quite clear that Cumbeline entered into the shareholders' agreement on the basis of the representations.....which had been carefully drawn and spelt out -
Then he refers to clause 2.1.
He then refers to clause 4 and says:
Clause 4, as is usual in such agreements, provides that prior to the completion date a large number of documents, records and papers shall be supplied and that certain actions will be taken by the parties.
His Honour makes the critical observation used supportively of his reasoning to say:
There was no attempt to include a reference to any assurance by UBA or to make the agreement conditional on such assurances.
The immediate point I just wish to draw attention to is that he regarded the clause as usual. The Full Court dealing with the same matter on 393 set out near the top of the page, 4.1 and (m), Trawl:
shall make available.....A copy of a contract acceptable to the -
investors -
between (TIA) and (UBA) for the supply of fish by (TIA) to (UBA).
They observe that:
It was not, and could not be, disputed that such a provision was of a kind that investors in the position of the appellants would ordinarily require in making a commercial judgment to invest. Given TIA's difficult financial position at the time, it was only reasonable to expect that the investors, and, equally important the financiers funding the investors, would require, as a condition of their investment, that they be provided with some tangible, concrete evidence that UBA was committed to providing TIA with a cash flow which was sufficient to justify the substantial investment the appellants proposed to make. This would accord with common sense and ordinary business practice.
Their Honours then point out that Justice Tamberlin saw nothing unusual or extraordinary about that provision and they quote the passage I earlier read. Now, the point I want to make is this: the learned trial judge in effect said, by stipulation between Atasco and the investors, it was contractually agreed that the investors were relying upon various things, including the agreement referred to in 4.1(m). Our submission is that if the investors are as between themselves and Atasco contractually relying as a factual matter, it is hard to see why they are not also relying upon any representation or conduct made by Uncle Ben's connected with the material in the heads of agreement. The fact that it is, as it were, a different party is - - -
GAUDRON J: But it is also a different representation.
MR HEYDON: Well, yes and no, your Honour. It is, in part, a different representation, certainly, but - - -
GAUDRON J: Yes. For example, it seems a little bit odd, that if one is relying on the fact of a legally enforceable agreement, one would be relying at the same time on something outside that agreement.
MR HEYDON: A legally enforceable agreement will give you $4 million over the relevant period for the fish you supply; a significant matter to gentlemen who are putting up $2 million and wanted to get whatever the profit on the $4 million was as their return for that period. The substance of the matter is that what the contract secured, as it were, if performed, was that cash flow. That was why 4.1(m) existed and why, related to it, 10.6 existed. It is an indication of the extreme likelihood that the W contract would have been taken, not merely to be a piece of paper recording some promises, but promises that were going to be translatable into the $4 million.
HAYNE J: I am sorry, you will have to put that again. I just do not understand the proposition you are advancing.
MR HEYDON: The investors were putting up $2 million as they saw it, for a short-term future.
HAYNE J: But because they say they relied on what Atasco warranted, therefore they relied on any representation made by Uncle Ben; that says nothing about whether Uncle Ben made any representation or what it was.
MR HEYDON: Your Honour is correct in drawing attention to that. I am assuming at this stage of the submission that, contrary to his Honour's finding, there was a representation made. The issue his Honour is dealing with around these pages is a question of whether, if made and if untrue, it was relied on. So, assuming it is made, which his Honour said it was not. Can I interrupt myself and say this: it is of course difficult for a trial judge, and for his Honour in this case, to attempt to make a finding on whether something was relied upon, when what he or she has to do is take, on the right hand, a number of facts in respect of which findings can be made, and in the left hand, an assumption that a representation was made when the judge has found it was not, and a further assumption that, if made, it was misleading, when the judge has found it was not, and then try and balance, in point of the range of factors influencing the relevant people's minds, the hypothetically assumed matter which the judge disagrees with and the real matters the judge has found.
HAYNE J: So what are you addressing: a criticism that you make of his Honour's reasoning? If you are, what is the criticism that you say can properly be levelled at reasoning where his Honour has by this stage already made a number of conclusions?
MR HEYDON: The criticism is this: his Honour was of the view, based on the contractual stipulations, that the investors were relying upon the provision of the heads or the W contract, whatever it was in 4.1(m). If they were relying on that as represented by Atasco, and if Uncle Ben's had made a representation of the type we are concerned with and it were untrue, the finding that it is relied on when it emanates from Atasco appears to entail or make very likely a finding that is also relies on the representation emanating from Uncle Ben's.
GAUDRON J: Because they are different representations.
MR HEYDON: But in this respect to the same effect.
GAUDRON J: No, they are not. If you look at your pleadings, they are not. The representation with Atasco is as to the existence of certain legally enforceable arrangements. You seek to assert representations that go beyond the existence of legally enforceable obligations.
MR HEYDON: A legally enforceable obligation is of no practical, commercial or human significance unless - - -
GAUDRON J: That must be a shock to the law, no matter what is about to become with the word "unless".
HAYNE J: It is certainly a shock to the Bar anyway.
MR HEYDON: There is no point in entering contracts unless they bring some advantage.
HAYNE J: Or rights to enforce them.
MR HEYDON: A contract is not merely a piece of paper with marks on it, it is not a collection of molecules, it consists of rights and the rights have practical value.
GAUDRON J: Which are legally enforceable in accordance with the law of contract.
MR HEYDON: But legal enforceability and $4 million pouring in steadily over five or six months or eleven months, however long it may be, are not necessarily the same thing. What is of concern is the practical value of a contract.
HAYNE J: Which brings me to back to Uncle Ben's should have told them, "Listen, if you sue us, we're not going to roll over". I find that a very large proposition to say that they should have told them that.
MR HEYDON: I do not want to be unduly pejorative to Uncle Ben's, but if their mental state - and there are findings against us on this of course - was, "We will play fast and loose with this contract and we know you won't sue us and if you do we'll persecute you - - -
GAUDRON J: "We'll insist on our legal rights". Is it any different from saying, "We propose to do the minimum that we're obliged to do and we propose to take the maximum that we can enforce", which is, after all, what the law of contract is?
MR HEYDON: But when a question has been asked as to long-term intentions and if the long-term intentions are as I am postulating, we submit it is misleading not to reveal them however unusual it may be to do so. It is unusual to do it. It is also rather unusual, or at least not common, that the facts be falling out in the manner I have tried to indicate earlier this afternoon and this morning. I think I have joined issue, as it were, on what we say about 4.1(m). In relation to reliance, we submit it is an error in the trial judge's reasoning and it is one aspect of it which the Full Court was not concerned with.
Now, can I go to a new subject. Mr Jackson says, look, you are wrong about what the final conclusion was; and you are wrong about there being a misdirection and so is the Full Federal Court. But even if you were right about it, it is only a misdirection that affects one issue, or at least there are basically two groups of matters not touched by it. One group of those matters is reliance, and the other group of those matters is the judge said that Mr Lees regarded the contract as genuine and therefore UBA regarded it as genuine too. Mr Jackson, I do not think he has said, but he certainly said in writing I think, that those are credit based findings, could not be overturned by the Full Federal Court, the Full Federal Court did not overturn them and made no attempt to explain how they could be overturned and, therefore, in effect, it would be futile in some way to order a new trial because it is as if there were a sort of harmless error that has been committed. If it is an error, it is an error that goes to one ingredient in a cause of action and there are two others that are satisfied, or that exist as barriers to success.
What we would submit in relation to that is this, and it involves repetition which I will do only by cross-reference. We submit that if one reads carefully, as your Honours have and will, the two groups of passages I have spoken of or taken the Court to this morning, one will see that in each case there is nothing credit based about the findings at all. They are findings based on an analysis of circumstantial evidence and commercial likelihoods. That being so, there is no Abalos bar, if there be as it were an impregnable Abalos bar, to scrutiny.
The second proposition we put is that - and this is where there is an overlap between the notice of contention and the defence to the appeal. His Honour, we submit, did not make findings on four crucial matters, perhaps the most important of which was the question of capacity in relation to quality specifications. We submit that the reasoning in a way is defective and his Honour can be said not to have taken advantage of the advantage a trial judge has because he did not bring into the process of analysis the four factual issues which we say were not the subject of findings.
In particular, on a question like reliance, the existence in fact of capacity to perform, and whether there was a representation in fact about capacity to perform, had his Honour been prepared to make a favourable finding on those issues which we submit he did not do. It may well have affected his overall approach, firstly in determining whether there was a reliance because, we submit, that non-disclosure would have a significant impact on the mind of an investor and, secondly, indeed, on the representations (b) and (c), because if there were a real doubt or problem as to quality, it might well affect whether Uncle Ben was prepared to perform the contract fully or not. So that that is the way we put the answer to that argument of Mr Jackson's that I do not think he has come to, but it appears in his written material.
Can I go on to say that incidentally, Justice Kirby's reference before lunch to Gray's Case, the reference to which is Gray v Motor Accident Commission (1998) 73 ALJR 45, and the relevant passages in Justice Kirby's reasons for judgment, pages 65 to 67, on the economic loss issue, and I should say all other members of the Court agreed with Justice Kirby's reasoning in this regard.
The primary judge made an estimation of the economic impact of the injuries on the appellant, and the primary judge referred to the unfavourable impression the appellant had made, and his lack of belief in the appellant but, your Honour, in three respects, pointed to what might simply be described as grossly defective reasoning on the part of the primary judge, and said that in those circumstances an intermediate appellate court, and failing that, the High Court, could correct the reasoning and redecide the question.
It is significant because, we submit, it shows that there is no system of rigid labels to be derived from Abalos or the earlier cases on which those decisions of this Court were based. It is really just a question of seeing whether the trial judge did have a specific advantage in relation to credit and, if the reasoning, though expressed to be credit based, is not wholly so based, whether it is not possible to correct it. Can I now go to the - - -
KIRBY J: The problem, as it seems to me, using Gray, though, is that when one looked at the rest of the evidence beyond their suggested barrier of credibility, it was not convincing, whereas when one looks in this case to the 11 points collected by Justice Tamberlin, at least as a starting point it does seem convincing.
MR HEYDON: If that is, of course, the view of the observer, then Gray does not help us but, we submit, the misdirection, if it exists, there is what we see as a contradiction in relation to 4.1(m), and there is the failure to take into account the four matters of fact not decided, which is the subject of the notice of contention, and those are matters that we say if properly analysed would have altered that circumstantial reasoning; the 11 points and points like them.
I just want to give your Honours a clear copy of some pages in the appeal book. Can I explain what I am about; there is no need to go to this, but in volume 19 pages 4453 to 4461 there is a budget. That budget was referred to in clause 4.1(l) of the shareholders agreement. In other words, the provision of it was one of the representations that, under 10.6, Lake Cumberline said it was relying on. Because the material in the appeal book is virtually illegible and in part chopped off, we have prepared better copies from an original document, and if I can hand up five copies if that is enough, and in one sentence or two merely indicate what the point of the evidence is.
Your Honour sees on the first page, for example, the heading "Pilchards" and your Honour sees, "Week starting" and your Honours will bear in mind, mentally, the types of fish and the quantities of fish in W17299. Running across the top of the page there are a number of weeks, starting "23 May" across to "27 July". In other words, it is an approximately six months contract. Pilchards are going to be 3,100 tonnes. In the W contract they were approximately 3,000 tonnes. The next one down is mackerel which totals 2,760 which is rather more than 2,000 tonnes of jack mackerel. The point is that it demonstrates in a similar type of way to 4.1(m) - and I am conscious of the criticisms that are implicit in questions which members of the Bench have asked, but I am just putting this to indicate the significance of it - it is a contractual dealing between Atasco and the incoming shareholders, indicative of their reliance on the capacity to produce tonnages sufficient to meet W17299 and feeding it into a budget which was going to produce - - -
GAUDRON J: But whose representation?
MR HEYDON: I do not want to take..... If your Honour's criticisms are good of 4.1(m) they are probably good of this 4.1(l) argument as well. I am just indicating a type of reasoning on reliance his Honour did not take into account.
Now, going to the notice of contention, some of the things I wanted to say in that regard have already been said. What we wish to say we have said in writing. Our case is, in a sense, a negative one. The appellant says it is too negative but it is negative in this sense. We simply say there were four key questions thrown up in this part of the pleadings. There were others, too, but these four are key questions not dealt with. One is: was representation for not only a representation as to quantity, 6,250, but was it a representation as to Trawl's capacity to supply a product which would meet the quality specifications and, in particular, the freezing times and the degrees of coldness stipulated in those specifications.
HAYNE J: If we were to be satisfied that the trial judge was right to say no representation was made as to quantity, is there any separate question that would then arise about quality?
MR HEYDON: We would submit so, but we can see the competing point of view. Can I say why we submit so? We would submit it is one thing to have, if you like, doubt about 6,250 tonnes or whether a rapid increase can be achieved. There may have been circumstances at the time that made that a not unreasonable estimation. But when examining conduct, if Uncle Ben's knew that there had been constant quality specification problems from 1985 on and that they had been very recently reminded when their Mr McBurnie went to conduct tests of his own again at the blast freezing works and, for that matter, they had been even more recently reminded in March about an adverse defective product quality report on three tonnes of fish, the trigger, if you like, to avoid leading the investors into error was more acute. Could I put it this way: if one analyses it strictly in terms of representation four and the trial judge said representation four is only about quantity and it was not made and you say yes, but it also has an element of a representation as to quality, his reasoning might well lead to the same conclusion, namely, no representation.
GLEESON CJ: May I ask you this question: was it argued at trial that the representation was as to quality as well as to quantity?
MR HEYDON: Yes, it was. In short can I put it this way: we submit you have to look at all the relevant circumstances. There might be some mundane or arguably intermediate matters that do not have to be disclosed, but this is a very important matter and on that basis we say there is representation for conduct if it is the wider thing. So we see a kind of connection between the quality representation and the fact of a lack of quality. Those are the first two facts not found.
The other two facts not found, we say, are first whether Uncle Ben's knew that Atasco was going to show the W contract around to induce investment, and finally what Uncle Ben's mental state was as to the investors' knowledge of Trawl.
GLEESON CJ: Before you pass from that first aspect of your submission, on page 164, line 18, his Honour poses for himself the question whether there was a misrepresentation:
to the effect that Trawl would have the capacity and the ability to supply 6,250 tonnes of fish contracted to the specifications of UBA.
I do not accept this submission -
Why do you say there is no finding in relation to the quality?
MR HEYDON: Because nothing in the material that follows the words "I do not accept this submission" deal with quality. Could I make this observation: both in this regard and in the other respects, there is no doubt that on occasions, and sometimes there were more than one occasion, his Honour correctly propounded the issue or the argument that we were seeking to advance. These matters alleged in the pleadings and his Honour not infrequently summarised the pleadings or the particular bit of it that was relevant to the task he was attending to.
GLEESON CJ: But to get back to Justice Hayne's question, if he was right to find that there was no representation as to the quantitative aspect of it, would there have been different considerations as to whether there was a representation as to the qualitative aspect of it?
MR HEYDON: We say yes, because in this area of, as it were, mixed conduct, writing and silence, that which is not disclosed and which is known about may be of much more radical significance than some other matter that was not disclosed. I would put that.
GLEESON CJ: I understand you could put an argument that would sustain one without the other, but the reasons that he advanced for rejecting the proposition that there was a representation as to quantity were such, were they not, as would also comprehend the proposition there was a representation as to quality?
MR HEYDON: In their own terms, if they were valid they would.
GLEESON CJ: Let me take, for example, paragraph (h) on page 166. Now that might be a good reason or a bad reason, but it is, is it not, a reason that applies equally to quality as to quantity?
MR HEYDON: We would submit not necessarily, your Honour. It could, but it really depends on the position as to the truth of the representation as to quality. Where one is not dealing with a wholly expressed representation but one is dealing, as here, with a mixture of writing, conduct and surrounding circumstances, including non-disclosures, an important difference in the duty of the defendant could be made by the importance of that which was not revealed. But our short position on page 164 and following is: one, we respectfully would criticise the reasoning even on quantity; two, our criticisms would apply even if it is applied to quality, and our criticisms are basically that take (a) to (d), each separate proposition might be right but the problem is you have to take all the propositions together and see what the conduct is. I think I have indicated our position in answer to your Honour's question.
Now just to deal with, we say, no finding made, the appellant, I think, will say if I can, without stealing their thunder, indicate this. In their written submissions they say that matters (a), (b), (c) and (h) - (a) (b) (c) are on 164 and (h) is on 166 - will support the conclusion that there was no representation as to quality. If all that that submission means is that if the reasoning is good for one it will be good for the other, we understand it. But we do not see that either (a), (b) or (c) or (h) say anything about quality at all. The whole context of this - (a), (b) and (c) are, with respect, fairly general and discrete points. Once his Honour moves into the sequence of the reasoning, he becomes concerned with quantity - - -
GLEESON CJ: As I understand the meaning of (h) what Justice Tamblin was saying was this, "I have already found that this W contract was a genuine contract intended by Uncle Ben's to be binding" - not a sham, not a fraud. "Now I am dealing with the proposition that that contract which commits Uncle Ben's to buy a certain quantity of product at a certain quality, or to certain specifications, conveys a representation by Uncle Ben's to the investors in Trawl about the capacity of Trawl to meet its contractual obligations". And he says, "Having found that it was a genuine contractual arrangement entered into by Uncle Ben's, I say that is a reason for concluding that there was no representation by Uncle Ben's about those two matters. They just made a contract in circumstances where there was no sham about it." Now, that reasoning may be right or it may be wrong but it does on its face seem to have equal force in relation to questions of quality as to questions of quantity.
MR HEYDON: I appreciate why your Honour says that. Can I just make these observations? His Honour uses the word "fraud" or "sham transactions". If by sham transactions he is referring to the representation of one type of point, one understands why he says it does not represent the present situation because he has found that it does not. We would say though that in one respect this is a - what might be called a "fraud ..." transaction because if the contract were validly made but UBA were reserving to itself liberty to perform as it saw fit and that is pleaded as a fraudulent misrepresentation, that would be, in a sense, a fraud transaction though for all purposes a perfectly valid contract.
The Chief Justice and other Justices have been, in effect, saying if this reasoning is valid it must be good for - whether it is a narrow representation or a broader one. We submit this, perhaps, highlights the unfortunate tendency of lawyers, pleaders, counsel in cases and judges to analyse this type of behaviour in terms of representation, commonly done though it is. The real test is, let us look at the totality of the conduct and see whether there is a half truth there that ought to be corrected, to say that - - -
GAUDRON J: Not that ought to be corrected, that was misleading and which had certain consequences.
MR HEYDON: The half truth which was misleading and had certain consequences, and therefore, in order to ensure compliance with the law ought to be corrected. Or, another way of putting it sometimes is, whether in the circumstances there was a reasonable expectation that one party might speak.
If that type of analysis is employed, his Honour's line of reasoning is obviously different from it. One of our criticisms we would respectfully make of (h) is that it is not valid for quantity either, and its invalidity is sharpened depending on the extent to which there was a disparity between conduct and reality on quality. That, I think, is all I need. I just want to flag, really, in these submissions, the difference between the parties.
The next one is whether there is any finding on whether it was misleading. There are certainly, scattered through the evidence, for example, references to the defective quality trials of September 1985 and February 1987: the defective salmon of September 1986, the March 1987 fish, and so on. We would submit that all of these observations are really either background accounts or material brought in to serve some purpose in the reasoning other than squarely addressing the question of defects.
The appellant, I believe, will be pointing to something which appears on 166, and we will be submitting that that is a finding in this vacuum which we are contending exists. At 166(g) his Honour said:
It has not been demonstrated that it is likely UBA was convinced that Trawl did not in fact have the ability and capacity to supply and process the 6,250 tonnes or would not do so. The weight of the evidence is to the contrary.
We would make two points: we submit that is really a sort of non-finding, or a statement of inability to make a finding in relation to tonnage, and we would point to the fact that in the immediate neighbourhood of that passage and what follows it, his Honour is concentrating on tonnage. There is a reference to supply in (h), ability to catch fish in (j), which is obviously a tonnage question. At the bottom of 167 over to 168 there is concern about how many tonnes you could freeze a day, and how many tonnes you could store in the cold store, and so on.
We submit, secondly, that is not a finding on this issue, because normally, with respect, when his Honour does make a finding, he goes to some pains to give what his reasons are for it. In other words, when he selects an issue he sees as significant, he deals with it with some detail. There is no reference to the weight of the evidence to the contrary on the question of quality specifications, either in this neighbourhood or elsewhere.
The third non-finding is whether Atasco was going to show the W contract to induce investment. I think the appellant agrees that there is no finding on this but seeks to defeat our point by saying that there is an expression of an assumption, and the assumption is at 165, top of the page. The words are:
The belief or understanding of UBA that investors would or might rely on the contract does not of itself make the contract a representation.
The appellant is in effect saying, "Look, he did not have to make a finding on whether UBA knew about this because he assumed it in your favour and said it would not make any difference". We would first say that that is not quite the same as the issue on which we contended there should be a finding, but secondly, we would say, it is one thing to make assumptions. Really, the correct approach would be to find facts and having found the facts see where they lead one. At all events, it does seem to be common ground no finding was made there.
GLEESON CJ: What do you say about paragraph (e) on page 165?
MR HEYDON: I take your Honour's question to mean - - -
GLEESON CJ: On the merits.
MR HEYDON: Yes, (e) does not relate to (d), your Honour, I have just been talking about it as a passage on the merits.
GLEESON CJ: It is relevant both to quantity and quality, is it not? What he is saying is, "What would be Uncle Ben's be doing saying things to the investors about their belief that Trawl was unable to fulfil its contractual obligations?"
MR HEYDON: An honest expression of view with some reasonable grounds to support it would not be actionable under section 52, or anything else. A statement by UBA as to its own contractual intentions if they were that it was not going to perform would be an anticipatory breach of contract for which termination could flow as a remedy.
GLEESON CJ: Is not that point equally relevant to quantity and to quality?
MR HEYDON: Not if the degree of difficulty, as it were, with quantity was much less than the degree of the problem with quality. It is the same. We would put the same submissions before and I see your Honour's question. The final one is the question of what UBA's mental state was as to the investor's knowledge of Trawl. I am not entirely conscious of what the position of the appellant is on this but at all events we submit there was none. Now, in the written submissions we have drawn attention to another error. It is not of the degree of magnitude of these. It is just that his Honour found that the blast freezers were capable of freezing up to 50 tonnes in 15 hours, according to the refrigeration engineers.
We submit it is a finding which is manifestly contradicted by the evidence on which it is purportedly based, and we have set out the reasons for that. It is just something, we submit, that tends to cause one to lose confidence or to shake one's confidence in more central reasoning. I have probably put this already but can I indicate that there is in a practical sense an interrelation between the four questions that were not answered, if they were not, and the questions which were answered. Let me put it this way: if in truth there was a very grave capacity problem and if in truth Uncle Ben's were conscious of that then, we submit, section 52 could only be not contravened in the particular circumstances I have indicated by a revelation of that position.
That in turn might have caused his Honour to come to different conclusions in relation to the other representations because the more acute the capacity problem, the less could one be confident that Uncle Ben's genuinely intended to perform or regarded it as not merely a contract enforceable in law but a contract likely to be fully performed in law. The overall group of these items of conduct analysed as representations, the analysis of them might have been different if the facts not found had been found.
Your Honours, the notice of contention contains many points of detail to which I do not want to go because we submit the fundamental difficulty is these four non-findings. The grounds other than those that relate to the four non-findings indicate perhaps areas where his Honour might have reconsidered the reasoning had he made findings on quality, capacity and the other issues.
Could I now go to the cross-appeal which is a different subject for which we need special leave of course, but with your Honours' approval may I take this course. We have set out in writing, as it were, our substantive argument.
KIRBY J: I am not hearing you, Mr Heydon. You are away from the microphone.
MR HEYDON: I am sorry. We have set out in writing our substantive argument. That was filed at the appropriate time and some corrections have since been inserted and I think your Honours have that. In a nutshell can I indicate what our position is. Representation (xiii) was based on a statement in the heads of agreement. As alleged it was that in effect Uncle Ben's would deal exclusively with Trawl except in relation to Western Australia. His Honour found a narrower representation; rather that Uncle Ben's would deal exclusively with Trawl but only to the extent of giving them the right of first negotiation in relation to purchasers other than Western Australia.
His Honour, having found that representation, then went on to state in various places propositions indicative of the conclusion that there was reliance, though his actual finding was that there was not reliance. I can shortcut this because this is rather similar to a debate I was having with Justice Hayne shortly after lunch. His Honour refers, not only in the passage I took the Court to just after lunch but also in other passages, to the fact that the investors relied on the contractual rights 10.6, 4.1(m) and so on, the heads of agreement, if it was provided under 4.1(m), contained on page 5 the representation which his Honour has found to have been made. Our query or submission is if that is good enough for contractual reliance, why is it not good enough for section 52 type reliance? I think it would be repetitive to put the submission again because it is similar to the issue in the other case.
Now, the next aspect, of course, is was it true? His Honour rejected the proposition that it was misleading or untrue. We would submit that it was untrue in a nutshell because, one, Mr Lees did not regard the heads of agreement as binding at all and, therefore, did not regard the representation contained in it as something that bound him.
GAUDRON J: What is the representation though with which we are now dealing?
MR HEYDON: The one which is numbered (xiii) and which is found - - -
GAUDRON J: Yes, we are dealing with the one that his Honour found to exist.
MR HEYDON: Yes.
GAUDRON J: What was untrue about it? At the end of the day you say, "Oh, it was a half truth", do you not? You do not say it was not that the representation which his Honour found was not, in fact, true?
MR HEYDON: I see your Honour's point, but we would say it is about a point one truth but there may be a grain of truth in it. It was true that there was a contract to that effect but what was the half part of it was that Mr Lees did not think there was, knew he had entered other contracts which were inconsistent with it - - -
GAUDRON J: But do you not then come to - if you proceed by way of analysis of the actual truth, the quantity of truth, are we not, in fact, looking at a different representation: one that was not pleaded and one that was not found, namely, a representation that they intended to do something when they did not?
MR HEYDON: Well, UBA represented that it had this narrow contractual duty or conferred there is no contractual right.
GAUDRON J: That was true.
MR HEYDON: Yes, but, in fact, that was not its view.
GAUDRON J: But do you not have to convert the representation too that they accepted that they were bound by it, or something else, or that they would honour it?
MR HEYDON: We would submit that that is an unduly fine analysis in the world of raw fish buying, that given that he found what was made and given Mr Lees' attitude to it - and the judge said that it was an understandable, but in the judge's opinion legally incorrect attitude - and given Mr Lees' view that, really, whether it was binding or not he was not going to comply with the commitment, it was a half truth or there was a reasonable expectation that the whole position would have been revealed.
Now, the respondents' difficulties in this regard are as follows. We have a favourable finding on representation. We have, we thought, more than glimmers of hope on reliance but eventually a finding against reliance, and we have a finding adverse on misrepresentation. We appealed to the Full Federal Court of Australia asking for representations (xii) and (xiii) to be reconsidered. What the Full Federal Court has done is analyse some arguments to do with representation (xii) but have said nothing about representation (xiii).
Now, I know that just hardship is no passport to special leave, but our submission is that persons in the position of the respondents, however lacking in credit and however overelaborate they may be in some of their allegations, are entitled to findings on the case they put. The learned trial judge gave them findings on representation (xiii). They also have a right to appeal against those findings, that right was a nullity.
GLEESON CJ: The merit of your argument in the Full Federal Court and here about representation (xiii) is material to the question of special leave, is it not?
MR HEYDON: Yes.
GLEESON CJ: And is it a convenient course for us to take to consider a special leave application and the merit of the argument you want to put about (xiii) at the same time, and deal with them at the same time?
MR HEYDON: I think it is, your Honour. I do not want to put anything more about it than what appears in writing.
GLEESON CJ: That would seem the most convenient way to deal with it.
MR HEYDON: Might I add one other matter. The debate that I think, in particular, Justices Gaudron and Hayne and myself and other Justices will have been having this morning in relation to (ii), (iii) and (iv) on conduct and that sort of thing, is a type of debate that might be had also in relation to representation (xiii) and reliance, and Justice Gaudron's recent observations about the difference in the representation and so forth bear on that. Whether it is strictly a question of construction of section 52 or of the application of section 52, it is a matter of some interest and given that the Court will be looking at the appeal, or is looking at the appeal proper from that point of view, this is another angle on the problem. But that is - - -
HAYNE J: But is representation (xiii) put only as a section 52 case, or is it put additionally as a common law misrepresentation for this purpose?
MR HEYDON: Yes, it is pleaded on volume 2, page 452, paragraph 20(b) and it is said in paragraph 21 that the said representations were false, misleading or deceptive. And in 21A, UBA knew each of them to be false, so fraud is pleaded in 21A.
HAYNE J: So it is a deceit claim and a 52 claim?
MR HEYDON: Yes, your Honour. But the new trial on (ii) to (iv) has only been granted on 52, their Honours thinking that any other common law cause of action was harder to succeed in. There is a certain force in that as to representation (xiii) too. If there is any question as to what was put to the trial judge, we have copies of the relevant written submissions but we will not do anything about that unless the matter arises.
GLEESON CJ: I assume from Mr Jackson's silence - what you said this morning.
MR HEYDON: If Mr Jackson has a problem we will look into it. Those are our submissions, if your Honours please.
GLEESON CJ: Thank you, Mr Heydon. Yes, Mr Jackson.
MR JACKSON: Your Honours, may I deal first with the approach taken by the primary judge in relation to the matter, the subject of the appeal. The complaint which the Full Court made in this regard was that the primary judge had not appreciated that representations (b), (c) and (d), had turned on the documents. But, if I can deal briefly with the several elements that are germane in relation to each of those.
First, in relation to the making of the representations, it is clear, in our submission, that the primary judge did appreciate that the making of the representations turned on what was contained in the document and on saying nothing in relation to it. I gave your Honours the references to those two passages earlier; they are page 159, lines 10 to 25, and page 164, line 24. In those references the primary judge expresses that in, really, with respect, the clearest terms.
May I turn then to the second aspect, and that is on the question whether the representations were misrepresentations. In relation to that, it is obvious, in our submission, that the primary judge was relying, in part at least, on a view of the oral evidence given before him. May I, in that regard, deal first with the representations which are paragraphs (b) and (c), and invite your Honours to look at our written submissions on the appeal, that is under the heading, The Appellants Submissions, and in particular, paragraph 41 at page 8.
As appears from that - and I will take your Honours very briefly to the references in a moment - we submit that for the respondents to have succeeded in relation to (b) and (c) on this issue, they had to show that Lees did not - and this would be in contrary to his evidence - regard the contract as a binding contract, and one which it was intended to perform.
As one sees from volume 1 at page 160, the primary judge accepted his evidence on this issue. Your Honours will see the reference in paragraph 41, lines 21 to 27, and he said specifically:
The evidence of Lees, which I accept on this point, was that although he did not consider the Heads of Agreement imposed binding obligations, he regarded the "W" and "A" contracts as binding obligations on UBA.
I will not read out the next sentence but your Honours will see what he there says.
It had been put to him in cross-examination that he did not believe that the contract imposed binding obligations. Your Honours will see that he denied that proposition, and it is in part of the transcript that is extracted in the volume, and the transcript is behind the first folder. The reference is volume 11 page 2641. Each page is numbered up the top. Your Honours will see the first two questions and answers on that page.
KIRBY J: Would you give me that page again?
MR JACKSON: Volume 11, 2641. The numbers are at the top right-hand corner of each page.
KIRBY J: Yes.
MR JACKSON: And your Honours will also see that it was put to him and denied that the true reason that contract was issued was because he knew that they wanted to have a bigger contract with a view to inducing investors to invest in Trawl. That is in the same volume, volume 11, page 2507, lines about 20 to - I am sorry, your Honours, I am not sure which are the original lines and which are the substituted ones, but the lines at the left-hand side of the page, about line 28 through to about line 44, where your Honours will see that those questions are put to him and he answers them.
Now, your Honours, if I could just pause for a moment to go back in our written submissions on the same page to the top of the page, paragraph 38, you will see that there is another reference in volume 1 and that is page 175, where the primary judge held specifically in lines 41 to 46 that we did not treat or regard the contract as a sham, and that it was a binding enforceable contract. That is page 175, your Honours, lines 41 to 46, the last paragraph on that page and your Honours will see that he also says:
and was treated throughout as such a contract by both parties to it.
Your Honours, at the same page of our written submissions, your Honours will see paragraph 42 where we make the submission based on the matters to which I have referred already, that the finding in relation to this issue was, in fact, credit based. We seek to make the point it was made in the context where the allegation was that he was party to a fraud, and the rejection of the respondent's case on representations (b) and (c) on this aspect depended critically on the acceptance of Mr Lees' evidence.
And, your Honours, one also sees - and I will not go through them because what we have sought to do in paragraph 42 is simply to precis the various considerations that were referred to by the primary judge. What your Honours will see, however, is that the view that he took on that issue was one which conformed with the objective facts that were before him.
Your Honours, in relation to that, may I say, with respect, that the primary judge's approach on those matters seems, we would seek to submit, absolutely orthodox, and there was nothing wrong with it about which a valid complaint could have been made, in our submission, in the Full Court.
May I turn then to the question of whether there was a misrepresentation in relation to paragraph (d) and, your Honours, there is, of course, a specific finding that the respondents had not established any misrepresentation. Now, your Honours, that is in the passage to which my learned friend referred a little while ago, page 166, paragraph (g). May I take your Honours to that for just a moment, because this was a matter on which, of course, the burden of proof lay on the respondents, and the judge said - I will take your Honours to the context in which he was speaking in just a moment - but he said that:
It has not been demonstrated that it is likely UBA was convinced that Trawl did not -
your Honours will see the emphasis -
in fact have the ability and capacity to supply -
and your Honours will see "supply and process". One would have thought process in accordance with the contract about which he is talking -
the 6,250 tonnes or would not do so. The weight of the evidence is to the contrary.
Our learned friend said his Honour there is speaking just about tonnage, nothing about quality. Your Honours, that is a difficult contention, in our submission, to make out. What your Honours will have seen is that paragraph (g) is one of a number of subparagraphs setting out the judge's reasons for the conclusion which is earlier expressed at page 164 line 21 where he says:
I do not accept this submission for the reasons set out below.
Your Honour the Chief Justice earlier referred to what the submission was and it is just immediately above that. That starts at the bottom of page 163. I will not read it all out but your Honours will see particularly the misrepresentation alleged was to the effect that:
Trawl would have the capacity and the ability to supply 6,250 tonnes of fish contracted to the specifications of UBA.
Your Honours, that must, in our submission, if one is looking at what the judge says in the context of the case before him and in the context of the contract about which he was speaking and the allegations that were being made and the particulars that had been given, the judge must, in our submission, have been directing his attention to the whole of the representation and misrepresentation said to have been made. If he uses the phrase "capacity and the ability to supply 6,250 tonnes of fish contracted to the specifications of UBA", it seems pretty apparent, we would submit, that he is speaking not just about quantity but also about quality.
May I come back to that in just a moment as a separate heading because I do not wish to divert from the particular matter with which I am dealing. The conclusion at which his Honour arrived at page 166, paragraph (g) at least in part, in our submission, involved acceptance of Mr Lees' oral evidence. May I take your Honours first to two passages in the primary judge's reasons and then to two passages in the evidence itself. Could I go to page 174. What your Honours will see on that page at paragraph (d):
It is claimed that the principal reason Lees issued W17299 for larger amounts.....was to induce investment.
His Honour refers to the fact:
that UBA accepted all the fish that Trawl could supply under that contract and in the case of mackerel more than the contract required.
He then discusses a number of events that occurred and your Honours will see at the preceding page, page 173, he refers in paragraph (c) to some historical matters. Now, those matters seem to relate back to the oral evidence that had been given. In volume 10 at, for example, page 2292 - this is part of the papers extracted - at the top of the page where he was asked:
Tell me, Mr Lees, please, what circumstances existed as at February 1987 which led you to be confident of the ability of Trawl to supply to Uncle Ben's 6250 tonnes of fish during the currency of W17299?
Then he gives an answer. Your Honours will see, also, at another page extracted, page 2482 in the same volume, that at about line 9 he was asked:
Did you mean to imply in your answer that you had inspected Trawl's facilities and had in fact satisfied yourself prior to issuing contract W17299 that Trawl in those premises would have the capacity to process the 6250 tons of fish to Uncle Ben's specification?---I don't believe that I made the assessment about -
he speaks of the tonnage.
I'd have made the assessment regarding Trawl's ability to process fish to our specifications.
And then he discusses the topic a little further through the remainder of that page.
Now, your Honours, in our submission, the finding at page 166, (g), is classically of the type dependent on assessment of the person in question, here, Mr Lees, and the way in which the judge went about it was by looking at the probabilities and looking at the events which happened. Your Honours, turning then to the third issue, the question of reliance, this was an issue on which the applicants again bore the burden in really each sense of the term but, in relation to this issue the evidence of reliance, so far as oral evidence would be given, one would expect to have been given, as indeed it was, by Mr Horrobin and Mr Sands, the two directors of Lake Cumbeline. Your Honours will see that in a substantial passage dealing with reliance at pages 251 and following in volume 1 the judge deals with this question.
Now, could I pause to say, your Honours, before going to it, that both Mr Horrobin and Mr Sands had given written statements in-chief and were then extensively cross-examined. I do not need to take your Honours to the particular passages. Could I give your Honours a reference, however, to paragraph 59 of our written submissions on the appeal which set out where their evidence in-chief was given by written statements.
Your Honours, when one goes then to the approach taken by the primary judge in dealing with this issue, your Honours will see it commencing at page 251 and interspersed through it, on the way to his final conclusion, observations which indicate that he was in part relying upon the view which he took of those witnesses and of their evidence in the light of the other evidence before him. First, your Honours, and I will endeavour to do this very briefly, at page 251, line 25, you will see that he expresses a conclusion in relation to the pre-30 March 1987 representations. He said he is:
satisfied that there was no reliance.....on.....them in making the initial commitment and investment -
Now, your Honours, that is a rejection of the evidence of Messrs Horrobin and Sands. He goes on, your Honours, on the same page at about line 36 to compare their evidence with the inherent probabilities and at pages 251 to 254 are pages where he weighs up the oral evidence against the inherent probabilities. Your Honours, at page 254, about line 15, he expresses the conclusion which he arrives at from the whole of the evidence - or one of the first conclusions he arrives at - which was that they say the investment:
as an extremely attractive, if not irresistible investment, with an enormous "upside" of sustained future profits with little "downside". This attraction.....was so great that the clear inference is that Cumbeline and the applicants would have invested.....even if the alleged representations had not been made.
Now, your Honours, that expression of view must be based, in part, on his impressions of the evidence which they gave. Page 255, at the top of the page, you will see him referring to the evidence which they have given being "a very attractive proposal" and, your Honours, if one goes on from there you will see in the next paragraph a description of Mr Horrobin's evidence and then at the bottom of page 255, again a reference to his oral evidence at the top of page 256.
Your Honours, I will not dwell on it but I would invite your Honours to look through and to see pages 250 through to page 263 and 264 where it is apparent that the view that he arrived at, on reliance, was one based on all the material but also including the oral evidence. The striking feature, your Honours, is that, in our submission, it is difficult to identify, we would submit, any relevant error by the primary judge in relation to that, which would justify setting aside on appeal his finding on that issue.
Indeed, your Honours, we would submit that it is difficult to find material which would justify setting aside any of his findings, but especially on the questions of falsity and reliance. And what his reasons do demonstrate, we would submit, is the care which he devoted to deciding the issues after a long and, no doubt, complicated trial.
Your Honours, could I move from that to a second aspect of the appeal and it is this: your Honours, if one seeks to ask what is conveyed by the contract because, fundamentally, that is what the respondents' case comes down to on this issue, what we would submit is that one sees, essentially, if I could put it this way, the good sense of what is said by the primary judge at page 164 where he commences to deal with this issue. And may I refer particularly, your Honours, to - I have taken your Honours already to paragraph (a) on page 164 where he deals with the source of it.
But then your Honours, in paragraph (b), we submit, the primary judge is entirely correct in saying that the contract speaks for itself and has its own operation and legal effect, and the only representation which we make in issuing the order, which really means no more than agreeing to enter into the contract, is that the contract exists in the form in which it is executed and has been issued, or entered into, with the legal effect which his Honour says it has on its face, but, really, the legal effect which it has.
Your Honours, I will not go through the remaining matters to which he refers for this purpose, but what we would submit too is that if one looks at the top of page 165, paragraph (d) and paragraph (e), those considerations, we would submit, are ones which are plainly correct. All that you have is a situation where a person has entered into a binding agreement to obtain supplies from a supplier and the supplier may or may not at the time entering into the agreement have, or be believed to have, the capacity to perform the contract but it is the supplier's duty to perform it contractually. It may well be that if more money is to come into the business, different people take over, some of the work be subcontracted, all sorts of things can happen, so that they are able to do it. It would be a strange situation, in our submission, where a representation where the entry into a binding agreement is treated as a representation as to the capacity of the other party.
Your Honours, could I move then, staying with the same pages, very briefly to deal with again the question of quality. I have taken your Honours to the top of page - - -
GLEESON CJ: Your submissions in part are addressed to the notice of contention here, are they not?
MR JACKSON: Yes, they are, your Honour. Your Honours have seen that the judge at page 164 between lines 15 and 20 is dealing with the general question of capacity and ability to supply "fish contracted to the specifications of UBA".
If one looks at paragraphs (a), (b) and (c), there is nothing to suggest at page 164 that the judge is dealing otherwise than with the representation in toto. Similarly, your Honours, at paragraph (d), and particularly paragraph (e) on page 165, because when his Honour speaks in paragraph (e) about "the inability of Trawl to perform", there seems no particular reason why he is not speaking in the context which is earlier defined. That is in relation to the whole matter.
Similarly, if one looks at paragraph (f) about line 40 on page 165, he speaks of "the ability of the supplier to perform", and then your Honours will have seen that he speaks of the history of "past failures by Trawl to supply contractual amounts". So that as a matter of context he seems - some indication in the context he is plainly referring, we would submit, to the representation in toto. Your Honours, I have referred already to paragraph (g), and without going through the remaining paragraphs individually, we would submit it is plain enough that he is referring to the representation in toto. Indeed, the passage goes through beyond the subparagraphs that finish on page 167 through the bottom of page 167 to references to the plant and facilities. The discussion about the cold store, the blast freezers capacity, and if one goes through what appears at page 168 and 169, one sees that at page 169 about line 16, he says:
Even if.....the contract could be read as a representation which warranted that the plant would be able to process the fish in the tonnages called for in the contract -
Now, your Honours, "tonnages called for in the contract" one would think means tonnages called for according to the contract, that is, according to the specifications. There were reasonable grounds for making such a representation, which he then proceeds to go through. That goes through, your Honours, to the middle of the next page. The findings are findings which are very much against the respondents in this regard.
If I could take your Honours to our response to the respondents' notice of contention - and may I say immediately I do not intend to go to it word for word or anything of that kind - your Honours will see the document is one headed Appellant's Submissions in Response to the Submissions of the Respondents in Support of the Notice of Contention. We deal with various matters raised by the respondents, but could I go particularly to page 4 of that document under a heading Re Paragraph 61. Without going through the detail of it, what your Honours will see from it is that in paragraph 9 we seek to set out what the evidence was about the separate requirements there were for freezing of fish and the various stages that were involved.
Your Honours will see in paragraph 10 we make the submission that the matters such as the length of time that elapsed between catching the fish and the period after catch within which freezing was to commence were not matters which depended upon the capacity of any freezer but on the arrangements which had been made in relation to catching the fish and having it supplied. Your Honours will see that in paragraph 11 we refer to the fact that the contract provided for jack mackerel and pilchards. It was not proposed that Trawl be the company which catch the fish itself. Your Honours will see the references to that. I will not go through all the matters on page 5. However, what your Honours will see is that in paragraph 16 we refer to the quantities of fish that were dealt with - this is at the top of page 6 as well - and all the fish was accepted and paid for. Your Honours will recall that there was a specific finding by the judge in relation to this. At page 175 line 24 your Honours will see that his Honour found that:
Both sides throughout treated the "W" and "A" contracts as binding commitments which they sought to perform. UBA took delivery and paid for all fish supplied by Trawl, which met specification, and Trawl endeavoured, in turn, although ineffectively to a large extent, to meet its commitments under the contract.
Your Honours, there is also a finding - if your Honours would excuse me just one moment. Perhaps I can give your Honours a reference in just one moment. It is in the vicinity of page 150, I think, where it was found that the performance up to the middle of the year was performance which was close, in effect, to the contract. Your Honours, I was dealing with page 6 of our submissions in response to the notice of contention and may I refer particularly as well to the matters going through to paragraphs 22 on page 7. Now, I do not propose, unless your Honours want me to, to go further into the terms of our response to the notice of contention. We seek to deal seriatim with the various propositions advanced by our learned friends.
GLEESON CJ: What do you say about the merits of the cross-appeal?
MR HEYDON: Your Honour, in relation to the merits of the cross-appeal, one very significant problem is the fact that there is a finding of no reliance and that finding, apart from any other merit it might have, really goes to the core of the matter and - - -
KIRBY J: Does that go to representation (xiii)?
MR JACKSON: Yes, your Honour.
GLEESON CJ: Any of the representations?
KIRBY J: I thought the complaint of the respondents was that the Federal Full Court had not dealt with representation (xiii) at all.
MR JACKSON: Well, your Honour, that is, with respect, not quite right. I was speaking about the position of the primary judge and if one is looking at the merits of the case - assuming, your Honours, this were, in effect, a first appeal - the merits of the case would be affected extremely significantly by the finding of the primary judge dealing with representation (xiii) which your Honours will see at page 220. What his Honour said in relation to that - and, your Honour, I can extract the very few lines which encapsulate the - I am sorry, perhaps I can start at line 10 where he says at the top of the page:
for reasons given later, I do not consider that the obligation to provide an opportunity for negotiation -
which is the representation he found -
played any part in the decision of the applicants in entering into the shareholders' agreement.
That is the first few lines. He then elaborates upon that through to about line 25 and then says:
They did not direct their attention to any representation in the Heads of Agreement that they would be approached first by UBA.
That is the first thing. So far as the merits of it are concerned, they have to get over that. And, your Honours, in relation to that, that is a matter of some difficulty because, as is apparent from our submissions in response to the application for special leave to cross-appeal, that case, a case based on reliance of that kind, would have been entirely inconsistent with the case that they had been seeking to make before the primary judge based on two other representations on which they failed. Your Honours will see, if I could just go very briefly to our submissions on representation (xiii) in response to the submissions on the application for cross-appeal - - -
KIRBY J: And these are now your submissions on the application for special leave to cross-appeal?
MR JACKSON: Yes. Perhaps if I could go to the bottom of page 4 to paragraph 9, what we seek to say is that the case on which they have failed on representations (vi) and (xi) was significant because representation (vi), which your Honours will see set out in paragraph 11 of that document - if I could give your Honours a reference, it is at page 446, volume 2, paragraph 11(b). I am sorry your Honours, we did not have a reference for it there. But the representation that was made was that the heads of agreement would be an exclusive arrangement:
for any fish other than Western Australian pilchards and that all other local suppliers would have to deal with Trawl in order to supply UBA.
So that was the case that was being made at first instance in relation to the exclusivity, that there was a contract for exclusive supply.
The second thing that tied up with that was representation (xi) and representation (xi) your Honours will see referred in paragraph 20 on page 7. It can be found, your Honours, in the pleading at page 446, paragraph 11(g) and that representation was that they be paid:
on a cost-plus basis and would make a substantial profit from the relationship between the parties.
Now, the primary judge found that neither of those representations was made and you will see the references to that finding in paragraphs 16 and 21.
Now, your Honours, the case that was being made and which they gave evidence that they relied on, there being a contract for exclusive supply, except for Western Australia, and a contract in which was cost plus, was one where it would be very difficult to say we then relied on the terms of heads of agreement which had an exclusivity of a far more limited kind and would by no means cost plus but depended upon there being agreement as to cost, quantity, all sorts of things. That is way we seek to say, your Honours, that a core matter - not the only matter but a core matter in relation to representation (xiii) was reliance, and it is no wonder the primary judge adopted the view which he did.
What he is saying at page 220 in the two passages to which I have referred is that he said the obligation played no part in the decision entering into the shareholders' bid or the obligation relied on, and then he says, "They did not direct their attention" - this is line 26 - "to any representation" of the relevant kind. Now, your Honours, that, if I could say so, is really the first thing that we would say is a matter going to the heart of it.
CALLINAN J: Mr Jackson, before you get to the next matter, could I ask you whether there was any finding that there was no discussion by the appellant or no attempt to negotiate; that his Honour made a finding that the heads of agreement had posed an obligation on your client at least to discuss the prescribed matters, as he put it. Did his Honour also make a finding that there was no such discussion or no attempt to have such a discussion?
MR JACKSON: Your Honour, not precisely in terms, I do not think, and I would be corrected if I am wrong. What his Honour did find was that we had taken all the fish they could supply. So that whether there was opportunity or not, all the fish they had available to supply we had taken - - -
CALLINAN J: A discussion would have been futile in a sense then, it could have achieved nothing. Is that what you say?
MR JACKSON: Yes, your Honour. The finding that is closest, I think, is at page 218 about line 12 on the page. After referring to the fact that he was a buyer not a lawyer, his Honour says:
Lees clearly thought that he did not have to approach Trawl first before seeking supply from other suppliers. Such a procedure from his viewpoint was pointless. This was a view which was reasonably open to him.
HAYNE J: And that might have to be read with 221 which is the "take all fish offered".
MR JACKSON: Yes, your Honour, that is at line 14. He took all the fish which they were able to supply. Your Honour will see that in the passage at page 221 in the first paragraph on that page:
in some instances UBA took more fish than it was required to.....For example, in the case of mackerel.....took substantially - - -
CALLINAN J: Mr Jackson, would you be saying that another basis for refusing special leave would be that, plainly, no damages could be proved for breach of that obligation?
MR JACKSON: That is in effect what the judge said, your Honour. If one assumes that the representation had the effect that they were entitled to have us come first to them, then the fact of the matter is that during the period in which, if it be assumed we did not recognise the existence of that obligation, we in fact took everything they could supply in respect of any future period, the true situation would be that we would be obliged to approach them. It is difficult to see how any damage could have emerged from that.
CALLINAN J: But the company might have failed anyway and had no capacity to do anything without any breach on your part.
MR JACKSON: Indeed, your Honour. Could I just say in relation to the company, the position was of course that the persons who were the vendors of in effect the half interest in the company were persons who had been conducting the company for some years. The persons who were coming in as the additional half interest or the new half interest represented, I suppose, capital and general expertise, know-how and ability in the commercial world. There was no particular reason why one would assume that the company would be conducted in exactly the same way after someone came into it as it was conducted beforehand and it may be instead of having an idea of owning their own vessels, they contract one. All sorts of things could happen.
CALLINAN J: The vessel they bought seemed to be about as ill-fated as the "Melbourne". I do not know that it ever fished, did it?
MR JACKSON: Yes, your Honour, I am not sure what happened quite in the end, but it was not very successful, put it that way. At page 220, your Honours, at about line 32 it goes to what I think your Honour was putting to me:
Nor do I consider that as events turned out it gave rise to any damages, because -
and your Honours will see the remainder of that paragraph.
Your Honour, I was going to say in relation to this, we have dealt with this rather a little more extensively in our written submissions. But your Honours, one does need to bear in mind that the representation found was different from that which was pleaded. We deal with that in paragraph - - -
GAUDRON J: And was, in fact, true.
MR JACKSON: Yes, your Honour, indeed.
GAUDRON J: As a matter of legal fact, it was true.
MR JACKSON: Indeed, your Honour. We deal with that in paragraphs 1 to 4 of our written submissions and, your Honours, we would otherwise rely upon the matters there set out. Would your Honours allow me just one moment, there was a reference I wanted to give your Honours, if I could find it.
GLEESON CJ: You can give it to us after we have heard what Mr Heydon has to say in reply.
CALLINAN J: Could you also give me, Mr Jackson, the reference to, I think, a projection or a budget that one of the respondents made. I think it is in the material somewhere which showed a profit, I think, of 63 per cent, or something of that order. Do not trouble about it now.
MR JACKSON: No, I will do so, your Honour. The reference I did intend to give was page 160, line 31, and whilst dealing with the question whether it was a genuine and binding contract, your Honours will there see the judge dealing with the question of what fish was actually supplied. You will see in the passage that goes - it commences at line 31 on page 160 and goes through to line 15 on page 161, that he refers to the fact - at page 160, line 32 - that:
In the three months after February 1987, UBA accepted and paid for all the fish which Trawl was able to supply.
It lists the amount involved, $1.8 million in the next paragraph. Your Honours will see in the last paragraph on page 160, he refers to the fact that there was never any suggestion by us that we were not prepared to take any of the fish contracted for and which they were able to supply, and he refers to the tonnage at the top of the next page. There is one typographical error, your Honours, in line 14, that is kilograms rather than tonnes.
GLEESON CJ: Yes, thank you, Mr Jackson.
MR JACKSON: The budget point, your Honour, is page 75 in his Honours reasons, about line 24. I am not certain that is the passage your Honour was referring to as this is a letter to the ANZ Bank in April 1987 which spoke of the refurbishment and so on. It commences at page 74 line 40.
GLEESON CJ: Yes, thank you. Yes, Mr Heydon.
MR HEYDON: If I may just deal with a couple of matters arising from what Mr Jackson has said in relation to the special leave application on the cross-appeal. He submitted that because there was pleaded an oral representation that there would be exclusivity, that that was inconsistent with reliance on representation (xiii), or what was found by his Honour in that area, also for a narrower form of exclusivity. We submit there is no inconsistency between contending that one rely both on an oral representation to a certain effect, and asking a court to infer from circumstances that there was reliance on another narrower representation which the court found.
Justice Callinan, if I can go to another point, asked a question about whether there was any finding as to whether or not the appellant, Uncle Ben's, attempted to negotiate. I think the answer to the question is there was no finding one way or the other. We would just point out, without going to the detail of it, that on the bottom of page 16 and most of page 17 of our written argument in support of the cross-appeal, a number of incidents in the evidence appear in which Mr Pridmore, in particular, complained to Mr Lees, as the months wore on from August and September 1987 into the next year, about occasions where other people appeared to be taking fish. That is evidence, at least, of a perception on the part of Mr Pridmore that this exclusive right of negotiation was not being adhered to. There are also, incidentally, occasions on which Mr Lees did not tell the facts about his position on that matter.
The final matter is this. Mr Jackson pointed out or submitted that no damages could have been obtained, in the circumstances, for breach of the promise in the heads of agreement which corresponds to this representation and drew attention to a finding on page 220 that in the events which had happened no damages could have been recovered. That may very well be so. It does not, however, alter the fact that if the representation were made, and if it were relied upon, it induced the investors into a contract in respect of which they can claim damages under section 82. In other words, the investor's case is not damages for breach of the contract, it is damages caused by being led into a large investment which turned out very unprofitably. Those are the only points I wish to make in answer.
GLEESON CJ: We will reserve our decision in this matter and we will adjourn until 10.15 on Tuesday next.
AT 4.08 PM THE MATTER WAS ADJOURNED
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