National Exchange Pty Ltd & Anor v ASIC [2004] HCATrans 557 (10 December 2004)

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National Exchange Pty Ltd & Anor v ASIC [2004] HCATrans 557 (10 December 2004)

Last Updated: 18 January 2005

[2004] HCATrans 557

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M101 of 2004

B e t w e e n -

NATIONAL EXCHANGE PTY LTD AND DAVID TWEED

Applicants

and

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 10 DECEMBER 2004, AT 10.20 AM

Copyright in the High Court of Australia

MR P.T. NUGENT: May it please the Court, I appear on behalf of the applicants in that matter. (instructed by Lander & Rogers)

MR P. ALMOND, QC: If the Court pleases, I appear on behalf of the respondent with my learned friend, MR D.I. STAR. (instructed by Australian Securities and Investment Commission)

GUMMOW J: Yes, Mr Nugent.

MR NUGENT: Your Honours, the principal question, if I might summarise it in this appeal is this. What is the test to apply in determining whether a person is engaged in misleading or deceptive conduct, in contravention of section 52 of the Trade Practices Act and analogous provisions?

GUMMOW J: That is a very large question.

MR NUGENT: It is, but more specifically, your Honour, are the decisions of the various Full Federal Courts which refer to a quantitative element in such test, still good law following the High Court’s decision in Campomar Sociedad, Limitada v Nike International Ltd.

HAYNE J: Well, can I ask you this question. Why would anyone have accepted this offer unless they were misled?

MR NUGENT: Your Honour, the question is not whether, with respect, a person would have accepted it whether they were misled, but whether or not a person engaged in misleading and deceptive conduct - - -

GUMMOW J: No, no, we are at the level of special leave, Mr Nugent, and we are free to apply some commonsense.

MR NUGENT: Yes, your Honour.

HAYNE J: Not often.

MR NUGENT: Well, your Honour, the only way in which a person would have been misled is if they had not properly read the document.

HAYNE J: Maybe, but why would anyone have accepted an offer for shares being traded at $1.96, or thereabouts I think, which was $2 a share payable by 15 annual instalments? Why would you accept that, unless you were misled?

MR NUGENT: Well, that may be so, your Honour, that a reasonable person may not have, however, it is because of the person having been misled, which I submit raises the appropriate question in this case. If the person was misled only because they failed to read the document given to them, and the document was expressed in relatively clear and unambiguous terms, then I would submit a person cannot be liable for misleading and deceptive conduct, because there is no nexus between the person having been misled and the conduct of providing the relevant document to that person.

Further, your Honour, the case against the applicants was that the offer document was misleading only because some of its recipients would not have read all of or have not read properly the document, would have acted on its general impression. Now, at first instance, his Honour said that the failure to analyse the offer document in any great detail, but to act on appearances and impressions, cannot be characterised as unreasonable conduct on their part. It is just the natural order of things.

Similarly, on appeal, the various members of the Full Court were likewise of the opinion that there was nothing unreasonable in failing to read that part of the document which stated that the offer was payable by instalments over a long period of time. As a consequence, your Honours, I submit that on the factual findings which were made, had a recipient of the offer properly read it, such person would not have been misled or deceived, and in that respect, the case is not dissimilar to – and I refer to the comments of Chief Justice Gibbs in Parkdale Custom Built v Puxu where he said that an ordinary person who read the label could not possibly be deceived or misled.

GUMMOW J: Yes I know, but I was worried about that. The ordinary person would have to get down on his or her hands and knees and scratch around on the floor trying to extract this label from the back of the piece of furniture.

MR NUGENT: Well, in this case, your Honour, it was a little bit easier for the recipient of the document to look at it. Now, your Honour will see the document. It appears in the application book as forming part of the judgment of the Full Court. It is a single-page document, your Honour. It is expressed in relatively clear, I submit, and unambiguous terms, and your Honours will find it at application book page 39. It is headed “THIS IS AN IMPORTANT DOCUMENT”. It states that –

IF YOU DO NOT UNDERSTAND IT, PLEASE CONSULT YOUR FINANCIAL OR LEGAL ADVISER IMMEDIATELY –

Under the words “TOTAL OFFER PRICE” appear the words “see payment terms” and under payment terms, it says in the same typeface as the rest of the text –

We will pay the Total Offer Price to you in fifteen equal instalments, paid annually on 3 September each year for fifteen years –

and finally, under the “Other Information” section, again the recipient is asked that they “may wish to compare the value” they receive -

the Total Offer Price in fifteen annual payments –

Now your Honour, I submit - - -

GUMMOW J: Is there any explanation of the discount that would have to be applied, really?

MR NUGENT: There is no explanation in the offer document itself, your Honour. Your Honour, in cases such as the present, where an offer is made to a class of persons, I submit that in determining whether the impugned conduct contravenes for present purposes, section 1041H of the Corporations Act or like provisions, such as section 52 of the Trade Practices Act, the Court ought to consider two questions, and they are, first, whether a reasonable member of the relevant class was or would have been misled and second, whether a significant or a substantial number of persons within the relevant class were or were likely to be misled.

Now, in my submission, these two aspects of the test which are referred to in the outline or summary of argument as the qualitative and the quantitative aspects, are complementary and ensure that the heavy burden which the section creates apply within clear parameters. Now your Honour, in the Nike decision - - -

GUMMOW J: A reasonable person is ordinarily understood to be significantly numerous.

MR NUGENT: Well, with respect, your Honour, I would - - -

GUMMOW J: It is part of the idea.

MR NUGENT: Well, with respect, your Honour, I would submit that following the High Court’s decision - - -

GUMMOW J: He is not the only man on the omnibus, and he is not the only one on the bus.

MR NUGENT: Your Honour, I would submit that following the High Court’s decision in Nike, it is not entirely clear whether or not the test which is proposed which commences with positing a reasonable individual and then clothing that individual with certain characteristics, now requires only that one individual who is referred to as the hypothetical person being misled, or rather is referred to in numerous Full Federal Court decisions, one is talking about a quantitative number as well.

The difference arises as follows, your Honour. If one takes a hypothetical situation, for example, assume a document contains in it an ambiguity. That document is given to a class of persons. Now, in my submission, the starting point is to posit a reasonable person and to clothe that person with certain characteristics. One characteristic I would submit is that the person takes reasonable care of their own interests by reading that document. If the person, by reading the document, would not be misled or deceived, then that is the end of the matter.

However, it is possible, I submit, by reason of the ambiguity, that some reasonable people may interpret it one way and other reasonable persons interpret it in a different way which may be misleading. That being so, the mere positing of a reasonable person does not satisfy the question or answer the question where reasonable people may differ in their responses to a particular document. When one gets to that situation, then I submit, it is necessary to apply the various Full Federal Court decisions which look at a numerical content of the numbers of people who have been misled.

Now, your Honour, the trial judge at first instance expressly rejected the proposition that in order to prove the conduct was misleading or deceptive, or likely to mislead or deceive, it was necessary to establish that a significant proportion of the class must be misled or likely to be misled and the various members of the Full Court on appeal approached the matter in a different way.

In substance, each member of the Full Court held that the quantitative aspect of the test stated in the various Full Federal Court decisions merely expressed in a different form the qualitative test as I have used that term, the Nike decision. In their joint judgments, Justices Jacobson and Bennett disagreed with the trial judge to the extent that his Honour suggested that a significant proportion test referred to in the various decisions such as 10^th Cantanae is inconsistent with the Full Court’s decision in Nike. However, like Justice Dowsett, their Honours conflated the quantitative and the qualitative aspects of the test, and held that a finding by reasonable members of the class would be likely to be misled, carries with it the determination that a significant proportion of the share - - -

GUMMOW J: Exactly, exactly.

MR NUGENT: Well, in my respectful submission, by reason of the analogy or the example I have given your Honours, that does not necessarily follow, because it is quite possible that if one starts off with the conception of a reasonable person as a person who takes reasonable care to read the document, there may be differences in number as to who are misled. One cannot assume necessarily that simply because you are a reasonable person and you read a document, that all of those people will be misled. Some may be, others may not be, hence the need to consider, in my submission, the quantitative element which is referred to in the Federal Court decisions.

Your Honour, the ambiguity or the uncertainty in the law is growing rather than getting smaller, if I might put it that way, and a more recent decision which was .au Domain Administration Ltd v Domain Names Australia Pty Ltd, Justice Finkelstein again had cause to look at this issue again. It was a representation to the public case, as was this case, and he held that there was no warrant for imposing a requirement in such a case, that significant members of the public must be misled by the impugned conduct for there to have been a contravention of section 52. His Honour was of the opinion that the High Court’s decision in Nike - - -

GUMMOW J: The words in the statute include the word “likely”, do they not?

MR NUGENT: Yes, your Honour.

GUMMOW J: Not “must”.

MR NUGENT: No, your Honour.

GUMMOW J: All right.

MR NUGENT: However, the question is, when one is dealing with the public at large case, one still must ask the question, how many of those people must be likely to be misled? It is not enough, in my submission, that a person who puts a fanciful construction on a document being misled and is not inherent in the nature of a reasonable person, I submit, that there must necessarily be the majority or a significant number of people who have been misled.

Now the decision in .au at first instance went on appeal, and the Full Federal Court on 10 September this year appears to have preferred the approach taken by the Full Court in the decision now under appeal, namely, that a finding that a reasonable member of the class would be likely to be
misled carries with it the determination that a significant number of recipients of a representation would be misled.

Now your Honour, it is my submission that this present appeal does raise the question of the appropriate test to apply in determining whether conduct should be characterised as misleading or deceptive under either section 52 or other statutes. There is now, I submit, a degree of uncertainty in the law, insofar as it is not clear and there are conflicting decisions as to whether or not the quantitative aspect which is referred to in the numerous Full Federal Court decisions remains good law in the light of the Nike decision.

Finally, your Honours, I submit that this present case warrants the grant of special leave because I submit both the trial judge and the Full Court fell into error by applying the wrong test which resulted in my clients being found liable for misleading and deceptive conduct in circumstances where, if the correct test had been applied, my clients would not have been so found liable.

Finally, your Honour, I do mention just for completeness, that there is the conduct in respect of which the appellants were found liable. The particular section of the Act has been changed somewhat. It may be a matter which my learned friend wishes to address your Honours to whether this is an appropriate vehicle. However, I submit it makes no difference because the particular question which I was posing to the Court has general application in cases such as section 52, its counterparts in State legislation dealing with misleading and deceptive conduct, and the fact that no one may now be prosecuted - my client would not now be prosecuted under that specific section of the Corporations Act, ought make no difference to the basis upon which this appeal is put. Those are the submissions which I wish to put before the Court.

GUMMOW J: Thank you, Mr Nugent. We do not need to call on you, Mr Almond.

In our view there are insufficient prospects of displacing the decision in the Full Court, particularly the stance taken in the joint judgment of Justices Jacobson and Bennett, to warrant a grant of special leave. Special leave is refused with costs.

AT 10.35 AM THE MATTER WAS CONCLUDED