Campbell & Anor v Backoffice Investments Pty Ltd & Anor [2009] HCATrans 5 (3 February 2009)

Last Updated: 4 February 2009

[2009] HCATrans 005

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S435 of 2008

B e t w e e n -

DOUGLAS RONALD CAMPBELL

First Applicant

SENTINEL CONSTRUCTION MANAGERS PTY LTD

Second Applicant

and

BACKOFFICE INVESTMENTS PTY LTD

First Respondent

TIMOTHY ANDREW WEEKS

Second Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 3 FEBRUARY 2009, AT 2.15 PM

Copyright in the High Court of Australia

MR A.J.L. BANNON, SC: May it please the Court, I appear for the appellants with my learned friend, MR J.T.G. GIBSON. (instructed by Rodd Peters Commercial, Media and European Lawyers)

MR J.T. GLEESON, SC: May it please the Court, I appear for the respondents with MS T.L. WONG. (instructed by Watson Mangioni Solicitors)

FRENCH CJ: Yes, Mr Bannon.

MR BANNON: Your Honours, this appeal raises the issue of the significance to be attached to the terms of the commercially negotiated contract which on their face render inoperative what is alleged to be pre-contractual misleading conduct. We submit the majority erred in attaching, in effect, no weight to those terms while at the same time using the contract generally as the means to overturn findings of facts of no reliance and a finding that no representation was made. We submit the majority decision is further infected by clear mathematical errors which of themselves vitiate the decision but, looked at more broadly, tend to emphasise the difficulty of drawing or finding misleading conduct different to that identified in the warranties in the contract. At one level the extrapolated effect of the decision is to permit in every case, or in many cases, a contractual warranty to stand as an unqualified pre-contractual representation notwithstanding the contractual qualifications on the warranty.

Could I begin by identifying in the appeal book certain of the underlying material facts. Firstly, the sale agreement appears at volume 4 at page 1885, the formal parts commencing at 1886. The warranty clause is at 1890, which is clause 7, which in 7.1 the vendor warrants in terms of the warranties set out in the schedules, in the second sentence says:

subject to any disclosure made by or on behalf of the Vendor to the Purchaser or its advisers before the date of this Agreement.

Clause 7.3(a) provides that:

the Vendor shall have no liability in respect of any claim under the Warranties unless the amount of such claim exceeds the sum of $15,000 for any one event or $25,000 in aggregate –

Clause 7.4(a) provides that:

in entering into this Agreement . . . [the purchaser] has not relied on any warranty made by or on behalf of the Vendor other than the Warranties given in sub-clause 1 and Schedule 1 –

There is a reference to affording the opportunity of inspection. Then clause 9.1 on page 1891 has an entire agreement clause, including in relation to (b) a supersession provision of any prior understanding, representation or warranty.

GUMMOW J: Is there some complaint by your opponent about your reliance on clause 9?

MR BANNON: Yes, and our short response to that is; we had a factual finding by the trial judge based on the evidence in response, in effect to the question you chose – unable to get satisfaction in relation to information provided to you before the agreement – chose to rely on contractual warranties.....accepted that. We say that question embraced in it the terms of the contract and we submit why we are here is because the majority has undertaken its own exercise to overturn that factual finding relying on the terms of the contract as saying – and there is a sentence in the majority judgment of Justice Giles, agreed by Justice Basten, to the effect that the warranties confirm reliance, but we simply say that you cannot read the reference to the words of the schedule to the warranty without taking with it all the terms of the contracts including the qualifications, one of which includes 9.1.

We submit for the respondent to rely on the majority decision, it does not lie in its mouth to say that there was some point not taken at trial in relation to 9.1. Her Honour’s judgment, the trial judgment, set out all the terms of the contract, including 9.1. Then at 1895 is Schedule 1, which includes “THE VENDOR WARRANTS AS FOLLOWS”, and then over at 1896, at 3.1(a):

The Company has no Liabilities other than the Liabilities disclosed in Schedule 3 and Schedule 7, and the Company is not party to any contract –

Then clause 10.1 of Schedule 1 appears at 1900 and under the heading “ACCURACY OF INFORMATION” the opening words, we submit, are particularly important, “To the best of its knowledge, the Vendor warrants” – the vendor being Mr Campbell; and that is an important qualification, we respectfully submit. Clause 10.1:

All information given by or on behalf of the Company or its advisers to the Purchaser or its advisers material to the sale of the Shares and the Assets is substantially accurate and complete and not misleading.

Then clause 10.2:

The information in the Schedules is materially accurate and complete and not misleading.

Then at 1903 is the beginning of the first page of Schedule 3 by some feature of how the evidence was presented at trial. The balance of Schedule 3 does not appear in this book. One has to go to volume 2 of the appeal books, and if I could do that. At page 743 is that same first page. At 744 there is a document which is headed:

Healthy Water NSW Pty Ltd

Balance Sheet as at 30/11/04

There is a total assets figure, which is described “(as per attached)” of “297,423.70”. There is a “Total liabilities (as per attached)” of “3,796.65”. There is a statement of “Accrued employee entitlements”, which is presented as an addition to the liabilities, of Mr Campbell of 79,000-odd, and an “Adjusted Net Assets” figure of 210,000-odd. Then over the page on 745 is a heading:

Profit and Loss Statement

For the 5 Months Ended 30/11/04

That includes a figure for “Operating Profit”, about the middle of the page, about line 25, of “66,978.99”. There is a note underneath saying that that comes from the management accounts, those figures. Then under that, “Operating Profit (as per above)” of “66,978.99” and “Add, Proprietor’s estimate of non-recurring expenses for the 5 months ended 30/11/04”, of “96,100.00”. That is a reference to what has been described as the add-backs” in the evidence and in the judgements. That figure of 96,100 matches the total of the figures provided in the pre-contractual document but there is no breakdown of the figures in the contractual document. But we emphasise the reference to the words “Proprietor’s estimate”, which appear in this, in foreshadowing a reference to the argument to which we have adverted, namely, that the nature of these items of non-recurring expenses were, on the evidence and as a matter of logic, attempts by the proprietor to assert that a number of the expenses incurred as a one-man, in effect, company would not recur on an ordinary basis in a company where it was proposed to put in a pay general manager and the previous manager/proprietor would become a proprietor.

So that there are involved two elements; one, trying to work out what the expenses were, but, two, attempting to characterise the likelihood of them recurring, and they fell generally within categories which I will come to, but they included expenses which might be regarded as personal and not likely to be repeated.

The characterisation in the contractual document of proprietors estimate added to the opening words of clause 10 of the schedule, namely, to the vendor’s knowledge, we submit, meant that a plain qualification on the contractual document was that any contractual warranty required for it to be breached, a proof that what had been described as an estimate was wrong to knowledge of the vendor, and really, cutting to a nub of one of the problems with the majority judgment, what was found was a representation of an unqualified nature that these were non-recurring expenses and that that was a representation which was continuing and operative through the contractual document. We say that representation, as her Honour found, was not made but could not possibly have been relied upon in circumstances of the contract.

FRENCH CJ: When you say “could not possibly be relied upon the circumstances of the contract”, there are really two limbs, are there not? There is the characterisation of whether the representation forms part of misleading or deceptive conduct or is deprived of that character by reference to what appears in the contractual document, alternatively, whether the causal nexus is broken by reference. These are matters of characterisation. They are not really questions of the warranties, to use your opening expression “rendering inoperative” what had been said before. It is really a question of whether you had misleading or deceptive conduct and if so, whether damage was suffered by it.

MR BANNON: Yes, I accept all of that. As we have attempted to say in our written outline, and I will develop, namely, that it is not a case where, we respectfully submit, there is an identifiable separate representation which is somehow later qualified because the piece of paper which is described as the add-backs representation is provided. At the time it is provided, as her Honour found, it was described as an estimate and you immediately run into the problem that the only representation pleaded was that these were non-recurring expenses unqualified by reference to opinion and no attempt to plead that they were not honestly held.

There was a finding by the trial judge that Mr Campbell – although they attempted to find by reference to breach of warranty that he did not believe or that he knew the estimates were wrong – that case failed, there has been attempt to overturn that. You have that one factor, but the evidence which addressed his inability to get satisfaction as to the reliability of the figures is evidence in cross-examination which her Honour accepted which was his discussions with a Mr Horn, who was, in effect, a representative of Mr Campbell, and Mr Week’s evidence was it was, “In that context in not being able to get satisfaction in relation to these figures that I initiated the warranty discussion”.

So at the same time as this piece of paper is provided of being looked at, that the subject matter of it needing to be the subject of a warranty is initiated. So what we would submit that the very offer that he initially made was in the context of him requiring satisfaction in relation to that and we say in the terms of a warranty and ultimately the offer which was put forward, because there was a few developments of it, specifically said this has to be subject of a warranty in terms to be agreed and then finally it was agreed in these terms with those qualifications.

So the attempt to identify as a separate piece of conduct independent of the warranties which can be compartmentalised at point in time (a) and considered as to whether or not it is subsequently qualified by reference to terms of the contract, we submit, does not survive an analysis of the events anyway. Her Honour’s underlying finding that the representation was not made, but if it was, it was not relied upon, is supported by all of those matters. The overturning of the finding of the representation in unqualified terms was not made, we say does not survive an analysis of the contract.

GUMMOW J: The phrase, as you keep saying, I think, is “engage in conduct”, is it not?

MR BANNON: Yes.

GUMMOW J: A statutory expression – not represent – misrepresent.

MR BANNON: Quite.

GUMMOW J: You might at some stage have a look at Justice McHugh’s judgment in Butcher v Lachlan Elder Realty Pty Ltd, [2004] HCA 60; (2004) 218 CLR 592, at 622, paragraphs 92 through to 112 and let us know whether you accept what his Honour says. I suspect you do.

MR BANNON: Yes. I will look again closely at those paragraphs, but certainly to the extent that - - -

GUMMOW J: His Honour was dissenting in the outcome in that case, but I think not as to principle.

MR BANNON: No. Certainly that case emphasises the importance of looking at the conduct as a whole. One of our complaints is that, while it may be accepted that one has to look at the terms of the contract, the pieces of paper, as part of the actual equation, we respectfully submit that the Court of Appeal completely overlooked the terms of the contract and the qualifications and simply teased out the coincidence of words and figures in the warranty compared to the earlier document and relied on that coincidence without actually paying any attention to the other parts of the contract.

FRENCH CJ: But you accept that representations made to a person may have a causative effect in their entering into a contract, notwithstanding that they may seek additional comfort from warranty terms in the contract?

MR BANNON: As a matter of theory, yes.

FRENCH CJ: Then we get down really to the minutiae of this case. It is an evidentiary issue, is it not?

MR BANNON: Yes, but in the circumstances where we have the trial judge’s findings – the point really is to say that the way those findings were overturned was to, in effect, rely on the terms of the contract but without looking at all the terms of the contract.

GUMMOW J: Your case is really a visitation case about the manner in which you lost in the Court of Appeal, the success you had obtained from Justice Bergin. I am not saying it is any the worse for it, but that seems to be - - -

MR BANNON: No, I frankly accept that, but it does raise an important matter which I accept has been considered at least directly in some Full Federal Court decisions, not directly in this Court, although Butcher v Lachlan Elder has considered in the context of whether or not a representation is made by an agent as opposed to simply conveying. But there is a wider practical significance, we submit, which can be discerned from this case, namely, that where you do have commercially negotiated agreements and where you do have legal advice – and there is absolutely no suggestion that Mr Weeks did not appreciate what the terms of the contract said – that there is a role to be played in looking at those terms which is not simply – we would respectfully submit it is more than simply saying, okay, you look at that as part of a whole regime. There has to be a lot of weight, we respectfully submit, attached to those carefully negotiated contracts and a fair bit of work to be done before you can overturn that. To that extent, I would simply qualify what your Honour Justice Gummow said is to say there is the potential for a wider significance.

If I could then go to 748 in the Schedule 3 which sets out the profit and loss statement at the very foot there is a balance sheet as of November 2004. At the very foot of the page – this is the only copy which was before the trial - the rather indistinct last line which says “Doug Campbell Loan to HW” it is actually a negative figure of 74,507.24 which is repeated over the top of the next page as a non-current negative liability and everyone accepted that that meant that as a negative liability, in fact it was an asset in that form, an amount being owed by Mr Campbell to the company. Then the “Total Liabilities” figure of 3,796.65 is set out there.

Then over the page at 750 is the calculation of the Doug Campbell holiday leave entitlements which is the figure of 79,637.14. There is an item crossed out. In the scheme of things, having regard to its amount, it is not material. But the purpose of going to 750 and the figures at 749 – quite frankly, this is in relation to the breach of warranty case if this Court decides to take that up, but while I am here if I can just identify it. If one goes back to 744 there is the total liability of 3,796.65 includes as one sees the asset, which is an offset against liabilities of the 74,000 loan. But it also sets off that or indicates it should be set off against that, an amount which the company owes to Mr Campbell. It goes to a complaint as to whether or not there was a non-disclosure of the fact that money was actually owed to Mr Campbell. The setting out of those figures makes it clear that that was disclosed in the contract.

Then, if I could next go to the document which is the source of the so-called add-backs representation. It appears in volume 5 of the appeal book at page 2453. This document, the evidence and the findings held was provided – amongst other documents – by Mr Horn to Mr Weeks in early December, 2004. It is headed “Non-recurring expenses”. The first item of “Obsolete inventories” there is a description of that. The effect of the finding by the trial judge was that ultimately that was described as hire purchase equipment used for the business of this company, which was to provide water filtration systems and water systems at various office premises and the like, which were written off wholly for tax purposes in terms of depreciation. But the evidence was that Mr Campbell had made an estimate to the effect that although it is written off for tax purposes it still has a value and hence should be added back to the extent of 20 per cent of 2,600.

The next figure is a consulting fee which was peculiar to the transaction and was not likely to recur. The next set of figures introduces the topic of the mathematical error. These figures which - firstly current annual salary, motor vehicle allowance, general expense allowance, business expense, credit card reimbursement and the figures to the right of that are all annual figures. Then there was an estimate for the salary for the general manager and that was a deduction and the excess of 186. The five-month figure of 77,500 was calculated by dividing by 12 that 186 figure and multiplying by five.

Of the list of those amounts the trial judge’s finding was that the obsolete inventory figure of 2,600 was not a non-recurring expense as a matter of fact, although her Honour did not find that Mr Campbell knew that it was not – in other words, it was not a deliberate non-estimate. Her Honour also found that there was a shortfall in relation to the credit card reimbursement of 65,000. There was a debate between two experts as to what the true figure should be.

The five-month figure, when one does the calculation of dividing 65 by 12 and multiplying it by five, is $27,083, and the debate between the experts was one said it was about 22 and the other one said it was about 25. I will come to this, but Justice Giles interpreted that as a $65,000 figure for five months, which was wrong. But then the item above, two above, the general expense allowance, the annual figure of 10,000 translates to a figure of 4,167. The trial judge found that was a non-recurring expense, or at least it had not been proved that it was not. The majority said that it overturned that factual finding, and we do not dispute that for present purposes.

So in other words there were three items, which it is accepted for the purposes of this appeal, were not non-recurring expenses – that is, the 2,600, the general expense allowance of 10,000, which, as I say, translates to a 4,167 figure, and a portion of the credit card reimbursement figure, and there is a little debate as to what that proportion is.

HEYDON J: What is the significance of this mathematical error by the Court of Appeal?

MR BANNON: The reliance evidence from Mr Weeks was, “If I had known that there was an annual error in the add-backs figure of $20,000 or more” – and I will come to the reference to that – “then I would not have gone ahead”. His Honour Justice Giles relied on that, having found misleading conduct, as saying that was causative.

FRENCH CJ: There was no cross-examination on that, was there?

MR BANNON: No. It is apparent that his Honour said, “Obviously it is way above $20,000” because, if one subtracts from $65,000 a figure of approximately $25,000, which was our expert’s figure, which we say his Honour Justice Giles basically accepted, that is a difference of $40,000. So in other words it is way above the $20,000 figure. What his Honour failed to appreciate was that $65,000 is in fact a $27,083 figure. In other words, the experts were dealing with the error of the add-back figure by reference to the five-month figures and the maximum error which was identified, from our expert’s point of view, was the difference between $27,083 and $25,570, I think the figure is. So that once one appreciates that, you are not talking about a problem of $40,000; you are talking about a problem of about $1,300, annualised.

HEYDON J: You are adding 16,000, 2,600 and that $1,000-odd figure you have just mentioned, which is slightly less than $20,000. Is that your line of reasoning? Therefore there was no failure to comply with what had been said.

MR BANNON: Perhaps I will say it again. On the majority’s factual findings, at least in terms of the categories, it is accepted that 2,600 was not a non-recurring expense as a matter of fact; secondly, that the general expense allowance of 10,000 translated to a five-month figure of 4,167 was not a non-recurring expense, so one adds those two together – that is, 2,600 and 4,167; and, thirdly, a portion of the credit card reimbursement figure which appears – it is the 12-month figure of 65,000 but is in fact a five-month figure, everybody agrees, of 27,083, that figure, we say, Justice Giles accepted our expert’s figure which was $25,570, so that the shortfall therefore is $1,313. So for a five month analysis the accepted shortfall on the findings of fact is 1,313, 4,167 and 2,600 which adds up to a total of 8,130.

HEYDON J: Which is less than $20,000.

MR BANNON: That is for five months. If you annualise it comes in at just under $20,000, but certainly not the $40,000-odd that his Honour found.

HEYDON J: If Justice Kirby were here he would be making a speech about “They would not be looking at this in Washington in this way”.

MR BANNON: No, but it is an egregious error of calculation.

HEYDON J: Sometimes egregious errors of calculation reveal a total failure to deal with any problem. Are you saying that of this Court of Appeal decision?

MR BANNON: What we say is it underlies the problem. It is confirmatory of the problem that there was not reliance on an absolute figure that these are the non-recurring expenses. When one looks at his own evidence he says, “If I had known that they were 20,000 wrong, then I would not have gone ahead”. If one looks at the warranty, the warranty says that if the estimate was wrong – that is, to the vendor’s knowledge – provided, looking at the qualification in 7, a claim was more than $15,000 and that was the agreed negotiated term, that all demonstrates that to find isolated conduct that these figures are absolutely true just defies logic and the way that the Court of Appeal addressed the matter was simply on the matter of logic and we respectfully submit that this calculation error really exposes a further problem with the process which is engaged in, albeit I accept it does descend into minutiae, which is unfortunate.

The second document which is over the page which is the subject of a representation claim – this is 2454. In the first column there is the five months to 30 November 2004 column which produces as the very bottom of the page an EBIT - earnings before interest and tax - adjusted of 163,590. One can see that above that one has an addition of non-recurring expenses being the same figures in total which we have just looked at and the relevance of that is to say that the second representation relied upon was the so called EBIT representation. The falsity of that was based on the same matter, namely the add-back’s expenses as indicated by the addition of those figures there.

That is just the factual background of that point. The second significance of this document is that it includes, going back up to the top of the page in the second column, estimated December revenue of $100,000. There was a finding by her Honour that, in fact, the revenue for December was eight per cent less than that, in the order of about $7,000 and by the time of the sale contract, Mr Campbell was aware of that and did not disclose and that is the December sales estimate representation.

If one then goes over four columns to the right, I draw your Honours’ attention to a column which is described as “Est 6 Mths” sales to “30/06/05”, there includes an estimate of “New business sales” of “300,000”. If one goes to the very bottom of those columns one sees for “Est 12 Mths” a sales figure of about $1.289 million, which is roughly double sales of 504,582 to the end of December, the material difference between the estimated new business sales of $300,000. That has a relevance in relation to a matter our learned friends seek to raise. That is the December sales estimate document.

If I then take your Honours to page 2477, which is one of the offer documents. This is 14 December 2004. This is from Mr Weeks to Mr Horn and at line 20 it says:

Alan,

The basis of my offer is as follows –

and he sets out some calculations. At about line 29 it has a 2004 estimate of EBIT of 400,000 and then he applies some calculations, three times or four times EBIT. The first bullet point under that:

Based upon the operational results provided for Healthy Water as tabled above (adjusted but unsupported) -

and that is referred to by her Honour the trial judge –

the value of 100% of the Company is around $1.6M. $1.7M tops.

The calculation of that figure of 400,000 estimated EBIT on the evidence – and this is referred to in the respondents’ submissions at paragraph 11. We also refer to it in our reply submissions in paragraph 4. It is the document which appears at 2475 and 2476. I do not need to go to this, but it is referred to as to how it is made up in paragraph 52 of the affidavit to which it is attached to which appears in volume 5, the same volume, at 2132.

Shortly stated, if one looks at that document, 2475, he uses for “Total Sales” the same figure of 1,289,582, as appears in the sales estimate document. He includes the add-backs under an “Add-Backs” column and under that column, running down that column, there is a minus 16,000 figure. There is another one minus 4,194. That equates to, so far as one can tell, the general expense figure of 4,167. Then there is a minus 2,600, which is the obsolete inventories. One can see in relation to that, if one goes over two columns to the “2004/5 Estimate”, he treats that as involving a deduction of 5,000. So, in effect, he more or less doubles the figure for a 12-month period. Similarly, if one goes back up to the minus 4,194, he subtracts that from the column previously, which is 7,424 to get a figure of 3,230 and more or less doubles that figure of 6,000.

HAYNE J: Can I interrupt this trawling through the details?

MR BANNON: Yes.

HAYNE J: Can I just understand what legal framework this mass of detail is said to fit into? Because, yes, we have got ultimately perhaps to get into the mass of detail, but what exactly is the legal framework in which, for example, an understanding of this P&L forecast is to sit? Is this in aid of the purchaser’s claim either in respect of misleading and deceptive conduct or representations or warranties found outside the sale agreement? Or where are we, Mr Bannon?

MR BANNON: The first two pieces of paper, namely, the one at 2453 and at 2454, are the extra extra-contractual documents sought to found that representation.

HAYNE J: Yes.

MR BANNON: From our point of view, the detail on our primary position does not need to go beyond the fact that 2453 was an estimate on its face, that was the evidence that it was an estimate. It appeared in the contract as an estimate and it could only be a breach of warranty if it was wrong to the knowledge of the vendor. So to find a representation inconsistent with that sequence we say is not available on the facts.

FRENCH CJ: This is characterisation of pre-contractual representation we are going to?

MR BANNON: Yes.

FRENCH CJ: Only the add-back document?

MR BANNON: Yes, that is right.

HAYNE J: As what? Characterisation as what and how?

MR BANNON: We say it goes to the case as to whether it is available to be characterised as misleading conduct, being a representation, or however one describes it, that these are figures which are true in an unqualified form.

FRENCH CJ: Or, as you would put it consistently with what you said previously, as an element of conduct which if looked at as a whole is misleading and deceptive?

MR BANNON: Is not in fact, but, yes, it has to be looked at as a whole. The detail of the figures only goes to the calculation element.

GUMMOW J: How did the Court of Appeal rely on this?

MR BANNON: Their Honours said that this was a representation that the non-recurring expenses were these amounts as a matter of fact. It turns out that they were not in relation to the three elements I have attempted to identify. Then they looked for evidence to see whether this was causative and that is where they get into the mathematical error, namely, to say they had to find a total impact of $20,000. They found one of about $40,000. So that is wrong. But that is how they relied upon it.

HAYNE J: But representations as a species of misleading and deceptive conduct?

MR BANNON: Yes.

FRENCH CJ: And the P&L forecast?

MR BANNON: The P&L forecast, the representation relates to the extent of the December sales of 100,000.

GUMMOW J: Some of these amounts are not very in the overall scope of what seems to have been the business.

MR BANNON: Yes.

GUMMOW J: Did the Court of Appeal nevertheless say that they were, what, causative or something?

MR BANNON: Yes, but perhaps come back to the question raised by Justice Heydon. The mathematical error put it in the stratosphere of in excess of $40,000-odd or something. But in the scheme of things that once one shows that that is wrong – and I think it is accepted that is wrong – one gets done to a minutiae which is a very small moment in the scheme of things, we respectfully submit.

GUMMOW J: But what finding did they make about the reaction of the representee?

MR BANNON: They relied on a statement which says, if the amount was 20,000 or more out, then therefore it was causative.

HAYNE J: Was there any relationship made between that proposition apparently produced in oral evidence and what we see at 1897.....where you get this 25,000 aggregate figure in the representation provision of the agreement or the two simply never intersect?

MR BANNON: No, the Court of Appeal did not refer to that at all and that is our primary complaint.

GUMMOW J: Did not refer?

MR BANNON: To the qualification on the warranty and the contract, namely, the only other claim aggregate of 25,000 or for one item 15,000; they did not refer to that at all.

FRENCH CJ: That goes into this characterisation issue of the overall conduct is misleading or deceptive. That is representations read in the context of subsequent warranties.

MR BANNON: Yes.

KIEFEL J: Or was the statement by the Court of Appeal to the effect that if it was 20,000 or more, it was supportive of misrepresentation, meant to link into the warranty? If not expressly, but - - -

MR BANNON: Well, we respectfully submit, not at all, but it involves a - - -

KIEFEL J: I am sorry, I put that round the wrong way. I think the Court of Appeal said that the warranties support the influence of the misrepresentation.

MR BANNON: Yes.

KIEFEL J: So could it not link in in that way?

MR BANNON: Well, that the representation that they found was an - - -

KIEFEL J: Because it was more than $20,000, the warranty refers to 25,000 in aggregate or more than 15?

MR BANNON: Well, they did not make that link expressly or at all.

KIEFEL J: But that could have been its relevance logically?

MR BANNON: We submit that they did not. If they had focused on the 20,000 figure, then they would have immediately seen to make a finding that there was an unqualified representation that these were true as a matter of fact just could not be operative conduct.

FRENCH CJ: Where does this lead us? In a sense, you say the Court of Appeal struck a falsely high level of representation and thereby misrepresentation and there was the unchallenged statement, “I wouldn’t have gone into it if I had known it was $20,000 out”. In fact, the discrepancy was considerably less than that, so what does that lead to? Does that lead to an invitation to us simply to infer from that fact that the Court of Appeal was wrong in the conclusion it drew and to draw our own conclusion about characterisation of the conduct and/or reliance, or does it mean that the matter goes back to the Court of Appeal? How are you framing it in terms of your ultimate remedy?

MR BANNON: Our primary position is one does not have to get into those figures at all because the conduct just was not there and there could not have been reliance for the reasons we say. But if one goes to a second level and gets into the mathematical point, we say that even if we are wrong about that, the threshold level which the Court of Appeal set for itself was not reached anyway, so that is purely visitation.

HAYNE J: Can I just see if I can reduce it to a level I might have a chance of understanding, Mr Bannon. The case against you was that the would-be vendor of the share said that the results of the company had certain characteristics. The case against you was that the statements made about the results of the company were not accurate.

MR BANNON: Yes.

HAYNE J: The purchaser ultimately agrees to buy a share in the company but on terms that contain express warranties and an entire agreement clause.

MR BANNON: Yes.

HAYNE J: Do we not have to begin at an analysis of the effect of the entire agreement clause and the express warranties? I understand you to have at least one, possibly, I think, two fallback positions that later are adopted, but is the point of entry?

MR BANNON: Yes.

HAYNE J: You know more about the case than I do. You have got to take the course you think best for your side.

MR BANNON: I can perhaps return to a higher level, but simply by finishing on this document at 2475 to 2476 as indicating this proposition, namely, that the reliance which is the use to which the add-back figures were made by Mr Weeks involve more or less a doubling of the figures. That just goes to the mathematical point and I can come back to that in due course. Beyond that, in terms of detail, I do not need to pause.

FRENCH CJ: Does the higher level involve a question of principle or just a question of looking at another set of facts, namely, that he has asked for warranties in these terms, he has expressed reservation about the oral statements that have been made? You are saying that in the light of all of those things, and by reference to the terms of the warranties, not as having a legal effect on impact on the operation of the Fair Trading Act, but in the light of all of those things, there is no misleading or deceptive conduct and alternatively there was no reliance, and those are factual conclusions?

MR BANNON: Yes, they are.

FRENCH CJ: Is that a question of principle or a question of evidence and how it should be regarded?

MR BANNON: It is a question of evidence and how it is to be regarded, undoubtedly. It is a question of principle insofar as no weight is given at all to the qualifications in the contract.

FRENCH CJ: That is part of the constellation of facts that you look at in determining whether or not there has been misleading and deceptive conduct. The amount of weight you give to a warranty in a contract or a disclaimer might depend upon the circumstances which brought an end to the contract. No doubt you would rely upon the pre-contractual statement that led to its insertion. On the other hand, if you had a contract with a warranty of that kind in fine print and an unsophisticated purchaser, you might give a different weight there. There is no rule of law about the weight to be given to such things, is there?

MR BANNON: No, but to give it no weight involves an error of law, but we would seek to advance this proposition, namely, that where it is a negotiated contract and there is no issue but he knew the terms of the contract and had legal advice it is not just a question of it is a factor; it is a considerable factor which would require – as a matter of weight – some fairly significant evidence and conduct to overcome it.

Of course, we are in the position of having succeeded on a factual finding and our problem is that we were overturned on that by reference, in effect, to the terms of the contract and it does have that – if I may say so – mundane aspect of it to a point, but my clients are in that position where we suffer that burden, but it can be at least elevated to some fairly simple facts based on the findings. The drudgery, I accept, gets into the interstices of the figures when one tries to find the $20,000 limit, but we have a first port of call which involves a fairly simple set of facts which I am seeking to identify the main features of which, which are referred to in the findings.

KIEFEL J: You are trying to get back to the trial judge’s reasons, are you not? So your approach is really to clear away the overlay of fact finding that the Court of Appeal made and then deal in principle with their criticisms of the trial judge’s approach to reliance.

MR BANNON: Yes. So if I can then leave those two pages and then go to what appears at 2485, which is again part of the factual sequence which is an email from Mr Weeks of 20 December 2004 to Mr Horn in which at line 30 he refers to his desire to consult with his solicitor to look at the documents and he provides some comments on what were then draft agreements himself, the relevant one of which appears at 2486 over the page.

HAYNE J: But what do we get out of this, Mr Bannon? This is at a point where there is NEWCO on the scene. What are we to get out of this?

MR BANNON: Namely, that this is the point where his offer is conditional upon him receiving the warranty to be agreed.

FRENCH CJ: We know about that.

MR BANNON: Yes. I am just identifying – there are about six pieces of paper which identify those propositions.

FRENCH CJ: I think you can take it that we are reasonably familiar with that history.

MR BANNON: Thank you. We have given the reference to these in our written outline so I do not need to go further than that. Can I then come to what was pleaded as the – just to complete that in broad terms, that sequence was he got legal advice, comments on the clauses - - -

FRENCH CJ: He had Mr McClure helping him.

MR BANNON: - - - he had a discussion with Mr Horn and then the agreement was agreed as per the terms.

Then the pleading of the representation appears in volume 1 and it appears at page 20. At line 40 the allegations were:

By providing Backoffice with the 2004 Add-Backs and the 30 November 2004 Results, Campbell represented to Backoffice that:

(a) the Company incurred non-recurring expenses of $96,100.00 –

and also -

(b) the Company had an EBIT . . . of $163,590 –

Then the other representation which is the source of the misleading conduct appears over on page 22 at paragraph 52:

The Sales Revenue Report estimated that:

(a) the Company’s sales revenue for December 2004 would be $100,000 -

There is another one for EBIT for 37,500, and also (c) sales revenue but (b) and (c) were not supported by any findings.

FRENCH CJ: The December estimates were said to carry various implied representations with them.

MR BANNON: Yes. I should just go back to page 21. The falsity of the add-backs representation in the particulars to 46, about line 19, relies on what appears at 35(a) and (c) which is – if one goes back to that at page 17, it says those figures were wrong in the four respects. As I have indicated the Court of Appeal ultimately found (i) was established, so was (ii), (iii) not established, (iv) a portion of that and that is where the calculation error. If I could then take your Honours to the trial judgment at volume 8.

GUMMOW J: What is the defence to these paragraphs - 45 and 46? About page 37 is it, 38?

MR BANNON: Yes. The response to 45 appears at paragraph 33, paragraph 38. It effectively said the document is provided, but otherwise do not admit and there was a general denial of the falsity.

GUMMOW J: There was also an assertion of performance of due diligence, et cetera, using a financial advisor.

MR BANNON: Yes.

GUMMOW J: Which is the sort of thing the Chief Justice was putting to you.

MR BANNON: Yes.

FRENCH CJ: Where does the defence deal with the December estimates and the implied representations?

MR BANNON: Paragraph 40 on page 39. In the learned trial judge’s judgment in volume 8, I direct attention firstly to 3543. It commences at paragraph 190, under the heading “Obsolete inventories”. This is the 2,600 item. There is a discussion which goes from 190 through to 198 at 3547. The point to be made at 198 in summarising her Honour’s view was that it was not an appropriate characterisation of it as a non-recurring expense, but the description of it in the paragraphs leading up to that, in particular 198, makes it clear that it is a process involving estimation in relation to which minds might differ. In her Honour’s sentence:

However, it seems to me that the utilisation of the stock that was otherwise written falls more appropriately into –

a certain category is indicative of that. Then the next section of general expense allowance – this relates to the 4167 item - - -

FRENCH CJ: She does not just say it was not appropriate, she says it was not accurate.

MR BANNON: Yes, but if one reads the paragraphs before that, it is a question of an estimation or opinion of the nature of the expenses. Why I emphasise that is that it goes to whether an absolute representation could be – or conduct constituting absolute representations could rationally have been found on the material. Then at 202 her Honour’s conclusion in relation to the general expense item, I just draw attention to that. The Court of Appeal overturned that view. In other words, their Honours were satisfied that they – it was not proved that they were not sufficiently characterised. I do not need to go to the detail of that other than to refer your Honours to that, but again they are in the nature of expenses about which minds might differ.

The business expense allowance is the next topic, commencing at 203. Then that goes to 208. Again, the only point I draw attention to is the debate between experts as to how one might characterise those things. Again, they are matters of the judgment. Then under the heading “Credit card reimbursement” at 3554, commencing at 209, at 210 on 3555 her Honour identifies Mr Gower’s conclusion at about 28 that the appropriate figure was 22,937 as opposed to the 28,000 figure, which was implicit in that alleged representation and about two lines down refers to Mr Russell’s figure of 25,720. Her Honour says:

What is clear from the experts’ evidence is that some part of the amount for this item should not have been added back, however it is not necessary to decide the specific amount because of the conclusion I have reached as to whether Campbell committed a breach -

Then the next paragraph: “Was there a breach?” This is in the context of a warranty. At paragraph 213 her Honour identifies the question at 3557:

The question for decision in relation to the estimates of the add-backs or non-recurring expenses is whether the plaintiffs have proved Campbell breached -

As to whether he knew the estimates “were inaccurate, incomplete and/or misleading”. Her Honour finds, going over to page 3558, at 217 and 218 – at 217 her Honour generally refers to the warranted items as being “Proprietor’s estimate” – describes that as – she refers to the Oxford English Dictionary as an approximation, a matter of judgment. Then at 218 her Honour concludes:

The evidence establishes that Campbell made the estimates in a less than disciplined manner . . . does not equate to knowledge that the estimates were inaccurate -

in relation to any of them. That is not a finding which was overturned. So that is a factual finding.

The relevance of that in the overall scheme of things is you did not breach the contractual warranty unless it was proved that you, Mr Campbell, had knowledge that there was an inaccurate estimate. What he negotiated, Mr Weeks, was a warranty which depended on proving lack of knowledge.

GUMMOW J: Brazen deceit.

MR BANNON: Yes. In other words, he was satisfied in his commercially negotiated contract with a warranty as to the accuracy of those figures subject to it being proved, one, that it falls to the knowledge of Mr Campbell and, two, that it had a value limited above that and that is what the terms of his offer were; that is, his offer was that warranty be negotiated. Despite that – and this is our short point on this on the appeal – the Court of Appeal said there was an absolute representation unqualified by reference to anything in the contract, and we say that cannot withstand a consideration of the contract generally and, in particular, the terms of the contract.

GUMMOW J: The Court of Appeal did not reverse that finding in paragraph 218 as to absence of knowledge.

MR BANNON: No, it did not reverse that.

GUMMOW J: So they were not routing their finding as to liability in the contract, they could not.

MR BANNON: No.

GUMMOW J: So it was the Fair Trading Act or nothing.

MR BANNON: That is right.

GUMMOW J: And then you say, in looking at the Fair Trading Act questions, they did not look at it adequately.

MR BANNON: Did not look at it, yes, exactly. Then on the topic of the add-backs - - -

HAYNE J: In addition to what Justice Gummow was putting to you, the Court of Appeal rejects the propositions at 3568, paragraph 236, on the misleading or deceptive limb of the case, do they not? A necessary step in the conclusions reached about misleading and deceptive conduct is a rejection of the propositions at paragraph 236, is that right? Rejection of the proposition “no reliance upon the representation made before entry into Share Sale Agreement by reason of Weeks’ conduct in abandoning his quest for supporting information”, et cetera.

MR BANNON: That is so, yes. It is that evidence which is the key to set out there in paragraph 236, which is the concession in cross-examination, he gave up and chose to rely upon the contract. It is that passage of evidence, which appears set out in 236 right over to the end of it, on which we rely and on which the trial judge relied.

HAYNE J: That is 237 to 238 is the summation of what is seen by the trial judge as being the effect of the slab of the evidence, I think, is that right?

MR BANNON: That is so, yes. Then the sales estimate matter is dealt with by her Honour commencing at paragraph 239, referring to the report and following. At 3593, paragraph 259, her Honour says that he knew by December that the estimate was out by eight per cent. So that was an example of knowledge in relation to that aspect.

Her Honour at 260 says there were issues about whether that representation was continuing, but even if it was, her Honour finds there is no reliance and in particular refers at 261 to 264 to material in the agreement. Paragraph 263, again the fact it was an estimate and paragraphs 268 and 269, the availability of legal advice. If I could then come to the Court of Appeal’s judgment, his Honour Justice Giles’ judgment and agreed by Justice Basten. At paragraph 28 at page 3799.

GUMMOW J: It is really paragraph 269, is it not, of the primary judge, the critical position? This is on reliance, is it not?

MR BANNON: Yes. That, plus what her Honour had said previously in relation to it.

GUMMOW J: Yes. Was her Honour’s conclusion at 269 overturned in the Court of Appeal?

MR BANNON: As to reliance, yes. That commences at paragraph 48 at 3809. That process is reached, as I say, commencing at paragraph 28 on page 3799. His Honour refers to the fact that:

The trial judge was not satisfied that the add-backs representation had been made.

He referred to the fact that he understood it was an estimate. At 33 his Honour sets out - - -

GUMMOW J: Slow down for a minute, Mr Bannon. Let us look at paragraph 48 because you have to overcome it. What is the reasoning structure of it? It seems to suggest that there is some inference that has to be displaced. What is the inference? Inference from what? Because they were calculated to induce Mr Weeks to purchase?

MR BANNON: It was a finding of fact that he did not rely based on his evidence, but the process is discerned from the paragraphs which preceded it, as we read it.

GUMMOW J: What is the reference to Justice Wilson? In Gould v Vaggelas, is it?

MR BANNON: Yes, paragraph 41.

GUMMOW J: Gould v Vaggelas is not a Trade Practices Act case, is it?

MR BANNON: No, but the steps briefly; at paragraph 33 his Honour sets out the extensive trial judge’s reasons. A notable admission is the non-reference to the paragraph 268, I think it was, in her Honour’s reasons which referred to legal advice. It is paragraph 33 of the Court of Appeal judgment that lists - - -

GUMMOW J: I am not finished yet, Mr Bannon. I might be slow-witted, but I hope I am not dimwitted. Gould v Vaggelas is a famous case about deceit. What on earth has that to do with the situation in which we are looking at conduct for the purposes of the Fair Trading Act where there is a finding of absence of deceit anyway, deceit being linked back into the contract claim which cannot work? Now, what is going on?

MR BANNON: We say it does not have anything to do with it. At 3800 at paragraph 33 his Honour lists the various reasons given by the trial judge or in summary. One thing his Honour does not list is the trial judge’s reference to the reliance on legal advice.

HAYNE J: But the first two lines of 33:

The trial judge gave extensive reasons for her conclusions that Mr Weeks had not relied on –

and you get the negation of that at 48. Relied on these representations to do what?

MR BANNON: Enter into the agreement as their conclusion and enter into an agreement which has warranties which were inconsistent with the representation.

HAYNE J: Well, there is the difficulty, is there not? Beneath the detail is that not the root point which you have to get home?

MR BANNON: That is right. In other words, what they found was a man enters in the belief that certain figures are absolutely accurate and the belief in that he enters into a contract which says “I am happy with a remedy in which I only get a remedy if they do not have to be absolutely accurate and I only get a remedy if you know they are not accurate”. They say there is a causative relationship between that. That is a remarkable outcome if it is true and in the face of a trial judge’s finding which is to the contrary of that it is just an outcome which beggars belief.

HEYDON J: This paradox you have just put, was that put to Mr Weeks for his consideration, this radical internal - - -

MR BANNON: No, not in those terms.

HEYDON J: - - - internal inconsistency in his position?

MR BANNON: No, but what was put as I say, namely that you could not get satisfaction so what you decided to do was instead go for the contractual warranty and that is what her Honour found and her Honour took account of all the facts and circumstances. She recited the terms of the contract, recited with qualifications and recited the entire agreement clause. But the way I framed it, no, it was not put squarely. But what we say is against a factual finding for an intermediate Court of Appeal to say “I am going to overturn that” by reference to the contract by saying because it is in the warranty that confirms reliance, that is an impermissible course, without at least taking into account for consideration that inconsistency which I have identified and they completely overlooked that inconsistency, we respectfully submit.

HEYDON J: You were at the appeal. Did you put it to them?

MR BANNON: Yes, we did. Page 3769, paragraph 10. It is a supplementary submission.

HEYDON J: Yes, I am sorry to be so.....but I just get the impression the Court of Appeal was overwhelmed by detail and in a way your argument has overlooked a key point perhaps because of this detail. That submission of 4 October, 2007 that is a further note; is this something that came along after the oral argument?

MR BANNON: The way in which this case proceeded was that our appeal dealt with the oppression case, and that was set down for hearing. I think subsequent to the setting down, or perhaps there was a delay in filing of submissions in support of the cross appeal and there was a debate as to whether or not it could practically be heard all on the one day. One day was spent on the oppression case and there was a debate whether it was necessary to go on to the cross-appeal depending on the outcome of the oppression suit. Full argument was heard on the oppression suit and then the Court of Appeal, I think at the end of the day – I cannot remember whether it was a subsequent day – said, well, let us go and hear the cross-appeal and without the decision being made on the oppression suit. That came along later. I cannot remember if we had another day or another half a day – another day – but there was an awful lot of time spent the next time dealing with the breach of warranty claims. To be frank, there was not a huge amount of time that dealt with the section 52 claim and perhaps I do not know how to say this other than that Mr Simpkins obviously put the point in written submissions. There was not a lot of attention that dealt with it. We perceived, rightly or wrongly, that because it was trying to overturn a finding of fact with the difficulties that involved, then we responded in kind. I cannot remember whether the further note was at the request of the court. It was decided either at the hearing or at the request of the court to address certain matters because we ran out of time and so those matters were put in. The focus of attention, no doubt - - -

HEYDON J: The hearing dates were 8 August and 2 October 2007. The note of 4 October is a note handed in by leave granted at the very end of the hearing, I presume.

MR BANNON: I think so, because we just ran out of time to deal with everything in response. Then there was a subsequent note by the respondents. If your Honour has a sense that not much time was spent on this, your Honour is right. There was a massive amount of time spent on oppression and a massive amount of time spent on breaches of warranty and the interstices of that detail, and we put this point, and it may explain how the mathematical error arose. The court did not come back to us on the particular matter.

FRENCH CJ: It is always dangerous, I suppose, to try to erect approaches to fact finding into matters of propositions of principle. But you were talking about the weight to be given to the contractual warranties and that that informs the correct approach to be taken to the characterisation of the overall conduct as misleading or deceptive and also the question of reliance. But I suppose on another approach one might, using a simplistic analogy, say you are in the shop door. Suppose you are induced into the shop, as it were, by a lie or by a falsehood and, even though you actually see the product that you are buying and you know the true price that is being charged for it and so forth, in the sense the falsehood is put to one side, there is a causal relation between a representation that got you into the negotiation process, can one say, if that be a proper characterisation of the facts, there is a misleading statement upfront and then you go into a contract which contains these warranties and there is this other history around it, that it is not necessarily correct to say that you have just got to give great weight to the warranties and in a sense put the onus on the person who seeks to put them to one side, but rather, you have to show that the misleading statements that got them into the negotiation process are no longer operative?

MR BANNON: That comes back to the question, as we say, that, as the trial judge found, this is provided as an estimate. His evidence was, as her Honour accepted, “I couldn’t make head or tail of this and so I said I wanted a warranty”.

FRENCH CJ: That is the nature of the content of the representation. I was putting it at a more general level than that.

MR BANNON: But related to that, in the very context of trying to make head or tail of the material, he accepted he initiated the warranty discussion.

HAYNE J: But all this in the context of a whole agreement clause.

MR BANNON: Exactly.

HAYNE J: The whole agreement clause is largely ignored. L’Estrange v Graucob [1934] 2 KB said whole agreement clauses work. That is the contractual footing from which you start. Where there is pre-contract statement made which is false, what account is to be taken, not simply of the bare fact that there are express warranties – that may leave open a very lively debate about the effect of the earlier statements – but where there are express warranties and an express agreement, that is your lot; that is all there is, and this is the whole agreement?

MR BANNON: Obviously the impact of it can vary from case to case, but in a case where the warranty is the very subject matter of the alleged pre-contractual representation and that it is in more qualified terms than the Court of Appeal found, the whole agreement clause has, we would say, a determinative effect subject to some extraordinary piece of evidence.

FRENCH CJ: When you say “determinative effect” in this context, how does that work legally against the statute?

MR BANNON: The statute refers to norms of conduct.

FRENCH CJ: Out of which you cannot contract.

MR BANNON: Out of which you cannot contract, but the conduct about which complaint is made is being induced to enter into a particular commercial agreement and that one has to distil out of that conduct a part of the conduct which is said to be misleading. If the conduct is the part of negotiation of a warranty which includes as part of its terms the benefit of it but all the qualifications of it, including the whole of contract clause, there is nothing offensive about approaching the contract in those circumstances as effectively determinative and, indeed, it is a promotion of good norms of conduct. The Act would not promote norms of conduct involving good commercial behaviour if you could happily negotiate a warranty on the one hand which has got various qualifications and say, “Look, I see those figures in there. I’m going to ignore those qualifications and say I rely on it as a part of representation”. That does not assist the purposes of the Trade Practices Act.

KIEFEL J: Reliance on the entire agreement clause was pleaded in the points of defence. Was it relied upon in argument before the trial judge?

MR BANNON: I do not know that there is a specific reference made to the whole agreement clause. There is certainly reference made to clause 7, which says there is no other representation, and certainly her Honour sets out the whole agreement clause, but I do not know that there was anything specific - - -

KIEFEL J: There is no reference in either her Honour’s reasons or that of members of the Court of Appeal to this point.

MR BANNON: No. I think the only point we make in relation to the - I mean you did not with a factual finding where we have the evidence where he says I was happy to take the contract. It embraces that within it.

KIEFEL J: Was it put to him?

MR BANNON: No.

KIEFEL J: The clause was not put to him.

MR BANNON: No, but that is where we come back to - that may be one thing if we lose on a factual finding for the trial judge, that may be a point of significance, but in circumstances where we win on the factual finding what is used against us is the contract to overturn it. It is a bit unfair on us for it not to be referred to. Or perhaps I should not say unfair, we say an error.

Paragraph 45 is the passage of the judgment of the Court of Appeal at 3807, which we say involves error. The very last line on that page “Obtaining the warranty suggested reliance”; well, it cannot suggest reliance on the absolute truth of a representation.

HEYDON J: No doubt these considerations never entered Mr Weeks’ head, but of course there is a fundamental difference between success under section 52 and success for breach of warranty. You do not have to prove reliance for the latter. It is possible that an intelligent, well-informed business person might say, “Well, I will take the option, which means I have to prove fraud and there is a limit, because at least I have not got to prove reliance”. In a way Mr Gleeson’s client is running an alternative case. He may fail on one case which has some ingredients, but succeed on another case that has different ingredients and your argument that one automatically displaces the other, does it not have to grapple with that problem?

MR BANNON: In this case it does not automatically displace. I mean we start with the trial judge’s findings that there was no reliance. I keep coming back to the fact that the Court of Appeal says, “Hang on a minute. We look at the contract and that actually supports reliance, contrary to what the judge found”. Our simple point is that you cannot say that and not take into account all the terms of the contract. What your Honour puts to me may be more difficult if we did not have the benefit of the factual findings to start with. But where we have the benefit of the factual finding reliance and what is put against us is this fact and circumstance of the contract, you cannot rely on the fact and circumstance of the contract without taking the price with which that warranty is given.

HEYDON J: Normally, reliance is pre-eminently a credit question because it depends on internal mental reasoning, but here there is no credit question apparently. The trial judge’s reasoning does not seem to be linked to any judgment of Mr Weeks as a witness.

MR BANNON: Not in express terms, but it is a rejection of his affidavit evidence or the argument put. Your Honour makes a finding based on all the evidence. At paragraph 48 his Honour says:

in my opinion the representations remained causally operative.

At 49 his Honour says:

It is then necessary to return to the making of the representations and whether they were incorrect –

and this is where his Honour refers to:

Both representations were through the same document, and the EBIT figure was affected by the non-recurring expenses which Mr Weeks was told was Mr Campbell’s estimate (“you know, plus or minus a few thousand dollars”), and so I conclude that the lack of satisfaction was as to both representations.

Paragraph 51:

But it does not seem to me that, other than at a pleading level, being told that the figures were estimates negated misleading or deceptive conduct by their provision. That they were estimates was relevant, but representations were still made. Pleading points were not overlooked in the trial, but as a pleading point I do not think this was of substance when the document spoke for itself and the qualification as an estimate was relatively slight.

With respect, we say this involves error because – and again failing to pay regard to the terms of the contract. The compartmentalisation into, in effect, was there – let us assume there was a representation made. Let us ask the theoretical question in effect: did the terms of the contract mean that there cannot be reliance? We decide no. Then next look at whether there is a representation in those terms compartmentalises in a way which is foreign, we respectfully submit, to what – one has to look at whether there is misleading conduct which is causative of loss. You cannot divorce, we respectfully submit, whether the representation as pleaded was made from the circumstances in which it was made, one of which was “I cannot get satisfaction, I need a warranty” and the warranty is produced which expressly is limited to knowledge and in terms refers to proprietor’s estimate. When one looks, as I said, at the nature of the conclusions made by both the trial judge and the Court of Appeal as to those non-recurring expenses, they are estimates in a sense, as her Honour found, involving matters of judgment.

HEYDON J: This present – I am sorry.

MR BANNON: I am sorry, but I was just going to finish. What you have pleaded is a representation of facts, not a representation of opinion which was not honestly held or an opinion for which there was not a reasonable basis – to find confirmed or reinforced a warranty which has the qualifications of estimate and knowledge, an alleged representation of a piece of paper which is provided on an uncontested factual finding at the same time as being said these are estimates, you must understand this – and the objective facts demonstrate that they involve matters of judgment, we submit again does not survive an analysis of the contract.

HEYDON J: Was the only finding of breaches, as it were, by Justice Bergin the difference between the 100,000 and 92,000?

MR BANNON: That related to the December sales estimate – there was a breach.

HEYDON J: Was that the only breach?

MR BANNON: Yes. Well, sorry. On the add-backs her Honour made no finding that Mr Campbell did not hold the estimate to be true, albeit she found on the basis of expert evidence that the figures were non-recurring.

HEYDON J: So the only arguable misleading conduct that on her findings exists was the difference between the 100,000 and the 92,000?

MR BANNON: Yes.

HEYDON J: According to the Court of Appeal paragraph 49 the question is whether:

the share would not have been purchased at all or would have been purchased for a lesser price if Mr Weeks had known the true position.

So you have to say, “Look, if you had known that actually the true position was $8,000 worse than you thought, would you have gone ahead”, the question then arises whether Mr Weeks does not look rather shabby in the witness box if he says, “I would not have gone ahead” – where we are talking about $8,000 on a purchase price which everyone knows is a massive, confusing, imponderables – estimates. But Justice Giles is factoring in, I suppose, as well, what you say are his errors on the add-backs, so that the breach would be greater if you are looking at this point in the reasoning of the Court of Appeal.

MR BANNON: Yes, I think in fairness to his Honour, that is not the fully developed consideration of that point. That comes at paragraph 76 and the paragraphs leading into paragraph 76 at 3818.

HEYDON J: Are we to take paragraph 49 and thereabouts as being a kind of freestanding conclusion as to liability only related to an $8,000 difference?

MR BANNON: I would not think so, your Honour. I think 49 is really more - - -

HEYDON J: But we are to take 49 as being read with 76?

MR BANNON: Paragraph 49 is perhaps an introductory paragraph to what ultimately ends up being 76. Because his Honour finds that the add-backs representation was made, notwithstanding it was only pleaded as an actual fact and that that was misleading, not because he did not hold the estimate, but because it was incorrect in a couple of respects. His Honour then on that says, “Well, where do I find some evidence as to whether that would have made a difference?” and that is where we get into the interstices of saying, well, he says add-backs have been more than 20,000, as referred to in 76, and the second point, dealing with your Honour’s point, just looking at 76 at page 3818:

The evidence included that Mr Weeks would not have purchased the share if add-backs of approximately $20,000 or more were erroneous –

Purely on add-backs point, to make that relevant, you have to make finding that there was a representation as pleaded found, firstly, and secondly, it was misleading, and that is referring to a paragraph of an affidavit he filed, as is correctly pointed out by Court of Appeal, which was on the subject of cross-examination. So that is the first part. The second part is:

and that he would not have purchased the share if he had known that the estimated December 2004 sales revenue and EBIT were overstated as in substance they were.

So that second part of that sentence deals with the December sales estimate representation. On that aspect, the Court of Appeal has and my learned friends have the benefit of her Honour’s finding that Mr Campbell knew that the sales estimate was wrong by 8,000 prior to the entry into the agreement. Her Honour found that Mr Weeks did not rely on the sales estimate representation but relied on a contractual warranty. But the problem with that sentence – and this again does fall within the vitiating jurisdiction – that paragraph which that is referred to – and we detail this in our written submissions – is the paragraph in which he says “if I had known two things, namely, one that the sales revenue was overstated by 7,000 and that the EBIT was out by 25,000 for December 2004, I would not have gone ahead”. So it is a compound expression, and there is no finding anywhere to support the later part. There is a finding to support the 7,000, but no finding anywhere to support the EBIT part. That is why I say it is hard to read 49 in isolation in terms of causative effect.

FRENCH CJ: .....to the asserted representations not necessarily contain or rely upon statements of future matters. I mean, the characterisation of something as non-recurring when one thinks about it is really a prediction about what is going to happen in the future in terms of necessary expenses of the company, I suppose.

MR BANNON: Yes.

FRENCH CJ: It was not really addressed in that way, was it? It was rather a question of current characterisation?

MR BANNON: Yes, exactly. That is how it was pleaded.

FRENCH CJ: There was no implied thing. It was just that this was a true or false, the characterisation as non-recurring?

MR BANNON: Exactly. Her Honour said, at the time that piece of paper was handed over he was told, “These are our man’s estimates”.

FRENCH CJ: When they say “estimates” then, that does import, even though he is looking historically, that does import a statement of the future?

MR BANNON: A judgment, yes.

FRENCH CJ: A judgment about future events.

MR BANNON: That is right, which is what her Honour found and that is the importance of the factual finding that he was not showing not to have held that estimate and that is the compounding difficulty of paragraph 51 of the - - -

FRENCH CJ: Everything else involves that kind of statement, does it not?

MR BANNON: Yes. So paragraph 51, having really dealt with reliance in a funny sort of reverse order, when the Court of Appeal says, “All right, we think that in a sense, pleading points.....points” it is not an insignificant point. I mean, the fact is you could not fairly plead – sorry, the pleading was an out-and-out fact and that was perhaps, I suppose, the perceived advantage over the contract of that pleading, namely, you did not have to prove knowledge but her Honour found that representation just was not made and to the extent of paragraph 51 it is opaque as to why it is the pleading point is not a good one and her Honour’s finding that it was not made is not a good one, but particularly so in the terms of the two facts, namely, he was told they were estimates at the time they were provided, and they were in that nature anyway, and, secondly, as they found, if you are going to rely on the contract the contract reinforces the fact that they are estimates and require knowledge for breach.

FRENCH CJ: There was no indication of the Fair Trading Act equivalent of 51A, was there?

MR BANNON: Not on the add-backs representation. We submit, shortly, that the add-backs representation conclusions are flawed at a number of levels, for the reasons I have indicated. That, if your Honours find in our favour on that, then one does not have to get into this more turgid area as to the calculation error, but if I can just briefly, and we have set this out in writing in some detail and I will not spend too much time on it, but on that point, at paragraph 58 at 3812 the beginnings of the error appears in this paragraph:

Going finally to credit card reimbursement, on reviews of Mr Campbell’s credit card expenditure Messrs Gower and Russell identified private expenditure which should be added back because non-recurring expenditure; in Mr Gower’s case $22,937 out of the $65,000 –

so it is not out of the 65, it is actually out of the 27,083 which is the pleaded amount because the 65 is the annual amount and the 27 is the five-month amount, versus Mr Russell’s case of $25,720. That was our expert’s opinion - and quotes that part of the trial judgment. Then one goes to paragraph 61 at 3814:

The trial judge’s ultimate conclusion turned on Mr Campbell’s knowledge, an ingredient in the warranty. It is an ingredient in misleading or deceptive conduct so far as the figures were estimates - - -

FRENCH CJ: What exactly does that mean? Does that mean that he is offering the estimate with no reasonable basis?

MR BANNON: It may be said I am being unfair, but I do not see how one can reconcile paragraph 61 with paragraph 51. Paragraph 51 recognises that the pleading did not qualify by estimate but as an absolute fact. The reasoning in 51, we respectfully submit, is opaque as to how that problem is overcome. One comes to 61 and it almost seems to be treating the representation as an estimate and saying that - - -

FRENCH CJ: You only get into that if you are looking at implied representations about state of mind backing a more reasonable grounds or knowledge of reasonable grounds or whatever or inquiry or whatever the other array or investigative array of implied representations can be connected with the making of an opinion.

MR BANNON: But that was not the case put on their backs.

HAYNE J: As I understand it, your case requires connection and comparison between, first, paragraphs 16 and 17 of the reasons which identify the representations in absolute terms, see especially paragraph 17.

MR BANNON: Yes.

HAYNE J: Paragraph 51 and, as far as we have got thus far, paragraph 61.

MR BANNON: Yes.

HAYNE J: Is that where you have got to so far?

MR BANNON: That is right. Then paragraph 62, his Honour says:

On the trial judge’s findings, the figures were incorrect in relation to obsolete inventories ($2,600) –

Yes, we accept that –

and credit card reimbursement (circa $40,000) –

No, and that is the error; the actual difference is 1,300 –

but not the general expense allowance or the business expense allowance. On the findings, there was misleading or deceptive conduct; the obsolete inventories figures was not a non-recurring expense at all, and the figure for credit card reimbursement was excessive well beyond an allowance for estimation.

Again, one comes into the problem with that whole issue about estimation and opinion was not part of the case on misleading conduct. Then at 3815, can I just refer to the credit card – again this is part of the minutiae, but can I just draw attention to it. In paragraph 67, so far as that debate between Mr Russell and Mr Gower figures, his Honour says:

As to credit card reimbursement, Backoffice submitted that Mr Russell’s figure for private expenditure was founded on an unreliable classification of credit card debits made by Mr Campbell. The reasons for unreliability, apart from Mr Campbell’s general credibility, were quite petty, and the difference between Mr Gower and Mr Russell was not of great significance. I do not regard them as material to an estimation.

We submit that implicitly is a finding that the criticism of Mr Russell’s figure is not justified, hence Mr Russell’s figure is accepted, hence 25,570 is the correct estimate which comes off 27,000, which is the 1313 figure. Then there is a reference in paragraph 68 to adding 10,000. Again, it is not 10,000, that should be 4,617. Then there is a conclusion in relation to the EBIT misrepresentation, and I think everyone agrees that just follows the outcome of the add-backs because the allegedly misleading nature of the alleged representation relates to the add-backs figure.

Then on the December 2004 estimates point, this appears from paragraph 72 through to 76, there is, as I say, a simple answer to this which does go to the monetary side of it, but it is perhaps clearer than the other point, or at least the other point is clear but perhaps it takes a bit longer to explain. In 76 what his Honour relies upon, as I have said, in the second part of that first sentence:

and that he would not have purchased the share if he had known that the estimated December 2004 sales revenue and EBIT were overstated as in substance they were.

is a reference to the evidence of Mr Weeks which appears, if I can take your Honours to it briefly, at volume 6 at page 2682.

It is paragraph 92, and that says:

At the time of entering into the Share Purchase Agreement, I was unaware of the following matters:

(a) that the Sales Revenue Report overstated the sales revenue of Healthy Water for December 2004 by $7,147 –

Just on that, just to be absolutely clear, we accept that her Honour made a finding that it was so overstated, not at the time when the sales report was given – at least Mr Campbell became aware of that between December and before the date of the agreement – and –

(b) that the Sales Revenue Report overstated the earnings before income tax . . . $25,000.

That was one of the pleaded misrepresentations which was never found. No finding. I do not think the question was even put to Mr Campbell that he appreciated there was that overstatement. So that had not been found. Paragraph 93, “Had I been aware of these matters, I would not have” done X,Y and Z. So the very short point in terms of vitiating this aspect of the finding is that the evidence relied upon by the Court of Appeal on its face, and accepting everything else in their favour, it was only established as to necessary pre-condition one of two, namely, (a) the $7,000. It was never established in relation to (b). So again, that is just a simple error which - - -

HEYDON J: It shows you the artificiality of trials taking place on this complicated written evidence where really, if it was done in the witness box in front of a jury, it would come out quite differently.

MR BANNON: Yes, and this Court has commented on that ex-post-facto type evidence. But again I come back to, we have a factual finding in our favour by the trial judge. What the Court of Appeal has done has been to rely on an agreement and this type of evidence. If they have made an error in either step – and in this case it is an obvious error, with respect – then that vitiates the finding and one reverts to, and there is no reason otherwise but to reinstate the trial judge’s finding in that respect.

The other points, which we have put in our written outline I do not think I need to develop further in relation to the sales estimate, are to say that the same issues which arise in relation to the sales estimate equally arise in relation to the EBIT, namely, the finding of a representation in unqualified terms in circumstances where there is a warranty, we submit contradicts the conclusion which the Court of Appeal found. There is a little debate between us as to whether or not the sales estimate is actually picked up by one of the contractual warranties. We say it is not. Our learned friends say it is. It does not matter one way or another. If it is not, as we said, then it confirms lack of reliance on the fact that he did not bother putting it in. If it is, it falls squarely back within our primary argument in relation to add-backs, namely, how could there be reliance in those circumstances? So that deals with the issues we raise on the misleading conduct.

The other issue which we raise on the appeal is the question of the level of damages. In other words, if, contrary to our submissions that the misleading conduct did exist and was causative, we have indicated our position that the finding that the whole of the losses of 850,000 attributable to the conduct should not be accepted, one accepts that in a number of cases – Henville v Walker – there has been consideration of this issue, and whether there are bright lines that can be drawn, can I just put these brief submissions on this topic.

FRENCH CJ: There are not too many bright lines around in this area, are there?

MR BANNON: No. I accept that, and I accept that - - -

The other points which we have put in our written outline and I do not think I need to develop further in relation to the sales estimate are to say that the same issues which arise in relation to the sales estimate equally arise in relation to the EBIT, namely the finding of a representation in unqualified terms in circumstances where there is a warranty, we submit contradicts the conclusion which the Court of Appeal found.

There is a little debate between us as to whether or not the sales estimate is actually picked up by one of the contractual warranties. We say it is not, our learned friends say it is. It does not matter one way or another. If it is not, as we said, that just says it confirms lack of reliance, the fact that he did not bother putting it in. If it is, it falls squarely back within our primary argument in relation to add-backs, namely, how could there be reliance in those circumstances. That deals with the issues we raised on the misleading conduct.

The other issue which we raise on the appeal is the question of the level of damages. In other words, if, contrary to our submissions that the misleading conduct did exist and was causative, we have indicated our position that the finding that the whole of the losses of 850,000 are attributable to the conduct should not be accepted. If one accepts that in a number of cases - Henville v Walker there has been consideration of this issue and whether there are bright lines that can be drawn. Can I just put these brief submissions on this topic?

FRENCH CJ: There are not too many bright lines around in this area, are there?

MR BANNON: No, I accept that.

GUMMOW J: Whereabouts are you in your written submissions?

MR BANNON: It is paragraph 62. It is really summarising paragraph 64, that the losses relating to the zero value were not connected – there was not a sufficient connection between the losses associated with the breakdown of the relationship. The very short point is, as his Honour Justice Giles himself recognised, the misleading conduct did not cause – there is no finding that the misleading conduct caused the breakdown of the relationship. In other words, absent the misleading conduct, there is nothing to suggest that the breakdown of the relationship would not have eventuated anyway.

His Honour says, well, if we are right that it was causative, he ended up in a contract and ultimately there was a breakdown in the relationship and all of that flowed. We respectfully submit that there must be some connection – Henville v Walker supports the view that there must be some connection between the misleading conduct and the loss which is said to have been suffered.

FRENCH CJ: Eggshell relationship.

MR BANNON: We respectfully submit that eggshell is not the test. I recognise the facts in Henville v Walker went some way towards eggshell. But we do say, if one looks at a statute which is designed to provide fair compensation to attribute losses attributable to the breakdown in the relationship which is not related to misleading conduct and perhaps a fortiori when one looks at the at the amounts involved, what are ultimately found to be misleading conduct figures, we are talking about pretty small amounts of figures, it is not a compensation outcome, we submit, which is consistent with the norms of the Act.

GUMMOW J: It may be a section 87 situation of some sort. I am talking about the federal Act.

MR BANNON: Yes.

GUMMOW J: That was not in play here, was it?

MR BANNON: No.

GUMMOW J: There is a State equivalent of section 87.

MR BANNON: There is an equivalent section, yes.

HAYNE J: It was pleaded, was it not? Was it not pleaded that there had to be an undoing?

MR BANNON: Yes. I think part of the relief sought was to undo the contract or set it aside.

HAYNE J: The pleading reads as though damages for misleading and deceptive come in at the very heel of the hunt and that we are now focused only on that having regard to a wide variety of circumstances in the manner of the conduct of the litigation.

MR BANNON: Yes. Section 72 is the section and order 17 sought, at page 5 of volume 1, was that the first defendant refund to the first plaintiff the sum of 850,000 pursuant to section 72; 16 was pursuant to section 72 ab initio order declaring the contract void and 18 was the damages relief.

HAYNE J: I think that was persisted in in the Court of Appeal, was it not, in the notice of appeal?

MR BANNON: That is right.

HAYNE J: First, whether the chief relief, but the first relief sought was unpicking.

MR BANNON: His Honour Justice Giles determined that it would be inappropriate to set aside the contract, and I think we have referred in our written outlines that part of the reason which informed that decision and inappropriately set it aside was related to the fact that the breakdown in a relationship could not be attributed to misleading conduct and we say that same reasoning we inform what would be a fair compensation order or damages.

HAYNE J: But the whole undertaking had been long since sold.

MR BANNON: Yes, that is so. The only other point we wish to make on the damages point is our learned friend says – well, he obviously maintains strongly the 850,000 damages order, but says at the very minimum the damages order should be 410,000 and then proceeds to say but of course the 850 is right. But the 410,000 base minimum put forward is based on Justice Basten’s finding that the true value of the business was 410,000, and that appears at volume 9, page 3870 at paragraph 220.

What that refers to is a debate – perhaps I should take your Honours back to 216 at 3868 - under the question of the valuation of the shares. There were varying views of the experts as to what was the proper value as at 24 January. In the second sentence at 216, his Honour says that Mr Gower said 410, Mr Russell said 580, “adopting an historical basis” and in 217 refers to Mr Russell adopting an alternative approach reflected budgeted increase levels and then his Honour – jumping over to 220 – says I adopt 410 and Justice Giles agrees with the 410 figure. The only additional point I wish to make in relation to that is Mr Gower’s figure - - -

GUMMOW J: What order do you seek from us on this damages question?

MR BANNON: Just that the order be set aside and it be remitted, not that this Court assess damages. I mean, if we succeed on the primary point on liability, obviously - - -

GUMMOW J: I understand that.

MR BANNON: But we do not invite the Court to reassess. We say we should go back.

GUMMOW J: I am going to continue to use the federal sections. We are talking about damages under section 82, we are not talking about 87, that is not in play, is it?

MR BANNON: No.

HEYDON J: Which paragraph actually asks for a remission to the Court of Appeal? I am on page 3966. Your order 5 asks that order 3 of the Court of Appeal be set aside, period. I see – 10. That is relation to the claim for breach of warranties. It does not relate to a dwarfed claim for section 82 damages.

MR BANNON: Yes, I think your Honour is right, we have not actually subdivided success on part of the appeal, so 5 we could say should be remitted. Your Honour is absolutely right, we have not subdivided. If we succeed only on the damages amount, we have not got an order specifically sending that back, but that is what we do ask for if we do not succeed on our primary claim, which is obviously our primary claim.

HEYDON J: This is not reflected in your written submissions either. I mean, it is a matter for the Chief Justice perhaps, but should there not be some formal recording to what you do seek?

MR BANNON: Yes. Could we seek leave to add that as an amended – I will provide a piece of paper – amended notice of appeal which provides in effect that if the appeal is successful only on setting aside the damages award, that it be remitted for the reassessment of damages?

GUMMOW J: Under what section, you see? That is the whole vice of this. There is a very sophisticated set of remedies in this legislation. I am not saying you are at fault. The Bar will not get their mind around it. They just gabble this word “damages” and put it in a pleading at the end. It is not good enough.

MR BANNON: I think what is pleaded is - - -

GUMMOW J: We now get the mess we are in at this moment. Now, you think about it overnight.

MR BANNON: I will. Subject to anything overnight which may be very short additions to what I have said, that would address the matters I would propose to deal with on the appeal. Obviously, that does not address anything on a number of notice of contention matters or obviously anything on oppression issues. Sorry, if I have got time, the only additional point I want to make on the damages was, as an element of the unfairness of the 410 minimum figure, we would respectfully submit, is that that 410 figure was based on experts identifying what were future maintainable earnings based on historical past.

The basis on which Mr Weeks bought it was an acceptance that notwithstanding past earnings there was going to be – basically, the critical difference was the additional $300,000 of new business. He said that that was misleading and he did not get anywhere on that 300,000 business, so he was prepared to buy, not on the basis of past future maintainable earnings but on the basis of this 300,000 figure, in effect, which was not going to be misleading.

There is an element of unfairness, we would submit, inconsistent with the Act, to find compensation on a basis that he never expected, because of misleading conduct in a fairly minute degree based on the figures which, if we are otherwise wrong, the Court of Appeal accepted.

FRENCH CJ: Thank you, Mr Bannon. Mr Gleeson, before we rise, in your proposed amended notice of contention in response to the letter from the Court I note that you still raise issues of breach of warranty and also breach of the implied duty to co-operate.

MR GLEESON: Your Honour, we left them in there only on the precaution that a view was taken when the Full Court considered it that they could be done by notice of contention. We are perfectly prepared to do them solely with the leave of the Court under cross-appeal if that is the appropriate course considered by the Court.

FRENCH CJ: You have included everything you want to say in that regard in the cross-appeal notice as amended?

MR GLEESON: Yes.

FRENCH CJ: Yes, all right. We will adjourn to 10.15 am tomorrow.

AT 4.18 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 4 FEBRUARY 2009