FEDERAL COURT OF AUSTRALIA

Loyola v Cryeng Pty Ltd [2012] FCAFC 71

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    The first and third orders made on 23 August 2011 be set aside and, in lieu thereof, there be an order that the first and second respondents pay to the applicant damages in the amount of $50,000.

3.    The first and second respondents file and serve within seven days submissions dealing with the costs of the application and the costs of the appeal.

4.    The applicant file and serve within 14 days submissions dealing with the costs of the application and the costs of the appeal.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Jacobson J

Introduction

1    Cryeng Pty Limited (“Cryeng”) is a company which has, since 1995, carried on the business of design, marketing and manufacture of cryogenic vessels. A cryogenic vessel is one that is used for the storage and transport of liquefiable gases at very low temperatures.

2    Mr George Humberto Loyola (“Mr Loyola”) was, until his resignation took effect on 30 April 2008, the managing director of Cryeng.

3    On 12 March 2008, that is to say, while still holding office as the chief executive of Cryeng, Mr Loyola incorporated a company called Pioneer Cryogenics Pty Ltd (“Pioneer”) for the purpose of engaging in the design, marketing and manufacture of cryogenic vessels in place of, or in competition with Cryeng.

4    The primary judge (Stone J) found that before, and shortly after his resignation from Cryeng, Mr Loyola made two representations to customers of Cryeng, the effect of which was to seek to divert business from Cryeng to Pioneer.

5    The representations were described in the proceedings as the Cessation of Business Representation and the Successor Representation.

6    The Cessation of Business Representation was that Cryeng was no longer in the business of design, marketing, manufacture or supply of cryogenic vessels.

7    The Successor Representation was that Pioneer was the successor to Cryeng and had been established with the approval and participation of Cryeng and/or its employees.

8    Air Liquide Australia Ltd (“Air Liquide”) was a customer of Cryeng. Air Liquide issued a purchase order for a 200,000 litre cryogenic vessel from Cryeng on 26 March 2008. The purchase order named Mr Loyola as the contact for Cryeng.

9    Mr Loyola attended a meeting on 8 April 2008 with representatives of Air Liquide including Mr Adam Martin. Mr Martin gave evidence of what was said at the meeting. Mr Loyola did not give evidence. Following the meeting, after speaking with other colleagues, Mr Martin appears to have told Mr Loyola that Air Liquide would cancel the purchase order. Formal cancellation took place in writing in a letter dated 13 May 2008.

10    The primary judge found that Mr Loyola made the Cessation of Business Representation to Air Liquide and that the Representation caused Air Liquide to cancel the purchase order. She awarded damages of $90,000 against Mr Loyola and Pioneer for Cryeng’s loss.

11    Initially, Cryeng had made claims of breach of fiduciary duty against Mr Loyola but those claims were not pursued. Nor, was any claim made for inducement of breach of contract. The damages which were ordered to be paid by Mr Loyola and Pioneer were ordered under s 82 of the Trade Practices Act 1974 (Cth).

12    Her Honour also ordered Mr Loyola and Pioneer to pay damages for $50,000, for damage to Cryeng’s business reputation. The award was made under s 82 of the Trade Practices Act by reason of the injury to Cryeng’s reputation from the making of the Cessation of Business Representation and the Successor Representation to Cryeng’s customers.

13    Mr Loyola and Pioneer appeal against the damages order made by the primary judge.

14    The issues raised in the appeal are within a relatively narrow compass. The effect of the appellants’ submissions in relation to the damages ordered for the loss of the Air Liquide purchase order is that it was not open to the primary judge to find that Mr Loyola made the Cessation of Business Representation in the terms alleged in the pleading.

15    The substance of the submissions made on behalf of Mr Loyola and Pioneer on the Air Liquide issue is that the evidence of what was said at the 8 April 2008 meeting is confined to the terms of Mr Martin’s evidence which falls short of establishing that the Cessation of Business Representation was made.

16    Counsel for Cryeng contend that the approach urged on us by the appellants is incorrect because it ignores the mosaic of evidence from which it was open to the primary judge to infer that the impugned Representation was made. Cryeng also emphasises the failure of Mr Loyola to give evidence and the ability of the primary judge to draw inferences unfavourable to the appellants.

17    The appeal against the award of damages for loss of business reputation turns upon whether any error of principle is disclosed in the primary judge’s approach to the determination of the sum of $50,000.

The terms of the Representations

18    The impugned Representations were pleaded in the Fourth Further Amended Statement of Claim.

19    The Cessation of Business Representation was pleaded in paragraph 31N in which it was alleged that in about March and April 2008, Mr Loyola gave presentations and/or engaged in discussions and communications with customers of Cryeng at which he made representations to the effect that:

… [Cryeng] was no longer in the business of design, marketing, manufacture or supply of cryogenic vessels (Cessation of Business Representation).

20    The Cessation of Business Representation was only one of four representations pleaded by Cryeng in paragraph 31N. Particulars are set out in the paragraph but it is not clear whether the particulars relate only to the Cessation of Business Representation or whether they apply to the other alleged representations.

21    Four particulars are stated. The first is that in or about March or April 2008, Mr Loyola attended and gave a presentation at the Melbourne offices of Air Liquide. It is clear enough from the way in which the case was conducted at the trial that this was a reference to the meeting of 8 April 2008 attended by Mr Martin and others.

22    It is unnecessary for present purposes to refer to the other three particulars set out in the pleading.

23    The Successor Representation was pleaded in paragraph 31R of the Fourth Further Amended Statement of Claim. It was confined to one document, a letter dated 2 May 2008 from Mr Loyola addressed “TO ALL CUSTOMERS”.

24    That letter was said to have:

(a)mounted to or conveyed a representation that Pioneer Cryogenics was the successor to [Cryeng] and had been established with the approval and participation of

[Cryeng] and/or its employees (Successor Representation).

Mr Martin’s evidence

25    Mr Martin gave evidence for Cryeng. His evidence was contained in two affidavits, one sworn on 3 September 2010 and the other on 10 September 2010.

26    In the first affidavit, Mr Martin deposed that in or about early April 2008, Mr Loyola attended a meeting at Air Liquide’s Melbourne offices with Mr Paul Nield and Mr Ken Palmer of Air Liquide as well as Mr Martin “and possibly some other colleagues”. Mr Martin deposed that at the meeting Mr Loyola said words to the effect:-

“I have incorporated a new cryogenic vessel manufacturing company called Pioneer Cryogenics. I have resigned from Cryeng. Most of Cryeng’s other employees have also resigned or will be resigning to join Pioneer Cryogenics, including Cryeng’s vessel engineer, workshop staff/supervisor and some of its fabrication staff. I am not sure what’s going to happen to Cryeng’s fabrication workshop at St Mary’s.”

27    Mr Martin went on to state that Mr Loyola also said at the meeting that Pioneer would be willing to provide Air Liquide with a quote for the 200,000 litre vessel for Botany. This was a reference to the cryogenic vessel for which Air Liquide had placed a purchase order with Cryeng on 26 March 2008.

28    Mr Martin stated his understanding of what Mr Loyola had told him at the meeting in the following terms:

… he wasn’t certain if Cryeng was in a position to be able to build the Botany Vessel.

29    Mr Martin went on to say that, as a result, after speaking to his supervisor and other colleagues, he cancelled the order for this vessel from Cryeng:

… verbally with Mr Loyola and in writing at a later date.

30    The reference to the cancellation in writing was to a letter dated 13 May 2008 from Mr Martin to Cryeng. The letter stated “as per our verbal discussions with Mr George Loyola on 8th April 2008 Air Liquide hereby withdraws & cancels” the purchase order issued to Cryeng for the 200,000 litre vessel.

31    In his second affidavit. Mr Martin said he could not remember the precise words spoken to Mr Loyola at the April meeting but:

(w)hatever Mr Loyola said in the conversation left me at its conclusion with the view that there was uncertainty as to both whether Cryeng Pty Ltd (Cryeng) was to be in the business of supplying cryogenic vessels moving forward into the future and could also supply the Botany Vessel.

32    Mr Martin was cross-examined on the differences between his first affidavit and his second affidavit but nothing turns on this. He was also cross-examined on the words “as per our verbal discussion with Mr George Loyola on 8th April 2008” in the cancellation letter. The cross-examination was as follows:

Mr Pesman: And that means, doesn’t it, that you cancelled the order orally in early April 2008?

Mr Martin: Yes.

Mr Pesman: And probably on 8 April 2008?

Mr Martin: I’m uncertain whether it was the 8th or it was early

Mr Pesman: Well, you say that ‘As per our verbal discussion on 8 April 2008’ in the letter and that’s the most likely date, isn’t it?

Mr Martin: Correct.

Mr Pesman: So as far as Air Liquide was concerned, any arrangement with Cryeng was cancelled on or about 8 April?

Mr Martin: Correct.

The Mosaic

33    The mosaic of facts to which senior counsel for Cryeng, Mr Lee SC, referred was quite extensive. It is not necessary to refer to each and every one of the factual matters. The following six are sufficient.

34    First, as counsel for Mr Loyola and Pioneer fairly conceded, the evidence established that Mr Loyola was seeking to harm Cryeng’s business. He had set up business in competition with Cryeng while still in the employ of that company and he had made approaches to customers of that business seeking to take their business away from Cryeng.

35    Also, as Mr Pesman acknowledges, Mr Loyola did, in a series of emails before and after leaving Cryeng, say many unpleasant things about Cryeng and its senior management. As the primary judge found, relations between Mr Loyola (as well as other senior officers of Cryeng such as Mr de Silva and Cryeng’s majority shareholder, Mr Gilchrist), were corrosive. Relations had been poisoned as a result of a restructure of Cryeng which was proposed by Mr Gilchrist with effect from 1 February 2008.

36    An email to which the primary judge referred dated 2 October 2008 (but wrongly described by the primary judge as dated 10 February 2008) from Mr Loyola to an officer of a related company, Cryeng Thailand, refers to “our revenge” being not only to get Mr Gilchrist out of Thailand “but out of the cryogenics industry altogether.”

37    Second, Air Liquide appears to have informed Mr Loyola on the same day as the Melbourne meeting, namely 8 April 2008, that the purchase order for 200,000 vessels was cancelled.

38    Third, the letter of 2 May 2008 from Mr Loyola to all customers of Cryeng (referred to above at [23]) was held by the primary judge to support an inference, inter alia, that Cryeng was closing down. Her Honour also said that “this belief was in circulation” and was supported by a handwritten letter from an officer of Cryeng, Mr Camilleri, dated 3 May 2008 to Mr Gilchrist which included the following statement:

I was talking with John Biddiscome of Air Liquide a couple of days ago and he was under the impression that Cryeng was closing down.

39    Fourth, the primary judge’s findings demonstrated that Mr Loyola had been guilty of covert behaviour and that he had been reluctant to produce a laptop that revealed the truth about his covert and commercially dishonest activities. Indeed, her Honour’s findings also show that Mr Loyola had given false explanations about the existence of the adverse evidence contained on the computer. The relevant findings are at [67], [73] and [85]-[86] of the primary judgment.

40    Fifth, evidence was given by Mr Ralph Day, the managing director of Cryoquip Pty Limited, a company which manufactures cryogenic pumps and systems as well as components for cryogenic tank manufacturers including Cryeng. Mr Day gave evidence which was unchallenged, that Mr Loyola came to see him in early to mid-April 2008 and told him that a lot of staff were joining him at Pioneer and “I am the only one that can build cryogenic tanks”.

41    Sixth, the primary judge found that in the period from late April to early May 2008 customers of Cryeng were seeking reassurance from management that Cryeng was continuing in business. One customer, Mr Singh of BOC Australia Ltd said, “I was told you weren’t.”

The primary judge’s reasons

42    Her Honour’s critical findings are at [88] and [89] as follows:-

[88] The evidence also supports Cryeng’s claim that Mr Loyola led at least some of Cryeng’s customers to believe that Cryeng was not continuing in the business of supplying cryogenic tanks and equipment and that, in some sense, Pioneer was Cryeng’s successor in this line of business. In at least one case this conduct led to an order placed with Cryeng being cancelled with consequent loss to Cryeng. I accept Mr Gilchrist’s evidence, discussed below, that he was unaware of much of Mr Loyola’s conduct until he saw documents which had been retrieved from the laptop.

[89] The fact that some of the statements made by Mr Loyola might have been literally true is not inconsistent with them being misleading. As I have earlier remarked, in such circumstances context is crucial. The fact that Cryeng might sub-contract aspects of its business does not mean it was no longer engaged in that business. Indeed Mr de Silva agreed that it was accurate for Cryeng to describe itself as a “manufacturer of large scale vacuum insulator storage vessels” notwithstanding that some manufacturing was being done in Thailand by Cryeng (Thailand) Co Ltd.

43    The primary judge went on to say at [90] that in earlier iterations of the Statement of Claim, Cryeng alleged that Mr Loyola’s conduct in seeking to divert business from Pioneer was in breach of his fiduciary duties to Cryeng. She said that in his closing submissions, Mr Pesman all but conceded that his clients would have difficulty in defending such a claim:

However, he cautioned the Court not to elevate its “disapproval” (of Mr Loyola’s conduct) into a finding (that) the representations [were] proved.

44    Her Honour went on to say that she had carefully considered her conclusion with this caution in mind. But she said at [91] that this is not a case where the representations were made in precise and unequivocal language and:

… the message conveyed by Mr Loyola’s words and actions… was significantly influenced by the context in which the conduct occurred.

45    The primary judge then referred to an observation of Lord Halsbury in Aaron’s Reefs Ltd v Twiss [1896] AC 273 at 280-281, referred to with approval by Gyles J in Reiffel v ACN 075 839 226 Ltd (2003) 132 FCR 437 at 478. In that passage Lord Halsbury said:

Taking the whole thing together, was there false representation? I do not care by what means it is conveyed - by what trick or device or ambiguous language…

Whether the Cessation of Business Representation was made

46    Mr Pesman’s essential submission on the appeal was in substance the same as that which he made before the primary judge. Whilst conceding, for the purposes only of the appeal, that Mr Loyola conducted his relationship with Cryeng in the early part of 2008 with a lack of commercial morality, he urged upon us that her Honour was in error in finding the Cessation of Business Representation to have been proved.

47    Mr Pesman focused in particular on the evidence given by Mr Martin of Air Liquide in his affidavit. He submitted that the terms of what Mr Loyola said could not rise above Mr Martin’s evidence. In particular, he submitted that the terms of Mr Martin’s evidence of what Mr Loyola said at the meeting of 8 April 2008 did not establish the pleaded representation, namely that Cryeng was no longer in the relevant business.

48    Moreover, Mr Pesman emphasised the evidence given by Mr Martin of his understanding of what Mr Loyola said to him. This was that there was uncertainty as to whether Cryeng was to be in the business of supplying cryogenic vessels and uncertainty as to whether Cryeng could supply the Botany Vessel which was the subject of Air Liquide’s purchase order.

49    There is some force in Mr Pesman’s submission, which he made with an appropriate degree of precision and succinctness. However, I cannot accept that the primary judge’s findings were affected by any relevant error. There are a number of reasons for this.

50    First, it is well established that the question of whether conduct is misleading is a question of fact to be determined by the Court examining the relevant course of conduct as a whole, in the light of all the relevant surrounding facts and circumstances: Butcher v Lachlan Elder Realty Ply Ltd (2004) 218 CLR 592 at [109]; Campbell v Backoffice Investments Ply Ltd (2009) 238 CLR 304 at [102] per Gummow, Hayne, Heydon and Kiefel JJ and at [24] and [25] per French CJ.

51    The learned primary judge recognised the need to consider what was said and done in its full context. Her Honour also recognised, as can be seen from her reference to Lord Halsbury’s emphasis upon looking at the substance of the conduct, that a false impression may be conveyed even though it is stated in ambiguous language.

52    Second, whilst it is true that Mr Martin’s understanding of what Mr Loyola said to him fell short of a representation that Cryeng was no longer in business, it does not follow that the primary judge was in error in finding that the Cessation of Business Representation was made.

53    This conclusion follows from my summary of the “mosaic” of facts set out above and from Mr Loyola’s failure to give evidence.

54    In short, the mosaic formed the relevant surrounding facts and circumstances in light of which Mr Loyola’s alleged conduct was to be determined. Mr Martin’s impression was only part of the factual matrix and was not to be viewed in isolation.

55    It is true that much of the mosaic is concerned with matters which occurred after 8 April 2008. But what pervades the entire mosaic is Mr Loyola’s determination to get Mr Gilchrist and hence Cryeng out of the cryogenics business. The words attributed to Mr Loyola by Mr Martin are capable of supporting the finding that the Cessation of Business Representation was made in words to the effect of those alleged by Cryeng even if they were not understood in that way by Mr Martin.

56    In any event, Mr Martin was not the decision maker. He referred it to his superiors and his colleagues before conveying the decision to cancel the purchase order to Mr Loyola. Nothing turns on the failure of Cryeng to call the other officers of Air Liquide. It was open to the primary judge, or to me on appeal, to draw an inference that the Representation was made and understood by the other officers of Air Liquide in the sense alleged by Cryeng.

57    Third, whilst her Honour appears at one point in her judgment to have misstated the effect of Mr Martin’s evidence, I do not think that the primary judge’s conclusion was affected by the error. The misstatement appears at [62] of her reasons in the last sentence.

58    There, her Honour said that a submission made by Mr Pesman was contrary to the evidence given by Mr Martin. Mr Pesman’s submission was that the statement attributed to Mr Loyola, as it was understood by Mr Martin, did not amount to a representation that Cryeng was no longer in business. Mr Pesman’s submission was correct but her Honour was in error in stating that it was contrary to Mr Martin’s evidence.

59    Nevertheless, in my view, the finding made by the primary judge does not reveal appealable error because it is evident from the findings made by her Honour that she did not base her ultimate finding about the making of the representation solely upon Mr Martin’s evidence.

60    This is not a case which turned on credit findings. It is one in which, in an appeal by way of rehearing, I am in as good a position as the trial judge to decide on the proper inference to be drawn from the facts; my task is to determine whether her Honour fell into appealable error; see Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [22]-[23] and the authorities there referred to including Warren v Coombes (1979) 142 CLR 531.

61    Even if I am wrong in the view that her Honour’s reasoning does not reveal appealable error, consistently with what was said in Warren v Coombes, in deciding the proper inference to be drawn, I would come to the view that Mr Loyola made the Cessation of Business Representation to Air Liquide and other customers of Cryeng.

62    As Lord Blackburn said in Smith v Chadwick (1884) 9 App Cas 187 at 196, if a person makes a statement with a view to induce a party to enter into a transaction and the person does so, it is a fair inference that the person was induced to do so by the statement. Mr Loyola’s intention, in the absence of evidence from him to the contrary, must have been calculated to induce customers of Cryeng such as Air Liquide to believe that Cryeng was no longer in business. The inference may be rebutted by other evidence: Gould v Vaggelas (1985) 157 CLR 215 at [236]. But Mr Loyola did not give evidence.

63    Fourth, although there was considerable debate between the parties as to the applicability and effect of Jones v Dunkel (1959) 101 CLR 298, I do not think it is necessary to deal with that question in any detail.

64    The primary judge correctly stated the principles and referred to the comprehensive statements of Owen J in The Bell Group (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239 at [1004]-[1022].

65    Here, the withdrawal of the claims of breach of fiduciary duty were not a sufficient explanation for the failure to call Mr Loyola. He was nonetheless required to explain or contradict the case as thrown up by the pleadings and by the course of the evidence.

66    The making of the Cessation of Business Representation was decided on the pleadings and the course of evidence demonstrated Mr Loyola’s intention to drive Cryeng out of business. In those circumstances he was required to answer the claim made against him.

67    Mr Loyola’s failure to give evidence enabled the primary judge more comfortably to draw the inference that flowed from the matrix. The proper inference was that Mr Loyola’s evidence would not assist his case.

The Successor Representation

68    The primary judge found that the references in the letter of 2 May 2008 to “the full support of our troops” gave rise to an inference that Pioneer was the successor of Cryeng with the added inference that Cryeng was closing down or was no longer in business.

69    With respect to the primary judge, it seems to me that the opening words of the letter in which Mr Loyola stated that he had resigned as an employee of Cryeng is inconsistent with the terms of the alleged Successor Representation.

70    However, I do not think that anything turns on this because it is sufficient for Cryeng to resist the appeal upon the basis, as I have found, that the Cessation of Business Representation was made.

Damages for the loss of reputation

71    The primary judge correctly stated the principle referred to by Wilcox J in Flamingo Park Pty Ltd v Dolly Dolly Creations Pty Ltd (1986) 65 ALR 500 at [525].

72    The evidence was, as the primary judge said, scanty. Also Mr Gilchrist acted promptly to correct the misrepresentation. It may be that I would have determined a different figure but I do not consider that the figure of $50,000 ordered by the primary judge to be so excessive as to warrant interference by an appellate court.

ORDERS

73    It follows from what I have said that I would order that the appeal be dismissed with costs.

Associate:

Dated:    18 May 2012

REASONS FOR JUDGMENT

Besanko and Perram JJ

74    This is an appeal from orders made by a Judge of this Court on 23 August 2011. The appellants are George Humberto Loyola and Pioneer Cryogenics Pty Limited (“Pioneer”) and they appeal against orders that they pay to the respondent to the appeal, Cryeng Pty Ltd (“Cryeng”) damages in the amount of $140,000, interest in accordance with s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth) and Cryeng’s costs of the application.

75    We have had the advantage of reading the reasons for judgment of Jacobson J. His Honour sets out the activities of each of the relevant parties, the principal events and the representations found by her Honour to have been made by Mr Loyola and Pioneer.

76    The trial Judge’s award of damages consisted of two components, namely, damages for the loss or damage suffered by Cryeng as a result of the cancellation of a purchase order placed with Cryeng by Air Liquide Australia Ltd (“Air Liquide”) and damages for the damage to Cryeng’s commercial reputation. The trial Judge awarded the sum of $90,000 with respect to the first component and the sum of $50,000 with respect to the second component. Her Honour found that Mr Loyola and Pioneer had engaged in misleading or deceptive conduct, or conduct likely to mislead or deceive in April and May 2008 and that the conduct had caused the damage to Cryeng.

77    In our respectful opinion, the trial Judge erred in awarding damages in relation to the cancellation by Air Liquide of the purchase order. She did not err in awarding damages in relation to the damage to Cryeng’s commercial reputation.

The Cancellation by Air Liquide of the Purchase Order

78    Air Liquide is involved in the sale of gases for various industries. Mr Adam Martin is employed by Air Liquide as a business development manager. He has been employed by Air Liquide since about the middle of 1997.

79    On 13 February 2008, Mr Martin sent an email to Mr Loyola of Cryeng asking for a quote for the supply by Cryeng of a 200,000 litre Cryogenic Vacuum Insulated Storage Vessel in connection with a project to be undertaken by Air Liquide. The company was installing a new Nitrogen Liquefier Plant at its Botany Air Separation Unit. By letter dated 7 March 2008, Mr Loyola on behalf of Cryeng provided a quotation to Air Liquide. On 26 March 2008, Mr Martin, on behalf of Air Liquide, placed a purchase order (H955043) with Cryeng for the supply of a 200,000 litre Vacuum Insulated Horizontal Storage Vessel. The total order value was the sum of $620,900.

80    On 8 April 2008, Mr Loyola attended Air Liquide’s offices in Melbourne. He met with representatives of Air Liquide, including Mr Martin, Mr Paul Nield and Mr Ken Palmer. Mr Martin was the only person who was present at this meeting who gave evidence at the trial. He said that in addition to Messrs Nield and Palmer there were “possibly some other colleagues” at the meeting. Mr Loyola made certain statements at the meeting. Following those statements Mr Martin cancelled the purchase order Air Liquide had placed with Cryeng. In the first instance, that was done verbally and, the evidence suggests, on 8 April 2008.

81    The cancellation of the purchase order was confirmed in writing by letter dated 13 May 2008 when Mr Martin wrote to Cryeng in the following terms:

As per our verbal discussions with Mr George Loyola on 8 April 2008 Air Liquide Australia Limited hereby withdraws and cancels the issued purchase order H995043 to Cryeng Pty Ltd.

82    In the interim, Pioneer, through Mr Loyola, had submitted a quotation for the supply of the vessel to Air Liquide by letter dated 10 April 2008. Some time after that date, Air Liquide placed a purchase order with Pioneer for the supply of the vessel. The purchase order number is H955043A, but it is dated the same date as the purchase order placed with Cryeng, that is, 26 March 2008. For reasons which are not material, Pioneer did not, as events transpired, supply the vessel to Air Liquide.

83    The trial Judge recorded the fact that at the trial Mr Loyola and Pioneer conceded that if the Court found that the cessation of business representation had been made by them and that it was misleading, then the Court should conclude that that conduct caused Air Liquide to cancel the order. There was a dispute before her Honour about the way in which Cryeng’s loss should be calculated, but her Honour’s resolution of that issue is not challenged in this Court. Furthermore, Mr Loyola and Pioneer do not challenge her Honour’s conclusion that the cessation of business representation as pleaded and as pursued at trial was misleading or deceptive, or likely to mislead or deceive. Mr Loyola and Pioneer contend that her Honour erred in finding that the cessation of business representation was made by them to Air Liquide on 8 April 2008, and that it led to the cancellation of the purchase order.

84    The cessation of business representation was pleaded, as part of a number of representations, in paragraph 31N of the Fourth Further Amended Statement of Claim. That paragraph is in the following terms:

31N    In about March and April 2008, Loyola gave presentations and/engaged in discussions and communications with customers of the applicant at which he made representations to the effect that:

a.    Pioneer Cryogenics had been or was about to be established;

b.    He had resigned or was going to resign from the applicant and manage Pioneer Cryogenics;

c.    All or most of the persons relied upon by the applicant to manufacture its products had ceased or would cease to be employed in that role and instead had been or would be employed by Pioneer Cryogenics;

d.    The applicant was no longer in the business of design, marketing, manufacture or supply of cryogenic vessels. (Cessation of Business Representation)

Particulars

i.    In about March or early April 2008, Loyola attended and gave a presentation at the Melbourne offices of Air Liquide;

ii.    Email dated 18 April 2008 from Loyola to Paul Nield;

iii.    In or about early to mid April 2008, Loyola attended the offices of Cryoquip and had a discussion with Ralph Day, managing director;

iv.    Further instances to be explored at trial.

85    In paragraph 31ZL, Cryeng pleaded that the cessation of business representation was misleading or deceptive, or likely to mislead or deceive in that it remained and remains in the business of design, marketing, manufacture and supply of cryogenic vessels.

86    The trial Judge made the following findings about what occurred at the meeting on 8 April 2008 at the offices of Air Liquide. Her Honour found that Mr Loyola said that he had resigned from Cryeng and had incorporated Pioneer. Mr Loyola said that most of Cryeng’s staff would be joining him at Pioneer “including Cryeng’s vessel engineer, workshop staff/supervisor and some of its fabrication staff”. He added that he was not sure what was going to happen to Cryeng’s fabrication workshop at St Marys.

87    The trial Judge addressed a submission by Mr Loyola and Pioneer which lies at the heart of their submissions on the appeal. She said:

The written submissions for the first and second respondents conceded that Mr Loyola’s comments may have created doubts about Cryeng’s future in Mr Martin’s mind. It was submitted, however, that they did not amount to a representation that Cryeng was no longer in the business of design, marketing, manufacture or supply of cryogenic vessels. This submission is contrary to the evidence given by Mr Martin.

Mr Martin said he believed that when Mr Loyola gave him the information about Cryeng he did so as a representative of Cryeng and consequently believed that Cryeng would not be in a position to build the 200,000 litre vessel which Air Liquide had ordered. Moreover he had the impression that Cryeng would not be in the business of supplying cryogenic vessels in the future. Accordingly, after speaking to his supervisor and other colleagues, he told Mr Loyola that he would cancel the purchase order. This was subsequently confirmed in a letter to Cryeng dated 13 May 2008.

88    Mr Loyola did not give evidence at the trial. The trial Judge accepted Mr Martin’s evidence and there is no suggestion by Mr Loyola and Pioneer that she was not entitled to do so. In fact, Mr Loyola and Pioneer rely on Mr Martin’s account of what occurred at the meeting on 8 April 2008 and they do not dispute that Air Liquide cancelled the purchase order by reason of comments made by Mr Loyola at the meeting. However, they submit that Mr Martin’s evidence does not support the conclusion that Mr Loyola made the cessation of business representation at the meeting on 8 April 2008 and that, as a result, this part of Cryeng’s case ought to have failed because its case was that the making of the cessation of business representation led to the cancellation of the purchase order and the loss or damage sustained by Cryeng. In our respectful opinion that contention is correct.

89    Mr Martin gave his evidence in chief by affidavit. He swore two affidavits, one on 3 September 2010 and the other on 10 September 2010. In his first affidavit he said that at the meeting, which he agreed in cross-examination took place on 8 April 2008, Mr Loyola said:

I have incorporated a new cryogenic vessel manufacturing company called Pioneer Cryogenics. I have resigned from Cryeng. Most of Cryeng’s other employees have also resigned or will be resigning to join Pioneer Cryogenics, including Cryenge’s vessel engineer, workshop staff/supervisor and some of its fabrication staff. I am not sure what is going to happen to Cryeng’s fabrication workshop at St Marys.

Mr Loyola also said words to the effect of:

‘Pioneer Cryogenics would be willing to provide Air Liquide with a quote for the 200,000 litre vessel for Botany.’

90    Mr Martin also said the following:

I understood from what Mr Loyola had told me that he wasn’t certain if Cryeng is in a position to be able to build the Botany vessel. As a result, after speaking to my supervisor and other colleagues, I cancelled the order for this vessel from Cryeng verbally with Mr Loyola and in writing at a later date. …

If I did not have doubts as to Cryeng’s manufacturing ability as a result of my conversations with Mr Loyola I would not have cancelled the order. I believe that when Mr Loyola spoke to me he spoke to me about Cryeng’s affairs. He did so as a representative of Cryeng.

91    Mr Martin said in his second affidavit the following:

I can’t remember the precise words used by Mr Loyola in the conversation I refer to in paragraphs 7 and 8 of my affidavit of 3 September 2010 but remember its effect. Whatever Mr Loyola said in the conversation left me at its conclusion with the view that there was uncertainty as to both whether Cryeng Pty Ltd (Cryeng) was to be in the business of supplying cryogenic vessels moving forward into the future and could also supply the Botany vessel.

92    In cross-examination, Mr Martin agreed that he came out of the meeting with the impression that Cryeng’s future in terms of the manufacturing equipment was uncertain, but that as far as he knew, the company would continue in existence. Mr Martin agreed that it is likely that he cancelled the order orally on 8 April 2008. He agreed that as far as Air Liquide was concerned “any arrangement with Cryeng was cancelled on or about 8 April 2008”.

93    On the face of it, the contention of Mr Loyola and Pioneer is correct in that Mr Loyola did not make a statement during the meeting to the effect that Cryeng was no longer in the business of design, marketing, manufacture or supply of cryogenic vessels. Mr Loyola and Pioneer contend that at their highest, his statements were to the effect that he was not certain if Cryeng was to be in the business of supplying cryogenic vessels in the future and could supply the Botany vessel. They contend, correctly in our view, that that is not the cessation of business representation pleaded against them and pursued at trial. It is true, as the trial Judge noted, that alleged representations must be judged in their context and that a Court may find that a representation was made even though precise and unequivocal language was not used. However, neither of those considerations provide a basis for rejecting the contention advanced by Mr Loyola and Pioneer. In this case, Mr Martin has said quite clearly what impression Mr Loyola’s statements made on him, and those impressions fall short of the pleaded representation.

94    Cryeng sought to meet the contention made by Mr Loyola and Pioneer by referring to the findings made by the trial Judge about Mr Loyola’s conduct in April and May 2008. The collection or combination of circumstances was referred to by counsel as the “mosaic”.

95    Before identifying the matters relied on by counsel for Cryeng, the other representation the trial Judge found to have been made by Mr Loyola and Pioneer should be noted. It was the successor representation and it was pleaded in paragraphs 31Q and 31R of the Fourth Amended Statement of Claim. Those paragraphs are in the following terms:

31Q    On or about 22 May 2008, Loyola and/or Pioneer Cryogenics wrote to all or a significant number of the applicants’ customers (Second Customer Letters).

Particulars

    Letter dated 2 May 2008 from Loyola purporting to be the managing director of Loyola Cryogenics and addressed ‘to ALL CUSTOMERS’.

31R    The Second Customer Letters:

(a)    Stated that Loyola had resigned as an employee of the applicant effective 30 April 2008;

(b)    Made the client neglect representation;

(c)    Amounted to or conveyed a representation that Pioneer Cryogenics was the successor to the applicant and had been established with the approval and participation of the applicant and/or its employees (Successor Representation);

(d)    Amounted to an attempt to solicit future business for Pioneer Cryogenics from customers of the applicant.

96    The matters Cryeng identified as forming the mosaic are taken from the reasons for judgment of the trial judge. First, Cryeng referred to letters that her Honour found had been written by Mr Loyola to Cryeng’s customers. Her Honour found that Mr Loyola wrote a letter dated 18 April 2008 to Mr Steve Abbott of Coregas Pty Ltd, advising that he had resigned from Cryeng as from 30 April 2008 and adding the following:

My responsibility to the company’s customers has been foremost in my mind during the last couple of weeks and I am hoping your work (please see attached schedule) will be available to be picked up prior to my departure.

I have appreciated our relationship and the support you have given the company during the difficult times experienced over the past several years.

After 25 years in the industry I have made many friends with whom I hope I can maintain contact in the near future.

97    The trial Judge found that letters in similar terms were also sent to other customers including BOC Gases Australia Ltd (Mr Greg Allen) and Air Liquide (Mr Paul Nield). Mr Nield was the procurement manager at Air Liquide and he held a position senior to that of Mr Martin. Attached to the letter sent to Mr Nield by email on 18 April 2008 was a list of seven vessels for Air Liquide then stored at Cryeng’s premises at Charles Street, St Marys. Mr Nield responded to Mr Loyola on the same day saying:

I have given our people a rev up about getting the vessels out of the Cryeng facility. Please let me know what is going to happen about vessel warranty.

98    Mr Loyola replied:

We would certainly feel more comfortable if we see the vessels leaving before 30/04.

In regards to warranty, Cryeng I believe will continue to operate (probably on structural work) but in any case Cryeng is now a subsidiary of an unlisted public company which will be responsible for any in warranty work.

We will keep you posted on this.

99    On 22 April Mr Nield again asked for a contact in relation to warranty work to which Mr Loyola replied that “since 21/02/08” manufacturing had been taken over by Maxcon and gave the contact details for Mr Grbin.

100    On 9 May 2008 by email, Mr Loyola asked Mr Martin to reissue the purchase order dated, at the earliest, 1 May 2008. He explained that “for legal reasons Pioneer was not able to trade or operate” before that date.

101    Secondly, Cryeng relies on the fact that the trial Judge found that on 4 May 2008, Mr Loyola sent an email to a large number of customers and associates of Cryeng. The email’s subject line was “Pioneer Cryogenics – Advise [sic] to Customers” and attached to the email on the letterhead of Pioneer, was a letter from Mr Loyola addressed to “all customers” advising that he had left Cryeng and again referring to the company’s customers being “foremost on my mind”. The letter continued:

With the full support of our troops we have incorporated PIONEER CRYOGENICS PTY LTD and I hope we will continue to enjoy your trust and support.

102    The trial Judge found that the reference to “the full support of our troops” and to “continuing” to enjoy the customers’ trust, support the inference that Pioneer is the successor of Cryeng with the added inference that Cryeng was closing down or was no longer in the business it had carried on at that time. The trial Judge found that the conclusion that this belief was in circulation was supported by a handwritten letter from Mr Camilleri, Deputy General Manager of Cryeng, dated 3 May 2008 to Mr Gilchrist, director of Cryeng, which says:

As mentioned over the phone today, I was talking to John Biddiscome of Air Liquide a couple of days ago and he was under the impression that Cryeng was closing down.

103    Thirdly, Cryeng relies on the fact that the trial Judge found that Mr Ralph Day, the Managing Director of Cryoquip, had a meeting with Mr Loyola in early to mid April 2008 when Mr Loyola told him he had left Cryeng and that “a lot of the staff from Cryeng” were joining him. Mr Day asked Mr Loyola whether Cryeng would continue to operate. Mr Loyola said that he did not know and then the following conversation ensued:

Mr Loyola: Pioneer will be building all the range of cryogenic tanks so we [being Cryoquip Pty Ltd and Pioneer] can onsell tanks together and we can get vessels from you, like we did at Cryeng.

Mr Day: How long before you will be up and running?

Mr Loyola: Straight away. I am expecting an order from Air Liquide in Melbourne. I am the only one that can build cryogenic tanks.

104    The trial Judge found that the clear message from the statement that “I am the only one that can build cryogenic tanks” is only consistent with a representation that Cryeng was no longer in the business of designing, manufacturing or supplying cryogenic tanks.

105    Fourthly, Cryeng relies on the fact that the trial Judge found that in April 2008 Mr Loyola also sent additional quotations for Pioneer to provide goods to Air Liquide. Two quotations were sent on 12 April, and on 14 April Mr Loyola provided a quotation for six cryogenic customer stations to Air Liquide.

106    Fifthly, Cryeng relies on the fact that on 12 April 2008 Mr Loyola, on the letterhead of Pioneer, sent a quotation to Mr Sukhdev Singh of BOC Australia Limited (“BOC Australia”) for three vertical buffer tanks, two being for gaseous helium and one for nitrogen gas storage. On the same day he also sent to BOC Australia a quotation for a vertical cryogenic customer station price of $280,000. A further quotation was sent to BOC Australia on 24 April 2008. The trial Judge found that Mr Gilchrist had had conversations with Mr Singh of BOC Australia in which Mr Singh expressed concerns about Cryeng’s continuing commitment to manufacturing cryogenic vessels. Mr Gilchrist described a visit that Mr Singh and another senior executive of BOC Australia made to Cryeng’s premises in late May or early June 2008. Mr Gilchrist assured them that Cryeng was still manufacturing cryogenic vessels and took them on a tour of the factory floor. Mr Johnson, a director of Cryeng, referred to a conversation with Mr Singh of BOC Australia in early 2008 when Mr Singh asked if Cryeng was still in business and did it intend to continue in the cryogenics business. Mr Johnson said:

We definitely are.

To which Mr Singh responded:

I was told you weren’t.

107    The trial Judge found that Mr Loyola had contacted Mr Singh on 22 April 2008 and that he was responsible for Mr Singh’s impression that Cryeng was no longer in business.

108    Sixthly, Cryeng relies on the fact that the trial Judge found that Mr Camilleri received an inquiry from Reed Constructions seeking reassurance as to Cryeng’s continuing in business.

109    Seventhly, Cryeng relies on the fact that the trial Judge found that Mr Gilchrist had a conversation with Mr Chris Day of Coregas in which Mr Day said that Coregas was unsure about Cryeng’s capabilities. Mr Gilchrist took Mr Day to Cryeng’s workshop in Sydney to show him the ongoing manufacture of cryogenic vessels.

110    Finally, Cryeng relies on the fact that Loyola did not give evidence.

111    The seven matters to which Cryeng referred were all circumstances and events which took place on other occasions, and, in most cases, involved other companies and businesses. They might have been relevant if there was uncertainty about what was said by Mr Loyola leading up to the cancellation of the purchase order. However, there is no uncertainty because we know what was said on 8 April 2008. The fact that Mr Loyola did not give evidence cannot change the substance and effect of the evidence given by Mr Martin. Mr Martin’s evidence is the only evidence of what occurred at the meeting on 8 April 2008. It may be accepted at its highest but that does not change the nature of the representation made.

112    In our opinion, the contention advanced by Mr Loyola and Pioneer must be accepted. In many respects this is an unsatisfactory result. The representation actually made by Mr Loyola at the meeting on 8 April 2008 is similar to the representation pleaded and pursued at trial and it certainly had a similar effect. However, it is not the representation which was pleaded and pursued at trial. Furthermore, Mr Loyola’s conduct on 8 April would seem to be have been clearly in breach of his fiduciary duties to Cryeng. As her Honour observed, in earlier iterations of the Statement of Claim, Cryeng alleged that Mr Loyola’s conduct in seeking to divert business to Pioneer and induce Cryeng’s employees to join Pioneer was in breach of his fiduciary duty to it. It also alleged accessorial liability on the part of Pioneer. However, as her Honour noted, Cryeng did not persist with those claims which were deleted from the final version of the Statement of Claim. Her Honour also noted that in his final submissions, counsel for Mr Loyola and Pioneer all but conceded that his clients would have had some difficulty in defending such a claim.

Damage to Commercial Reputation

113    The trial Judge identified the evidence before her which was relevant to this issue. She said that the evidence might be described as flimsy. Nevertheless, she accepted that the misleading conduct of Mr Loyola and Pioneer caused damage to Cryeng’s reputation. She found that determining the amount of compensation to be awarded in respect of that loss was “more problematic”. She said that she doubted that the damage was very severe or long lasting. The trial Judge referred to the relevant authorities. She said that doing the best she could with the scanty evidence the amount of $50,000 would be an appropriate award of damages. The task facing her Honour was a difficult one, but we can see no error in her approach.

Conclusions

114    The first order made by the trial Judge that the first and second respondents pay to the applicant damages in the amount of $140,000 must be set aside. In lieu thereof, there must be an order that the first and second respondents pay to the applicant damages in the amount of $50,000. The second order made by the trial Judge concerned the payment of interest under s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth) on the damages awarded, and there seems to be no reason to disturb that order. The third order made by the trial Judge was that the first and second respondents pay the applicant’s costs of the application. We do not know whether the order we propose to substitute for the orders made by the trial Judge affects the question of the costs of the application. Furthermore, it is necessary to hear the parties on the costs of the appeal. In the circumstances, we would make the following orders:

1.    The appeal be allowed.

2.    The first and third orders made on 23 August 2011 be set aside and, in lieu thereof, there be an order that the first and second respondents pay to the applicant damages in the amount of $50,000.

3.    The first and second respondents file and serve within seven days submissions dealing with the costs of the application and the costs of the appeal.

4.    The applicant file and serve within 14 days submissions dealing with the costs of the application and the costs of the appeal.

Associate:

Dated:    18 May 2012