Federal Court of Australia

O’Mara Holdings Pty Ltd v The Patch Australia Pty Ltd [2023] FCAFC 154

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellant pay the respondents’ costs, as agreed or taxed.

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

REASONS FOR JUDGMENT

THE COURT:

A.    Introduction

1    From November 2016, Mr Douglas O’Mara and Mr Mark Williams pursued a joint venture for the development of a portal (a series of websites) designed for the Canberra real estate market. In broad terms, their respective contributions to the joint venture were to be an investment of capital by Mr O’Mara or interests associated with him; and a contribution of skill and expertise by Mr Williams or interests associated with him.

2    Between November 2016 and May 2017, negotiations occurred between Mr O’Mara and Mr Williams, or between their respective solicitors. The negotiations culminated in the establishment on 9 May 2017 of a joint venture company (The Canberra Portal Pty Ltd) and on 11 May 2017, entry into a shareholders agreement between the joint venture company and its shareholders: Mr O’Mara’s company, O’Mara Holdings Pty Ltd; Mr Williams’s company, SchwartzWilliams No 4 Pty Ltd (which subsequently changed its name to The Patch Australia Pty Ltd on 23 February 2018); and two minor shareholders, namely RECON OZ Pty Ltd (Recon) and The Real Estate Institute of Australia Ltd (REI ACT).

3    In December 2017, at a time when the O’Mara interests had invested $150,000 into the joint venture, they withdrew their support for the joint venture. They subsequently commenced a proceeding in this Court with O’Mara Holdings as the applicant and The Patch and Mr Williams as respondents, in which O’Mara Holdings alleged that The Patch had made representations which were misleading or deceptive and thus in contravention of s 18 of the Australian Consumer Law, being Sch 2 of the Competition and Consumer Act 2010 (Cth) (ACL). Mr Williams was alleged to be liable under s 236 of the ACL as a person involved in that contravention.

4    The primary judge dismissed the proceeding: O’Mara Holdings Pty Ltd v The Patch Australia Pty Ltd [2022] FCA 366 (J). For the reasons developed below, his Honour was correct in doing so.

B.     Background

5    The salient facts are mostly uncontentious. As the primary judge noted at J[24], almost all the material evidence is documentary. The contest between the parties concerns the legal consequences which flow from those facts, and in particular whether The Patch made a representation as at May 2017 concerning its capacity to fulfil its obligations under the shareholders agreement within approximately six months, and, if so, whether that representation was misleading or deceptive conduct in contravention of s 18 of the ACL.

6    The salient facts commence in mid-November 2016 when Mr O’Mara and Mr Williams, who were friends, had a discussion over dinner (mid-November 2016 discussion) during which Mr Williams raised the possibility of Mr O’Mara investing in a new real estate portal focussed on Canberra (J[28]).

7    On 22 November 2016, Mr Williams sent an email to Mr O’Mara (22 November 2016 email), which summarised the mid-November 2016 discussion. In that email, Mr Williams explained that the core idea was to combine “classifieds” with media, and focus on a “single, local, market”. He continued:

The media piece will be called The Canberra Voice. It will be a daily, afternoon, weekday, online newspaper, focussing on local Canberra and ACT issues – Territory politics, business, the courts, planning, sport, education, crime, etc., etc, …

SchwartzWilliams will provide the technology for The Canberra Voice and the 5 listing portals, based on existing SW platforms that SW will provide to our new venture under licence in perpetuity for $1

SW will design, build and upload content into all platforms ready for launch.

SW will also be responsible for all the ongoing day to day management, including, editorial, technology support, help desk, listing curation, etc

SW will create the design and functionality of all the elements, and build the operational platforms with all media and listing content, starting December 1, 2016, and ready during April 2017. …

The whole suite will be ready for launch to market on May 1, 2017

The shareholdings will be as follows:

-    Morry and Mark 60%

-    Doug 30%

-    Recon and REI ACT free carry 10%…

(emphasis in italics added; (J[31]))

8    “SchwartzWilliams” was a reference to SchwartzWilliams Pty Ltd, a company in which Mr Williams and Mr Maurice (or Morry) Schwartz had an interest (J[26]). “SW” was an acronym for “SchwartzWilliams”.

9    On 1 December 2016, The Patch was registered (J[32]).

10    On 11 December 2016, Mr Williams sent a further email (11 December 2016 email) to Mr O’Mara which included (as written):

Please find attached the HOA for Canberra media portal and real estate super portals.

We have briefed our developers and design teams and pushed back the start date to 1 January 2017. The HOA reflects the new dates.

As discussed i will send you links to numerous sites that our new venture will be based upon…

… We would like to seek your general feedback on macro strategy and items like brand names and branding etc for the first four months build from 1 January to 30 april.

May June and July we will need your help and input into the launch phases please …

… All of the day to day SW will look after. …

I will send links through separately.

(emphasis in italics added; (J[33]))

11    The draft heads of agreement (draft HOA) attached to the 11 December 2016 email contemplated that an agreement would be entered into between SchwartzWilliams or its nominee (referred to as SW), and Mr O’Mara or his nominee (referred to as DOM) as well as the yet to be formed joint venture company. It contained the following relevant statements under the heading “Commercial terms” and next to the section “Description of portal/business”:

The Business will create a super-portal for real estate and a media portal in Canberra, ACT, Australia. The intention of the Business is to launch each portal as determined by the board and growth will be dependent upon Business financial ability. It is proposed that the Voice, the real estate media portal, e-newsletter, and the luxury and residential portal will be launched on 01 June 2017. The new projects, commercial and rural portals will be launched progressively between 01 July 2017 and 30 November 2017.

The portals intended to be created are:

•    The Canberra Voice (community media portal and e-newsletter)

•    a real estate media portal;

•    Canberra / ACT residential portal;

•    Canberra / ACT luxury portal;

•    Canberra / ACT new projects portal;

•    Canberra / ACT commercial portal;

•    Canberra / ACT rural portal; and

•    e-newsletter covering the above real estate portals.

(emphasis in italics added; (J[35]))

12    The “Commercial terms” also included a section headed “SW contribution” which listed, amongst other things, that “SW” would be fully responsible for the establishment, delivery and ongoing operation of the company to be incorporated and provide all listing and agent data feeds for ACT from the “SW” portal “thehomepage.com.au” (J[36]).

13    An annexure to the draft HOA titled “Annexure 1-Budget” set out a series of tasks, most of which had been allocated to “SW”; and referred to “Launch date 01 June 2017”.

14    The primary judge found that the HOA were not executed but recorded the common understanding of the parties at that time (i.e. 11 December 2016) as to what was contemplated (J[37]).

15    On 12 December 2016, Mr O’Mara forwarded the 11 December 2016 email to his solicitor, Mr John Irvine of Trinity Law.

16    On 3 January 2017, Mr Williams sent a further email (3 January 2017 email) to Mr O’Mara (J[38]). The email was in part a response to an email forwarded by Mr O’Mara which contained comments by Mr Irvine on the draft HOA.

17    The 3 January 2017 email included the following statements by Mr Williams (as written):

….

To keep momentum flowing to the proposed May/June launch we propose the following next steps,

1. Sign the HOA and attached Development SLA in principal prior to 9 January 2017.

2. SW commence development on 9 January 2017.

3. The first 25% of development loan by shareholders to be paid to SW by 9 January 2017.

4. Engage Minters to prepare the Company entity and draft shareholders agreement, SLA and IP licence in draft and distribute to Doug Morry and Mark and lawyers by 20 January 2017. Ambition for these documents to be agreed and signed by 9 February 2017. SW continue with development in good faith and no further loan payments to be made until all the above documents have be agreed by all parties and signed.

…

DOUG ISSUED 30% SHAREHOLDING IN NEW CO.

MARK & MORRY ISSUED 60% SH IN NEW CO

RECON AND REIA ISSUED 10% SH IN NEW CO

$200 K LOAN FROM DOUG TO NEW CO TO FUND 1/3 OF DEVELOPMENT AND LAUNCH BUDGET.

$400 K LOAN FORM MARK AND MORRY TO NEW CO TO. FUND 2/3 OF DEVELOPMENT AND LAUNCH BUDGET.

SW IS CONTRACTED BY NEW CO TO DEVELOP AND LAUNCH PLATFORM INCLUDING CONTENT, LEGALS, IT, DESIGN ETC SW IS CONTRACTED BY NEW CO TO OPERATE AND MAINTAIN PLATFORM IN ALL ASPECTS.

(emphasis in italics added; J[38])

18    Attached to the 3 January 2017 email was a 15 page document outlining ideas and plans for the development of the portal. That document included a detailed “Process and Timeline” which was to conclude on 29 May 2017 with “Deploy to hosting and publishing”, which the primary judge understood to be the launch of the portal, and a “Creation, Development & launch Pricing” cost estimate. The latter was to conclude with a “fully inclusive IT, branding, creation, testing and delivery for launch” price of $692,450 inclusive of GST, but included a comment that “SW had rounded the contract fee down to $600,000 incl GST”. That is to say, that would be the development cost which would then be split with one third to be contributed by Mr O’Mara’s nominee and the remainder to be contributed in kind by the SchwartzWilliams nominee. There was also an estimated operational cost of $573,000 per annum plus GST.

19    On 18 January 2017, Mr O’Mara caused a payment of $50,000 to be made to SchwartzWilliams (J[40]).

20    By 20 January 2017, Mr Williams had engaged Mr James Hutton of Minter Ellison as his solicitor. On that day, Mr Williams notified Mr O’Mara that Mr Hutton would contact Mr O’Mara and would be drafting documents for the project.

21    On 3 February 2017, Mr Hutton sent an email to Mr O’Mara, which attached drafts of various documents, including a draft shareholders agreement and a draft intellectual property licence agreement. The draft intellectual property licence named SchwartzWilliams as the licensor and contained a schedule headed “Agreement Details” and a section within the schedule headed “The Platform”. The following was then set out (J[41]):

SchwartzWilliams (“SW”) has prepared a proposed strategy for a new entity of Doug O’Mara, Morry Schwartz and Mark Williams (“DMM”), to create, develop and operate Canberra news media portals, a real estate super listing portal and news media platform. This platform will include both an e-newsletter and local new media communication as well as a new real estate media and super portal platform. The new media platform will be based upon existing SW digital platforms under the terms of this licence.

The platform will be based upon SW portals and digital components whilst supported under a total service arrangement and agreement with and by the SW for media content, curation, digital IT, help desk, hosting, Admin, invoicing, marketing, managing advertising, database, management, compliance management, plus the creation and distribution of regular e newsletters.

The DMM platform for Canberra and ACT will comprise:

•    Local new media portal

•    Real estate media portal

•    News media e newsletter

•    Real estate media newsletters

•    Listing hub with CRM capabilities

•    Residential listing portal

•    Commercial and business listing portal

•    New projects listing portal

•    Rural listing portal

•    Luxury listing portal

•    A group home page

…

The Listing Hub will provide appropriate users with the ability to manage listings on the new DMM site.

The Listing Hub provides a number of reports for Listing and Data Room access. SW recommends the initial project launch with these reports.

(emphasis in italics added; J[41])

22    On 23 March 2017, Mr O’Mara and Mr Williams met. Mr Williams said that “the development of the portal is generally on track, except for a bit of slippage of a few weeks”. Mr O’Mara said he was reassured by these comments (J[42]).

23    On 31 March 2017, Minter Ellison provided a further draft shareholders agreement to Mr O’Mara.

24    On 11 April 2017, Mr O’Mara notified Mr Williams and Mr Hutton that he would be referring the then current draft shareholders agreement to his solicitor. He did so and received comments on 26 April 2017, which he forwarded to Mr Williams. Further communications followed between Mr O’Mara and Mr Williams, and between their respective solicitors, concerning the draft shareholders agreement.

25    On 2 May 2017, Mr O’Mara caused a second payment of $50,000 to be made to SchwartzWilliams (J[43]).

26    On 5 May 2017, Mr O’Mara sent an email to Mr Irvine, to nominate O’Mara Holdings (as trustee for the O’Mara Investment Trust) as the entity to have the shareholding in the proposed joint venture company (J[44]). From about 5 May 2017 until 10 May 2017, Mr Irvine and Mr Hutton corresponded so as to finalise the shareholders agreement.

27    On 9 May 2017, the joint venture company was registered with Mr Williams as the sole director and The Patch and O’Mara Holdings holding 60 and 30 shares respectively of the 90 class A shares. There were also 10 class B shares, held equally between Recon and REI ACT.

28    Also on 9 May 2017, Minter Ellison provided an execution version of the shareholders agreement to Mr Irvine (J[46]).

29    On 11 May 2017, as noted at [2] above, the shareholders agreement was executed (J[46]). As the primary judge noted at J[48], pursuant to the shareholders agreement, The Patch was to make its shareholder’s contribution, to the value of $400,000, by way of professional contributions in the nature of developing the necessary software, portals, and the like to deliver the project. It was explicitly contemplated that this would be done under a services agreement with the joint venture company. Clause 25.9 of the shareholders agreement provided that:

25.9 Entire Agreement

This agreement together with the Transaction Documents constitute the entire agreement between the parties in connection with their subject matter and supersede all previous agreements and understandings between the parties in connection with their subject matter.

30    On 29 May 2017, Mr O’Mara caused a third payment of $50,000 to be made to SchwartzWilliams in respect of the portal business venture (J[49]).

31    Mr Williams deposed that he had a conversation with Mr O’Mara “sometime after executing the shareholders agreement”, in which they discussed Mr O’Mara providing the data to contribute to the project, such as email addresses from Mr O’Mara’s database and listing feeds. Mr Williams said that the listing feeds “can be described as what was required to launch and publish the content for the Portal and The Patch”. The primary judge noted that none of the documentation that passed between the parties, including the shareholders agreement, recorded any such obligation on O’Mara Holdings (J[50]).

32    Mr Williams also deposed that between late July and early September 2017, work was undertaken on a logo and navigation bar for the “Canberra Patch” and configuration of the “Canberra Patch” production including a link to an operational site (J[51]).

33    On 6 September 2017, Mr Williams sent an email to Mr O’Mara (as written):

HI Doug,

Hope you are well,

The Canberra Patch environment is up :) we have tested over past 4 weeks and mostly settled all in. The past 2 weeks we have published approx 40 articles to populate The Patch and tested.

A few minor bugs are being worked on now so please excuse. The guys are also working on site and uploading to production so may see disruption from time to time.

The property portals are currently being tested in prep for branding. I hope you enjoy browsing, best M

https://www.thecanberrapatch.com,au

34    As the primary judge noted at J[52], in cross-examination Mr Williams added to the 6 September 2017 email that, at this point, the property portals had been developed and were being tested within a development site environment.

35    Also on 6 September 2017, Mr O’Mara replied:

Thanks Mark

Looks great at first glance. Will look in greater detail when I get a few spare mins.

I thought it was the Canberra Voice?

Looking forward to seeing the portals.

36    On 25 September 2017, Mr O’Mara sent an email to Mr Williams following up on progress of the project:

Gday Mark

How are you travelling?

Just wanted to check in on where we are up to and when we expect to get this and the portals out in the market place,

Cheers

Doug

37    Mr Williams replied the next day (as written):

Hi Doug

Sorry for delay in reply, always traveling at moment, back in Brisbane last night. Portals are running a little slow but looking great and the guys have been spending extra time In getting all right, ensuring all are well featured and fully integrated well for connectivity etc

I'll send you some banners I received last night and good to discuss later today. I'll give you a call mid afternoon.

We can be in market with media within a couple of weeks and listing portals progressively over the next 3 leading u to Xmas

Cheers M

38    On 1 December 2017, Mr O’Mara sent an email to Mr Williams stating that he no longer wished to proceed with the venture. His email included (as written):

I just wanted to have a discussion on this and let you know that I won’t be moving forward on this project.

It’s been over 12 months since we first met to discuss this and I am disappointed that we are now at the end 2017 and still nothing is live, the updates on where things are up to are non-existent, my lawyer isn’t getting a response to his follow ups from Minters, and we still don’t have an executed agreement in place.

There no hard feelings from my end at all just don’t wish to proceed any further with it as have other investments I wish to focus on.

I have transferred $150k so far in good faith but would like to discuss how to exit this and get my money back.

39    On the same day, Mr Williams replied (as written):

Understand, I’ll give you a call to update you on some news. All good but consumed me for past 2 months.

Very happy to refund and to arrange process when we chat.

Also great to have you still with us in the project as shareholder.

40    In cross-examination, Mr Williams said that it was not correct that he was agreeing to refund Mr O’Mara’s money because he knew there had been no progress on the listing portals or because there were delays in the development of the website. Mr Williams rather put the emphasis on the words “arrange the process” because Mr O’Mara was an integral part of the distribution and building of a base audience and “without him, we would have wasted a hell of a lot of money, which we have” (J[57]).

41    Mr Williams deposed that around this time, his understanding of why Mr O’Mara did not want to continue with the project was that Mr O’Mara had lost interest in the project and no longer wanted to contribute to its development (J[58]).

42    In late February 2018, Mr O’Mara met with Mr Williams and Mr Schwartz. Mr O’Mara deposed that Mr Williams and Mr Schwartz apologised for the delay, asked Mr O’Mara to stay on and said that they would have the Canberra Portal “up and running by March 2018” and that the final $50,000 investment was not required, and that Mr O’Mara said he agreed to “see how you go” (J[59]). In cross-examination, Mr O’Mara described the March 2018 completion date as an “undertaking”, presumably made by Mr Williams or Mr Schwartz or both. Mr Williams could not recall making such an undertaking and said that he “would have remembered if I had have said a statement like that”.

43    Mr Williams recalled this meeting but his evidence was that he did not mention the March 2018 completion deadline, and recalled that he and Mr Schwartz said that they would change the branding from the “Canberra Patch” to the “Canberra Voice”. Mr Williams in oral evidence said that this branding change was an involved, and not a simple, exercise (J[60]).

44    Mr Williams said that in early March to May 2018, work was undertaken on a draft logo for the “Canberra Voice” (J[61]).

45    On 9 April 2018, Mr O’Mara sent an email to Mr Williams which included: “I think its best we just call it day and you return my $150k. No hard feelings”. On 10 April 2018, Mr Williams replied: “I’m really sorry with this. Please hang in there with us” (J[62] to [63]).

46    On 17 April 2018, Mr O’Mara replied to Mr Williams (as written):

Another week without hearing a thing. This all started in November 2016 and we are now 18 months down the track and i have no faith whatsoever in the project now. I have also been without $150k now for over 12 months.

I want out of this and wish both yourself and Morry all the best with it.

Please return my money to …

47    In cross-examination, Mr O’Mara agreed that he withdrew from the project before it had the opportunity to come to fruition. He also later said that he did not contribute any data to the project because the website, or portal, to his knowledge and in his view, was never such that it was ready to take active property portal listings (J[65]).

48    On 2 July 2018, Mr Williams sent a text message to Mr O’Mara (as written):

Hi Doug, hope well. I’m wanting to finalise an arrangement with Morry, that Morry and I buy your shares. I can then pay the $150 k and the voice can pay me back later as cash flow allows, I would also like you to retain some share holding like 10% as a free carry for you. Hopefully I can finalise and document all soon, so we can help you exit and also we can [not] start trading or publishing voice until this is done.

49    On 5 September 2018, after no repayment was forthcoming, Trinity Law on behalf of O’Mara Holdings demanded repayment of the $150,000 already advanced to the joint venture company (J[67]). On 2 October 2018, Minter Ellison replied to the notice, on behalf of the joint venture company and The Patch. They rejected the demand for repayment and referred to cl 10.1(d) of the shareholders agreement that provided that the joint venture company would only repay the initial shareholder loan subject to it having excess free cash flow and, among other matters, that no request for repayment be made within 24 months (J[68]).

50    After this, the lawyers for the parties exchanged further correspondence in relation to the repayment of the $150,000, as did Mr O’Mara and Mr Williams. This included a 3 October 2018 email from Mr Schwartz to Mr O’Mara saying that the Canberra Voice was ready to be launched.

51    On 5 October 2018, Mr O’Mara replied noting that he had referred the matter to his lawyers (J[70]).

C.     The pleaded case

52    As the primary judge noted at J[4], it is necessary to identify the claim as pleaded in the Amended Statement of Claim (ASOC) with some specificity.

53    Paragraph 13 of the ASOC alleged:

By virtue of Mr Williams’ statements prior to the incorporation of the Company, both written and orally, and by entering into the Shareholders Agreement, The Patch represented to [O’Mara Holdings] that it had, as at May 2017, and would continue to have, the capacity to comply with and fulfil the terms of the Shareholders Agreement within the space of approximately six months, including a readiness, willingness and ability to provide the services contemplated in clause 10.1(c) as and from the date of the Shareholders Agreement (the Representations).

(emphasis in original)

54    The written statements by which the representations were allegedly made were: (1) the 22 November 2016 email, (2) the 11 December 2016 email and draft HOA, (3) the 3 January 2018 email, (4) the intellectual property licence, and (5) the shareholders agreement. The oral statements were alleged to have been made in the mid-November 2016 conversation.

55    The pleading as to the misleading or deceptive nature of the alleged representations was set out at paragraph 13 of the ASOC :

The Representations were misleading or deceptive because The Patch:

a.    was not ready, willing and able to provide the services it, through Mr Williams, represented that it would provide;

b.    has yet to provide any, or any valuable, services to the Company justifying its Initial Shareholder Contribution;

c.    has failed, without explanation, to progress the development of the Portal contrary to its representations leading up to and in the Shareholders Agreement; and

d.    has refused to provide or has otherwise neglected to provide the Professional Contributions.

D.     The primary judge’s reasoning

Identification of the issues requiring resolution

56    The primary judge noted at J[18] the following as the issues identified by the parties as requiring resolution:

(1)    whether The Patch made the representation pleaded at paragraph 13 of the ASOC;

(2)    if yes to (1), whether the representation made on behalf of The Patch was misleading or deceptive within the meaning of s 18 of the ACL;

(3)    if yes to (1) and (2), whether the misrepresentation caused loss to O’Mara Holdings (in concluding the shareholders agreement and advancing the sum of $150,000); and

(4)    if yes to (1), whether Mr Williams was “involved in” the making of the alleged representation on behalf of The Patch within the meaning of ss 2 and 236(1) of the ACL.

The first issue

57    As is apparent on the face of paragraph 13 of the ASOC, O’Mara Holdings pleaded two representations:

(1)    a representation that as at May 2017, The Patch had the capacity to comply with and fulfil the terms of the shareholders agreement within the space of approximately six months (including a readiness, willingness and ability to provide the services contemplated in cl 10.1(c) as and from the date of the shareholders agreement); and

(2)    a representation that The Patch would continue to have the capacity to comply with and fulfil the terms of the shareholders agreement within the space of approximately six months (including a readiness, willingness and ability to provide the services contemplated in cl 10.1(c) as and from the date of the shareholders agreement).

58    It is convenient to refer to these representations as the present representation and the future representation respectively.

59    The primary judge noted that O’Mara Holdings had firmly and unequivocally eschewed a case based upon the future representation, which relies on the operation of s 4 of the ACL (J[20]; [82]). The primary judge observed at J[82] that this was a curious way for O’Mara Holdings to put its case, for two reasons: (1) O’Mara Holdings thereby lost the advantage of using s 4 of the ACL to shift the evidentiary burden onto the respondents to prove that they had reasonable grounds for making the (future) representation at the time that it was made; and (2) the authorities which find that the conclusion of a contract gives rise to representations as to willingness and ability to perform the contract generally characterise such representations as representations as to future matters (J[83] to [89]). The primary judge noted at J[82] that the proceeding had to be determined by reference to the present representation only, as that was the case in opening and the way in which the trial was conducted by O’Mara Holdings. The primary judge stated that to determine the case otherwise would have been unfair to the respondents, as the respondents were not forewarned of any need on their part to discharge their evidential burden as to there being reasonable grounds for any representation as to a future matter.

60    His Honour first considered at J[73] to [79] the extent to which The Patch could be held responsible for statements made in the mid-November 2016 discussion and the email of 22 November 2016 when those events occurred prior to The Patch’s incorporation on 1 December 2016. His Honour held that it was possible – depending on the circumstances – for statements made by Mr Williams prior to 1 December 2016 to amount to conduct of The Patch (J[79]). These circumstances include whether: (1) the statements can be said to have been made by Mr Williams as a future director on behalf of and for the benefit of the company still to be incorporated, and (2) whether there was a duty on the company, once incorporated, to correct any misrepresentation or deception in such statements.

61    The primary judge considered whether The Patch conveyed the present representation, by considering – in chronological order – the matters relied upon by O’Mara Holdings to establish the present representation, namely: (1) the 22 November 2016 email which incorporated the mid-November 2016 discussion, (2) the 11 December 2016 email and the draft HOA, (3) the 3 January 2017 email, (4) the draft intellectual property licence, and (5) the shareholders agreement. These are considered in turn below.

62    The 22 November 2016 email is described at [7] above. The primary judge’s reasoning with respect to this email was set out at J[92] to [94], as follows:

92.    As to the first set of written statements … the applicant draws particular attention to the statement in the email from Mr Williams dated 22 November 2016 that “[i]t is proposed that the Voice, the real estate media portal, e-newsletter, and the luxury and residential portal will be launched on 01 June 2017.” That statement is obviously relevant to the contemplated timeframe for realisation of the project. Since the email was in late November 2016, that a six-month timeframe was contemplated was communicated by that statement in the email.

93.    Insofar as an implied representation may have been made by Mr Williams as to the “Voice, the real estate media portal, e-newsletter, and the luxury and residential portal” being ready to be launched on 1 June 2017, the representations falls outside of the pleaded case – no primary case is pleaded against Mr Williams and, insofar as the timing is concerned, that is a representation as to a future matter which is specifically eschewed.

94.    The email also states that “SchwartzWilliams will provide the technology” and it will “design, build and upload content into all platforms ready for launch”. It is not identified in the email who SchwartzWilliams was, although it was known to the parties that there were many SchwartzWilliams companies. It could have been a reference to any one or more of them. There is a reference to the shareholding of, impliedly, a new company being Mr O’Mara as to 30% and “Morry and Mark 60%”. There is no suggestion that the latter shareholding would be through a company still to be incorporated as opposed to by Messrs Schwartz and Williams personally. In those circumstances, it is hard to see how the email, which states that SchwartzWilliams would carry out a number of activities, can constitute a representation that a company still to be incorporated, which became The Patch, would have any particular capacity or that any representation was on behalf of such a company.

(emphasis added)

63    The 11 December 2016 email and draft HOA are described at [10] to [13] above. The primary judge’s reasoning, at J[95] to [96], was as follows:

95.    The second set of written statements … is in the email from Mr Williams of 11 December 2016 and the attached draft heads of agreement. As noted above, the company which would become The Patch was registered shortly prior to this correspondence, on 1 December 2016. Taken together, the email and the draft heads of agreement constitute representations by Mr Williams that at that time he envisaged that The Voice, the real estate media portal, e-newsletter, and the luxury and residential portal would be launched on 1 June 2017 and that the commercial and rural portals would be launched progressively between 1 July 2017 and 30 November 2017. I consider that there is also an implied representation by Mr Williams that at that time he intended and anticipated that the SchwartzWilliams group or the company nominated by it (i.e., the now-incorporated The Patch) would have the capacity to perform the matters contemplated to be performed by “SW”. As I stated above in relation to the first set of written statements, the representation as to when the project would be realised falls outside of the pleaded case.

96.    In the result, the second set of written statements do not on their own, or in concert with anything that preceded them, give rise to the representation relied on. That is because they speak only to the intention of the proposal and nothing about capacity. They nevertheless confirm that the contemplated timeframe of the project at that time was still approximately six months. It is therefore not necessary to decide whether (a) the statements could be considered as being made on behalf of The Patch once it was nominated and (b) whether The Patch, once nominated, failed to correct or eschew them.

(emphasis added)

64    The 3 January 2017 email is described at [18] and [19] above. The primary judge’s reasoning, at J[97] to [98] was as follows:

97.    The third set of written statements … is in an email from Mr Williams to Mr O’Mara on 3 January 2017. The applicant drew attention to the statement “[t]o keep momentum flowing to the proposed May/June [2017] launch.” Also relevant is the statement that “SW is contracted by new co to develop and launch platform including content, legals, IT, design etc SW is contracted by new co to operate and maintain platform in all aspects.”

98.    These statements also confirm the contemplated timeframe for the project, and they impliedly represent that the entity to be nominated by SchwartzWilliams, i.e., The Patch, would be willing to undertake the work contemplated to be done by it. Since Mr Williams, who was a director of The Patch, was speaking on behalf of and for the benefit of the company to be nominated, once The Patch was nominated as that company it had the knowledge of Mr Williams gained within the scope of his directorship. The Patch therefore knew that the representation had been made and had a duty to correct it if it was misleading. In those circumstances, the statements are properly ascribed to The Patch. However, for reasons that will become apparent, it is not necessary to my decision to make that finding. I prefer to decide the case on the question of whether any part of the pleaded representation was made at all and, if so, whether it was misleading or deceptive.

(emphasis added)

65    The draft intellectual property licence is described at [21] above. The primary judge’s analysis, at J[99], was as follows:

99.    The fourth set of written statements … is in a draft copy of the intellectual property licence emailed by James Hutton of Minter Ellison, lawyer for Mr Williams and his interests, to Mr O’Mara on 3 February 2017. The statements go no further than to represent that at the time they were made Mr Williams intended and anticipated that SchwartzWilliams would have the capacity to perform the matters contemplated to be performed by it when those matters were required to be performed. There is no mention of another company to be the vehicle for SchwartzWilliams’s interest in the new venture so the statements cannot be taken to be statements by The Patch. If they are statements by The Patch, they go no further than what was represented by The Patch in concluding the shareholders agreement, which I will come to below.

(emphasis added)

66    The primary judge then considered at J[100] to [103] whether The Patch conveyed the present representation by its entry into the shareholders agreement. His Honour held that, consistent with the authorities, The Patch’s entry into the shareholders agreement amounted to an implied representation by it that it intended to, and anticipated being able to, perform its obligations under that agreement when they were required to be performed. However, it did not amount to any representation by The Patch as to its readiness or ability to perform those obligations at the time of the conclusion of the shareholders agreement. This is because, at that time, the parties knew that The Patch had only recently been incorporated, it had no staff or resources of its own and its obligations were not to be performed immediately but only over a period of time into the future. Further, the shareholders agreement was silent as to the timing of the project, which the primary judge concluded was presumably why the applicant relied on the prior statements by Mr Williams (J[100] to [101]).

67    Thus, the primary judge concluded, the only representation made by The Patch as to a present matter – as opposed to any future matter – was that it intended at the time of its entry into the shareholders agreement to perform its obligations under that agreement; or, expressed differently, that it was willing to do so (J[102]). That is, there was no representation as to The Patch’s readiness or ability to provide the services as at the date of the shareholders agreement (J[102]).

68    The primary judge then concluded, on the basis of his reasoning as set out above, that the first issue must be decided against O’Mara Holdings, save to the extent that The Patch represented that as at May 2017 it intended, or was willing, to perform its obligations under the shareholders agreement (J[102] to [104]).

69    The primary judge’s findings on the first issue are the subject of the first five grounds of appeal.

The second issue

70    The primary judge then turned to consider whether the present representation, to the extent it had been proved, was misleading or deceptive. He held it was not, in circumstances where: no evidence was directed at the issue of whether The Patch was at the date of the shareholders agreement willing to perform that agreement; and the proposition that The Patch was not so willing was not put to Mr Williams (J[104]).

71    In circumstances where the primary judge had found that a representation as to capacity had not been made, it was not necessary (as he noted) for him to consider whether such a representation was misleading or deceptive (J[105]). Nevertheless, his Honour found that such a representation, if made, would not have been misleading or deceptive, as: (1) there was no evidence directed to this question as at the date of entry into the shareholders agreement (J106]); and (2) the evidence of subsequent events that had been adduced did not support an inference that there was a lack of capacity as at the date of entry into the shareholders agreement (J[106] to [109]).

72    The primary judge’s findings on the second issue are the subject of the sixth and seventh grounds of appeal.

The third and fourth issues

73    As O’Mara Holdings failed on the first and second issues it was unnecessary for the primary judge to consider the remaining issues and he chose not to do so as he considered it would be unduly burdensome (J[111]).

E.     Grounds of appeal

74    O’Mara Holdings advanced seven grounds of appeal, as follows:

1.    The trial judge erred in finding that the representations made by the respondents were only a representation that the first respondent was merely willing to participate in the venture, which was the subject of those representations.

2.    The trial judge erred in failing to hold that the respondents had represented that the first respondent was ready, willing, and able to do the work and provide the services which it had promised to provide in the shareholders agreement within six months of the execution of that document.

3.    The trial judge erred in holding that the representations made by the respondents in the shareholders agreement were representations as to willingness, or of future matters only.

4.    The trial judge erred in failing to find that the first respondent represented, by entering into the shareholders agreement, that it presently had the capacity, or was presently ready, willing, and able, to comply with the obligations imposed on it in that agreement.

5.    The trial judge erred in holding that the part of the pleaded representation, to the effect that the first respondent would continue to have the capacity to perform its obligations under the shareholders agreement, was a future matter only and not a present representation of the first respondent’s intent.

6.    The trial judge erred in failing to hold that the first respondent was not, in fact, ready and able to comply with the shareholders agreement within six months at the time that it entered into that contract, and that those representations as to its present capacity were misleading or deceptive as a result.

7.    The trial judge erred in accepting the second respondent’s explanation for the delay in the creation of a functioning listing portal, when that explanation was contrary to the contemporaneous evidence and the weight of the evidence, including evidence that almost no work had actually been done to develop a functioning listing portal by, or for the first respondent at any time.

75    As is apparent, the first five grounds of appeal relate to the primary judge’s findings concerning the nature of the representation that was made; and grounds six and seven relate to his findings as to whether any such representation was misleading or deceptive. The parties addressed the first five grounds together and separately grounds six and seven together and we take the same course.

F.     Appeal grounds 1 to 5

76    No issue is taken with the primary judge’s exclusion of any case involving the future representation. Rather, O’Mara Holdings contends that the primary judge erred in finding that the present representation was not made.

77    In its submissions on the appeal, O’Mara Holdings does not address the first five grounds of appeal individually. Instead, O’Mara Holdings seeks to impugn the primary judge’s conclusions by reference to the contentions set out below.

78    The principal contention advanced by O’Mara Holdings is that the primary judge was required to consider all of the evidence concerning the making of the present representation and that he did not do so. O’Mara Holdings contends that instead the primary judge took an unduly narrow approach to the evidence, focussing upon the entry into the shareholders agreement in May 2017 without giving due consideration to the statements as to the timing of the venture that had been made in November 2016 to January 2017, to the effect that Mr Williams contemplated that the portal could be launched approximately six months after the commencement of work upon it (six-months timeframe statements).

79    It is clear that the six-months timeframe statements were made in the 22 November 2016 email (see [7] and [62] above), the 11 December 2016 email and its attached draft HOA (see [10] to [13] and [63] above) and the 3 January 2017 email (see [17] to [18] and [64] above). It is also clear from the primary judge’s reasons that he considered those statements. The primary judge was correct to nevertheless find that the present representation was not made, for the following reasons.

80    First, the six-months timeframe statements were not statements of The Patch’s capacity as at May 2017 to fulfil its obligations under the shareholders agreement. Rather, they were statements of what was contemplated as at the time each such statement was made. In contrast, and as is clear from the manner in which the present representation is pleaded in paragraph 13 of the ASOC (see [53] above) and the manner in which the first issue for determination, as agreed between the parties, was expressed (see [56(1)] above), that representation was one alleged to have been made as at May 2017. Further, as the transcript of the hearing before the primary judge and the written submissions provided to the primary judge demonstrate, the respondents maintained their insistence that O’Mara Holdings was constrained by the manner in which it had pleaded the representation in paragraph 13 of the ASOC.

81    The argument advanced on behalf of O’Mara Holdings on appeal includes the contention that the primary judge should have treated the six-months timeframe statements as separate representations. However, this does not reflect the manner in which the case was pleaded and, as noted above, there was no agreed departure from the pleaded case and the primary judge (with respect, correctly) decided the case on that basis.

82    Secondly, those statements form but part of the circumstances to be considered in determining whether the present representation was made as at May 2017. Those circumstances include:

(1)    the six-months timeframe statements were made between late November 2016 and 3 January 2017;

(2)    there is no finding or evidence that such statements were reiterated or confirmed after 3 January 2017 or that similar statements were made after that date;

(3)    after 3 January 2017 there was a negotiation process which was not finalised until May 2017; and

(4)    during the period from January 2017 until the execution of the shareholders agreement on 11 May 2017, O’Mara Holdings and The Patch were each legally represented with respect to the negotiation and drafting of that agreement. Neither the drafts of the shareholders agreement which passed between the legal representatives of the O’Mara interests and of the Williams interests nor the executed shareholders agreement addressed such a timeframe.

83    When all of the circumstances are considered, it is apparent that the six-months timeframe statements had been overtaken by events.

84    O’Mara Holdings also contended that The Patch engaged in misleading or deceptive conduct by making the six-months timeframe statements and by their subsequent silence concerning such statements. In this regard, O’Mara Holdings relied upon the decision of the High Court of Australia in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31. However, as French CJ and Kiefel J (as her Honour then was) explained, whilst silence may be a factor to be considered, it is to be considered as part of all of the relevant circumstances: see Miller at 368 to 371 ([14] to [23]). As set out above, those circumstances and in particular the non-inclusion of any provision in the shareholders agreement as to the timing of performance of The Patch’s obligations under that agreement following extended negotiations between two legally represented parties, point strongly to the conclusion that any prior representation as to The Patch’s capacity to perform its obligations within six months had ceased to be operative. In any event, there was no silence. O’Mara Holdings was informed – by the provision of draft and final shareholder agreements which did not contain any provision as to the timing of performance of The Patch’s obligations and which included an entire agreement clause – that any prior representation as to The Patch’s capacity to perform its obligations within six months was no longer extant.

85    O’Mara Holdings also submitted that the fact that Mr O’Mara and Mr Williams were friends (and that there is some evidence of Mr O’Mara sharing with Mr Williams some of the advice that Mr O’Mara had received from Mr Irvine) changes the above analysis. We disagree. The fact remains that the O’Mara interests were provided with drafts of the shareholders agreement, took legal advice upon those drafts and as noted at [82(4)] above neither the drafts of the shareholders agreement which passed between the legal representatives of the O’Mara interests and of the Williams interests nor the executed shareholders agreement included any stipulation as to the timeframe in which the portal was to be launched. Although a submission was made that this omission occurred because Mr O’Mara trusted Mr Williams, the Court was not directed to any evidence to this effect.

86    For the foregoing reasons, the first five grounds of appeal should be dismissed.

G.     Appeal grounds 6 and 7

87    The conclusions that we have reached concerning the first five grounds of appeal are dispositive of the appeal. As such, we will deal with appeal grounds six and seven only briefly. The analysis below assumes, contrary to the conclusion reached above, that the present representation was made.

88    As we have noted at [71] above, the primary judge found that there was no evidence directed to the question of The Patch’s capacity as at May 2017; and that the evidence of subsequent events did not support an inference that The Patch lacked such capacity as at May 2017. It is convenient to set out the primary judge’s findings on this issue in full:

106.    There was no evidence directed at the relevant time, being the time that the agreement was concluded. All the evidence was directed at later times, from which it is submitted on behalf of the applicant that the inference should be drawn that as at the time of the agreement The Patch lacked the capacity to perform it.

107.    The applicant submits that a lack of readiness and ability should be inferred from the fact that no listing portals were ever launched or created, and that only one news media website was ever created or launched. However, when Mr Williams was asked why the initial expectation with regard to the project being delivered within six months turned out to be different from the reality, which was that the project was significantly delayed, he said that from the time when they thought that it could be done within six months:

the concept went from a Cortina or a Holden Commodore to a Ferrari. It got bigger, grander. There was more things that were added on. We learnt more about the market. We had input from Doug as a new partner to add to the scheme. So it became a bigger project than what was initially the initial idea back in November. So from there, it was always going to be a staged rollout of the platform. First is to get the media site, the news site, out, build an audience, leverage Doug’s contacts, get them – get the volume to the transactions going with residential listings and then move to commercial. He then expanded into that concept, went to – said, “Okay, well, Doug does not have all the listings, e.g. rural listings, and some other certain markets and sectors,” and didn’t cover all the market, so we had an idea of recruiting C-class shareholders who were – would be agents – and our concept is around agents, map communities--- …

… there was some other delays along the way because when you’re building with tech, all tech developments, like developing anything – I remember someone used the analogy yesterday it’s like building a house. You start a house. Do you want a pool? Do you want a deck? Do you make it bigger? Do you build a rumpus room? You start adding to it. So when you’re in the middle of developing, the developers come to you and you can see problems and sometimes the way of solving the problem is to do something a bit more complicated or add extra features for not much extra time or money, and then that all adds to the complexity. So there were some challenges along the way for sure, and then when we had the Patch, as the original idea, Doug then didn’t like the Patch. We changed to the Voice. So it just - - - …

It was a better idea, and so with Doug’s feedback, it became grander and bigger. And so that contributed to having a bigger scope of works and more work to do, and that’s why it cost us more than what we had quoted and we absorbed that and it took us a longer time to do, which is, unfortunately, whether you’re developing software or a home, it always takes longer and costs more than it – it wouldn’t be the first IT project to take longer and cost more; it won’t be the last, but it was some good reasons why the delays were there and it was sort of, I think, an understanding that we all had from the original concept to grand concept that we ended up going with as to why there was delays.

108.    There is no basis to reject those answers. The events canvassed at [50]-[53] above show that some work was being done, that there were some changes along the way, and that Mr O’Mara liked what he saw, at least initially.

109.    It may be that there should have been better foresight, or even that insufficient resources were committed to the project, but that does not address the capacity to deliver as at the time that the project commenced when the shareholders agreement was entered into. The bare fact of the project suffering delays does not give rise to an inference that there was a lack of capacity at inception; there could be a number of other reasons for delays, and in this case it would appear that there were.

110.    In the light of there being a conspicuous absence of any contractual commitment to a particular timeframe, it would be a surprising result if the applicant could come home on a misleading and deceptive conduct case based solely on the contemplated timeframe not being realised. One would expect there to be more, and in this case there is not.

89    O’Mara Holdings did not cavil with the primary judge’s finding at J[106] that it had adduced no evidence directed as to the capacity of The Patch to perform its contractual obligations at the time the shareholder agreement was concluded. Instead O’Mara Holdings focused, as it did below, upon evidence of events subsequent to the signing of the shareholders agreement in May 2017 from which it contended the primary judge should have drawn an inference that The Patch lacked the requisite capacity as at May 2017.

90    The essence of the argument put by O’Mara Holdings was that: (1) there was almost no work undertaken on the venture during the six months after the signing of the shareholders agreement; and (2) from this, the Court should infer that The Patch had no capacity as at May 2017 to perform the work it was required to undertake.

91    This argument fails at the first step. There is evidence, including contemporaneous emails, that shows that work was undertaken. That evidence is set out at J[50] to [53] (see [31] to [35] above). The primary judge at J[108] referred to that evidence as showing “that some work was being done, that there were some changes along the way, and that Mr O’Mara liked what he saw, at least initially”.

92    Further, the evidence of Mr Williams set out by the primary judge at J[107] provides a plausible explanation for the state of progress of the work, which suggests that any delay in the completion of the work by The Patch was not a function of want of capacity.

93    O’Mara Holdings submitted on appeal that the primary judge should not have accepted this evidence because: (1) if these events had occurred then (a) there would have been notification of these events by the respondents to O’Mara Holdings, and there is no evidence of such notification, (b) the time records would have recorded the additional work, and they do not, and (2) the explanation provided by Mr Williams was self-serving evidence from a witness whom the primary judge had described as “loquacious”.

94    We do not accept that submission. The proposition that the evidence of Mr Williams set out at J[107] was inconsistent with a contended absence of correspondence or time entries, or was self-serving, was not put to Mr Williams despite Mr Williams being subject to further cross-examination immediately after that evidence was given. Further, although the primary judge at J[23] was critical of the manner in which Mr Williams answered questions, he did not suggest that Mr Williams’s evidence should not be accepted. Indeed, at J[108] his Honour specifically stated that there was no reason to reject the evidence of Mr Williams set out at J[107], and then referred to the evidence described at J[50] to [53], which was consistent with Mr Williams’s evidence.

95    O’Mara Holdings also relied upon various time records which it contended demonstrated a lack of work being undertaken. However, it is far from clear that those time records support the proposition advanced.

96    O’Mara Holdings also submitted that an inference of a lack of capacity on the part of The Patch as at May 2017 to perform its obligations under the shareholders agreement should have been drawn from Mr Williams’s offers – after Mr O’Mara’s indication in December 2017 that he no longer wished to be part of the joint venture – to refund the $150,000 invested by the O’Mara interests. It was submitted that such offers were an admission of a lack of capacity as at May 2017. We do not accept that submission. There may have been a range of other reasons for Mr Williams to have made such an offer and the Court was not directed to any evidence in which Mr Williams made such an admission or in which the suggestion of such an admission was put to him. Further, as noted at [40] above, Mr Williams expressly rejected the proposition that his 1 December 2017 offer to refund the $150,000 was made because he knew that there had been no progress or because of delays in the development of the website.

97    O’Mara Holdings also submitted that the absence of proof by the respondents that they had established a functioning website/portal provides a basis for drawing an inference that The Patch lacked the requisite capacity as at May 2017. We disagree. O’Mara Holdings bore the onus of proving a lack of capacity as at May 2017, which it did not discharge for the reasons set out by the primary judge.

H.     Conclusion

98    For the reasons set out above, the appeal should be dismissed. Costs should follow the event. We will make orders accordingly.

Associate:

Dated:    13 September 2023