CATCHWORDS
TRADE PRACTICES - misleading or deceptive conduct - alleged inducement to enter contract of employment - whether applicant relied on representations - applicant's knowledge of and enthusiasm for prospects of company - statements of hope compared with assertions of fact - question of intention to aid, abet, counsel or procure.
COSTS - time lost as a result of adjournment and late withdrawal of a serious allegation - reduction in award of costs.
Trade Practices Act 1974 (Cth)
Barto v GPR Management Services Pty Limited (1991) 33 FCR 389
Yorke v Lucas (1985) 158 CLR 661
Gould v Vaggelas (1985) 157 CLR 215
No VG 308 of 1994
KEITH W CALLINAN Applicant
- and -
GILRO-E R G PTY LTD First Respondent
- and -
ROBERT ARDEN HIGGINBOTTOM Second Respondent
- and -
REG GILLIE Third Respondent
O'Loughlin J
Melbourne
15 November 1996
IN THE FEDERAL COURT OF AUSTRALIA)
)
VICTORIA DISTRICT REGISTRY ) No VG 308 of 1994
)
GENERAL DIVISION )
B E T W E E N:
KEITH W CALLINAN
Applicant
- and -
GILRO-E.R.G. PTY LTD
First Respondent
- and -
ROBERT ARDEN HIGGINBOTTOM
Second Respondent
- and -
REG GILLIE
Third Respondent
MINUTES OF ORDER
CORAM: O'Loughlin J
PLACE: Melbourne
DATE: 15 November 1996
THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicant is to pay 80% of the second respondent's costs which are to be taxed in default of agreement.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA)
)
VICTORIA DISTRICT REGISTRY ) No VG 308 of 1994
)
GENERAL DIVISION )
B E T W E E N:
KEITH W CALLINAN
Applicant
- and -
GILRO-E.R.G. PTY LTD
First Respondent
- and -
ROBERT ARDEN HIGGINBOTTOM
Second Respondent
- and -
REG GILLIE
Third Respondent
REASONS FOR JUDGMENT
CORAM: O'Loughlin J
PLACE: Melbourne
DATE: 15 November 1996
The applicant, Keith William Callinan ("Mr Callinan") has instituted proceedings against his former employer, the first respondent, Gilro-E.R.G. Pty Ltd ("the company") and two of its directors, the second respondent, Robert Arden Higginbottom ("Mr Higginbottom") and the third respondent, Reg Gillie ("Mr Gillie"). As against the company Mr Callinan has claimed damages pursuant to s82 for breaches of s51A, s52 and s53B of the Trade Practices Act 1974 (Cth) ("the TPA") and damages for breach of his contract of employment. Relying on
s75B of the TPA he has sought similar relief against Messrs Higginbottom and Gillie but a plea in the Application that Messrs Higginbottom and Gillie were also liable in damages for breach of contract was not pursued. Relief was not claimed against either Mr Higginbottom or Mr Gillie under sub-s 11(1) of the Fair Trading Act 1985 (Vic).
Sub-section (1) of s51A of the TPA provides:-
"For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading."
There is an onus on the corporation to establish that it had reasonable grounds for making any such representation: sub-s51A(2)
Sub-section (1) of s52 of the TPA states that:-
"A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."
Section 53B of the TPA is in the following terms:-
"A corporation shall not, in relation to employment that is to be, or may be, offered by the corporation or by another person, engage in conduct that is liable to mislead persons seeking the employment as to the availability, nature, terms or conditions of, or any other matter relating to, the employment."
The case for the applicant was that, induced by misrepresentations made by Mr Higginbottom on behalf of the company, he accepted a five year appointment as managing director of the company with effect as from 1 August 1994 and that he was dismissed without cause five weeks later, on 6 September 1994. A joint defence was filed on behalf of all three respondents in which liability was denied.
Subsequent to the filing of an amended defence on 30 November 1994, the company went into liquidation and Mr Gillie sought the protection of Part X of the Bankruptcy Act 1966 (Cth). The applicant did not seek leave to proceed against the company and could not continue against Mr Gillie in these proceedings. When the matter was called on for trial, counsel for the applicant announced that his client would be proceeding against Mr Higginbottom only.
Prior to taking up employment with the company, Mr Callinan had for some years carried on practice as a Patent Attorney in an association with others who, for convenience, were referred to as his partners. The name of his firm, which had been started by his grandfather and continued by his father, was Callinan and Lawrie. He met Mr Higginbottom in March 1993 when Mr Higginbottom was referred to him by a solicitor; the solicitor had felt that Mr Higginbottom needed the services of a Patent Attorney.
Mr Higginbottom had developed a system which reduced the usage of electricity ("the invention") and Mr Callinan, in due course, lodged an application for a provisional patent in the name of Mr Higginbottom. Mr Callinan described the invention in his evidence in chief in glowing terms:-
"Mr Higginbottom told me about his invention, which was the equalisation of load technology, which took about three or four minutes to explain it, and I was quite taken aback, because I thought it was something that was exquisitely simple, that it would clearly result in great savings in the operation of compressors and similar air-conditioning and refrigeration devices, particularly those that were cycling on and off on a regular basis, and that is what I told him, that I thought it was a great idea." (pp57-58)
That, in my opinion, was an important piece of evidence. It established that, as early as March 1993, Mr Callinan was very enthusiastic about the invention. Later in his evidence he referred to it as "great technology"(p59) and that it would "be almost compulsory in its use on all refrigeration and air-conditioning units world wide."(p59) These statements, in my opinion, point strongly to Mr Callinan having made his own assessment of the technical and commercial value of the invention. I find that Mr Callinan, from an early stage, was very interested in and confident about the ultimate success of Mr Higginbottom's invention.
In November 1993 Mr Higginbottom met Mr Gillie who, at that stage, gave the appearance of having substantial wealth. The two men organised a joint venture, which included the incorporation of Gilro-ERG Pty Ltd ("Gilro" or "the company"), for the exploitation of the invention. Mr Higginbottom's rights with respect to his invention were assigned to the company. He, his wife and his family company owned 50% of the issued share capital and Mr Gillie and his interests owned the remaining 50%. Mr Gillie was required to put up assets of an agreed and equal value. He did this by building a house at Kyabram for Mr Higginbottom and by building a factory and training centre for the company at Kyabram. He also guaranteed the company's overdraft and committed himself to the extent of further funds of $100,000.00 in the forthcoming year and a further $100,000.00, if it was needed, in the next year. On incorporation Mr Higginbottom and Mr Gillie became directors of the company.
The plans for the company were centred upon the development of Mr Higginbottom's invention. This was intended to be achieved in a variety of ways, not all of which are relevant to these proceedings. Three areas of importance and relevance to this case were the subjects of "training", "licences" and "investors".
It was accepted by both Mr Callinan and Mr Higginbottom (who were the only witnesses in the trial) that if the invention was accepted by the industry, there would be a need to train refrigeration technicians in its usage. The company planned, therefore, to establish a training school at Kyabram which was expected to generate a cash flow for the company. Another issue was the possibility of "selling" licensing rights to use the invention throughout Australia and ultimately, worldwide. The third area of relevance was the subject of "investors". It was common ground that the company in 1994 was looking for further investors.
The three subjects of "training", "licences" and "investors" go to the core of the Mr Callinan's complaints. On his case, they were the subject matters of the representations that induced him to leave Callinan and Lawrie and to take up employment with the company. His evidence was that the value of the benefits that he (and presumably his family and other nominees) had derived, either directly or indirectly, from his firm had been in the vicinity of $280,000.00 per annum, although his counsel realistically calculated his losses based on a much lower starting point. He left those benefits to take up employment at Gilro with a base salary of $150,000.00 per annum plus emoluments of office that included superannuation, costs of operating his motor vehicle and telephone expenses. He claimed that he was prepared to make this financial sacrifice because of what had been represented to him.
The specific representations that were allegedly made by Mr Higginbottom to Mr Callinan are set out in par 8 of the amended Statement of Claim. Those representations were made, according to the allegation contained in par 7, in a discussion between the two men that took place on 14 June 1994
about the possible employment of Callinan. Paragraph 8 reads as follows:-
"In the course of the said discussion, and in order to induce the Applicant to take up employment with the first Respondent, the second Respondent represented to the Applicant that
(a) there were (sic) a substantial number of investors ready and willing to invest funds in the first Respondent based in the Kyabram region; and
(b) the said investors had approximately $1 million available for investment in the first Respondent; and
(c) many persons had already entered bookings into the first Respondent's training centre; and
(d) the first Respondent would sell several licences for substantial amounts within the near future; and
(e) by reason of the matters referred to in (a) to (d), the first Respondent would have sufficient funds to operate for at lease six to eight months while it became established; and
(f) the Applicant would be assured of long term and secure employment if he took up employment with the first Respondent." (emphasis in original text)
The applicant pleaded in par 14 of the amended Statement of Claim that each of the representations was "false, misleading and deceptive" in that:-
"(i) there were no investors ready and willing to invest funds in the first Respondent in the Kyabram area in the sum of $1 million,
(ii) no persons were booked into the training centre,
(iii) no licences were sold or attempted to be sold in June and July 1994, and
(iv) the first Respondent's financial position was parlous throughout the said period."
I have reached the conclusion that the applicant has not made out his case against Mr Higginbottom. Save for my finding on the subject of long term and secure employment, I am not satisfied that the other alleged representations were made to Mr Callinan. But if they were made, I positively reject the applicant's claim, as set out in par 8 of the amended Statement of Claim, that they were made "in order to induce the applicant to take up employment with the first Respondent...". Finally, I am not satisfied that Mr Callinan relied on what might have been said to him by Mr Higginbottom in coming to his decision to take up employment with the company. On the contrary, I am satisfied that the evidence justifies a finding that Mr Callinan made a decision to take up employment with the company as a result of his own enthusiasm for the invention and its potential and his own assessment of the company and its affairs. I set out hereunder my reasons for reaching these conclusions.
The date of the alleged representations
There was an occasion when Mr Callinan and Mr Higginbottom had a conversation about Mr Callinan's employment by the company. That conversation commenced in the company's car park at Kyabram. The fact of the conversation was not disputed - only its date. I will refer to it as "the car park conversation".
In par 7 of the amended Statement of Claim the applicant asserted that the relevant date was "on or about 14 June 1994". The date was disputed in the respondents' defence. They asserted in par 7 of their defence that it was 25 May 1994 when "the applicant asked the second respondent whether he might be able to be employed by the first respondent".
The applicant therefore knew, from an early date, that the date upon which the subject of employment was first raised was in issue. Yet the applicant persevered with his instructions. His counsel, during the course of his opening referred to 14 June 1994 as "a very important day because it was the day upon which the critical representations were first made in respect of inducing him to take up employment" with the company.
Mr Callinan had said in evidence-in-chief that he attended a Board meeting of the Company at Kyabram on 14 June 1994 and that the car park conversation occurred after that Board meeting. The discussion was then adjourned to, and continued at, Mr Higginbottom's home at Kyabram. Mr Higginbottom agreed that there was such a conversation; he also agreed that it commenced in the car park and continued at his home. But his evidence was that the conversation followed the Board meeting of 25 May 1994. I accept the evidence of Mr Higginbottom and find that the conversation took place on 25 May 1994.
The records of the company did not support Mr Callinan's evidence that there was a Board meeting on 14 June 1994. Under cross-examination he was forced to concede that he was mistaken and that there had not been a Board meeting on that date. Mr Callinan had been present at the company's premises on 14 June 1994 and had attended a luncheon with Mr Higginbottom at the local businessmen's club. But I prefer and accept Mr Higginbottom's evidence that Mr Callinan returned to Melbourne in the mid afternoon after the luncheon. Mr Callinan made a simple mistake about the dates but persisted until he was forced to acknowledge in cross-examination that some error must have been made.
In his final submission, counsel for Mr Callinan submitted that although it was a matter of little or no consequence, it was more likely that the car park conversation occurred on 14 June 1994. In advancing his proposition he relied on Mr Callinan's offer to take up employment with the company. Mr Callinan wrote Mr Gillie on 16 July 1994 setting out the terms and conditions under which he would accept an appointment as Managing Director of the company. The inference upon which counsel for the applicant relied was that the letter, written in mid July 1994, was more likely to have been the result of discussions which took place on 14 June 1994, rather than 7 weeks earlier on 25 May 1994. However, that is not necessarily the only inference that can be drawn. The letter opens with the words:-
"Following our discussions last Tuesday I wish to confirm what I believe will be my position in the company when I commence full-time on 1st August."
That sentence indicates that there had been continuing discussions on the subject of Mr Callinan's employment. I find that the letter does not assist in determining whether discussions commenced on 25 May 1994 or 14 June 1994.
Taken in isolation, this error on the part of Mr Callinan was no more than a witness making a mistake about a date. Such an event is commonplace in litigation and, quite often, little or nothing will turn on it. However, in this case, his perseverance, after being alerted by the contents of the defence that his date was under challenge, coupled with other matters to which I will refer, diminished my confidence in Mr Callinan's evidence.
Did the company offer Mr Callinan employment as its managing director or did Mr Callinan ask the company to employ him?
Paragraphs 7 and 8 of the amended Statement of Claim suggests that it might have been the former but the evidence in the trial leaves me in no doubt that it was Mr Callinan who asked for employment with Gilro. Par 7 was in the following terms:-
"On or about 14 June 1994 the Applicant discussed with the second Respondent the general development of the first Respondent, and the possibility of the employment of the Applicant by the first Respondent." (emphasis in original text)
The language of the paragraph is ambivalent; it merely refers to a discussion of the possible employment of Mr Callinan by Gilro. Paragraph 7 would have been the appropriate paragraph in which to plead that "the second respondent, in the name of and on behalf of the first respondent offered the applicant employment as managing director of the first respondent". I say this because of what follows in par 8. It is clear from the contents of par 8 that the applicant is asserting that Mr Higginbottom was the driving force in the conversation and that he had made the representations "in order to induce" Mr Callinan "to take up employment".
But the evidence during the trial presented a different picture. In fact, Mr Callinan, in his evidence in chief, made it clear that he was the one who first raised the subject of employment. After listing the many representations that Mr Higginbottom had allegedly made in the car park conversation and over the preceding few weeks, Mr Callinan then said that he responded to Mr Higginbottom by saying:-
""Well, if they're looking for someone to come in to help run the company I would like to throw my hat in the ring". They were the exact works that I used."(p64)
Mr Callinan was then asked by his counsel:-
"Was there anything that caused you to make that remark?"
This question elicited a long answer that commenced with Mr Callinan's belief in the invention and concluded, almost as
an afterthought, with a reference to the investors, the training and the licences. His reply was:-
"Basically I believed in the technology and I felt it was revolutionary on a world basis. It had enormous potential and I still believe that. I believe the automotive system has enormous potential. I should add that the automotive system uses technology which is called total energy consumption, in other words you have one energy input to provide for all of the needs of the vehicle. The basic concept was to use the exhaust heat of the car as the main heat pump source for the air conditioning, which is what they use in large city buildings. He was the first person to translate that down to that scale and the result in savings in the motor vehicle would be enormous and Ford were already interested in that technology. The potential investors to come into the company would provide sufficient funds to be able to carry the company through until he could have the training school established, have the technology licensed out, and the way I felt was even if he was exaggerating, if it was only 50 per cent true, there was more than enough money to carry the company through to the stage that reasonable income would start to be generated."
As I heard Mr Callinan give this answer I had the distinct impression that he had tremendous enthusiasm for the invention, that he had made his own assessment of it over the preceding twelve months and that he had wanted to be a part of its development. Mr Higginbottom's comments about the investors, the training and the licences might not have been trivial to him but they very much took second place to his own enthusiasm. They were not matters upon which he relied in making his decision to seek employment with the company.
Mr Callinan did not suggest, and there was no evidence to suggest that Mr Higginbottom had made these statements with the intention of inducing Mr Callinan to ask for employment. On the contrary, Mr Callinan volunteered that when he made his offer, it "took the wind out of the sails" of Mr Higginbottom (p66), a statement that coincided with Mr Higginbottom's evidence that he was "flabbergasted". This evidence, which I accept, is inconsistent with an allegation that Mr Higginbottom made statements in the car park conversation in order to induce Mr Callinan to accept employment with the company.
My impression of Mr Callinan's reaction to the invention and his decision to join the company was fortified, to some extent, when it was revealed in cross-examination that he had earlier experienced difficulties with the attitude of partners at Callinan & Lawrie to his wife. Mrs Callinan had been an employee of the firm and they had married after Mr Callinan divorced his first wife. Although Mr Callinan tried to play down the issue I find that there had been some friction between him and, at least some of his partners. This friction might well have assisted him in deciding to leave the business if a suitable opportunity arose.
Mr Callinan had been cognisant of the invention since he first met Mr Higginbottom in March 1993. Thereafter he had regular contact with Mr Higginbottom and, on occasions, attended at the company's premises in Kyabram. In this period and before employment was discussed, he had attended meetings including at least one Board meeting. Asked by his counsel whether there had been any discussion about the company's prospects during the meetings (that preceded the car park conversation) Mr Callinan's answer again gave the impression of his enthusiasm about the invention and his lack of reliance upon the statements of others. Including himself by using "we" rather than "they", he said:-
"We'd been through all of that during the board meeting and it was felt that although the situation was moderately tight with the training centre opening soon, with the state and number of bookings and potential for income from the training centre, as well as licensing off the technology and the oil sales etcetera, the potential for the company even if only one tenth of that came true was still to be more than sufficiently profitable to pay back its investors and provide substantial incomes for the shareholders."(p65)
If the statements about the investors, training and licences were made in the terms alleged by Mr Callinan in par 8 of the amended Statement of Claim, I find that they were not made for the purpose of inducing him to take up employment in the company. Furthermore I find that if they were made in those terms, Mr Callinan did not rely on them. Whilst it may be true that he did not ignore them, his own evidence created the strong impression that it was his tremendous enthusiasm for the invention that caused him to seek employment with the company. This enthusiasm and his belief in the potential of the company were also sufficient to compensate for his drop in income.
Was there a substantial number of Kyabram investors to the value of approximately $1m ready and willing to invest in the company?
The use of the word "were" in sub-par 8(a) and the word "had" in sub-par 8(b) point to a representation that the investors existed, that their identities were known and that the approximate sizes of their investments were known. Sub-par 8(c) was also a representation of an existing fact: "many persons had already entered bookings ... ". On the other hand, the representations that were alleged in the remaining sub-pars were with respect to future matters. If these later representations were in fact made, there would be an obligation on the respondents to establish, in terms of s51A of the TPA, that there were reasonable grounds for making them.
In the clash between the evidence of Mr Callinan and Mr Higginbottom I have come to the conclusion that the evidence of Mr Higginbottom is to be preferred. I have arrived at that decision for a number of reasons. Mr Higginbottom was at times during the course of evidence, discursive but, subject to one qualification, his evidence was clear and consistent. Mr Callinan, on the other hand was inconsistent or wrong on several occasions.
It is true, as Mr Burchardt, counsel for the applicant pointed out, that Mr Higginbottom attempted to distance himself from financial matters concerning the establishment of the company and its proposed business activities. In his evidence he sought to establish himself as the technician, saying that others were concerned with finance. This representation did not accord with various documents that were tendered in evidence. Those documents showed that Mr Higginbottom had an appreciation of and an involvement in the financial aspects of the company's establishment and its proposed business. I have borne this qualification in mind when coming to the conclusion that I prefer Mr Higginbottom's evidence to that of Mr Callinan.
There was a meeting of the Directors of the company on 20 July 1994 that was attended by Mr Callinan. Item 11 of the minutes of that meeting referred to a report from Mr Reg Gillie about investors in the company. It was recorded in these terms:-
"(Mr Gillie) advised raising funds in the next month. Loan agreements are in place for 2 local investors of $50,000. Other funds are - Peter Powers $120,000 for master licence, other small investors of $60,000 and Jack Barnaby should have the share issue sorted out."
Mr Callinan was asked in cross-examination how he reacted to this information. Bearing in mind that Mr Callinan claimed he had been induced to take up employment by a representation that there were Kyabram investors to the value of about $1m and his evidence that Mr Higginbottom had said "They're queuing at the door to get in on this ... "(p64), his answer was most unexpected:-
"Now, when once again Mr Reg Gillie advised raising funds over the next month and mentioned that there were two agreements in place for local investors, and that other funds were Peter Powers and small investors with $60,000, did you jump up and down at that stage and say, well, what happened to the million dollars?...At that stage negotiations were still taking place with Mr - I think it was Michael Webb about who was a potential investor and that sort of thing."(pp159-160)
There was no rancour nor any expression of disappointment in his answer. There was no suggestion that he had been misled. In fact Mr Webb, to whom he referred in his answer was based in Melbourne. I cannot accept that Mr Callinan would have answered as he did if Mr Higginbottom had made the factual assertions that were pleaded in sub-pars 8(a) and 8(b).
This evidence of the applicant contradicted his allegation that the company had already acquired investors. This is also apparent from his use of the words "potential investors" when he answered a question about what Mr Higginbottom or Mr Gillie had said to him, prior to the car park meeting, about the company's prospects:-
"Yes, it was almost part of those daily calls, particularly from Mr Higginbottom, that he had a large number of potential investors particularly from the Kyabram region and the words - I will never forget them- were, you know, "They're queuing at the door to get in on this, it's the biggest thing that's hit the town". So I was lead to believe that there were a large number of people and he advised me that quite a few people, about 20 of them were looking at about a million dollars to invest and he also mentioned in one later phone call that Melbourne investors were starting to become interested as a result, and they were talking with one potential investor who was looking at injecting quite a large sum of money, somewhere between half a million and a million dollars."(p64)
Even if Mr Higginbottom used language such as this, it was not in my opinion, language that amounted to a statement of an existing fact. It would have been no more than an expression of optimism and enthusiasm. The willingness of Mr Callinan to convert such statements of hope into assertions of existing fact cast a cloud over his evidence and his objectivity.
In my opinion it is easy to see how the bitterness of failure has soured Mr Callinan and his faith in Mr Higginbottom and his invention. In fairness to Mr Callinan, I should make it clear that I do not think that he consciously gave false evidence at any time during the trial. However, I do believe that on occasions he was confused, particularly about dates. I am also of the opinion that over a period of time he came to regard enthusiastic and optimistic expressions of opinion as assertions of fact.
In par 8 Mr Callinan made his assertions about the existence of Kyabram investors and the amount of approximately $1m. In his evidence in chief, however, he went a stage further when he claimed that Mr Higginbottom had also referred to "Melbourne investors" with one "potential investor who was looking at injecting quite a large sum of money somewhere between half a million and a million dollars" (p64). Counsel for Mr Higginbottom did not ask that an adverse inference be drawn against Mr Callinan as a result of his allegation that he had been misled by statements about Melbourne investors. He was content to rely on the concessions extracted from Mr Callinan in cross-examination that, in discussions about his employment, he had been negotiating on behalf of the company with a Mr Barnaby on that subject. Hence he was well aware of the position with respect to Melbourne investors as a result of his own investigations. I accept that submission as an accurate statement of the facts.
I am not concerned about the applicant's failure to refer to the "Melbourne investors" in the pleadings. I do not think that it would be fair to draw an adverse inference as a result of that omission. But I must reject the passage in Mr Callinan's evidence when he claimed that Mr Higginbottom had referred in a telephone conversation to Melbourne investors and thereby inferred that he had relied on that reference as a representation of fact. Mr Callinan's evidence of his own inquiries refutes such a proposition.
Training and bookings for training
At pp153-155 of the transcript, Mr Callinan admitted that he knew at all material times that the company did not have any confirmed bookings for participation in the company's training program. That admission contradicts the allegation in sub-par 8(c) of the amended Statement of Claim where it was pleaded that:-
"(c)many persons had already entered bookings into the first Respondent's training centre."
Having acknowledged that he knew that there were no confirmed bookings (p153) Mr Callinan later explained the source of this knowledge:-
"We had no confirmed bookings because we had not sent out the information seeking confirmation of bookings because we did not have an opening date."(p154)
It is possible that the representation might have been made and that Mr Callinan subsequently found out about its falsity: but that was not his evidence. He did not suggest that he remonstrated with Mr Higginbottom or that he complained about Mr Higginbottom having mislead him. Instead his evidence was that :-
"Mr Higginbottom made it clear that the refrigeration mechanics, for want of a better word, would have to come to the training centre to be trained in the new technology."(p154)
This is an example of Mr Higginbottom's enthusiasm or optimism which Mr Callinan has converted into a representation of an existing fact.
The sale of licences
In sub-par 8(d) of the amended Statement of Claim it was alleged that the company "would sell several licences for substantial amounts within the near future". In par 14 it was pleaded that this representation was "false misleading and deceptive" in that:-
"No licences were sold or attempted to be sold in June and July 1994."
I have no doubt that the sale of licences was a subject that was discussed by Mr Higginbottom and Mr Callinan before Mr Callinan made his decision to join the company. In fact, it was common ground that Mr Callinan was involved to a degree in the negotiations with a New Zealand company. However, it is not appropriate to transform such discussions, hopes and expectations into positive assertions of future facts. It is another example of Mr Callinan's ex post facto rationalisation. Mr Higginbottom denied that he gave any such assurance and I prefer his evidence.
Did the company have sufficient funds?
The allegation in sub-par 8(e) of the amended Statement of Claim was that:-
"(e)by reason of the matters referred to in (a) to (d), the first respondent would have sufficient funds to operate for at least six to eight months while it became established;"
The matters in sub-pars (a) to (d) referred to the three subjects of investors, training and licences. In my opinion this allegation was not made out. Mr Higginbottom denied that he made any such statement (p208) and Mr Callinan's own evidence contradicted the proposition that the company's financial operations would be assured in the immediate future.
First, he acknowledged that, even before he commenced working for the company, he was engaged in negotiations on its behalf with Mr Barnaby in the hope of raising finance on behalf of the company. That involvement of Mr Callinan with Mr Barnaby does not lend support to the applicant's allegation that it had been represented to him at an earlier date that the company would have sufficient funds for the immediate future. The discussions with Mr Barnaby might have been with respect to other financial matters (such as long term finance) but if that was the case Mr Callinan did not refer to it in his evidence. Under cross-examination Mr Callinan acknowledged that he knew that the company's financial position was "tight" (p155) that "it would be quite tight for the first three or four months" (p161) and that it was technically insolvent (p162).
Whilst it remains possible that the representations were made and that Mr Callinan found out about the true state of the financial affairs of the company at a later stage, I cannot regard that as a probability. He went so far as to admit in cross-examination that he expected that his salary would not be paid for the first few months "because there wasn't the cash flow to get there" (p161). I find that no such representation as that alleged in sub-par 8(e) was made to Mr Callinan. I find that, on the contrary, he knew, well before he commenced his employment that the financial position of the company was parlous. He even used his own credit to acquire assets and met expenses on the company's behalf. Mr Callinan's evidence contradicted the assertions in the pleadings that it had been represented to him that the company had funds to operate for 6 to 8 months, that such a representation had been made in order to induce him to take up employment, and that he relied on such a representation.
The term of the applicant's employment
In sub-par 8(f) of the amended Statement of Claim it was pleaded that Mr Higginbottom represented to Mr Callinan that:-
"(f)the Applicant would be assured of long term and secure employment if he took up employment with the first Respondent."
It is self-evident that such a representation must have been made at some time by someone on behalf of the company. After all, the evidence is uncontroverted on the subject. The parties discussed, initially a term of three years and later, at Mr Higginbottom's suggestion, the term was agreed at five years. In Barto v GPR Management Services Pty Limited (1991) 33 FCR 389 at 395 Wilcox J held that:-
"(C)onduct of a corporation which occurs in the course of negotiations with a prospective or present employee in respect of that person's employment contract is conduct capable of falling within s52 of the Trade Practices Act."
I respectfully agree and add that such conduct can also be capable of falling within ss51A and 53B of the TPA.
In the circumstances of this case, having regard to the fact that the applicant is not proceeding against the company, it is not necessary to make an assessment of the relevant facts for the purpose of determining which, if any, of the provisions of ss51A, 52 or 53B of the TPA apply, or might apply in aid of the applicant. However, it is necessary to consider the position of Mr Higginbottom for the purpose of determining whether any liability will or might attach to him as a person who aided, abetted, counselled or procured the company to contravene one of those provisions; (see s75B of the TPA). For the purpose of that exercise, it is convenient to assume that the company was in breach of one or more of those provisions.
Section 82 of the TPA allows a person who has suffered loss or damage by the conduct of another person that was done in contravention of a provision of Parts IV or V (and ss51A, 52 and 53B are within Part V) to "recover the amount of the loss or damage by action against that other person or against any person involved in the contravention". The applicant has claimed that Mr Higginbottom was involved in a relevant contravention; he relies upon the provisions of s75B to support that proposition. Subsection (1) of that section provides as follows:-
"A reference in this Part to a person involved in a contravention of a provision of Part IV, IVA or V shall be read as a reference to a person who:-
(a) has aided, abetted, counselled or procured the contravention;
(b) has induced, whether by threats or promises or otherwise, the contravention;
(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention."
The basis upon which the applicant contends that Mr Higginbottom is liable under s82 is that, he aided, abetted, counselled or procured the contravention: (par 75B(1)(a)); and that he had been, directly or indirectly, knowingly concerned in, or party to the contravention: (par 75B(1)(c)).
Based on the decision of the High Court in Yorke v Lucas (1985) 158 CLR 661 I do not think that either of these propositions is tenable. To apply the High Court's decision, it is important to state the relevant findings of fact in that case; the respondent, Lucas, had acted as an agent for the vendor in the sale of a business to the appellant, Yorke. The trial Judge had found that the vendor had engaged in conduct that was misleading and deceptive by falsely representing the extent of the average weekly turnover of the business. However, he dismissed the claim against Lucas, taking the view that Lucas was insufficiently aware of the relevant facts for him to be involved in the contravention within the meaning of s75B and s82 of the TPA. Even though Lucas passed on the false information about the takings to Yorke, the trial Judge made the following findings of fact:-
"The position then is and I find that Mr Lucas was not aware and had no reason to suspect, that the information concerning turnover which he relayed to Mr Yorke was incorrect. He made all appropriate inquiries from Mr Mahoney and was entitled to be satisfied with the answers he was given, particularly as the turnover figure which he was supplied was received some support from the accounts of Treasureway. He did not know of or suspect, and had no reason to suspect, the inaccuracy of the turnover figures and in no way could it be said that he acted recklessly or deliberately abstained from asking questions or pursuing enquiries."(pp665-666)
The High Court held that the trial Judge was "correct in concluding that, upon the facts as found, Lucas was not a person involved in the contravention of s52..." (pp670-671). As to par 75B(1)(a), Mason ACJ, Wilson, Deane and Dawson JJ said in their joint judgment that it was necessary to prove that Lucas had intentionally aided, abetted, counselled or procured a contravention of s52 of the TPA and the trial Judge's findings established that he lacked the knowledge necessary to form the required intent. As to par 75B(1)(c) their Honours said at p670:-
"In our view, the proper construction of par (c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention."
In the application of Yorke v Lucas (supra) to the facts of this case, the findings of fact that I have made indicate that Mr Higginbottom did not have the requisite knowledge or intention. In fact he had a belief - honestly held albeit mistaken - that the company would prosper. That belief was supported by his enthusiasm and his willingness to assign his patent rights to the company. It was supported by Mr Gillie's substantial financial commitments to the company. In fact, it also finds support in Mr Callinan's own enthusiasm.
Conclusion
Asked what had been "the trigger" that caused him to leave the practise of his profession in a firm that had been founded by his grandfather and take up employment with the company, Mr Callinan gave a long answer that commenced with his reliance on statements made by Mr Higginbottom or Mr Gillie. But as the answer progressed, a change of emphasis occurred. The answer concluded by Mr Callinan telling of his expectations of what he could do in and for the company. He said:-
"...It was a lot of statements made to me by Mr Higginbottom in particular, supported by Mr Gillie, as to the future development of the company and the way in which the company was likely to proceed. I felt that it was an opportunity for me to have a change in direction in my life, which was something that I had been through at the same time, I had been through a divorce, and all of these sorts of issues came up. At those times one does re-think, and my reaction was that it was looking good as a company that would be able to use my expertise because I could still do the patent attorney work, working for the company, and handle all of its patent and trademark and design work, be involved in the licensing negotiation, it was licensees, which I had done before, and assist in the management of the company; and I felt that the likely prospects of the company succeeding financially to make that a secure position, were sufficiently high that it was worth leaving the family firm and undertaking a change in direction."(pp47-148)
It is well established that the "representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract": Gould v Vaggelas (1985) 157 CLR 215 per Wilson J at 236. My assessment after hearing the evidence of the two men and considering the documentary material is that Mr Callinan has been unable to meet this modest standard. Irrespective of what might have been said to Mr Callinan by anyone on behalf of the company, the evidence for the applicant was not, in my opinion, sufficient to prove, on the balance of probabilities, that the alleged misrepresentations had caused Mr Callinan to make the decision to accept employment with the company.
In coming to my conclusions I have not regarded Mr Callinan as strictly bound by his pleadings. I allowed for the fact that an applicant still might succeed in this type of litigation if he or she successfully established the existence of conduct that misled or deceived even though the evidence was not in complete harmony with the pleadings. My reason for giving consideration to the contents of the applicant's amended Statement of Claim is because I have been engaged in an evidentiary evaluation. I considered that my primary task was to investigate what relevant statements were made to Mr Callinan by or on behalf of the respondents for the purpose of determining whether there were, or might have been, representations that induced him to act to his detriment. The obvious starting point in any such exercise was the evidence of Mr Callinan. When I examined that evidence I found that, in some important areas, it conflicted with the allegations that he had made in his statement of claim. That had the effect of shaking my confidence in him as a witness. Coupled with my findings that he was very enthusiastic about the invention and had been engaged professionally with respect to it since March in the preceding year and that I preferred the evidence of Mr Higginbottom, it led me to the conclusion that I was unable to rely on the evidence of Mr Callinan.
Costs
Normally, costs would follow the event and Mr Higginbottom would enjoy an order accordingly. Two matters, however, warrant a minor departure from the norm. First, Mr Higginbottom was not ready to proceed when the matter was initially called on for hearing on 28 May 1996. Time was taken while his counsel made submissions in support of an application that the trial date be vacated. That application was partially successful in that I ruled that counsel for applicant was to open his case, call Mr Callinan and lead him through his evidence in chief but that thereafter the matter would stand adjourned. As events transpired, Mr Callinan finished his evidence at 12:04 pm on the second day. In my opinion Mr Higginbottom should bear the costs of the time lost on the second day and the time lost on the first day whilst submissions were made on the issue of an adjournment.
The second matter relates to certain parts of the respondents' joint defence. It most unfairly and unreasonably attacked Mr Callinan's ability, competence and integrity. It accused him of not being faithful in his employment and not following instructions. Such allegations were inconsistent with the letter of dismissal dated 6 September 1996 which had been signed by both Mr Higginbottom and Mr Gillie. The letter made it clear that it was lack of finance that caused the company to terminate Mr Callinan's employment. There was no reference to any shortcomings in Mr Callinan or in the performance of his duties. Indeed, the letter was highly complimentary of Mr Callinan, saying that "Your expertise is definitely second to none in your own field" and that it was an "unpleasant duty" to advise Mr Callinan that his position "has been withdrawn."
Mr Higginbottom distanced himself from this part of the defence (p222-223) claiming that it was the work of Mr Gillie and that he did not know of it until a few weeks before the trial. That may be so, but the applicant was not to know that and Mr Higginbottom made no attempt to correct the position until he was in the witness box. The applicant and his advisers were required to prepare for trial upon the premise that these issues of ability, competence and integrity would be live issues. The applicant should not have to bear the burden of costs as a result of Mr Higginbottom not pursuing these matters.
In my opinion it would create an unnecessary burden on the parties if orders were made that Mr Callinan was entitled to costs with respect to certain subject matters but otherwise Mr Higginbottom was entitled to his costs. Such orders invite barren argument and dissent over the proper classification of items of work. I believe that it will be more expeditious and that justice will not be impaired if I recognise the matters that favour Mr Callinan by reducing the costs that Mr Higginbottom would otherwise enjoy. I accordingly order that the applicant pay only eighty per cent of the second respondent's costs which are to be taxed in default of agreement.
Quantum
In case the matter should go on appeal and the applicant be successful, I proceed to calculate what would have been the applicant's damages in his action against Mr Higginbottom.
1. Disbursements and costs incurred by the Applicant in the months of July to September 1994
The applicant's claim for damages including various out of-pocket expenses totalled $13,643.82. The quantum of this sum and its individual components was not challenged by Mr Higginbottom save as to one figure of $3,815.50. That was the amount of Mr Callinan's charges for professional work as a Patent Attorney. The submission on behalf of Mr Higginbottom was to the effect that this charge was incurred by the company before Mr Callinan made his decision to seek employment with the company. That is not so. Mr Callinan performed the services after he retired from his practise but before he commenced employment with the company on 1 August 1994. The applicant would have been entitled to all these expenses.
2. Non-payment of salary from 1 August 1994 until 6 September 1994
The applicant based his claim under this heading, not by relating back to what he had been receiving from Callinan & Lawrie but by claiming his gross unpaid salary for the 5 week period. In making my calculation with respect to the applicant's loss of salary I have commenced, in each case, with the calculations contained in the written memorandum dated 17 September 1996 from the applicant's solicitor. However those figures were gross and I accept the submissions from counsel for Mr Higginbottom in his submission dated 11 October 1996 that the assessment must be made on after-tax figures. I have therefore applied an arbitrary deduction of 42.5% for tax to all figures in the applicant's calculation where those figures relate to past and future losses of salary. Based on the applicant's calculations but after making an allowance for income tax, I would have allowed $8,840.00 under this head of damage.
3. Loss of salary from 6 September 1994 until judgment
The applicant was fortunate in obtaining employment with a firm of solicitors as a Patent Attorney as from 6 September 1994. His initial appointment was for a term of two years at a salary of $120,000.00 per annum gross plus superannuation. That period has now been extended to 30 June 1997. That is also the date when he will be free to resume practice as a Patent Attorney should he wish. No detailed evidence was led but I gather that Mr Callinan was subject to some form of restraint of trade that benefited his former partners.
I commence an assessment of this aspect of his damages by finding, as a probability, that Mr Callinan will continue his present employment until 30 June 1997. Thereafter he might continue in the same employment or he might revert to private practice for the balance of the period of 5 years from 1 August 1994. No evidence was led that would suggest that circumstances might lead to a premature loss of his present employment and I therefore discount that possibility. Because of the paucity of the evidence on the subject, I will proceed upon the premise that he will continue in employment after 30 June 1997 even though, in so doing, I might be denying him the opportunity to have his damages assessed at a higher earning level.
After making calculations for the value of superannuation contributions and motor vehicle expenses and adding those to his taxable incomes for the 1992, 1993 and 1994 years of income, the applicant submitted that the value of his benefits, whilst a member of Callinan & Lawrie should be quantified at about $200,000.00. This seems to be a reasonable starting point having regard to the financial affairs of the firm. I therefore agree that the gross diminution in value to the applicant having regard to his present salary and superannuation benefit is about $75,000.00 per annum before tax or about $43,000.00 after tax. Rounded off to today's date this would have amounted to about $95,000.00 and I would have allowed that sum for this period.
4. Future losses of income for the balance of the five year term
The next head of damage relates to the applicant's future income loss. This calculation would have been based upon the premise that the applicant would have served out his time as a managing director of the company for his five year term. It would also proceed that upon the premise that he would retain his present employment for the balance of five years. I have made no allowance for inflation, cost of living or merit increases as no evidence was lead on those subjects.
It is necessary to assess the present value of his future losses. In doing that, I have considered the actuarial calculations that were proffered by the applicant and the respondent's criticism of the chosen rate of 5%. I have
adopted the respondent's rate of 7% because the applicant incorrectly proceeded to make his calculations on pretax figures. The applicant's annual salary after tax loss would have been $43,200 or $830.77 per week. The multiplier for three years at 7% is 142. Those figures are taken from the schedule that was attached to the applicant's submission. The schedule came from Luntz, Assessment of Damages, 3rd Ed (Butterworth's 1990) and O'Loghlen & Wright: Accident Compensation in Victoria. The application of the multiplier to $830.77 gives a figure of $117,970.00 but this figure would have to be discounted, first, because the period is slightly less than three years and secondly, to allow for the normal contingencies of life. I would have allowed a figure of $100,00.00.
The summary of the various heads of damage at this stage are:-
1. Disbursements & Costs $ 13,643.82
2. Non-payment of salary from 1 August 1994 to
6 September 1994 $ 8,840.00
3. Loss of salary from 6 September 1994 until
judgment $ 95,000.00
4. Future losses of income for the balance
of the five year terms $100,000.00
$217,483.82
5. Interest
The applicant would have been entitled to interest on the first three heads of damage. The respondent did not object to the applicant's chosen rate of 13.2% and I will adopt it
5.1.Interest on Disbursements & Costs
of $13,643.82
The calculation would have been:-
Interest on $13,643.82 from the date of
the commencement of proceedings,
16 September 1994 to judgment being
791 days at 13.2% per annum $3,775.00
5.2.Interest on non-payment of salary from
1 August 1994 to 6 September 1994
of $8,840.00
The calculation would have been:-
Interest on $8,840.00 from the date of
commencement of proceedings,
16 September 1994 to judgment being
791 days at 13.2% per annum $2,529.00
5.3.Interest on loss of salary from
6 September 1994 until judgment
I have made these calculations using the
applicant's methodology. I have reduced
his figures by 42.5% to allow for tax
and then calculated, as he had, interest
at 13.2% with quarterly rests. An
annual pre-tax loss of $75,000.00 is
approximately $43,200.00 after
tax or $10,800.00 per quarter. The
calculations are therefore as follows:-
(i) Interest on $10,800 accruing
from the quarter ending
31/12/94 to 15/11/96 at
13.2% per annum
being 685 days $2,674.00
(ii) Interest on $10,800 accruing
from the quarter ending
31/3/95 to 15/11/96 at
13.2% per annum
being 595 days $2,323.00
(iii) Interest on $10,800 accruing
from the quarter ending
30/6/95 to 15/11/96 at
13.2% per annum
being 504 days $1,968.00
(iv) Interest on $10,800 accruing
from the quarter ending
30/9/95 to 15/11/96 at
13.2% per annum
being 412 days $1,609.00
(v) Interest on $10,800 accruing
from the quarter ending
31/12/95 to 15/11/96 at
13.2% per annum
being 320 days $1,250.00
(vi) Interest on $10,800 accruing
from the quarter ending
31/3/96 to 15/11/96 at
13.2% per annum
being 229 days $ 894.00
(vii) Interest on $10,800 accruing
from the quarter ending
30/6/96 to 15/11/96 at
13.2% per annum
being 138 days $ 539.00 $11,257.00
$17,561.00
The interest that would have been allowed therefore is a total of $17,561.00
However, having regard to my primary findings the application is dismissed. There will be judgment in favour of the second respondent against the applicant. The applicant is to pay 80% of the second respondent's costs which are to taxed in default of agreement.
I certify that this and the preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice O'Loughlin.
Associate:
Dated:
Counsel for the Applicant : Mr P Burchardt
Solicitors for the Applicant : Kliger Partners
Counsel for the Second Respondent: Mr M Shand
(on 28 and 29 May
1996) and
Mr P Ryan
(on 9-11 September
1996)
Solicitor for Second Respondent
since May 1996 : Peter S Lustig
No appearances for First and Third
Respondent
Solicitors for all Respondents
until May 1996 : Dawes & Varcy Pty
Hearing Dates : 28, 29 May and
9,10 and 11 September
1996
