Lake Cumbeline Pty Ltd & Ors v EFFEM Foods Pty Ltd (t/as Uncle Ben's of Australia) [1997] FCA 292

Original Word Document (295 KB)

LIMITED DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 522 of 1995

)

GENERAL DIVISION )

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: LAKE CUMBELINE PTY LIMITED

First Appellant

IDOBOOK PTY LIMITED

Second Appellant

PETER HORROBIN

Third Appellant

RICHARD SANDS

Fourth Appellant

RAYMOND PRIDMORE

Fifth Appellant

AND: EFFEM FOODS PTY LIMITED trading as UNCLE BEN'S OF AUSTRALIA

Respondent

JUDGES MAKING ORDERS: BEAUMONT, EINFELD AND FOSTER JJ

DATE: 24 APRIL 1997

PLACE: SYDNEY

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1. Appeal allowed in part.

2. Order a new trial of the claims made in paras. 3(b), (c) and (d) of the further amended statement of claim that, in the respects there alleged,

the respondent engaged in conduct in trade or commerce that was misleading or deceptive, or likely to be so, contrary to the provisions of s.52 of the Trade Practices Act 1974.

3. Appeal otherwise dismissed.

4. Costs of the proceedings at first instance, and on appeal, reserved. Direct that the parties file and serve written submissions on the question of costs within 60 days.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

TABLE OF CONTENTS

THE PARTIES......................................................................................................................... ‑2‑

THE W CONTRACT.............................................................................................................. ‑3‑

THE HEADS OF AGREEMENT............................................................................................. ‑7‑

THE SHAREHOLDERS' AGREEMENT DATED 30 MARCH 1987....................................... ‑9‑

THE INITIAL PERFORMANCE OF THE W CONTRACT AND THE HEADS.................. ‑11‑

Table of TIA Sales.................................................................................................................. ‑12‑

THE APPELLANTS’ PRE-INVESTMENT INVESTIGATIONS.......................................... ‑13‑

THE FAILURE OF TIA IN APRIL 1989................................................................................ ‑15‑

THE RELEVANT CLAIMS PLEADED BY THE APPELLANTS.......................................... ‑16‑

(a) The representations alleged to have been made on 16 March 1987................................ ‑16‑

(b) The representations alleged to have been made on 26 March 1987................................ ‑18‑

THE CONCLUSIONS AT FIRST INSTANCE..................................................................... ‑18‑

(a) Final conclusion............................................................................................................ ‑19‑

(b) Findings on credit......................................................................................................... ‑20‑

(c) Findings on alleged representations (ii)-(iv).................................................................... ‑20‑

(d) Findings on alleged representation (xii).......................................................................... ‑25‑

(e) Finding on alleged representation (xiii)........................................................................... ‑25‑

(f) Alleged representation (xiv)........................................................................................... ‑26‑

(g) Findings on the issue of reliance in respect of the representations alleged to have been made before 30 March 1987.................................................................................................................................... ‑27‑

THE APPELLANTS’ GROUNDS OF APPEAL.................................................................... ‑30‑

THE APPELLANTS’ WRITTEN SUBMISSIONS ON ALLEGED REPRESENTATIONS (ii), (iii) AND (iv)‑31‑

THE APPELLANTS' ORAL ARGUMENT ON ALLEGED REPRESENTATIONS (ii), (iii) AND (iv)‑38‑

THE APPELLANTS' WRITTEN SUBMISSIONS ON ALLEGED REPRESENTATIONS (xii) and (xiii) ‑71‑

THE APPELLANTS' ORAL ARGUMENTS ON ALLEGED REPRESENTATIONS (xii) AND (xiii) ‑82‑

THE APPELLANTS' ORAL ARGUMENTS IN REPLY........................................................ ‑90‑

CONCLUSIONS ON THE APPEAL.................................................................................. ‑108‑

(a) The claims said to arise out of alleged representations (ii), (iii) and (iv).......................... ‑108‑

(b) The claims said to arise out of alleged representations (xii)-(xiv)................................... ‑115‑

ORDERS.............................................................................................................................. ‑117‑

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 522 of 1995

)

GENERAL DIVISION )

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: LAKE CUMBELINE PTY LIMITED

First Appellant

IDOBOOK PTY LIMITED

Second Appellant

PETER HORROBIN

Third Appellant

RICHARD SANDS

Fourth Appellant

RAYMOND PRIDMORE

Fifth Appellant

AND: EFFEM FOODS PTY LIMITED trading as UNCLE BEN'S OF AUSTRALIA

Respondent

CORAM: BEAUMONT, EINFELD AND FOSTER JJ

DATE: 24 APRIL 1997

PLACE: SYDNEY

REASONS FOR JUDGMENT

THE COURT: This is an appeal from an order of a Judge of the Court dismissing claims made by the appellants, Lake Cumbeline Pty Limited ("Lake Cumbeline"), Idobook Pty Limited ("Idobook"), Peter Horrobin, Richard Sands and Raymond Pridmore, against the respondent, Effem Foods Pty Limited, trading as Uncle Ben's of Australia ("UBA"), for substantial damages and other relief.

THE PARTIES

Messrs Horrobin and Pridmore controlled Lake Cumbeline. Mr Horrobin, who had previously practiced as a solicitor, and had held senior positions in several large firms, and in merchant banking and finance operations, practised as a corporate consultant in Sydney. Mr Pridmore had had substantial experience in locating suitable business investments. Through Cerberus Investments Pty Limited, a company controlled by him, Mr Pridmore was engaged by Messrs Horrobin and Sands to find investment opportunities. Mr Sands, who controlled Idobrook, was an accountant and investor who was associated with Mr Horrobin’s consultancy practice and had a wide range of business interests.

Mr Lees, the main witness for UBA, had joined UBA in 1970. He had held various positions at UBA including Senior Buyer and Senior Wet Raw Materials Buyer. In the latter position, Mr Lees reported directly to Mr Ian Armstrong, the Commercial Director of UBA.

UBA, a subsidiary of a substantial American corporation, and the largest pet food manufacturer in the southern hemisphere, was a customer of Trawl Industries of Australia Pty Limited ("TIA"), which was engaged in acquiring, processing and selling fish. TIA conducted its operations from leased facilities in Geelong. It purchased fish from different fishermen, processed the fish, froze them using a blast freezer, and stored them in a cold store. During the time of the investment in TIA by Lake Cumbeline in 1987, out of which these proceedings arose, TIA attempted to establish its own fishing fleet and was, with the ultimate aim of establishing itself as a fully integrated fish supplier, negotiating to purchase the Geelong premises.

In early 1987, which is the material time for present purposes, UBA was TIA’s main customer. The relationship between UBA and TIA at the time was reflected in two particular transactions which were central to the litigation, to which reference should now be made.

THE W CONTRACT

By contract No. W17299 ("the W Contract") dated 11 February 1987, UBA agreed to buy from TIA, at the prices there specified - all prices being "FOT" Geelong and in accordance with a nominated Standard Quality Specification ("SQS") - a total of 6,250 tonnes of fish as follows:

H & G SalmonApprox. 500 tonnes

Blue Mackerel Approx. 200 tonnes

Jack Mackerel Approx. 2,000 tonnes

Australian Pilchards Approx. 3,000 tonnes

Sheba Mackerel Approx. 200 tonnes

Sheba Pilchards Approx. 350 tonnes.

Delivery was stated to be -

"As scheduled by UBA from P2 to P13, 1987."

[It appears that "P" meant a period of four weeks, so that "P2" referred to the second four week period in 1987, commencing on 29 January 1987.]

This was a substantial contract being in all for more than $4 million.

The W contract was to be performed in accordance with UBA's specifications, which were defined as the "technical descriptions" of the goods sold. UBA’s general specification, and specific specifications for particular fish, were in evidence.

SQS A62 which applied to headed and gutted salmon stated inter alia that the fish pieces "shall be frozen to -18^oC or below within eight (8) hours of the commencement of freezing. Fish must remain at or below -18^oC".

SQS A66, which applied to whole jack mackerel, stated inter alia that the fish pieces "shall be frozen to -10^oC or below within eight (8) hours of the commencement of freezing and to -18^oC or below within twenty-four (24) hours of commencement of freezing. Fish must remain at or below -18^oC".

SQS A71, which applied to Australian pilchards, stated inter alia that the fish pieces "shall be frozen to -5^oC or below within eight (8) hours of the commencement of freezing and -18^oC within 24 hours. Fish must remain at or below -18^oC".

SQS A71 further specified that there was to be "[l]ittle or no blood to be apparent on the body of the fish, or around the gills".

SQS A96, which applied to slimy mackerel, stated the freezing specifications in terms identical to those which applied to jack mackerel.

SQS A97, which applied to sheba pilchards, stated inter alia that the fish pieces "shall be frozen to -10^oC or below within five (5) hours of the commencement of freezing. Fish must be frozen to -18^oC or below within twenty-four (24) hours of the commencement of freezing. Fish must remain at or below -18^oC".

UBA contracts were also subject to a general SQS A006, the relevant portions of which are as follows:

"C. GENERAL DESCRIPTION

1. The material shall be hard frozen in blocks except where otherwise specified, and maintained in a hygienic condition

...

D. FOREIGN MATERIALS

1. Any batch containing critical contaminants such as metal, glass, stones, bone, fish hooks, wood, etc or any material injurious to animal health is not permitted.

2. Any block containing major contaminants such as unspecified fish/animal tissue, hair, vegetable matter, string or paper etc. will be rejected and will make the batch liable to rejection.

3. Added water is not permitted.

E. STORAGE

Frozen material shall be stored and maintained at -18^oC to -20^oC or below at all times. First in first out practices shall be strictly adhered to at all points of storage.

...

G. IDENTIFICATION

Either the cartons or pallet covering and or accompanying documentation must be clearly and permanently marked to enable accurate identification of:

1. Contents - By raw material code and/or SQS title

2. Supplier

3. Packing date or batch code

4. Catch date

5. Processing date (if this is not the same as 3.)."

Payment was dealt with in the W contract as follows:

"PAYMENT

14 days from date of invoice, which is to be raised as product delivered to cold store. All values include 1 week's free storage. Thereafter storage will be charged at the rate of $A2.50/pallet per week."

The following notes were added to the W contract:

"NOTES

1. Each delivery should be accompanied by a consignment note which should refer to the Contract Number above.

2. Each invoice should refer to the Contract and Consignment Note Numbers.

3. A manifest of cold storage movements must be kept and be available for inspection by UBA personnel.

4. A weekly telex of product movements and reconciliation must be sent to W Bartel at UBA."

Finally, reference should be made to some of the general conditions stated "overleaf" on the W contract.

With respect to variations to be made to the contract, clause 2 stated (in part):

"The terms contained in this Contract form shall constitute the entire contract between the parties and shall not be altered or subject to variation, except by written agreement between both parties. All oral agreements between UBA and Seller or their respective agents or employees are hereby expressly negatived."

With respect to delivery and time, it was provided by clause 6(a) that:

"(a) The Seller shall deliver the Goods in the manner prescribed at the time specified in the Contract or at the time or times nominated by UBA, as the case may be. Time shall be of the essence in so far as it relates to all obligations of the Seller.

..."

THE HEADS OF AGREEMENT

The second important transaction was evidenced in Heads of Agreement between TIA and UBA dated 26 March 1987 ("the Heads"). First, the Heads recited this:

"WHEREAS

TIA has a modern fish processing plant designed to process product for and to the specification of UBA, and has contracted for the purchase of large quantities of fish for UBA requirements.

UBA is the operator of a large scale pet food plant at Wodonga, Victoria (hereinafter the plant) and is desirous of purchasing large quantities of suitable species of fish for the plant on a regular long term basis.

By these Heads of Agreement, the parties agree:-

i TIA will sell ... processed product to UBA.

ii TIA will provide coldstore facilities to UBA.

iii UBA will buy and receive product from TIA, and store product with TIA on the terms and conditions set out below ..."

The framework of the Heads was described as follows:

"Both parties agree to establish an evergreen, continuing long term relationship for the supply of fish by TIA to UBA.

To this end, and in consideration of TIA installing a processing plant to specifically meet UBA requirements, the parties agree to structure their relationship on an ongoing basis, subject to the satisfactory performance by each of the parties of its obligations under this agreement.

And the parties agree to consult regularly to maintain and further their mutual aims as set out in this agreement."

The Heads then provided:

"EXCLUSIVELY

In consideration of TIA establishing a facility tailored to meet UBA requirements, UBA agree to source in the first instance its requirements for fish from TIA, except for product caught and processed on the west coast of Australia.

However, UBA reserves the right to purchase from any source such fish that TIA are not able to provide at a quantity, quality, price and time acceptable to UBA.

UBA further agree to assist and cooperate with TIA in their effort to source raw material fish from various fishermen and enterprises within Australia.

PRODUCTS

Fish, hard frozen, prepared and maintained in a hygienic condition, of the following species:-

A. Australian Salmon

B. Jack Mackerel

C. Australian Pilchards

D. Blue Mackerel

E. Sheba Mackerel

F. Sheba Pilchards

G. And/or any other agreed species."

The Heads went on to deal with the quality, prices and delivery as follows:

"QUALITY & PRICES

Commencing from February 1987, and for the continuing period of this agreement, the parties shall fix both a quantity and price for sale, delivery, and storage by TIA to UBA for each six month period, ensuing the expiration of each succeeding six month period.

For this purpose the parties agree to meet at least three months prior to the effective commencement of each six monthly period.

The quantity and price agreed between the parties each six months shall be formalized and embodied in a six month contract form issued by UBA, and executed by both parties, each of which shall become an effective addendum to these Heads of Agreement.

The standard conditions of contract embodied on the UBA form used for the above purpose shall be subordinated to these Heads of Agreement.

DELIVERY

UBA is to take delivery of the product, FIS at the Corio Quay Coolstore Complex occupied by TIA."

The following provision was made in the Heads with respect to technical advice and quality assurance:

"TECHNICAL ADVICE & QUALITY ASSURANCE

TIA agrees to maintain quality control procedures, to ensure that the product delivered to UBA shall accord with the UBA specification.

UBA agrees to provide technical service and assistance to TIA to enable the most effective procedures for quality control.

Further, the parties agree to maintain a continuing liaison with the objective of maintaining and where possible improving the handling and storage of the product from time of catch to delivery to UBA."

THE SHAREHOLDERS' AGREEMENT DATED 30 MARCH 1987

Also central to the litigation was the Shareholders' Agreement dated 30 March 1987, through which Lake Cumbeline made its investment. Under the agreement, negotiated with members of the Fasham family and the Wilson family (Messrs. Bruce Fasham, Jon and Gavin Wilson), who controlled Atasco Australia Pty Limited, and, in turn, TIA, Lake Cumbeline agreed to subscribe for 72,218 "B" class shares in TIA at $1.00 per share plus a premium of $23.010634 per share. It was provided (clause 4.4) that the subscription moneys would be payable on the completion date (that is, 30 March 1987) as to $734,000 and that the balance of $1,000,000 would be paid on or before 31 July 1987.

The Agreement was expressed to be subject to conditions precedent, including the following:

"PART 2 CONDITIONS PRECEDENT

2.1 This agreement and the obligations of the parties hereunder are subject to the following conditions:

(a) evidence that the Company has the continued right (on terms and conditions acceptable to the Subscriber) to continue to use the cold store, land, buildings, fish processing facilities, plant and equipment presently occupied or used by or on behalf of the Company at Geelong, Victoria;

(b) the grant of a fishing licence in respect of the vessel currently owned by the Company;

..."

The other conditions precedent were of no present significance and contained no reference to the relationship between TIA and UBA. However, this relationship was mentioned in Part 4 of the Agreement, dealing with "Completion":

"PART 4 COMPLETION

4.1 Prior to the Completion Date the Company shall make available, and the Proprietors shall procure that the Company shall make available, for inspection by the Subscriber and/or its agents or nominees all of the existing records of the Company and without limiting the generality of the foregoing in particular the following records documents and things in relation to the Company:

...

(j) The Books of Account;

(k) The Taxation Returns and Assessments for the preceding five (5) years;

(l) A budget for the Company for the period from 1st January, 1987 to 31 July, 1987 acceptable to the Subscriber;

(m) A copy of a contract acceptable to the Subscriber between the Company and Effem Foods Pty Ltd trading as Uncle Ben's of Australia for the supply of fish by the Company to Effem Foods Pty Ltd. [emphasis added]

(n) All other, records, documents and papers relating to its business and property in proper order and condition and fully entered up so as to disclose all information relating to its affairs and complying with all statutory requirements."

In Part 10 of the Agreement, several warranties were given, but none are presently material. Again, no reference was made to the relationship between TIA and UBA.

THE INITIAL PERFORMANCE OF THE W CONTRACT AND THE HEADSINITIAL PERFORMANCE OF THE W CONTRACT AND THE HEADS

In the period between March and June 1987, TIA made large deliveries of jack mackerel to UBA, sufficient to discharge its obligations in that regard, under the W contract. But deliveries of pilchards, although substantial, were less than contracted for and there were virtually no deliveries of salmon.

On 8 July 1987, contract W 17402 issued, replacing the W contract, providing for sales of 2,460 tonnes of fish to be delivered between July and December 1987. On 10 September 1987, UBA purported to cancel contract W17402, but continued to take supplies until June 1989.

In the period of more than two years from March 1987 to June 1989, as the table below indicates, TIA delivered 5,831 tonnes of fish to UBA, that is, over a period of more than two years, 419 tonnes less than the amount specified in the W contract to be delivered over an 11 month period.

Table of TIA Salesof TIA Sales [shown in kg]

"TRAWL INDUSTRIES OF AUSTRALIA - FISH SALES

MONTH

UBA Sales

Pilchards (kg)

UBA Sales

Mackerel (kg)

UBA Sales

Salmon (kg)

UBA Sales

Other (kg)

UBA Sales

Total

Non UBA

Sales

Total Sales

_____________________________________________________________________________________________________________________________________

Mar-87

Apr-87

May-87

Jun-87

Jul-87

Aug-87

Sep-87

Oct-87

Nov-87

Dec-87

Jan-88

Feb-88

Mar-88

Apr-88

May-88

Jun-88

Jul-88

Aug-88

Sep-88

Oct-88

Nov-88

Dec-88

Jan-89

Feb-89

Mar-89

Apr-89

May-89

Jun-89

224,270

136,553

202,655

18,577

6,170

10,579

40,389

9,661

98,034

255,506

164,245

17,222

96,145

167,768

88,499

22,900

51,164

68,244

157,457

350,821

249,717

229,814

784,614

1,066,881

206,332

6,638

18,874

83,477

36,845

129,707

221,550

154,669

10,480

11,796

11,099

52,307

88,382

9,602

165

4,015

46,514

20,596

12,342

3,317

6,739

5,657

2,426

506,391

1,056,063

1,299,734

224,909

6,176

22,721

43,706

16,565

98,034

2,255,506

170,883

206,096

83,477

36,845

129,707

321,710

322,437

88,499

22,900

67,300

82,466

168,556

350,821

249,717

19,765

25,942

12,534

41,945

93,240

129,161

14,158

6,010

88,085

81,313

10,900

5,500

53,680

23,937

33,127

15,505

31,428

42,769

40,704

526156

1082005

1299734

224909

6176

35255

43706

58510

93240

227195

269664

176293

206164

171562

118158

140607

327210

376116

112436

56027

82802

113894

211325

281525

249717

_____________________________________________________________________________________________________________________________________

TOTAL

2,436,581

3,142,774

154,471

97,391

5,831,246

769,767

6600983

____________________________________________________________________________________________________________________________________"

THE APPELLANTS’ PRE-INVESTMENT INVESTIGATIONS

The learned primary Judge described the history of the appellants’ "pre-investment investigations". This is a critical aspect of the matter and a full reference should be made to it as follows (at 21-6):

"The main investigations in relation to the investment on 30 March 1987 were made by Pridmore. In February 1987 he met with Fasham and J Wilson who discussed the Trawl operation with him. He subsequently had several conversations with J Wilson and Fasham during that month. During one of those conversations he was shown an unsigned copy of a contract for the purchase of the Geelong Cold Stores situated at Corio Quay North, Geelong. He was not given a copy of this contract. He also obtained a draft of the 26 March 1987 Heads of Agreement with UBA. In March 1987 he discussed the results of his investigation of Trawl with Horrobin and Sands, and decided to make further investigations. In March 1987, he got a copy of purchase order W17299 and a costing document.

Prior to 18 March 1987 he visited ANZ and saw a Mr Goldsworthy ("Goldsworthy"). He took steps to seek verification from Goldsworthy in relation to Trawl and the good standing of the Atasco directors. These inquiries were made under time constraints because of the need to obtain the relevant Minister's consent to purchase the Corio Quay facility; that is, the cold store at Geelong. He said there was less time than usual to chase up contingent liabilities and "things of that nature". Accordingly, the applicants took indemnities from the vendors to cover those contingencies. He said that the visit to ANZ was to assure the applicants that the vendors were in fact able to meet the indemnities. He discovered that Trawl had two overdrafts which totalled $1 million. His understanding at that time was that Trawl was in some financial difficulty. He relayed the results of his inquiries as to the financial position of Trawl with ANZ and the State Bank of Victoria to Horrobin and Sands. He regarded it as essential that the vendors should give indemnities and he relied on those indemnities.

He agreed that there was no consideration given to the possibility of Trawl raising its own funds since it was always assumed that it would not need its own funds and that the input from Cumbeline would have been sufficient to carry the venture through. His understanding before the investment was that if Trawl had its own vessels, factory, blast freezer and storage, it provided a unique asset in Australia.

He could not recall whether he saw a set of accounts for year ended 30 June 1986 before the investment. The probability is that he did not. He said that this situation would be unusual but it would also be "inconsequential in terms
of this investment". He said that he sat down with Trawl's accountant to examine the general ledger, the costing sheets and working papers.

He sought information as to the business ability, character and financial capacity of the Atasco directors.

Prior to the investment he obtained a letter from the Port of Geelong Authority ("PGA") confirming that the Minister had approved a new lease of the cold store premises to Trawl. On 26 March 1987 he obtained a letter from Fasham confirming conversations about work necessary to be done to meet the requirements of UBA. He was assured by Fasham that there were no outstanding works or further plant to be installed to meet any requirements of UBA. He wanted confirmation about the existence of a replacement agreement with UBA and got confirmation in the letter.

The shareholders' agreement required as a condition precedent that fishing licence endorsement should be provided for the south-east trawl region in respect of the "Allied Star". He said that this condition was waived before completion. He agreed that the applicants obtained a comprehensive set of warranties prior to investment as these were essential for this transaction in the applicants' view. He undertook his own financial investigation of the financial position of Trawl and was satisfied with that investigation. He obtained a copy of the executed Heads of Agreement of 26 March 1987 on or about that date. The applicants were content with these Heads of Agreement. His understanding was that the agreement imposed no obligation on either party to supply or accept fish in the absence of an agreement as to price, but said this was in the context of a cost plus method of negotiating price. [emphasis added]

The main input of Sands prior to the investment was to obtain information to prepare computer models and to make a projection as to the future operations of Trawl. The Heads of Agreement of 26 March 1987 and Contract W17299 were the only documentary evidence he saw prior to 30 March 1987, which supported his understanding of the "exclusive" arrangement with UBA. He was party to discussions with Atasco representatives on 9 March 1987. He was not party to the discussions with Lees on 18 March 1987 (which are referred to in more detail below), but was informed of them. He made some investigation of the accounting records. Sands prepared the budget which was attached to the shareholders' agreement. He agreed that the profit gross margins were attractive. He believed that the assumptions in the budget were realistic and capable of achievement. He prepared the budget in consultation with Horrobin and Pridmore and it reflected his own independent investigation of the business prospects of Trawl. [emphasis added]

Sands analysed Pridmore's material and discussed matters with Pridmore and prepared draft computer models. He also had discussions with Horrobin, but as far as the investigation was concerned, he didn't do anything else. He said that Pridmore had been employed to do the investigation. He said he had
received a balance sheet from Pridmore, but he made no investigation of the accounting records prior to 30 March 1987. He understood that Pridmore had looked at those records. J Wilson had produced some accounts for 28 February 1987.

Horrobin was aware that Trawl was in a very unhealthy situation for a trading company, without an injection of capital. His interest was principally in respect of one item, namely the gross profit made for the month of February 1987 on increased sales of fish. He formed the view that the profitability of the company was strongly increasing from what was previously, in his understanding, a start-up phase. He left the investigations basically to Sands and Pridmore and did not himself engage in that exercise. He did not examine any of the accounting records, but left this to Pridmore. He said that the applicants decided to invest after Sands had prepared a computer model which showed what the adjusted figures on performance of the contract looked like. He referred to various computer models having been prepared by Sands up to 30 March 1987. He considered that the timing of the investment became important after 9 March 1987 because he was told that the Victorian Minister for Transport was threatening to cancel the sale of the cold stores at Geelong to Trawl. As best he could recollect, this was about 12 March 1987. [emphasis added]

He agreed that the applicants were of the opinion that for $2 million they had bought into a company which had a "fantastic" future so far as profitability was concerned and that it had strong early cash flows and the potential for growth.

The only investigations that Horrobin personally made before 30 March 1987 was at the brief meeting with J Wilson and Fasham on 9 March 1987 and a visit to Geelong on 18 March 1987, when he looked at the plant and talked to some people, and also had discussions with the Atasco shareholders. The only direct inquiries made by Horrobin of UBA were those discussions which he had with Lees on 18 March 1987, which lasted in the order of 15-30 minutes. He was interested in the model projections prepared by Sands."

THE FAILURE OF TIA IN APRIL 1989

It was common ground that Lake Cumbeline lost the value of its investment in TIA; and that Idobook lent large sums of money to TIA and to Lake Cumbeline which were irrecoverable. TIA went into receivership in April 1989, and into liquidation in August 1990. The personal appellants have, by themselves or through companies controlled by them, lost large amounts of money and face substantial liabilities on guarantees given to banks in this connection.

THE RELEVANT CLAIMS PLEADED BY THE APPELLANTS

Not all of the many claims made by the appellants at first instance were pursued on appeal. The claims still relied on were pleaded by the appellants as follows:

(a) The representations alleged to have been made on 16 March 1987(a) The representations alleged to have been made on 16 March 1987

By their further amended statement of claim, the appellants alleged (para.3) that, on or about 16 March 1987, UBA represented to Lake Cumbeline:

"...

(b) that it intended to honour its obligations under that contract [alleged representation (ii)];

(c) that the contract was a genuine one intended to be fulfilled by the parties to it [alleged representation (iii)]; and

(d) that [TIA] presently had and/or would have the ability and capacity to supply that 6250 tonnes of fish in accordance with the terms and conditions of the said contract [alleged representation (iv)]."

The appellants gave the following particulars of the alleged representations:

"The representations were in writing or alternatively partly in writing and partly to be inferred from conduct. In so far as the representations were in writing they are contained in or evidenced by UBA's contract dated 11 February 1987 No. W17299. In so far as the representations are to be inferred from conduct, the relevant conduct was that UBA knew that the then shareholders of [TIA] were going to show the contract to potential investors with the view to seeking to induce such persons to invest by way of capital or loan in [TIA] and further knew or ought to have known that those potential investors had little or no knowledge of [TIA], its ability or capacity to fulfil the contract or of the discussions and relationship between [TIA] and UBA."

In alleging (para.4) that the representations were false or likely to mislead, the following particulars were provided by the appellants:

"(a) UBA did not regard the contract as a legally binding one.

(b) UBA had no intention of honouring the contract if it did not suit its commercial purposes to do so.

(c) The document said to be the contract was never intended by UBA to embody or record a binding agreement between UBA and [TIA] but rather was intended by UBA to be used as a means to induce investment in [TIA] by third parties.

(d) UBA knew [TIA] did not have the capacity or ability to supply to it the specified quantity of product in accordance with the terms of the said contract or alternatively did not have reasonable grounds for believing that [TIA] had that capacity or ability."

The conduct thus alleged was also said to constitute fraud and negligence at common law.

Lake Cumbeline further alleged (para.6) that, acting on the faith of the representations pleaded, Lake Cumbeline invested substantial amounts of money in TIA and lent money to TIA; that Idobook lent monies to Lake Cumbeline to enable it to make the said investment and loans; that Messrs Horrobin, Sands and Pridmore guaranteed certain obligations of TIA with the ANZ Bank; and that TIA expended the funds which had been invested in and lent to it.

It was then said and, as has been noted, this was not disputed, that TIA had lost the value of the funds lent to it and that, having had receivers appointed in April 1989 and liquidators appointed in August 1990, TIA was unable to repay those funds.

The appellants further alleged (para.7) that, by reason of UBA's conduct, Lake Cumbeline lost the value of its investment and expenditure or, alternatively, the value of the investment was much less than at the time when it was made; Idobook was unable or likely to be unable
to recover in whole or in part the monies advanced to Lake Cumbeline; Lake Cumbeline was unable or likely to be unable to recover in whole or in part the monies advanced to TIA; Messrs Horrobin, Sands and Pridmore were likely to be required to pay out monies to the ANZ Bank pursuant to their guarantees; and Lake Cumbeline and Idobook lost the opportunity of investing these monies in activities that would have generated profit for them and lost the value of subsequent investments and expenditures.

(b) The representations alleged to have been made on 26 March 1987(b) The representations alleged to have been made on 26 March 1987

It was further alleged by the appellants (para.20) that, on or about 26 March 1987, UBA represented to them in writing in the form of a contract between TIA and UBA dated 26 March 1987 (that, is the Heads) that it would:

"(a) establish with [TIA] an evergreen, continuing long-term relationship for the supply of fish by [TIA] to UBA [alleged representation (xii)];

(b) source in the first instance its requirements for fish from [TIA] except for Western Australia [alleged representation (xiii)];

(c) assist and co-operate with [TIA] in its effort to source raw material fish from various fishermen and enterprises within Australia [alleged representation (xiv)]."

These representations were said by Lake Cumbeline (para.21) to be false and misleading. Reliance and loss and damage, were also pleaded in similar terms. Common law counts were added as before.

THE CONCLUSIONS AT FIRST INSTANCE

As has been said, the appellants advanced many claims at first instance, and some are no longer pursued. In all, some 24 representations were pleaded in the further amended statement of claim; four said to have been made on 16 March 1987, seven on 18 March, three on 26 March, one each in April, June and August [or September] 1987, two in September 1987, one in the period October 1987 - January 1988, and two each in February and March 1988. His Honour found that, with one exception, none of the misrepresentations pleaded were proved. The trial judge did find that the representations alleged to have been made in August (or September) 1987 that UBA had never offered to buy fish from Mr Harry Mitchelson and had no intention of doing so, was made, but that the appellants did not rely on it. Neither finding is now challenged.

Several of the representations alleged were said to have been made orally. Their making was disputed and the credit of the witnesses in this aspect of the proceedings was, of course, very important.

(a) Final conclusion(a) Final conclusion

The primary Judge said (at 122-3):

"... my final conclusion is that having regard to the seven to eight year period that has elapsed between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on. The witnesses in this case unfortunately did not come within that exceptional class. The discussions referred to in evidence were capable of bearing quite opposed meanings depending on subtle differences of nuance and emphasis, and a proper appreciation of the significance of those matters must necessarily be considerably diminished over such a long period of time. [emphasis added]

Due to the detailed cross-examination of each of the major witnesses over many days, I had the opportunity to observe and appraise the reliability of their evidence."

(b) Findings on credit

His Honour made adverse findings on the credit of Messrs Horrobin, Pridmore and Sands. His Honour also found that Mr Lees was generally an unsatisfactory witness, saying (at 139):

"Again, as in the case of the three individual applicants, I do not accept Lees' uncorroborated oral evidence of conversations or representations made up to 7 years ago, unless otherwise admitted. I prefer to rely on the documentation and objective circumstances and behaviour as disclosed in the evidence." [emphasis added]

It will be recalled that representations (ii), (iii) and (iv), said to have been made on 16 March 1987 partly in writing and partly by conduct, were as follows:

• That UBA intended to honour its obligations under that contract (alleged representation (ii)).

• That the contract was a genuine contract intended to be fulfilled by the parties to it (alleged representation (iii)).

• That TIA presently had and/or would have the ability and capacity to supply 6,250 tonnes of fish in accordance with the terms and conditions of the contract (alleged representation (iv)).

The primary Judge found (at 156) that the individual appellants were "clearly aware" of the W contract before they entered into the Shareholders' Agreement. His Honour turned next to UBA's position.

The primary Judge accepted (at 156), on this point, the evidence of Mr Lees that, in contrast with Mr Lees’ view of the Heads, Mr Lees regarded the W contracts as binding. His Honour found that Mr Lees regarded the W contract as a genuine binding contract.

His Honour said (at 156):

"The commitment on the part of UBA to take up to 6,250 tonnes of fish was honoured by UBA. In the three months after February 1987, UBA accepted and paid for all the fish which [TIA] was able to supply.

During the months of March, April and May 1987, [TIA] supplied and UBA accepted under W17299, fish to a total value of $1.836 million.

The above evidence, in my view, supports the conclusion that UBA regarded this contract as genuine and binding. There was never any suggestion from UBA that it was not prepared to take any of the fish contracted for under W17299 and which [TIA] was able to supply at the prices and on the terms set out in that contract. Indeed, W17299 provides for the sale of approximately 2000 tonnes of jack mackerel over an 11 month period. In fact UBA accepted 2,287.641 tonnes of jack mackerel over a 3 month period."

After referring to the absence of any complaint by TIA that UBA was not honouring its commitments under the W contract, the Judge said (at 157-8):

"The complaint made by [TIA] was rather that UBA was not taking its fish out fast enough from the cold store at Geelong to enable [TIA] to fulfil its contract and not that UBA was not prepared to take the fish.

In the months up to the end of May 1987, UBA had accepted about 45% of the total order scheduled in that contract to be taken by UBA over the 11 month period from January to the end of December 1987 which represents periods P2-P13 as provided for in W17299. [TIA] was unable to supply because it was not getting deliveries of pilchards from the suppliers and the fish were not being taken out of the cold store quickly enough, because the store could not cope with the rate at which the fish were being processed.

In other words, the inability stemmed not from the capacity or inability of the plant to process the fish, but rather from the failure of supply together with the failure of UBA to take out the fish promptly after processing."

His Honour rejected (at 158) the suggestion that the W contract was a sham, brought into existence simply to attract potential investors, finding rather (at 159) that it was a "binding, legally enforceable contractual commitment on the part of UBA".

Later in his reasons, the Judge said (at 169-170):

"Historically, [TIA] had supplied only in the order of 10% of the quantities contracted for up to February 1987. Therefore, it is said for the applicants that UBA (Lees) could have no genuine belief in [TIA's] ability to meet W17299. It is said that W17299 involved substantial increases in tonnages and prices inserted to make [TIA] a more attractive proposition to a potential investor. However, by the time W17299 had been given to [TIA] on 26 February 1987, it is clear that Lees knew that [TIA] was negotiating to obtain the Corio Quay complex with the result that [TIA] would have greater control. Also, Lees had been informed by [TIA] that an 18 fishermen delegation had undertaken to supply 2,500 tonnes of pilchards. The purchase of Corio Quay would eliminate the nine day fortnight limitation. The pilchard arrangement with the fishermen indicated that [TIA] had already made arrangements for the supply of over 80% of the pilchards needed to meet W17299 and this fact was known to UBA."

His Honour went on to say (at 170-2):

"Both sides throughout treated the `W' contracts as binding commitments which they sought to perform. UBA took delivery and paid for all fish supplied by [TIA], which met specification, and [TIA] endeavoured, in turn, although ineffectively to a large extent, to meet its commitments under the contract.

In view of this conduct the contract W17299 was clearly not treated or regarded as false or as `a sham' by UBA and this supports the view that it was not different to what it appeared on its face to be, namely, a contract to take fish intended to be binding on the parties.

The true position is that not only was W17299 a binding enforceable contract which imposed clearly defined rights and obligations on the parties, but it appeared to be such on its face and was treated throughout as such a contract by both parties to it.

There is in my view no substance in the argument that W17299 either by itself or coupled with any silence or conduct on the part of UBA amounted to a representation to the effect alleged.

However, even contrary to my view, if there was such representation it was true in that UBA intended to be bound by it and to honour its commitment, and there was therefore no misrepresentation or misleading or deceptive conduct in relation to this contract by UBA."

In rejecting the appellants' claim in respect of alleged misrepresentation (iv) his Honour gave these reasons (at 160-1):

"(a) The representation is not said to come from anything stated to any of the applicants by UBA. It must be derived from the contract itself and silence on the part of UBA in the context of the circumstances in which it was signed and issued. Contract W17299 was made with [TIA], not the applicants.

(b) The contract speaks for itself and has its own operation and legal effect. The only representation by UBA in issuing the order made is that the contract exists in the form in which it has been executed and issued with the legal effect it has on its face.

(c) The act of issuing the document, even if the beliefs and knowledge suggested were held, is not a representation in itself.

(d) The belief or understanding of UBA that investors would or might rely on the contract does not of itself make the contract a representation.

(e) It was not realistic or reasonable to expect UBA to express any belief it had as to the inability of [TIA] to perform before 18 March 1987 or after that date and before 30 March 1987. Such an expression of opinion could have involved UBA in litigation with [TIA] if the investment did not proceed.

(f) The surrounding circumstances, prior history and context, did not give rise to a duty in UBA to make known its doubts to the applicants. ..."

His Honour went on (at 162-3) to add these reasons in this connection:

"(g) It has not been demonstrated that it is likely UBA was convinced that [TIA] did not in fact have the ability and capacity to supply and process the 6,250 tonnes or would not do so. The weight of the evidence is to the contrary.

(h) It would generally be unreasonable, except possibly in cases of fraud or sham transactions, which do not represent the present situation, that a buyer of goods signing a contract to buy is taken to thereby represent to third parties such as potential investors or lenders, that the supplier has the capacity and ability to supply, with the consequence that it could be sued for misrepresentation by the third party if the seller fails.

(i) Entry into a supply contract for raw materials with a manufacturer may be presented to investors or lenders to assist in the raising of finance. This does not give rise to a duty in the manufacturer-buyer for example, to investigate, for the benefit of the potential investors, the resources and capacity of the supplier or give rise to a duty in the buyer to contact, discuss with and enlighten the investor as to its doubts, if any, about the supplier. It would not be reasonable to expect it to investigate the resources and capacity of the supplier for the benefit of other parties. Furthermore, it is not possible to limit the point at which the category of potential investor or lender cuts out. For example, in the present case the immediate investor was Cumbeline. Additional liabilities were incurred by Horrobin, Sands and their companies. ANZ was responsible for funding. One must ask whether the duty alleged extends to all the investors or lenders and how far that liability extended? These are matters which tell against the suggestion that such a duty exists.

(j) This is particularly so in an industry such as the fishing industry where supply depends on the ability to catch fish. ..."

The Judge concluded (at 164-5) that the W contract should not be read as representing that fish would in fact be caught or be supplied to UBA by TIA: the supply of fish to TIA was in the hands of the fisherman who sold it, and this supply was dependent on inevitable seasonal and other fluctuations in catch. Moreover, his Honour found that, even if a representation could have been spelt out of the contract to the effect that TIA's plant would be able to process fish in the contractual tonnages, UBA had reasonable grounds for making such a representation.

(d) Findings on alleged representation (xii)

It will be recalled that alleged representation (xii) was that UBA would establish with TIA an evergreen, continuing long-term relationship for the supply of fish by TIA to UBA and that these words were used in the Heads under the sub-heading "Framework of Agreement". Finding that there was no misrepresentation, the primary Judge said (at 208):

"In my view, this clause is in the nature of a general recital to an agreement which records that the parties envisage a continuing relationship for the supply of fish and this ongoing relationship was to be subject to the performance by the parties of their contractual obligations as to specifications, quality, delivery, pick-up, storage and payment. It clearly does indicate at that time both parties contemplated a business relationship extending over an indefinite long term period.

In my view, the clause does amount to a representation, albeit in the limited sense referred to above in my view, but I do not consider that it was false or that UBA as at 26 March 1987 did not intend to have a continuing long term relationship with [TIA] for the supply of fish and in fact it did continue in a supply arrangement with [TIA] until 1989."

(e) Finding on alleged representation (xiii)(e) Finding on alleged representation (xiii)

It will be recalled that alleged representation (xiii) was that UBA would source in the first instance its requirements of fish from TIA, except in the case of Western Australia, and that words to this effect were used in the Heads, save that there was there added a proviso whereby UBA reserved the right to purchase from any source such fish that TIA were not able to provide "at the quantity, quality, price and time acceptable to UBA".

His Honour said (at 215):

"There is no representation to be gathered from the Heads of Agreement that UBA would accept any particular terms, nor is there any mechanism, formula or standard by which to predict or fix any particular price, quality, quantity or timing as resulting from the negotiations."

His Honour went on to hold (at 216) that the relevant provision in the Heads gave only "a right to negotiate which in the face of disagreement by UBA would prove to be barren".

Accordingly, the Judge held that there was no misrepresentation made in the Heads or otherwise. His Honour added (at 217):

"In fact UBA took all the fish contracted for which [TIA] was able to supply. Supplies from other sources were over and above those which [TIA] could supply and in some instances UBA took more fish than it was required to under its contract. For example, in the case of mackerel in the first 3 months of contract W17299 it took substantially more than it was contractually bound to."

(f) Alleged representation (xiv)(f) Alleged representation (xiv)

It will further be recalled that in the provision in the Heads dealing with "Exclusivity", it was provided that UBA agreed "to assist and co-operate with TIA in its effort to source raw material fish from various fishermen and enterprises within Australia".

His Honour referred to Mr Lees' evidence that he did not regard this provision as creating a legally binding obligation and went on to say (at 218):

"In my view the clause in question was a representation of a general willingness to give assistance and co-operation in sourcing fish. It is understandable that a fish buyer such as Lees should see a general provision of this kind as being unenforceable. I accept that Lees was willing to assist and co-operate with [TIA] in the event that this assistance was asked for and to give assistance and co-operation where the need for such assistance and co-operation became obvious.

I am not satisfied that there was any misrepresentation established in relation to this matter. I do not think that it can be implied into this general assurance that UBA would not seek to get supplies of fish from fishermen and enterprises other than [TIA]. It was not shown that by UBA approaching other fishermen [TIA] had suffered any reduction in its supply to UBA."

(g) Findings on the issue of reliance in respect of the representations alleged to have been made before 30 March 1987

As has been mentioned, the primary Judge further held that, even if any of these representations had been made, the appellants did not rely on them in deciding to invest in TIA. His Honour said (at 247-8):

"The individual applicants were astute, experienced and sophisticated investors with a broad and long history in banking, investment, law and commerce. It is, of course, true that they had no experience in, or knowledge of, the fishing industry. However, in my opinion it is inherently improbable that businessmen with such extensive experience would rely on oral statements made at a chance meeting in a 15-30 minute discussion before committing $2 million to purchase shares in a company such as [TIA].

It is highly significant that no specific record of any kind was made at any time, by any of the applicants, in relation to any of the oral representations. Nor was there any attempt to confirm or record in writing, prior to, on or after 30 March 1987, any of the understandings, arrangements, and commitments allegedly made on behalf of UBA which the applicants say they understood to be derived from the Heads of Agreement or the `W' contracts or any other written material allegedly relied on. There is no correspondence, diary note, memorandum or written record of the representations, nor of any of the assurances said to have been given orally. In particular there is no confirmatory letter or note written to UBA." [emphasis added]

The Judge also (at 249) saw significance in the representations, undertakings, warranties and conditions precedent which were set out in the Shareholders' Agreement signed on 30 March 1987. Letters confirming the assurances made by Mr Fasham were sought and obtained by Mr Horrobin on 26 March 1987. So too were letters confirming the consent of the ANZ Bank to the proposed allotment of shares to Lake Cumbeline and assurances were obtained from the Bank that TIA was not included in cross guarantees of other companies in the Atasco Group. Yet, the primary Judge said (at 253), no attempt was made to include any reference to the oral assurances allegedly given by UBA in the Shareholders' Agreement, or
to make the Agreement conditional on such assurances, or to otherwise confirm in writing any such assurances.

The appellants were, his Honour found (at 250), persuaded to acquire the TIA interest because it was seen as an "extremely attractive, if not irresistible investment". In this connection, his Honour referred to evidence that Mr Sands had instructed Lake Cumbeline's solicitors to prepare a comprehensive agreement in relation to the proposed purchase on 16 March 1987, that is, prior to the meeting with Mr Lees on 18 March. Preparation of that kind indicated, the Judge said, "a substantial attraction to the venture" at that time.

Reference was also made by his Honour (at 251) to a spreadsheet prepared by Mr Sands, and forwarded to First National Limited on 2 April 1987, three days after the Shareholders Agreement had been signed. His Honour noted (at 253) that this spreadsheet indicated a profit of about $3.24 million in the period to December 1987 alone, based on a supply capacity of almost 15,000 tonnes of fish by January 1988.

The Judge also found (at 253) that the appellants' belief in the Tasmanian government's intention to close the existing jack mackerel grounds to all but existing licence holders was another operative and persuasive inducement to the investment. The purchase of vessels entitled to fish in the enclosed mackerel grounds would increase the capital value of the boats, whose licences were transferable.

The primary Judge made a specific finding (at 254) that, prior to April 1987, the appellants regarded the investment in TIA as a "venture capital" proposal, a short term, high profit investment. His Honour referred to a facsimile memorandum written by Mr Horrobin in January 1988 in which Lake Cumbeline’s role was described as a "venture capital financier". While acknowledging that this memorandum was written 8 months after the initial investment, his Honour found (at 255) that, nonetheless it was an accurate reflection of the approach taken by the appellants to their investment.

The primary Judge, finding (at 255-6) that a major factor in inducing the appellants' investment in TIA was their assessment of the location and size of the TIA processing plant at Geelong, said:

"The importance of the perceived unique position of the location of [TIA's] processing plant and the consequent strategic marketing advantages which this conferred were a most important feature in attracting the investment. In a situation where the [appellants] considered that [TIA] had a strong competitive advantage over other suppliers, it was not nearly as essential for them to rely on assurances from UBA, because the fact was, to their thinking, that they were able to rely on the great economic and commercial strategic advantage which the location and size of the plant provided. This in my view was a major inducing factor."

His Honour added (at 256) that Mr Horrobin’s failure to consider the great shortfall in supply in the contract in the previous two years indicated "a certain degree of selective blindness".

Finally, his Honour found (at 257-8) support for his conclusions in the evidence of Mr Lonergan, an expert accountant and investment consultant, called by the respondents. In Mr Lonergan’s opinion, TIA was, on its face, worth considerably less than the $2 million paid by Cumbeline. He referred to TIA's history of losses, and to its budgeted loss of
$821,000 for the year ended 30 June 1987. In his view, statements of such losses would have put a purchaser on inquiry. The Judge said (at 258-9):

"The significant fact is that the matters raised by Mr Lonergan were not examined nor appreciated by the [appellants] prior to investment, and this is consistent with a strong conviction in their minds that this investment was so good that they could not wait to get a substantial interest in [TIA]."

THE APPELLANTS’ GROUNDS OF APPEALAPPELLANTS’ GROUNDS OF APPEAL

The appellants challenge the conclusion of the primary Judge that they had failed to establish, by reference to alleged representations (ii), (iii), (iv), (xii) and (xiii), that UBA had engaged in misleading or deceptive conduct. The appellants then challenge his Honour's conclusions that if, contrary to his finding, they could demonstrate misleading conduct by UBA, the appellants did not rely on any of those representations in deciding to make their investment.

Senior Counsel for the appellants contended that the primary Judge's usual advantage in seeing and hearing the witnesses (see Abalos v Australian Postal Commission (1990) 171 CLR 167 per McHugh J at 179; Devries v Australian National Railways Commission (1992) 117 CLR 472) was immaterial here because of the primary Judge's technique of relying on the objective surrounding circumstances and the contemporary documents. Counsel submitted that it was open to the appellants to adopt the same method and to refer to the oral evidence only where a fact was common ground, or where the oral evidence contained an admission by a witness called by UBA.

Counsel submitted that his Honour's process of reasoning was "invalidated" by virtue of "inconsistent" factual findings, findings "unsupported" by or "inconsistent" with the evidence, by taking, in effect, judicial notice of "supposed" commercial "practice" without the evidence needed to establish such matters, and logical errors. The appellants claimed that they "base[d]" their submissions "substantially on identifiable discrepancies" between the contemporaneous documents stated to be relied upon by the primary Judge and the findings of his Honour. Counsel invited the Court, in effect, to make its own factual findings which, they said, justified a finding in Lake Cumbeline's favour on the issue of liability, or, at the least, warranted the grant of a new trial.

These submissions were fully developed in written and oral submissions and it will be convenient to go first to the appellants’ written submissions on the question whether the primary Judge erred in not making a finding that alleged representations (ii), (iii) and (iv) were made out.

THE APPELLANTS’ WRITTEN SUBMISSIONS ON ALLEGED REPRESENTATIONS (ii), (iii) AND (iv)APPELLANTS’ WRITTEN SUBMISSIONS ON ALLEGED REPRESENTATIONS (ii), (iii) AND (iv)

The appellants submit that the primary Judge should not have found that UBA intended to be bound by the W contract. They further submit that his Honour erred in concluding (at 171) that the W contract was a "binding enforceable contract which imposed clearly defined rights and obligations on the parties" and that it was treated as such by the parties to it.

The appellants rely upon the following evidence:

• When Mr Lees issued the W contract he and Gordon McBurnie (also a Senior Wet Raw Materials Buyer for UBA) were, according to their own evidence, aware of the limitations on the capacity of TIA to process and store the amount and quality of fish described in the W contract.

• When Mr Lees issued the W contract he was aware of TIA’s "consistent and significant under-performance of [its] existing contractual obligations [to UBA]".

• Prices and quantities in the W contract were "significantly above" those in W17264, dated 14 January 1987, and were contrary to UBA’s general policy of achieving "significant savings" in raw materials.

• When Lees issued the W contract UBA had entered, or was about to enter, into supply arrangements which, if performed, would have exceeded UBA’s projected requirements.

• Mr Lees, contrary to his usual practice, did not satisfy himself as to the capacity of TIA to perform the W contract.

• If the fulfilment of the W contract with TIA was not to produce significant oversupply to UBA, the company's practice of over-commitment depended upon substantial under-performance by their other suppliers. At the relevant time, there was no evidence of such under-performance.

• The appellants rely on the evidence of Mr McBurnie that neither he nor Mr Lees ever believed that TIA would be able to fulfil the requirements of the UBA contracts: at
a discussion between Mr McBurnie and Mr Horrobin, in the presence of Mr Sands, on 21 September 1988 Mr McBurnie said:

"The reason why [TIA's] factory clogged up in 1987 was because neither Bob Lees nor I believed that [TIA] would be able to supply us with the tonnages of fish we had contracted with you for and we had not made any alternative arrangements for cold storage."

The Judge found that, if the W contract was a sham, Mr Lees had engaged in a "dangerous and extraordinary `tactic' ... if the contract resulted in overcommitment [by UBA] or [TIA] was not able to supply". However, the appellants submit that since 100% of UBA's 1987 requirements were ordered from other parties, the only danger to Mr Lees was if TIA did supply in accordance with the W contract. In light of TIA's capacity at the time, the appellants contend that the only logical conclusion, consistent with Mr McBurnie's evidence, is that Mr Lees did not anticipate TIA to be able to fulfil its commitments.

The appellants submit that because the evidence establishes that Messrs Lees and McBurnie were aware of the limitations on the capacity of TIA when the W contract was issued, the primary Judge erred in holding that the W contract did not constitute a sham entered into to entice investors to invest in TIA. To support this contention Counsel refer to the evidence of Mr Lees as follows:

"Q: It was a sham as far as you were concerned - this Heads of Agreement?

A: The Heads of Agreement?

Q: Yes, a document you did not intend in any shape or form to be binding on [UBA]?

A: That's correct.

Q: Did you ever tell any representative of [TIA] or Lake Cumbeline that you regarded that document as a sham?

A: No, I don't believe I did."

The appellants further submit that Mr Lees issued the Heads to induce investment in TIA. They rely on the following evidence of Mr Lees in cross-examination to support this conclusion:

"Q: The reason they [i.e. TIA] wanted [a document which was a little stronger than the one they had currently had] was because they wanted to attract prospective investors?

A: That would be correct.

Q: So you understood that the agreement was being entered into so that [TIA] would be in a position to induce people to put money into the business?

A: That would be reasonable, yes."

Later, with reference to increases in tonnages Mr Lees gave this evidence:

"Q: And would it be correct to say that you agreed to those increases in the knowledge that those tonnages were going to be relied upon by [TIA] in inducing proposed investors to put money into the business?

A: That is not correct.

Q: Well, you certainly acknowledged that the agreement of 26 March was entered into with a view to enabling [TIA] to induce investors to contract?

A: That is correct.

Q: And you were aware, weren't you, when the agreement was made to increase the tonnages, of [TIA's] desire to bring in either financiers or investors?

A: It was about that time, yes.

Q: You had been told on 19 January that they were proposing to buy and extend, and that they needed to raise money for that purpose?

A: Yes."

Mr Lees' evidence was that, in his view, the W contract was regarded by the parties as issued pursuant to the Heads.

The Judge found that Mr Lees' intention to contract for quantities in excess of UBA's requirements at the time did not advance the appellants' case, because planning such requirements involved a "difficult commercial judgment". This, the appellants argue, does not distinguish what may have been a motivation for UBA acting in a particular way, with on the one hand, the effect UBA's conduct had on the beliefs of the appellants and their reliance based on those beliefs, and, on the other the question whether UBA intended the W contract to be binding. In any event, they argue that his Honour's finding is irrelevant to a determination of any misleading conduct by UBA.

The appellants submit that his Honour was not justified in finding that, as at March 1987, Messrs Lees and McBurnie were not concerned with the basic capacity of TIA to comply with the W contract, although it was found that they had concerns about the rate of supply and processing. In fact, their argument runs, the concerns expressed by Mr McBurnie go to the essence of the UBA specifications.

The evidence was that UBA contracts incorporated specifications which required fish to be processed to a standard at least as high as for human consumption; and essential to this was the rate at which fish was frozen, which in turn was dependent upon the capacity of the blast freezer . His Honour acknowledged (at 32) that UBA had been aware since 29 August 1985 that the "performance of both the blast freezer and the main cold store were unacceptable to
UBA". The capacity to freeze fish in accordance with UBA specifications thus is, the appellants say, a matter going to the capacity of TIA to perform the W contract.

It follows, the argument goes, that the finding was not open that it had not been demonstrated that it is likely that UBA was convinced that TIA did not have the ability and capacity to perform the W contract. His Honour, as has been noted, said that "the weight of the evidence is to the contrary". However, the appellants submit that evidence demonstrates conclusively that the plant did not have the capacity to fulfil the W contract.

His Honour referred to the Wildridge and Sinclair Refrigeration Engineers' Report, which stated that a survey of existing facilities based on a freezing time of 15 hours would enable TIA to freeze 50 tonnes per day. But, the appellants say, the Report clearly demonstrates that, as at June 1987, the facility was not capable of blast freezing 50 tonnes of fish per day to UBA's quality specifications. It would only become so capable upon installing additional equipment and carrying out works on the blast freezer, at an estimated cost of $475,000. The appellants submit that a failure to appreciate this lack of capacity in relation to performing the W contract is "fundamental" in the reasoning rejecting their claims. "The capacity [they say] of [TIA] to perform to UBA specifications goes to the heart of each of the alleged misrepresentations on 16 March 1987, 18 March 1987 and 26 March 1987 and such an error invalidates his Honour's findings in respect of each representation which involves the capacity of [TIA]".

During the course of the appeal, Counsel for the appellants handed up further written submissions relating to Mr Lees' motives which relate to the alleged representations (ii), (iii) and, perhaps, (iv).

In these further submissions, it was said that UBA's policy was to increase the number of fish suppliers by December 1987, and that UBA was concerned about long supply lines from places like Thailand, and the weakness of the Australian dollar. Hence, in his dealings with TIA, Mr Lees sought to develop local supply as an alternative. Counsel also refers to a number of benefits that TIA could pass on to UBA, for example, its location to the Tasmanian jack mackerel fishery and its possession of a substantial cold store. However, during the period January to March 1987, TIA was in danger of collapsing which would result in UBA losing the $50,000 owed to it by TIA; UBA losing its investment in time and money in TIA since 1985; and more importantly, UBA losing those opportunities mentioned above.

Mr Lees saw the benefits to UBA if a new investor could be induced to invest in TIA - TIA would be able to acquire and upgrade certain facilities and consequently meet the specifications of UBA. The evidence shows that Mr Lees issued the W contract pursuant to the request of Mr Fasham and Mr Wilson under the Heads to induce an investor "and that he had no intention of implementing them unless it suited him to do so irrespective of whether they were legally binding or not".

THE APPELLANTS' ORAL ARGUMENT ON ALLEGED REPRESENTATIONS (ii), (iii) AND (iv)

As a preliminary matter, it should be noted that Senior Counsel for the appellants indicated that representation (i) was no longer pressed on the appeal.

It will be recalled that representations (ii), (iii) and (iv) are said to be either wholly or partly based on the W contract and/or the Heads. One issue that is thrown up by these two documents is the importance of TIA supplying fish in certain ways and in accordance with certain specifications. So, Counsel submit, the question to be addressed is whether TIA had the ability and the capacity to supply fish in that manner, and the question of capacity had four aspects. First, the capacity to meet specifications; secondly, the capacity for certain volumes to pass through the blast freezer; thirdly, the capacity actually to catch fish; and finally, the capacity to store the fish.

According to the appellants' argument, the notion of ability and capacity can be analysed from a number of points of view. First, did TIA have the capacity and ability to supply any fish at all in accordance with the terms and conditions of the W contract? Secondly, assuming that it had the capacity to supply defective fish in considerable quantities, was it capable of supplying as many as 6,250 tonnes of them required by the contract within that year?

It is submitted that his Honour did not, in fact, make a specific finding about TIA's capacity to supply in accordance with the specifications.

Counsel relied upon the language of the W contract, especially the words: "As scheduled by UBA from P2 to P13 1987", which, Counsel says:

"... is a piece of evidence pointing towards the contract being for almost a year because in the world of UBA, P is a reference to a four week period so that what it is saying is delivery as scheduled from the second period in 1987 to the thirteenth period, that is, basically from early January for the rest of the year."

It appears that this phrase probably formed the basis of his Honour's finding that the W contract was an 11 month contract. The appellants accept that, if the W contract stood alone, this would be a reasonable construction; but the appellants contend that the W contract needed to be read in conjunction with the Heads. Specifically, it will be remembered that in the Heads, under the heading "Quality and Prices", this provided:

"Commencing from February 1987, and for the continuing period of this agreement, the parties shall fix both a quantity and price for sale, delivery, and storage by TIA to UBA for each six month period, ensuing the expiration of each succeeding six month period.

For this purpose the parties agree to meet at least three months prior to the effective commencement of each six monthly period.

The standard conditions of contract embodied on the UBA form used for the above purpose shall be subordinated to these Heads of Agreement."

The appellants submit that as the Heads contemplates a re-negotiation every six months it has an amending effect upon the W contract and consequently, his Honour erred, as a matter of
construction, in concluding that the W contract was an eleven month contract rather than a six month contract.

These considerations are relevant, it is said, to the question of whether the Heads have any legal significance.

With reference to the general and particular specifications, Counsel submits that there is evidence that the specification for salmon, contained in the Standard Quality Specification No. A 62 was not complied with and could not have been complied with at the Geelong plant at the relevant time. This specification stated:

"Fish need to be brought to <7^oC within one (1) hour of catch ....-18^oC or below within eight (8) hours of commencement of freezing. Fish must remain at or below -18^oC."

Thus, the substantive standards are expressed to very precise temperatures and times and should be seen, it is said, as strict conditions of the contract. Counsel rely on cl 2 of the contract which reads:

The Seller shall be deemed to have accepted this Contract and these Conditions of Contract upon the Seller returning the attached copy of Contract or upon acknowledgment of this Contract by the Seller or upon delivery of the whole or any part of the Goods, whichever shall first occur ..."

Counsel argues that this clause tells the reader that the terms of the contract are strict and not to be varied orally. Reference is also made to cl 3 of the W contract, entitled "Quality & Description", which reads:

"The Goods shall comply with the Specifications and the Seller is deemed to know the purposes for which the Goods are to be used and is deemed to be aware that UBA is relying on the Seller's judgement that the Goods are reasonably fit for that purpose. The Seller acknowledges that he is aware of and will comply with such Specifications."

It is submitted that when read in conjunction with cl 2, cl 3 establishes a mandatory duty to comply with the specifications. On the front page of the W contract following the heading "Specifications" are the words:

"Fully in accordance with UBA specifications as listed above."

There was evidence that the word "fully" was never used in other UBA contracts in that context.

With respect to the degree of compliance required by UBA, Counsel refers to his Honour's note (at 35) that, on 5 December 1985, Mr Terry wrote to Mr G Wilson, who was managing the TIA operation, regarding the proposed use of the "Marine Countess" and the need to get UBA specifications quite clear, and to have them satisfied by TIA. Counsel submits that the evidence showed that UBA "have not merely contracted strictly but looked in practice for strict compliance".

The appellants accept that Mr McBurnie's evidence about the need for strict compliance is more lax than that of Mr Armstrong,UBA's commercial director in 1987. Mr Armstrong said that there was no significant relaxing in any respect of those specifications for any particular supplier. He agreed that if freezing tests indicated that a particular supplier's freezing capacity could not bring the fish to the relevant specification within the relevant time, then that would be regarded as a matter of serious concern.

Mr McBurnie, on the other hand, said, in relation to the specification for whole jack mackerel, that this is what the R and D Division wanted out of a supplier rather than "the absolute minimum that UBA were prepared to accept ...". Then he was asked:

"Q: Are you suggesting that UBA were prepared to accept a lower standard than the specified and standard quality specifications?

A: That's correct."

But it appears that, later in his testimony, the views of Mr McBurnie had become, it is said, "really indistinguishable from Mr Armstrong in demanding either strict compliance or virtual strict compliance". Mr McBurnie's evidence was that, in a general sense, the "statement about if one did freezer trials, one of the reasons would be to make an assessment about somebody's ability to process the product at or close to the spec is generally correct".

Counsel submits that there is a "mass of evidence" that TIA quite often contravened the UBA specifications.

Then Counsel refers to freezing trials in August 1985 which were to trial the operation of the blast freezer, which was used to reduce temperatures, and the operation of the cold store,
which was used for keeping frozen fish. UBA chemists were present to monitor the process. TIA wrote to the Port Geelong Authority shortly afterwards to express their "grave disquiet at the failure of the trials". Problems with the blast freezer included the faulty temperature gauge; the failure of the second stage of the freezing cycle to operate; and the necessity for repair work. In October, further trials later took place in the presence of Mr Perkin.

By 30 October 1985, it was apparent that the capacity of the plant, on the strength of these serious and repeated trials in the presence of UBA people, was not sufficient to ensure compliance with the temperature specifications without infringing other specifications; and the plant did not actually process anything until April 1986.

Next, Counsel refers to the "salmon incident". In September 1986, a telex from Mr Peter Terry of UBA was addressed to the attention of Mr Gavin Wilson (cc: M Bird and L Giles). It said:

"As discussed, total consignment of 40 tonnes of Salmon was in a deplorable state. Fish were all frozen together ... It is obvious that fish were soft when loaded ..."

If the matters contained in this telex are accepted, then various infringements of the specifications have taken place. This incident is, the applicants say, significant, as in the year 1986, 40 tonnes out of 70 or 71 tonnes is more than half the salmon supply, and a little less than 10% of all the fish supply (435 tonnes), for the year.

On 16 February 1987, Mr McBurnie visited the TIA facilities. He found that the fish was still at -0.5^oC to +0.7^oC six hours after being placed in the freezer. He felt concern that the
freezer was not causing any significant reduction in temperature after 4 hours nor after a further 2 hours. This, he felt, could be a problem and was "a concern possibly about slow freezing".

The primary Judge noted that "[t]his seems to be a similar problem to that noted earlier in September 1985". This means that, despite the months of operation from April 1986 to February 1987, the problems detected in the tests made in late 1985 still persisted.

Around May 1987, UBA became concerned about the possibility of their mackerel supplies being generally defective. It was not clear why they were defective, but there was a concern regarding "variable fish quality". Later there was a concern about "soft packs" - that is, those which are soft and partly thawed.

Addressing the finding by the primary Judge that the blast room capacity was 50 tonnes per day, apparently based on the report by Wildridge & Sinclair Engineering Reports, refrigeration specialists. The Report said that the "existing low temperature plant has only half the required capacity to match the above heat load". However, according to the report, in order to utilise the available compressor capacity, it would be necessary to obtain a new accumulator vessel, two new ammonia pumps, an inter-cooler vessel and to remove all bare pipe coils and so on. The budget cost for all of this was $475,000. Accordingly, it is said, his Honour's finding of a capacity of 50 tonnes per day should have been qualified since the evidence was that the plant does not have that capacity without the upgrading advised by Wildridge and Sinclair.

Counsel refers to the cross-examination of Mr Lees as follows:

"Q: [TIA] up to February 1989 had woefully under-performed in respect of previous contracts issued to it by [UBA], had it not?

A: They had under-performed, yes.

Q: And very badly, had they not?

A: Without reference they had certainly under-performed, yes.

Q: So you could not justify a decision to contract in even larger quantities than there had been in the past based on their previous record, could you?

A: No."

In relation to freezing capacity Mr Lees said this:

"Q: You were aware that there had been some quality problems in respect of fish supplied by [TIA] to [UBA] even in the limited quantities they had supplied, were you not?

A: I believe there had been, yes.

Q: So their performance as to quality would not have been a reliable basis, would it, to enter into a contract in vastly greater volumes of fish to supply at that relevant quality level?

A: No."

Notes made by Arthur Anderson, auditors of UBA, relating to an audit in December 1987 state that:

"Stock held at year end was contracted in 1986 and delivered in early 1987. Both the processing and the storage of the material have not been ideal. It is UBA's intention to purchase head and gutted mackerel in lieu of this material from April 1988, and accordingly existing stocks will be down graded. ... Any material remaining at the end of 1988 will be scrapped."

There is no reference to TIA in this passage, but Counsel submits that TIA "was obviously a not insignificant supplier".

Addressing generally the question of capacity, Counsel submits that Lake Cumbeline had assets of only about $26,000 on 30 March, and to take up the shares it had to borrow $1m or so from Idobook at commercial rates. That made TIA's projected ability to process and sell to UBA fish in the quantities expected an important matter, since their ability to sell fish which met the specifications was of particular significance.

Turning to the question of the volume of fish which TIA could supply, Counsel addresses his Honour's findings, arguing they were based on the engineers' reports which do not, the appellants say, actually support these findings. The Judge said (at 264):

"The evidence of sales to UBA in April-May 1987, was that the plant was capable of processing 1,082.005 tonnes and 1,299.734 tonnes respectively. This shows a throughput rate in the range approximately of 13,000 [to] 15,000 tonnes per annum."

Later in his reasons his Honour said that the April-May figures were 36 tonnes and 32 tonnes per day respectively. It appears that his Honour averaged the figures and then multiplied that by a certain number of days to reach the range of 13,000 to 15,000. His Honour said (at 263):

"By 2 April 1987, the applicants planned to process about 13,000 tonnes of fish by January 1988 which would require an upgrading of the plant."

In the earlier reference to 13,000 to 15,000 tonnes, there is no mention of any need to upgrade the plant in order to achieve these figures. The difficulty with deriving the figures this way, it is submitted, is that, first, there is inevitable variation in the amount of fish caught from day to day; secondly, fishing, for most of the types of fish involved here, is
seasonal. During the later part of the year, fishing for some fish requires a mid-water trawler which TIA did not have, and did not have access to, in 1987.

His Honour said (at 163-4):

"The facts were that the blast freezers were capable of freezing up to 50 tonnes in 15 hours according to the refrigeration engineers, and that the cold store could hold up to 2,000 tonnes."

and (at 90):

"In May 1987 the blast freezers were capable of freezing about 50 tonnes per day and the capacity of the cold stores properly operated was over 2,000 tonnes."

There was in evidence a handwritten note made on 27 May 1987 by Mr Lees as follows:

"Storage - Have 2000 tonnes available - operationally should be reduced to 1500 max.

- Had to move 500 tonnes this week."

It appears that UBA was not very fast in taking the fish out of the cold store, because it did not have any alternative storage. Messrs Lees and McBurnie never thought that TIA would process at the rates it did in April and May. This bears on the question of whether representations (ii) to (iii) were, if made, correct. It is, the appellants contend, a question of "the sincerity" with which UBA approached the contract.

The evidence was that, regardless of whether the W contract was for six months or for a year or close to a year, in reality the 6,250 tonnes, if they were to be delivered, would have to
be largely delivered and processed by about June or July of 1987. His Honour said that the ability of the processor to procure fish for supply is a matter over which the processor can have no control, because it will vary according to the ability of the fishermen to "catch the fish in appropriate amounts at proper times".

From the table headed "Trawl Industries of Australia - Fish Sales" set out earlier in these reasons, it can be seen that in April 1987 there were over 1,000 tonnes of fish delivered, and in the next month, there were 1,299 thousand tonnes delivered. Thus, as at 30 March 1987, with approximately 850 tonnes supplied, there were still over 5,000 tonnes to be supplied according to the contract. Even if it be accepted that TIA could process 50 tonnes per day through the blast freezer, and if the blast freezer could be utilised every single day for the three months to the end of June, TIA could, the appellants say, still only be able to process 4,500 tonnes, which is 1,750 tonnes short of the amount stipulated in the contract. If TIA is unable to process 50 tonnes per day and in fact can only process less than 40 tonnes, which, the appellants contend, is probably closer to reality, then the problem becomes more acute. Even if one can assume that the season extends beyond the end of June, one would still not find the capacity to achieve the more than 5,000 tonnes required.

In dealing with UBA's intention to honour its obligations under the W contract and their intention to create a genuine contract, Counsel referred to the "consistent under-performance" of TIA prior to the W contract coming into being. To the end of 1986, it had supplied only about 435 tonnes. The following cross-examination of Mr Lees revealed that he was aware of this:

"Q: After 31 December 1986?

A: They would have under-performed significantly, yes.

Q: They have under-performed from a promise, to deliver something like 9,500 tonnes in that period, by something in the order of 95%, have they not?

A: Yes.

Q: That is such a gross under-performance that you would hardly regard it as a significant performance at all, would you?

A: It was a very poor performance."

Mr Lees then said that he was aware that there had been a history of under-performance since 1985. His recollection was that they "grossly under-performed". Mr Lees was asked about his belief at the time the contract was entered:

"Q: It is highly unlikely that, when you entered into that contract, you believed that [TIA] would be capable of performing that contract, is it not?

A: I don't think that is the case, no."

Mr Lees then said "they had a possibility of performing that task", meaning that it was "more probable than not" that TIA would be able to supply that quantity in that period. Mr Lees said he based this belief on conversations he had with Messrs Fasham and Wilson. However, he could not recall the specific conversation, nor the substance of what was said.

Counsel handed up a table showing the price rises in the W contract, when compared with earlier transactions. This, Counsel submits, contradicted UBA's policy which under their medium term plan for the years 1987 to 1991 had called for a reduction in fish prices.

Counsel refers to the cross-examination of Mr Lees about the 1986 operating plan as follows:

"Q: In other words, the plan was to increase return to [UBA] by trying to keep down costs of raw materials?

A: By trying to keep down total costs, yes."

The plan's objectives for 1987 were to deliver:

"A consistent return on total assets of 27%, an operating profit of $29.1 million, an increase in gross sales value of 14% and the desire to go through 1987, if possible, without increasing the price of goods to consumers."

Counsel asked Mr Lees about this as follows:

"Those were the matters that in 1987 you were intent on ensuring, if you could, did occur for [UBA], were not you?"

Mr Lees said:

"It would have been my objective to adhere to the plan, yes."

Counsel submits that the goal of increasing returns by controlling costs paid by UBA in respect to its raw materials is not easily reconciled with the price increases in the W contract.

One other feature of the W contract relied on by the appellants is that by the time that it came into force in February 1987 it was the largest contract for the acquisition of fish into which UBA had entered.

Counsel submits that it is misleading conduct for UBA to represent an intention to perform or fulfil a contract in circumstances where there could be no belief on the part of UBA that the other party to the contract would ever act so as to make it necessary for UBA to perform to the fullest extent.

It is contended by the appellants that the evidence shows that, when UBA issued the W contract, it had already entered binding contracts to take up to 18,000 tonnes from other suppliers, against a total estimated requirement for the 1987 year of 13,000 to 14,000 tonnes. After referring to UBA's commitments with other suppliers, his Honour said (at 167):

"In evidence Lees said that at the time he increased the quantities of fish for W17299, he was aware that UBA had contracted or intended to contract with others for, in a binding way, 18,000 tonnes of fish in 1987."

Later his Honour said (at 168-169):

"When questioned as to what UBA would do if all contracts were met by suppliers, Lees said that he could have exported the surplus to sister companies in the UK. It was pointed out that such a course would entail considerable cost and other problems and that this was inherently unlikely. The applicants also pointed to the evidence of Mr Armstrong of UBA, that in 1987 it was not the practice of UBA to issue contracts for a combined tonnage of fish vastly in excess of UBA's projected requirements of fish for that year.

On the evidence before me, I am not satisfied that at the time contract W17299 was issued or increased as to quantities, UBA had subsisting binding contracts in force for amounts vastly in excess of its projected requirements for 1987, such as to warrant or support any inference that W17299 was a sham.

However, assuming that UBA had contracts outstanding with suppliers other than [TIA] for more than its total 1987 fish requirement of up to 14,600 tonnes prior to issuing W17299, I am not satisfied that this fact either taken alone or in conjunction with the other considerations raised by the applicants, is sufficient to establish that the contract was intended to be other than a genuine and binding contract. Given the difficult commercial judgment involved in balancing the need for UBA to ensure that it had at all times sufficient raw material to meet its commitments against the danger of over commitment, the intention to contract or the entry into contracts by UBA in excess of its projected requirements, particularly having regard to the previous history of
shortfall in supply both by [TIA] and other suppliers, does not advance the applicants' case."

The appellants' submission is that the W contract was part of a pattern of deliberate over-ordering, which was partly based on a belief that the party who would have to perform under the W contract had a bad history of shortfall in supply.

Counsel refers to the evidence of Mr Lees as follows:

"Q: You see, I suggest to you, Mr Lees, that if this was intended to be a genuine contract between [TIA], genuine in the sense that [UBA] intended honouring it, ... then it would have been fundamentally important for you to satisfy yourself of [TIA's] capacity in the light of its previous performance to fill the relevant quantities of fish?

A: Yes."

Mr Lees then agreed that 6,250 tonnes was almost half of the 13,000 tonnes projected requirements of fish for UBA in 1987. His evidence continued as follows:

"Q: In that case, a very important supply contract from [UBA's] point of view, was not it?

A: Yes.

Q: ... you entered into that contract without making any assessment of [TIA's] capacity to provide those tonnages?

A: Yes."

Mr Lees agreed that "if [TIA] could not supply in those quantities, [he] would go elsewhere", and earlier he gave this answer to the following question:

"Q: You made no assessment, did you, as to whether the [TIA] facilities had the ability to process those tonnages or not?

A: At that time, no."

Mr Lees accepted that he would generally try and assess the ability of a supplier to supply before making a commitment to purchase quantities of fish. He was then asked, if he had not made such an assessment, how he could have intended to make a genuine commitment. His reply was:

"The product was offered to us as being available. It was agreed that they could process that product."

Mr Lees says the rule was to try and make the assessment, but sometimes it was just not possible to do so.

Mr Armstrong gave the following evidence about the general practice:

"Q: Were you aware of a practice of buyers satisfying themselves as to the ability of a potential supplier to supply product to be ordered in the quantity ordered and at the quality specified?

A: Yes, a buyer would be crazy if he didn't go into all that before he placed the orders.

Q: He would be crazy if he did not go into it because it would really be a dereliction of his duty, would not it, to [UBA]?

A: Yes.

Q: Your understanding in 1987 was that prior to entering into a supplier contract involving large quantities of product, [UBA's] buyers satisfied themselves, both as to the capacity of the supplier to supply that amount and also as to the capacity of the supplier to supply that amount at the appropriate quality level?

A: Where that was possible, yes.

Q: What do you mean where that was possible?

A: I would only qualify that by saying that again in certain seasonal materials you can satisfy yourself that an abattoir group is going to adopt a contract for 10,000 tonnes ... or something based on what their forecasts are on their kill for the year. If the season's up or the season's down you might [contract for 11,000 tonnes or for 9,000 tonnes].

...

Q: Was in 1987 a single W contract for the supply of 6000-odd tonnes of product regarded as a small or large order by [UBA]?

A: 6000 tonnes of fish would be a big order.

Q: If the projection of total fish use by [UBA] in 1987 was between 13 and 14,000 tonnes, an individual order for 6000 tonnes would be an exceptionally big order, would not it?

A: Would be a big order, yes. Well, the word exceptionally is difficult to sort of get around.

...

Q: It was unusual, was not it?

A: If that meant placing two orders for the year, yes it was unusual.

Q: Before placing such a big order, to use your language, you as the commercial director supervising your buyers would expect them to have taken whatever steps they reasonably could take to satisfy themselves that such an order would be supplied to [UBA] in the right quantities, the right quality and the right time, would not you?

A: I would."

The appellants' argument at the trial which is repeated on the appeal, is that failure to ensure that the quantities could be supplied suggests an indifference towards the W contract. Mr Lees' stated position was that, if the W contract failed to produce a large amount of fish it did not matter because nothing much had ever been produced in the past from TIA. If, however, TIA produced a large quantity, then he could just ignore it if it did not suit UBA's particular situation. Failure to verify the supplier's capacity suggests that Mr Lees did not regard 6,250 tonnes as a vital element of UBA's needs.

In relation to the cold store at Geelong, which his Honour found had a capacity of 2,000 tonnes or more, Mr Lees' evidence was that, in an operational sense, it had a capacity of 1,500 tonnes.

When cross-examined on what he said to Mr Horrobin about TIA's factory being "clogged up in 1987" Mr McBurnie revealed that he too doubted TIA's throughput capacity:

"Q: And you had not made arrangements for cold storage by that time because of the belief that you and Mr Lees had had that [TIA] was not going to be able to supply [UBA] with the quantities of fish which were specified in W17299?

A: No, I think it's - I think it's more accurate to say that certainly for my part I didn't believe that they would be able to put through that quantity in that short time frame. I don't think it's so much an issue of their inability to supply the contract in total; it's in an issue of not expecting them or not thinking they'd be able to do it in such a short period of time. My recollection is the bulk of that material went through in a five or six week period."

The appellants accept that Mr Lees, and perhaps Mr McBurnie, thought that TIA could be expected to generate some fish, whether under the old owners or under the new partnership, because they had produced some fish in the past. However, the evidence is that they did not expect performance on anything like the scale called for by the W contract. This is demonstrated by the fact that they made no alternative cold store arrangements, and therefore were "unpleasantly surprised" when large quantities of fish initially came in.

As to UBA's duty in these circumstances, where it knew that a contract it had issued for 6,250 tonnes was being used by the other contracting party, in the course of negotiations with investors, Counsel submits that if UBA knew that there were particular investors in view (and UBA had actually met those investors); and if it knew that TIA had never in its life produced anything like 6,250 tonnes (and it had only actually produced just over 435 tonnes for the early part of 1987); there was a duty to qualify the otherwise potentially misleading impression which the W contract, by itself, would create. It is said to be a type of duty to
amplify, the type of duty to cease to be silent, or to at least avoid anything misleading that might arise out of the presence of the contract.

Counsel refers to a letter from Mr Lees to Mr G Lever, the Financial Manager of TIA, dated 19 March 1987. At that time, a debt of some $49,000 was owing by TIA to UBA. The letter, which bears on the relationship between UBA and TIA, states:

"I refer to your letter of March 17, 1987 enclosing copy invoices for $5,806.40 for services apparently supplied by Tasair Pty Ltd to [TIA].

I am disappointed to the stage of being extremely annoyed as at no time during any of my discussions with yourself, John and Gavin Wilson or Bruce Fasham have I agreed or implied that [UBA] would be responsible for any debts incurred by [TIA] to Tasair Pty Ltd or any other aircraft charter operator.

My disappointment is deepened by the fact that having been in your office for approximately four hours yesterday discussing all issues, including payment of accounts, that this particular matter was not raised or even referred to, particularly as one of my major points was the fact that the long standing relationship between [UBA] and [TIA] was being jeopardised by [TIA's] apparent inability to conform to their own telex advices regarding account settlements with UBA.

As you are aware, [UBA] have made a large number of concessions and allowances to [TIA] in an endeavour to establish the operation on a sound and viable footing through financial and technical assistance.

Thus, if we cannot begin to conduct our business on an open and honest basis, then I am left with little alternative but to withdraw this support for the continuation of the business."

His Honour said (at 191-2):

"The letter refers to the `long standing relationship' between UBA and [TIA] and expresses dissatisfaction.

It emphasises the need for completely open dealing. The basic premise in the letter is that there was up to that time a history of good relations but Lees was
upset over a relatively small amount wrongly claimed and sent to UBA. It does not evidence, in my view, any significant deterioration of the relationship which had previously existed such that Lees ought to have raised it with Cumbeline as prospective investors."

His Honour then considered various defect material reports and said (at 194):

"The above matters do not establish that UBA in fact as at March 1987 lacked confidence in [TIA's] management or that its relationship considered as a whole was otherwise than `good'."

However, the appellants submit that mention should be made of what Mr Lees said orally about this issue, in particular the following evidence:

"Q: You were by 19 March when you wrote this letter of the view that [TIA's] then management Messrs J. Wilson, G. Wilson and B. Fasham, were not dealing with [UBA] on an open and honest basis, were not you?

A: In relation to the account I referred to, that was my stated view, yes."

Then Mr Lees continued:

"Q: The concerns that [UBA] had in respect of the management of [TIA] would have been to your belief in March 1987 matters which would have been important for potential investors to know?

A: Yes.

Q: Did you ever tell Messrs Pridmore, Horrobin and Sands about those concerns?

A: No, not at that time.

Q: Did you tell them at another time?

A: I believe that I had discussed with Mr Pridmore some time later.

Q: Months later?

A: Yes, possibly months later.

Q: After the investment had been made?

A: Sorry?

Q: After Lake Cumbeline had made its investment in [TIA]?

A: Yes."

The evidence of Mr Lees on this point, which was not explicitly referred to by his Honour, does cast into some doubt his Honour's treatment of UBA's opinion on TIA management as rather a minor temporary affair. The appellants contend that, in fact, it is another piece of material which causes a contrast to arise between on the one hand the documents relating to the 6,250 tonnes and the Heads, and on the other hand the reality known to Mr Lees that TIA had never contracted on this scale before; had problems supplying what it had supplied; had recent problems paying debts and was now having its honesty doubted.

Counsel submitted that the evidence was that by early 1987 UBA knew that TIA needed more funding, and that contractual arrangements with TIA could be used to induce a new investor to supply the necessary funding. Moreover, UBA knew about the failed freezer trials; the salmon incident; and about the "gross" under-supply. On 8 January 1987, Mr Lees wrote in his diary "[TIA] Industries, problems with UBA, cold storage at Geelong". This shows, it is said, that TIA was closely in UBA's attention.

On 15 January 1987, Mr Terry made a complaint to Mr Wilson about the unpaid UBA invoices totalling $49,645.

On 19 January 1987 Mr Lees recorded in his diary the telephone numbers of Messrs Fasham and Wilson, then the following words:

"Geelong 56 year lease of land [TIA] buying alterations & extensions. $1.5 million to purchase."

His Honour found that this entry indicates that Mr Lees was aware of a proposal by TIA to purchase the lease of the blast freezer and cold store at Geelong.

On 28 January 1987, Mr Lees met with Messrs Fasham and G. Wilson at South Yarra when either Mr Wilson or Mr Fasham said to him words to the following effect:

"In order to raise additional funding for [TIA] we require a five year purchase commitment from UBA. We are looking to continue the refurbishment of the Geelong plant. We are going to need more funding for this and to obtain that funding we need some form of long term arrangement with [UBA]."

and Mr Lees replied as follows:

"This is contrary to UBA policy which prevents any supply commitment beyond 12 months. I would be prepared however to give a letter of intent or Heads of Agreement which you can show prospective investors/lenders to establish UBA's bona fide longer term commitment. This longer term commitment would of course, clearly be dependent upon quality being in accordance with UBA's required standards and the price being satisfactory."

This conversation is recorded in Mr Lees' statement, dated 20 April 1994, which was filed in these proceedings and is uncontroversial and unchallenged evidence about what was said on that day.

Mr Lees gave the following evidence in cross examination in other proceedings:

"Q: Now you were told then, and if your diary note is 19 January may we take it that that's when you were told, that [TIA] were contemplating spending $1.5 million to purchase a 56 year lease at Geelong?

A: That's right.

Q: And you understood that it was the intention of [TIA] to acquire that facility on the assumption that they would have the capacity to continue to supply [UBA] with product for some considerable time?

A: That's correct.

Q: You understood also, didn't you, that in order, to do that they would need to raise funds; they told you that, didn't they?

A: Yes, they did.

Q: And they said that they might either need to borrow money or secure an investor to provide the funds?

A: That's correct.

Q: So that you knew by February 1987, anyway, that Messrs Wilson and Fasham were looking for an investor to put in a substantial sum of money to enable the company to buy the Geelong facility?

A: They advised me that they required an investor or a loan, or some additional finance, to carry out refurbishment of the premises.

Q: To purchase and carry out refurbishment?

A: I believe the indication to me was to carry out the refurbishment.

Q: But you understood, didn't you, that they were spending a substantial sum of money to buy it?

A: Yes.

Q: $1.5 million?

A: Yes.

Q: Didn't you understand that the funds they needed were both to fund the purchase and to fund the alternations and extensions?

A: No, I did not have that understanding.

Q: You thought they had the $1.5 million themselves, did you?

A: Yes.

Q: But you did understand that they were seeking an investor for the subscription of some further funds beyond that?

A: That's correct.

Q: And that was the context, wasn't it, in which you understood you were introduced to Mr Horrobin and Mr Pridmore in March 1987?

A: On my introduction to Mr Horrobin and Mr Pridmore I was advised that Mr Horrobin and Mr Pridmore were proposing to make an investment."

Then referring to the use of the Heads in negotiation, Mr Lees gave the following evidence:

"Q: You did go about agreeing to a further form of heads of agreement with some alacrity, did you?

A: Sorry, with alacrity I did agree to pursue another heads of agreement.

Q: Why did you regard it as being desirable to do that, bearing in mind that there was already the agreement of 30 September that I referred you to?

A: The question that was put to me by Messrs Fasham and Wilson some time in February was they believed they wanted a document which was a little stronger than the one that they currently had.

Q: And the reason they wanted it was because they wanted to attract prospective investors?

A: That would be correct.

Q: So you understood that the agreement was being entered into so that [TIA] would be in a position to induce people to put money into the business?

A: That would be reasonable, yes."

In relation to Mr Lees knowledge of whether Messrs Pridmore, Horrobin and Sand would be likely to be shown the Heads, Mr Lees gave the following evidence in this Court:

"Q: Well by 18 March 1987 you knew that they were interested in investing in [TIA], did not you?

A: I think it - was that the date of our meeting, our first meeting?

Q: Yes, it is?

A: On that date I would have been aware of it.

Q: And from that date onwards you would have known, would not you, that they were likely if they had not seen it already in draft form, to be shown a copy of the heads of agreement which were contemplated to be executed?

A: I am not sure of whether I had an opinion of what they would have been shown.

Q: I beg your pardon?

A: I said, I don't believe I could have formed an opinion of what they would have been shown.

Q: Well, you knew that a stronger heads of agreement was wanted in order to induce new investment, did not you?

A: To induce investment, yes.

Q: You knew that Messrs Pridmore, Sands and Horrobin were contemplating investment?

A: I knew that, yes.

Q: It followed, as night followed day, I suggest to you, that you knew that Messrs Sands, Horrobin and Pridmore were likely to be shown the new heads of agreement?

A: It's likely that they would have been, yes."

The Heads of Agreement of 30 September 1986 contained the following words in its preamble:

"TIA is the operator of a modern fish processing plant capable of processing fish to the specifications of UBA."

The Heads of Agreement of 26 March 1987 contained the following words in its preamble:

"TIA has a modern fish processing plant designed to process product for and to the specification of UBA, and has contracted for the purchase of large quantities of fish for UBA requirements." [emphasis added]

Counsel submits that the change in the preamble came about because Messrs Fasham and Wilson were trying to attract investment in the company and they wanted a document which was a little stronger than the one they currently had; and that Mr Lees appreciated this also.

On 14 January 1987, UBA drew up contract W17264 to be issued to TIA for the supply of various fish. The primary Judge found that handwritten amendments by Mr Lees were made after 14 January 1987 to a copy of this document, increasing both the tonnages of salmon and jack mackerel, and the price of each type of fish on the order. The original date of the contract was changed to 11 February 1987, the date appearing on the W contract.

Counsel submits that the W contract amended to the date 11 February 1987, was not actually issued on that date; and that it came to pass into general circulation by reason of the fact that, on 21 February 1987, Mr J Wilson wrote to Mr Lees as follows:

"Enclosed is a revised Heads of Agreement, bring into effect changes necessary to embody our latest terms of agreement and style of operation.

We await now receipt of your contract from [sic] representing the agreement reached on 11 February 1987, as detailed below."

and after setting out the product, contract tonnage and price, the following appears:

"All other terms and conditions are embodied in the master `Heads of Agreement' attached.

Attached also for your reference is a copy of the costing schedule discussed at our last meeting."

A note in Mr Lees' diary, dated 24 February 1987, contains the words "contract - Trawl". This suggests, it is submitted, that Mr Lees sent the W contract to TIA on that day. The W contract has a date received stamp "26 FEB 1987" on it and bears Mr Lees signature. It does not seem to have been signed by TIA or returned by it when goods began to be supplied under this contract. In view of this, it is suggested that the contract came into force very soon after 26 February 1987.

On 9 March 1987, a lengthy meeting took place between Messrs Fasham and Wilson from Atasco, and Messrs Horrobin and Sands from Lake Cumbeline. At the meeting, Mr Wilson said that Atasco wanted $2.5m from an investor for half of TIA, and Mr Sands requested costings, contracts and orders. This seems to have generated the provision of the draft Heads to Lake Cumbeline at a date prior to 18 March 1987. His Honour accepted that the evidence establishes that the W contract was received by TIA on 26 February 1987, and that Mr Pridmore received a copy after 11 February 1987 which, Counsel says, must mean after 26 February. A copy was sent to Mr Sands on about 16 March 1987, and Mr Horrobin was given a copy shortly before, or on, 18 March 1987 when the discussion with Mr Lees took place. There is evidence that, in fact, the W contract was faxed on 16 March to P.R. Horrobin and Company and addressed to Messrs Sands and Horrobin.

On 26 March 1987, the Heads was signed by TIA and UBA, and faxed to Lake Cumbeline on that day. Mr Pridmore was handed a faxed copy of the Heads and of the current order (W contract) furnished in the terms of the "ongoing frame agreement" - that is, it is submitted, the Heads. Four days later the Shareholders' Agreement was signed, and shares were issued to Lake Cumbeline.

Against this background, in asking the question - was any representation made of the type set out in representations (ii) to (iv) by the W contract, or the Heads, or by conduct surrounding them; the key aspect of the conduct, the appellants contend, is that Mr Lees knew that the documents were going to be shown to investors with a view to attracting their support.

The appellants rely upon Accounting Systems 2000 (Developments) Pty Limited & Anor v CCH Australia Ltd & Anor (1993) 42 FCR 470, where it was held by Lockhart and Gummow JJ that section 52 of the TPA is merely not concerned with representations but is concerned with the broader notion of conduct. Referring to two warranties, their Honours said (at 505):

"Each warranty speaks as to a present state of affairs. It follows from what has been said above that the court should resist the temptation to reason that (i) s.52 is concerned with representations (rather than the larger concept of `conduct') ..."

Their Honours went on to say (at 505):

"... s.4(2)(a) provides significant support for the ... general proposition that the making of a statement as to a presently existing state of affairs, if false, may be the engaging in misleading or deceptive conduct, where the statement is embodied as a provision of a contract."

It is submitted that under the System 2000 principle, in relation to representations (ii) and (iii), UBA's conduct towards TIA is capable of amounting to actionable representations or actionable conduct under section 52. Similarly, with respect to representation (iv), it is submitted that the two documents and the conduct surrounding them are capable of embodying a statement of belief by UBA that TIA was capable of performing in accordance with the specifications. Both documents were then, as Mr Lee knew, handed over by TIA to Lake Cumbeline. The meeting of 9 March then took place; the W contract was forwarded on 16 March and the draft Heads just before then.

The appellants submit that, so far as the first two representations are concerned, that is, that UBA was bona fide intending to perform, whether it was injurious to UBA or not, amounts to a representation by UBA to Lake Cumbeline. This was because UBA knew that Lake Cumbeline was going to be shown the document, and it also knew that Lake Cumbeline was interested in the document, or at least that TIA was interested in using the document to try and capture Lake Cumbeline's interest. The same submissions are made in relation to the Heads which was going to be shown to Lake Cumbeline in order to attract its interest and make it more likely to invest. In those circumstances, it is contended, UBA made a representation to the Lake Cumbeline people through TIA, its commercial partner, with the desire that TIA would get greater financial assistance from this new investor.

The appellants say that there is a contrast between his Honour's conclusion that, in respect to the representations (ii), (iii) and (iv), there were no representations made at all by the use of these documents, on the one hand, and, on the other his conclusion that three representations (xii), (xiii) and (xiv) were made in the Heads by the use of the same documents.

After analysing representations (xii) to (xiv), his Honour noted that they are alleged to have been made in the Heads. He concluded by finding that there was a limited representation to be found in the clause "(b)oth parties agree to establish an evergreen, continuing long term relationship for the supply of fish by TIA to UBA". But his Honour did not find it to be false. This was not just a representation passing between the parties through the Heads, but a representation which UBA was making to the Lake Cumbeline interests. His Honour came to a similar conclusion in relation to representation (xiii).

The appellants contend that their case for representations (ii), (iii) and (iv) is stronger than in relation to representations (xii) - (xiv), because Mr Lees, who had carriage of things at UBA, thought, on the one hand, that the Heads were a sham or a nullity and not binding, but, on the other, he was of the firm opinion that the W contract was binding. That being the case, the W contract was more likely than the Heads to be regarded by Mr Lees as representational conduct.

The crucial matter to consider, the appellants say, is how, in all likelihood, the representee would objectively have perceived the actual documents, namely the W contract and the Heads. His Honour thought the Heads were going to create or operate as representational conduct. The appellants submit that the W contract should have been seen as also operating as representational conduct because, whether or not the Heads was in any sense binding, the W contract bears all the hallmarks of precision and seriousness that one associates with the highest form of contract.

In his reasons for judgment, his Honour dealt, at some length, with the first three representations under the heading "Representations (i) - (iii) - 16 March 1987 - W17299 was a Genuine and Binding Contract". His Honour accepted Mr Lees' evidence that he regarded the W contract as binding, although Mr Lees did not consider the Heads to impose binding obligations. His Honour said (at 156):

Referring to the volume of fish taken in March to May 1987 his Honour said:

"The above evidence, in my view, supports the conclusion that UBA regarded this contract as genuine and binding. There was never any suggestion from UBA that it was not prepared to take any of the fish contracted for ..."

His Honour went on to note that the contract provided for the sale of approximately 2,000 tonnes of jack mackerel over an eleven month period, and said that "(i)n fact UBA accepted 2,287.641 tonnes over a three month period".

Counsel submits firstly, that the fact that UBA accepted and paid for some product does not detract from the appellants' argument, which rests on the view that, whilst Mr Lees thought that TIA would deliver some fish, because it was their business to try and deliver some, he did not think that they would ever get up to 6,250 tonnes; secondly, that his Honour did not refer to later events which qualifies the conclusion that UBA accepted all the product. This involved an attempt by UBA to get TIA to take back a large amount of the product supplied.

In a draft letter to Mr Lees, Mr Pridmore described how he visited the bank manager on 7 August 1987 and explained a proposal from Mr Lees concerning UBA making an absolute commitment to buy the fish; but, rather than paying for it within 14 days, UBA would take delivery and pay for it only when the fish was actually required by UBA in production. Mr Lees was making a proposition which would involve a type of payment in force under the contract. In the letter Mr Pridmore said:

"Our Bank agreed with my earlier statement to you, that your proposal essentially divided itself into three parts:-

1. To make the proposed new method retrospective, ie. for [TIA] to buy back the unused fish already paid for by UBA with a view to selling that fish back to UBA as it was required for processing by UBA.

2. To introduce the proposed new method immediately into [TIA's] existing contract with UBA for 2400 tonnes of pilchards to December, 1987 although the existing contract presently incorporates payment 14 days from invoice rendered immediately after processing.

3. To incorporate the proposed new method on 1st January, 1988, into the new contract which will be entered into between [TIA] and UBA for 1988 deliveries of fish."

Mr Lees had apparently put to Mr Pridmore the proposition that whatever UBA did not then need, should be sold back. The minutes of a board meeting of TIA held on 27 August 1987 record the following:

"A draft letter to [UBA] was tabled by the chairman. Mr Pridmore was requested to amend such draft which advises that the company is not presently in a position to participate in the proposed buy back program."

In the minutes taken at a board meeting of TIA on 7 September 1987 it is recorded that:

"Mr Pridmore advised the letter to [UBA] has been forwarded but no reply has been received to date."

A few days later, on 10 September 1987, Mr Lees wrote to Mr Pridmore:

"Having had confirmed that the fishing boat `Marine Countess' is still not ready to commence fishing to prove or disprove the viability of catching pilchards to UBA specification and further having not received any pilchards from [TIA] for a period of two months, I wish to cancel our contract W17402.

As you are aware, [UBA] has a near continuous requirement for this product and whilst I am in a position of having to contract offshore to cover non-deliveries, the `on-paper' commitment I have far exceeds my requirements. I need to reduce this commitment and suggest we should wait until such time that the `Marine Countess' or other vessel is successfully commissioned prior to negotiating a contract for tonnages and prices that both parties believe to be achievable and usable. [emphasis added]

The fishing industry is subject to more than its share of non forecastable vagaries, but I am sure that you understand my priorities in this matter and look forward to renegotiating future supply contracts with yourselves once the new catching and packing processes have been successfully commissioned."

It is submitted that the foregoing is an indication that "excessive" performance of the W contract was unwelcome to UBA. They were happy with it so far as it suited their interests, but they were not happy if it led to "excessive" requirements, which would lead to buy-back proposals.

But his Honour said (at 157):

"There was never any complaint by [TIA] that UBA was not honouring its commitments to take fish or that W17299 was not a binding contract on UBA to take any fish which [TIA] could supply under that contract.

The complaint made by [TIA] was rather that UBA was not taking its fish out fast enough from the cold store at Geelong to enable [TIA] to fulfil its contract and not that UBA was not prepared to take the fish.

It is submitted that, in any event, the failure of UBA to take the fish promptly out after processing is an indication of something less than willingness to perform a contract that might interfere with their interests.

Counsel contends that

UBA was not willing to perform beyond the point of convenience to it; TIA was willing to try and sell 6,250 tonnes; Mr Lees was content to treat that as a binding contract, unlike his view of the Heads; but Mr Lees was withholding to himself a discretion not to perform the contract if it turned out inconveniently, and he failed to disclose this fact to the investors. It is this conduct that, in relation to the first three representations, made them, according to the appellant, misrepresentations. It is a sham if you look at it from UBA's point of view, but it is not a "shared" sham. Mr Lees was happy with TIA to perform up to a point; after all, he wanted TIA to become a good supplier. However, he was not expecting this to happen in the first six, or even eleven, month period.

THE APPELLANTS' WRITTEN SUBMISSIONS ON ALLEGED REPRESENTATIONS (xii) and (xiii)

It will be recalled that representations (xii) and (xiii) are said to have been made on 26 March 1987 as each of these representations arises out of the wording of the Heads of Agreement signed, on behalf of UBA, by Mr Lees on that date. They arise out of the specific words of the document.

Counsel for the appellants submits that the primary Judge failed to place sufficient weight on Mr Lees' letter of 19 March 1997 to Mr G Lever, the Financial Manager of TIA. This letter bears upon the relationship between UBA and TIA; its contents are set out above. The letter reveals, it is said, very real concerns held by Mr Lees and UBA regarding the management of TIA. Mr Lees admitted that these would have been important matters for potential investors to know, but he failed to disclose them to the appellants on 18 March.

In evidence, Mr Lees says:

"Q: You did not express any of those doubts, did you, to Mr Pridmore and Mr Horrobin on 18 March?

A: No, I didn't.

Q: Indeed, quite to the contrary, you indicated you had had a long and close relationship, did not you, with those directors [of TIA]?

A: I indicated something to that effect, yes."

Counsel submits that his Honour failed to give sufficient weight to this evidence. In relation to the meeting on 18 March 1987, his Honour said (at 89):

"However Lees did agree that he said something to the effect that he had had `a long and close relationship' with [TIA's] directors. Having regard to the history of that relationship ... this was clearly correct.

It was not until April 1989, when [TIA] commenced Supreme Court proceedings, however, that this representation was first raised, notwithstanding that relations between the applicants and Atasco deteriorated significantly during 1987."

This conclusion is challenged by the appellant. Mr Pridmore gave evidence, with which Mr Lees agreed, that in a conversation with Mr Lees in late 1987 or early 1988, he said:

"If we had known the background of these people, we would never have got involved."

It is contended that this evidence ought to be construed in light of Mr Lees' comments at the 18 March meeting regarding his long and close relationship with directors of TIA. In his 19 March letter, Mr Lees stated:

"... if we cannot begin to conduct our business on an open and honest basis, then I am left with little alternative but to withdraw this support for the continuation of the business."

However, his Honour did not give any weight to this statement. Counsel submits that his Honour's finding that the letter "does not evidence ... any significant deterioration of the relationship ... such that Mr Lees ought to have raised it with Cumbeline as prospective investors", should not be accepted, when viewed in the context of the conversation which took place on 18 March, when Mr Lees knew that investors were going to rely upon the contract and the Heads.

Further, Counsel submits, weight should be given to the amounts owed by TIA to UBA and the existence of, and the conclusions contained in, the credit report previously mentioned.

The appellants submit that account should be taken of the following evidence of Mr Lees given to the Supreme Court:

"Q: And you knew that Mr. Horrobin and Mr. Pridmore were contemplating investing in [TIA's] business?

A: Not at the time of the drafts when these agreements were drawn up, no.

Q: Well, when the final version of exclusivity clause was drawn up you knew that, didn't you?

A: Yes.

Q: And you didn't tell anybody at [TIA], much less Mr. Horrobin or Mr. Pridmore, that there was already an agreement in force between [UBA] and Ocean Fresh for the supply of the very sort of fish that was contemplated to be supplied by [TIA]?

A: That's true.

Q: Was that a deliberate decision on your part?

A: No.

Q: You say it was an oversight, do you?

A: Yes.

Q: And it would in fact have been misleading, wouldn't it, to say to [TIA] what you said in clause 3, knowing that there was already a contract which ensured that you couldn't comply with the clause on page 3?

A: It would have been.

Q: And that's the reason why, when Mr. Pridmore tackled you about Ocean Fresh at the end of 1987, you wouldn't give him a straight answer, isn't it?

A: No, I don't believe so, because I believed it was our business basically.

Q: It was your business, what you did, and it didn't matter that somebody else might, in reliance upon what you held yourself out as doing, might have done?

A: Yes, I think so.

HIS HONOUR [SUPREME COURT]: Q: I don't understand how you can give that answer if this exclusivity clause was intended to have any meaning?

A: Your Honour, we didn't place a lot of weight or credence on the agreements. I mean all in all the agreements, our basic contracts which are the official contracts of the company, were the documents that we used in terms of price, tonnage and delivery. I mean, these documents were, I guess - and I use the word myself - `letter of intent', basically, to demonstrate that we would like to remain in business and we would appreciate people continuing our supply. [emphasis added]

Q: But reserving the right to discontinue it at any time?

A: But reserving the right --

Q: Did you regard that as a honourable practice?

A: I didn't regard it as dishonourable."

Mr Lees went on:

"Q: Did you think it was fair to say to [TIA], `We guarantee' - `We agree that we won't source fish from anyone else, except Western Australia', without telling them, of course, `we really don't believe that we are bound by this promise'?

A: I am not sure if it is a question of fairness.

Q: What is it a question of?

A: It is a question of commercial negotiation and the ability to generate supply of material.

Q: If you can put something over somebody you think it is fair to do so; is that the way you conduct your business?

A: In some instances in negotiations, yes, because - you can be assured that in many negotiations that the reverse applies.

HIS HONOUR [SUPREME COURT]: Q: Even where two parties are saying to each other, `We want to have a long term evergreen continuing relationship based', as it says, `on mutual trust'?

A: I believe that.

COUNSEL: Q: And you think that's a good business practice, do you?

A: No, I don't believe it is good business practice."

The present primary Judge concluded that the evidence did not establish that Mr Lees had any knowledge or appreciation of the reputation or experience of Messrs Horrobin, Pridmore and Sands. This, the appellants say, is contrary to Mr Lees’ evidence. When he was asked whether it was clear to him that none of them had any experience in the fishing industry, Mr Lees said "It would've been, yes".

Counsel also submits that his Honour gave insufficient weight to the following:

• Mr Lees' evidence, which shows the basis for the relationship as one of mutual trust. Mr Lees, in his statement, agreed that Mr Pridmore said to him words to the effect: "we cannot check up on everything you do, we must be able to trust each other";

• The clause in the Heads that: "And the parties agree to consult regularly to maintain and further their mutual aims as set out in this agreement"; and

• The policy to expand the number of suppliers to UBA by December 1987. Referring to Counsel's submission that the encouragement of TIA to begin supplying fish to UBA was "part of an attempt to expand the number of suppliers to UBA", his Honour accepted that "this seems to be correct".

It is submitted, in relation to representation (xii), that his Honour failed to give sufficient weight to the wording in the Heads and, in particular, to the words: "and in consideration of TIA installing a processing plant to specifically meet UBA requirements" [emphasis added]. It is said that, when this is read in conjunction with the rigorous UBA specifications, and the need for a "highly specialised and flexible facility" to respond to changes in UBA requirements, as supported by the evidence, its significance becomes even greater.

It is contended that his Honour gave inappropriate weight to the words "subject to satisfactory performance" under the heading "Framework of Agreement" in the Heads, when such terms have no greater effect than would be implied by law in any event: they ought to be construed, in context, with the balance of the document.

In relation to representation (xii), Counsel submits that there is evidence:

• that neither Mr Lees nor Mr McBurnie believed that TIA would be able to perform under the contract;

• that Mr Lees was aware that the Heads was intended to be shown to potential investors;

• that the terms of the relevant passages of the Heads clearly contemplate that additional funds are to be expended by TIA; and

• that, by 26 March 1987, UBA had already entered into contracts for excess of its fish requirements.

It is submitted that his Honour gave undue weight to the evidence of Mr Lees as to his understanding of the legal effect of the Heads. The Judge concluded that:

"... the view was reasonably open, particularly to a fish buyer such as Lees, to form the view that it was the ... contracts that were binding and that the Heads...were generalised statements of an intention to negotiate with a view to reaching an agreement from time to time ..."

The appellants contend that his Honour failed to take into account the following evidence of Mr Lees:

"Q: ... I suggest ... irrespective of whether it was legally binding or not, your intention was to deal with any supplier who you thought fit and who would provide the best deal for [UBA], was it not?

A: That would be correct, yes."

Counsel submits that his Honour's finding, that the "ongoing relationship" was to be "subject to the performance by the parties of their contractual obligations", is inconsistent with his finding that:

"Lees considered that although [the] contracts ... were binding, the Heads....did not impose any binding obligation."

and that "the view he reached was open to him".

Then it is submitted that the evidence showed that there was a misrepresentation as alleged in representation (xiii), for the following reasons:

• On a proper construction of the amendments to the Heads of Agreement, the obligations of UBA to source in the first instance its requirements for fish from TIA subject to certain exceptions were not altered, to the detriment of TIA. When Mr Lees was asked whether he intended to perform those obligations, he said: "The intent of that was that we would be able to source product from other people as well...".

• The fact that there was no complaint in respect of the final version of the Heads of Agreement is irrelevant.

• His Honour said (at 179):

"Although there were many unsatisfactory aspects of Lees’ evidence, I accept his statement when he gives as his reason for amending the clause that he didn’t like documents with `sole supply’ on them. He was aware of UBA’s second supplier policy at this time. This consideration and the alteration are consistent with the deletion of the word ‘solely’ in relation to sourcing and the spelling out of what is clearly a reduction of commitment by making the quality, quantity, price and time ‘acceptable’ to UBA. Moreover, it would be contrary to the interests of UBA only to have access to a single supplier who could hold it to ransom. In fact, UBA had a second supply policy. Commercially, it was very much more likely that UBA, whilst giving [TIA] the opportunity to supply, would want to keep its options open to get supply from other processors and suppliers."

It is contended that account should be taken of the following evidence of Mr Armstrong, in respect of the advantages to UBA of building exclusive supply arrangements:

"Q: ... [d]o you agree ... with that proposition ... [that the Heads is an extraordinary document to be entered into on behalf of UBA]?

A: [UBA] entered into agreements with other companies specifically relating to the meat, poultry and packaging industries to develop sources of supply exclusively for [UBA] with the vendors supplying capital... to produce a product to the specification to supply to [UBA]. ... in the context of that kind of arrangement this is not all that extraordinary (emphasis added).

Q: Part of it being a... business relations exercise and the other just to familiarise yourself in a general way with the nature of the suppliers business premises?

A: Yes. You’ve got to understand that [UBA] at that time was really trying to build a proper well managed product pipeline and we were building relationships or trying to build relationships with vendors very much the same way that sales forces try to build relationships with customers.

Q: Yes, well usual for a commercial director to take an interest in the establishment of a supplier’s business?

A: Sure.

Q: And why was that according to your understanding, Mr Armstrong?

A: Obviously if a buyer was developing a business with a supplier then again that is obviously one supplier I have not seen and would like to see and, secondly, it was part of my role to make sure that vendors saw that the senior management of the business were interested in their business.

Q: [Persons occupying the role as commercial director] would... satisfy themselves... that the particular business was being developed in a way which was going to suit [UBA]?

A: You would ensure that the business was being developed to supply against the standard quality specification.

Q: And that even if that price was higher than the price at which [UBA] could acquire product from other suppliers, nonetheless it was still obligated as you understood it to obtain fish from [TIA]?

A: [UBA] has a history of... working with suppliers who are developing their business, particularly if they are developing their business to meet a [UBA] requirement, to pay an agreed amount over and above a base market price or whatever the basis for the original calculation was, to cover whatever was worked through to build that price structure, so if
you are asking me would they have paid over the market the answer is yes but by an agreed amount for an agreed period of time to cover what the payments were being made for ... .

Q: And your understanding was that if fish were available from [TIA], [UBA] had to sit down with [TIA], work out the cost, agree on an appropriate percentage profit margin for [TIA] and then purchase the specified quantities of fish from [TIA] at that price?

A: The cost of the fish in the industry were one of the things - the cost of any industry that [UBA] buyers are working in are one of their key areas of research. I would suggest to you that the intent here is that given the scale of fishing that was to be undertaken that the costs [TIA] would be way below any of the ad hoc fisheries, if that’s the right word. It was also the practice of [UBA] to ensure that suppliers were profitable otherwise they won’t be there next year. So I think you need to look at the intent. (emphasis added)."

Mr Armstrong’s recollection was that TIA was the only supplier of fish with which UBA had an exclusive arrangement in the period 1987 to 1989.

• His Honour’s finding that Mr Lees was aware of UBA’s "second supplier policy" must be viewed in the light of the following evidence of Mr Armstrong:

"Q: During the time that you were commercial director it would be absolutely incorrect to say, would it, that there was a policy of [UBA] that in respect of the supply of raw materials there had to be at least two suppliers?

A: I can again best answer that question by saying, no, I don’t know if there was any written policy to that effect. However, experienced buyers and even inexperienced buyers know again because it’s good commercial practice that without very good reason you would not do that."

It is submitted that, in reaching the conclusion that the relevant passage of the Heads of Agreement constituted a representation, but not a misrepresentation, his Honour did not:

• take into account the evidence that neither Mr Lees nor Mr McBurnie believed that TIA would be able to perform its contractual obligations.

• give sufficient weight to the evidence that Mr Lees was aware that the Heads of Agreement was intended to be shown to potential investors in TIA.

• take into account the circumstance that the terms of the Heads of Agreement contemplate that additional funds are to be expended by TIA.

The appellants next challenge his Honour's conclusion that, after amendments were made to the Heads by deleting the words "total" and "solely", there was "a substantial and obvious relaxation of restrictions on the sourcing by UBA in the signed form of the Heads of Agreement".

Furthermore, it is said, his Honour should have taken into account the evidence that no previous Heads of Agreement issued by UBA to TIA contained an "Exclusively" clause and that when Mr Lees re-drafted that clause he retained the heading "Exclusively", which he interpreted as meaning "solely".

It is also argued for the appellants that his Honour should have taken into account Mr Lees' evidence that the agreement of 26 March 1987 was entered into with a view to enabling TIA to induce investors to enter into a contract; and that when he signed the Heads, Mr Lees understood that he was promising (with the exception of Western Australian fish) not to
purchase fish from any other supplier, unless TIA was unable to provide those fish at a quantity, quality, price and time acceptable to UBA.

THE APPELLANTS' ORAL ARGUMENTS ON ALLEGED REPRESENTATIONS (xii) AND (xiii)

The primary Judge held that the clause - "Both parties agree to establish an evergreen, continuing long term relationship for the supply of fish by TIA to UBA" - amounted to a representation, albeit in a limited sense.

By way of background, Counsel notes that in about April 1987 UBA introduced a "Medium Term Plan" that was to run for five years from 1988 to 1992. This document provides details under headings such as "Mission for the Next Five Years", "Situation Assessment", and "Strategy". In 1988, TIA and UBA replaced their March 1987 Heads with new Heads of Agreement dated 7 June 1988. This document provides for provision by TIA of fish to UBA over the period 1988 to 1993 inclusive.

In his evidence, Mr Lees agreed that he had a meeting with Mr Horrobin on 18 March 1987, at which he discussed the prospects of making a long term arrangement covering the five years after 1988. Mr Lees accepted that some degree of long term security was required if Cumbeline were to make a capital commitment.

However, in cross-examination, Mr Armstrong agreed that the rule at UBA was to adhere to a policy unless explicit permission was given to breach a particular policy. One policy was not to enter into a supply agreement for a duration of more than 12 months. He said:

"That policy could be breached ... by going through the right channels, and, in fact, there were contracts in place for longer than a year that had been approved ..."

Mr Armstrong then said that a breach of this policy would have to be approved by the Head Office. He was shown the Heads of 26 March 1987 and admitted that if he thought the document was a contract it would have had to have gone to the Head Office for approval.

Mr Armstrong said:

"When I first read it ... I would have read it as a document to work together to develop a business prior to a contract being signed."

Mr Armstrong accepted that for UBA to have such an evergreen or "never-ending" relationship with a supplier was contrary to company policy and would require head office approval. His evidence continued as follows:

"Q: But provided agreement can be reached as to - subject to the proviso and the exclusively clause, forever, it is not?

A: And the word evergreen would imply that, yes.

Q: But provided agreement can be reached as to price etc and the `exclusively' clause [is] forever is it not?

A: And the word `evergreen' would imply that, yes.

Q: And that is extraordinary, is it not?

A: That's extraordinary.

Q: Indeed, you know of no other arrangement, do you, that [UBA] entered into which has such a feature?

A: Forever?

Q: Mm?

A: No.

Q: And it is certainly the sort of arrangement or document which you would have thought would have warranted referral to you [at the tome in was executed or] prior to its execution?

A: No, because each individual contract was being written for six months.

Q: But would you not have wanted to know about the underlying arrangement recorded in such a document as this extraordinary arrangement?

A: Yes.

Q: ... you were not told of it, were you?

A: Not to my recollection."

His Honour held (at 208) that the clause relevant to representation (xii) was not false and that, as at 26 March 1987, UBA did intend to have a continuing long term relationship with TIA for the supply of fish; and that, in fact, UBA did continue in a supply arrangement with TIA until 1989.

Counsel for the appellants challenge this finding on the following grounds:

• Mr Lees signed the document believing it to be of no legal force at all.

• Mr Lees had no authority to agree to the evergreen provision in the document. Whether it was a contract or not, according to Mr Armstrong's evidence, such a long arrangement would have had to have been referred to UBA's Head Office.

• Mr Armstrong was not notified about it.

Some of Mr Lees' further evidence in the Supreme Court, as follows, also bears upon representations (xii) and (xiii):

"HIS HONOUR [SUPREME COURT]: Q: But all of the agreements I have seen here, including those you have just been discussing in March of 1987, work upon the basis of two factors: one is an evergreen relationship and the other is what might be seen to be an apparent desire of [UBA] to have an Australian source of supply?

A: That's right, yes.

Q: How could you have an evergreen relationship with an Australian source of supply if the price you paid did not include both cost and some margin of profit?

A: The evergreen relationship would have been based on international values, and I mean if the Australian supplier was unable to compete,... the basis of an evergreen relationship would have been broken.

Q: So that you were only wanting an evergreen relationship or an Australian supplier provided they were cheaper and, in your capacity to obtain the source elsewhere?

A: That's right, provided they were competitive.

Q: There is nothing in the agreements that say that?

A: I don't believe so.

...

HIS HONOUR: Q: The preceding page says [under the heading `Framework of Agreement’] in the second paragraph, `To this end and in consideration of TIA installing a processing plant'.

A: Processing plant your Honour, yes.

Q: `To specifically meet the UBA requirements'?

A: Right.

COUNSEL: Q: What I am getting at is that this agreement was looking to the future?

A: That's correct.

Q: There were two promises: you were promising a long term relationship, and [TIA] was promising to spend money in tailoring its facility to meet your requirements?

A: [TIA] was promising to spend money so that they could provide the tonnages of product that we had contracted for them.

Q: According to your specifications?

A: According to our specifications.

...

Q: `... In consideration of TIA establishing a facility tailored to meet [UBA's] requirements, UBA agrees to source, in the first instance, its requirements for fish from TIA, except for product caught and processed on the west coast of Australia'? Now, you remember that you signed an agreement that contained that provision?

A: Yes.

Q: And you have also told us this morning that you entered into that agreement knowing that [TIA] was going to use it to induce people to invest in [TIA's] business?

A: I believe they used it, yes.

...

Q: But you understood ---?

A: I signed a contract --

Q: I am sorry?

A: which demonstrated the tonnages and prices in which we had received the material, and we would stick by those contracts.

...

Q: And back with the March document, you knew that [TIA] was about to invest substantial sums of money in the facility at Geelong?

A: Yes.

Q: And you knew that it was important to [TIA] to have the `exclusivity' clause?

A: I knew it was important to [TIA] to have a document that would indicate that we were prepared to continue purchasing product from them.

Q: Exclusively?

A: Not exclusively, no, because we amended the original exclusivity clause to allow for the out clause, if you like.

Q: I am sorry, you amended to do what?

A: Which allowed us to do, in the event that we could not, need to purchase exclusively, because we had to, they had to provide quantity, quality, price and time acceptable.

...

Q: You understood that they were going to use this piece of paper to demonstrate to people that they did have a contract that would have some legal effect?

A: At the time of its drafting, no, I did not know but subsequently, yes, I did; that is at signing I did.

Q: At the time of signing it?

A: Yes.

...

HIS HONOUR: Q: ... on page 2 under the heading `Framework of the Agreement', the first paragraph says, `they wish both parties agree to establish an evergreen continuing long term relationship for supply of fish' and in the last paragraph it says, `parties to consult regularly to maintain and further their mutual aims as set out in this agreement'?

A: Yes, your Honour.

Q: But at the same time you tell me you didn't intend to have an arrangement of exclusivity?

A: That's correct.

Q: You didn't have an arrangement of exclusivity at that time?

A: That's true.

Q: You knew people were relying on this agreement and you didn't tell them?

A: On this agreement?

Q: Yes?

A: I am not sure of the level of reliance on this agreement, your Honour, but I did not tell them, no.

COUNSEL: Q: The reliance was something that you have conceded several times, namely that you knew [TIA] was going to induce somebody to invest in the company?

A: I knew [TIA] were seeking investors in the company.

Q: And that the reason why they wanted this agreement is so that they could induce people to put money in?

A: Well, they certainly wanted the agreement to show investors.

Q: See, you had no doubt that people were going to rely upon what you were going to say in this agreement, did you?

A: No."

His Honour found (at 208) that there was a representation about continuity, so far as the term "evergreen" was concerned. Counsel submits that it was a false representation because Mr
Lees did not consider that he was bound in any way and was prepared to depart from the arrangement as he wished. This in turn, the appellants say, points to the fact that he knew that investors were going to rely on the representation and points strongly to the conclusion that they were likely to have relied on that document.

It will be recalled that the other representation, that is representation (xiii), is said to arise from the following clause in the Heads:

"EXCLUSIVELY

However, UBA reserves the right to purchase from any source such fish that TIA are not able to provide at a quantity, quality, price and time acceptable to UBA.

A further agree to assist and cooperate with TIA in their effort to source raw material fish from various fishermen and enterprises within Australia."

His Honour found (at 214-215) that:

"Whilst a contractual warranty in certain circumstances can also operate as a representation under s.52 of the TPA, in the present circumstances, the signing by Lees of the Heads, ... in the knowledge that it would be provided to Horrobin and Pridmore did not amount to anything more than a representation that UBA had contracted in relation to price [etc]."

He also found (at 213) that:

"the agreement of UBA to source, in the first instance, its supply of fish from [TIA], properly construed, imposed a binding obligation on UBA to first
approach [TIA] to see whether [TIA] could supply fish covered by the contract on terms acceptable to UBA".

However, his Honour concluded (at 213-4) that:

"Notwithstanding the above conclusion, the legal enforceability, certainty and content of the undertaking to `source in the first instance' is finely balanced and one in respect of which experienced lawyers could and have genuinely reached different conclusions. Lees was of course a fishbuyer, not a lawyer, and the view he reached was open to him. Lees clearly thought that he did not have to approach [TIA] first before seeking supply from other suppliers. Such a procedure from his viewpoint was pointless. This was a view which was reasonably open to him."

His Honour thus decided that while Mr Lees held the view that the agreement was not enforceable, he was not, however, obliged to spell out his view; and so the Judge held, in effect, there was no breach of the representation.

Counsel for the appellants submit that once a representation of the type his Honour found was found - that is, that UBA made a contract giving some sort of preferential right to TIA and because of the nature of contractual obligations it thus represented that it intended to be bound by the contract - the fact that Mr Lees signed the contract, when he did not intend to be bound nor believe he was bound, amounts to a misrepresentation. The misrepresentation may have been innocent, but it was nonetheless a misrepresentation and for that reason, it is submitted, his Honour's conclusion in this respect should not stand.

One matter which significantly influenced the decision of the primary Judge was his finding that the appellants did not complain to UBA when they became aware that UBA appeared not to be honouring representations which the appellants regarded as having been made.

However, Counsel for the appellants submits that TIA was in the invidious position of being dependent upon the customer [UBA], in respect of whom, and to whom, they were supposed to complain; so that failure to complain could not be probative of whether or not the representations were made.

THE APPELLANTS' ORAL ARGUMENTS IN REPLYAPPELLANTS' ORAL ARGUMENTS IN REPLY

It will be convenient to refer next to some matters mentioned by the appellants' Counsel in his reply.

Counsel submit that it was incorrect to describe TIA as a "middle man" or a "broker", who bought whatever frozen fish was on the market. Rather, the appellants say, it is clear that TIA was regarded as a "processor" at Geelong. For instance, Messrs McBurnie and Lees visited the fishing plant at Geelong on a number of occasions where they could see that TIA was not buying whatever frozen fish was on the market, but was in fact engaged in the processing of fish.

Counsel challenges his Honour's finding that the W contract was merely a contract which represented nothing more than its existence, creating no representation regarding capacity, merely formalising the arrangements between the parties regarding tonnages, prices and delivery etc.

The appellants' Counsel refer to Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 where Viscount Maugham said (at 211) that to establish a common law action of deceit:

"... there must be a representation of fact made by words, or it may be, by conduct. The phrase will include a case where the defendant has manifestly approved and adopted a representation made by some third person."

It is submitted that UBA became aware that the contract was being used in negotiation with the investors. The question then arises whether UBA was approving and adopting that representation.

Reliance is place by the appellants upon Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 where Ormiston J said (at 239):

"It would seem on the authorities that, at the least, a contractual promise would amount to an implied representation that the promisor then had an intention to carry out that promise. If it can be shown that he had no such intention, he would be guilty of misleading or deceptive conduct. Likewise it would seem that such a representation connotes a present ability to fulfil that promise which, if shown to be untrue at the time of making, would likewise characterise the implied representation as misleading or deceptive."

Counsel then addressed four topics as follows:

(1) Whether there was evidence that Mr Lees thought that the W contract was going to be shown to the investors;

(2) The capacity of the Geelong plant and, in particular, the blast freezer;

(3) Whether the decision to invest was based on a reliance of the representations, or misrepresentations, or whether it was based on an ambition, on the part of the appellants, to expand the business; and

(4) Whether an inconsistent case has been put on appeal from that which was put below, about matters not being put to witnesses, specifically to Mr Lees, and whether it is impermissible for the appellants to seek to use such findings, as the primary Judge did make in their favour, in order to support a conclusion of liability.

As to (1), the appellants refer to the submission of the respondent that "there is no evidence that Lees thought that the W contract was going to be shown to investors". In support of their submission Counsel for the respondent had referred to Mr Lees' evidence as follows:

"Q: The true reason you issued contract W17299 in increased volumes or tonnages compared with the earlier W contract executed by Mr Terry was because you knew [TIA] wanted to have a bigger contract with a view to inducing investors to invest in [TIA], was it not?

A: No, that is not correct."

However, the appellants contend that this does not necessarily support the respondent's submission. Paragraph 3 of the statement of claim pleaded, in the particulars, as has been seen, that the "representations were in writing or alternatively partly in writing and partly to be inferred from conduct". The writing was the W contract; the conduct was that UBA knew that the shareholders of TIA were going to show the contract to potential investors with a view to inducing those persons to invest. UBA knew or ought to have known that those potential investors had little or no knowledge of TIA's ability, or capacity to fulfil the contract, or of the discussions and relationship between TIA and UBA.

The appellants say that the primary Judge made no finding on whether or not UBA knew that the W contract was going to be shown to potential investors or purchasers.

Counsel refer to the evidence that the W17264 contract, originally with the typed date of 14 January 1987, was drawn up by Mr Terry. The contract was later amended, in Mr Lees' handwriting. All the handwritten figures for different prices and, in two cases, different tonnages were written by Mr Lees. Mr Lees recorded an entry in his diary, in relation to a meeting which took place on 19 January, as follows:

"Geelong 56 year lease of land, [TIA] buying alterations and extensions 1.5 million purchase."

The address of TIA is also shown in this document. His Honour found that this entry brought to Mr Lees' mind a plan of TIA to spend $1.5 million on acquiring a 56 year lease of the Geelong facility. On 28 January there is an entry in Mr Lees' diary which states, "John Wilson, Bruce Fasham and Trawl Industries". What happened between John Wilson, Bruce Fasham and Bob Lees at TIA was described by Mr Lees in his statement dated 20 April 1994 as follows:

"Either Gavin Wilson or Fasham said to me words to the following effect:

`In order to raise additional funding for [TIA] we require a five year purchase commitment from UBA. We are looking to continue the refurbishment of the Geelong plant. We are going to need more funding for this and to obtain that funding we need some form of long term arrangement with [UBA].'

I said words to the effect of:

`This is contrary to UBA policy which prevents any supply commitment beyond 12 months. I would be prepared however to give a letter of intent or Heads of Agreement which you can show prospective investors/lenders to establish UBA's bona fide longer term commitment. This longer term commitment would of course, clearly be dependent upon quality being in accordance with UBA's required standards and the price being satisfactory’."

Counsel submits that this establishes beyond dispute that Mr Lees knew that the Heads were going to be shown to an investor.

An entry in Mr Lees' diary for 4 February "Trawl - Geelong 10.15 - 10.30", indicates a meeting at TIA. It is submitted that evidence of what happened on that day can be ascertained from a letter that Mr Fasham wrote two weeks later to the State Bank of Victoria, which in part stated:

"Following our recent contract negotiations with [UBA] we will be introducing a new incentive payment arrangement."

Then, at the beginning of the next paragraph, Mr Fasham refers to the letter of 4 February to Mr Moorfield, who is an officer of the State Bank. Mr Fasham stated:

"In our letter of 4 February to Mr Moorfield we mentioned that [UBA] had contracted to purchase a total of 6250 tonnes of various species for delivery in 1987."

The date at which Mr Lees first began to adjust the figures on Mr Terry's 14 January pro forma W contract, can therefore be ascertained, it is said, as Mr Fasham's letter goes on to refer further to the letter to Mr Moorfield:

"In that same letter we mentioned the prices were to be re-negotiated."

When he says "[UBA] had contracted to purchase", that means, it was suggested, that on 4 February, at the meeting recorded in Mr Lees' diary, the parties reached agreement on
quantities. They had not yet reached agreement on prices but they were "to be renegotiated", and the evidence shows that they were renegotiated on 11 February.

The result of the meeting of 11 February is apparent, it is contested, in the W contract. Mr Wilson's record indicates that the prices were agreed on that day. Mr Lees' handwritten notes, dated 11 February, contain references to the prices for various types of fish. Mr Fasham informed the Bank of Victoria that the meeting, at which the prices were to be renegotiated, had now taken place, then he set out increased price levels and six types of fish with prices all of which correspond to the W contract. On 21 February, Mr Wilson wrote a letter to UBA enclosing the so-called `revised' Heads: the first embodiment of what eventually became the Heads. This letter stated that all other terms and conditions were embodied in the attached master Heads of Agreement. This, it is said, is evidence that Mr Lees had notice of the draft Heads and possibly had notice that what he had said would be prepared, so that it could be shown to potential investors.

The respondent had submitted that "The prices and negotiations which led to the issuing of contract W17299 took place long before that matter arose and took place against a background which the evidence shows involved representations by [TIA] to Lees, to [UBA], as to what was happening within that company and that company's capacity to supply fish."

Counsel for the appellants challenge this chronology of the events. It is submitted that the issue of creating a stronger relationship or stronger agreement, as evidenced in the Heads, arose on 29 January 1987. This is before the negotiations to decide the quantities and prices to be included in the W contract. These negotiations took place on 4 February and 11 February respectively. It is, the appellants' argument runs, therefore incorrect to say that the negotiations which led to the issuing of the W contract took place before any discussion of the `stronger relationship'.

As has been said, there was no finding by his Honour as to whether Mr Lees thought that the W contract was going to be shown to investors. The appellants submit that this is a matter of some significance, and the issue was squarely raised in the pleadings. Mr Lees, in his several statements in-chief, does not deal with the allegation. Counsel's submission is that the following principle, explained by Handley JA in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Limited (1991) 22 NSWLR 389 (at 418), is applicable:

"There appears to be no Australian authority which extends the principles of Jones v Dunkel to a case where a party fails to ask questions of a witness in chief. However I can see no reason why those principles should not apply when a party by failing to examine a witness in chief on some topic, indicates `as the most natural inference that the party fears to do so'. This fear is then `some evidence' that such examination in chief `would have exposed facts unfavourable to the party'."

Counsel refers to the evidence that on 18 March, there was a meeting between Mr Lees, Mr Pridmore and Mr Horrobin; and that the draft Heads, that had been sent on 21 February by TIA to Mr Lees, was handed over. In his evidence, Mr Lees did not deny that the document was handed over, but he did deny that certain things were said about the Heads. In concluding that the draft Heads was referred to at this meeting, his Honour did not make any explicit finding that it was actually handed over. There was evidence that on 26 March 1987 the final Heads was redrafted in part by Mr Lees and signed by both Mr Lees or his company and TIA. The Heads then came into the hands of the investors. Finally, on 30
March, the Shareholders' Agreement was signed; it contained a stipulation, it will be recalled, to the effect that a contract had to be sighted by incoming shareholders.

Counsel relies on two references in the Heads to the W contract. The first reference appears in the preamble into which were inserted the words, "and has contracted for the purchase of large quantities of fish for UBA requirements". The other reference to the contract appears on p. 5 of the Heads where the recurrent six monthly process of negotiation is set out:

"Commencing from February 1987, and for the continuing period of this agreement, the parties shall fix both a quantity and price for sale, delivery and storage ..."

Counsel submits that that material on p. 5 would excite the reader to inquire as to where this February 1987 contract could be found.

It is submitted that the Heads of 26 March 1987 is stronger than the previous Heads of Agreements because of the two references in it to something which is certainly valuable, namely the W contract. Counsel submits that Mr Lees must have realised that, to issue the Heads, would put any investor on notice of, and make them actually want to see, the W contract. The factors relied on to support that submission are as follows:

• Mr Lees, in cross-examination, agreed that Mr Fasham asked him for a stronger agreement. Mr Lees' evidence of the 29 January meeting was as follows:

"Q: Do you recall any discussion between yourself and Messrs Wilson an/or Fasham in February or March 1987 about producing a contract or agreement for the purpose of inducing investors into [TIA]?

A: I recall a discussion - with - I think it was Mr Fasham who said something like he needed a stronger agreement."

• Mr Lees' evidence was that he did not view the Heads as a contract at all. There was evidence that he did not intend the document to be binding on UBA. Mr Lees did not perceive the Heads to be of any value. It is hard to see, the appellants' argument runs, that if that was his perception, how that could be in any sense a stronger agreement.

• On the basis of its perceived worthlessness, its reference to another contract and of the general looseness of its language, one would expect investors who saw it to pursue further inquiries.

• Mr Lees' evidence was that he regarded the W contract as one which was issued under, and pursuant to, the Heads. He agreed, in cross-examination, that the W contract was regarded by the parties as being issued pursuant to the Heads. In other words, he saw them as being, in that sense at least, interlinked.

• Mr Lees admitted many times in his evidence that he knew that the investors would rely on what was in the Heads. He obviously would have expected them to read it with some attention.

In those circumstances, it is submitted, a tribunal of fact would be able to infer confidently that Mr Lees knew that the W contract would be passed on. However, the primary Judge has not made a finding on that subject. It was not a trivial or incidental fact but one which was squarely exposed for consideration in para. 3 of the statement of claim. This omission evidences, it is said, a breakdown in the chain of reasoning which ought to justify a new trial. That is particularly the case where there is no explicit evidence that Mr Lees did not know the fact. He gave no evidence about it and there is no direct evidence emerging from the cross-examination about it. In those circumstances, as a matter of circumstantial inference as to what Mr Lees' state of knowledge was, one would have to look at all the circumstances and draw an inference.

A related matter is that Counsel for the respondent raised the issue whether Mr Lees had behaved reasonably in increasing the prices and tonnages in the W contract, and of the basis he might have had for believing that TIA would be able to supply more than 6000 tonnes of fish for the lifetime of the W contract. One suggestion made by the respondents was that Mr Lees arrived at the view that TIA could supply that tonnage because a delegation of eighteen fishermen had undertaken to supply 2500 tonnes of pilchards, which was a very large part of the pilchard requirements in the W contract. But, the appellants submit that the problem with this reasoning is the chronology of the events. The evidence was that the information about the eighteen fishermen and the news as to what they were to supply, was only given to Mr Lees after the negotiation about volumes on 4 February 1987; the information was given to him in the letter of 21 February 1987.

The suggestion that Mr Lees was being reasonable or genuine in thinking that 6,250 tonnes could be delivered under the W contract, would have to be tested or determined as at the time he made the commercial agreement, which was some days, or possibly weeks, before he actually got the news about the 2,500 tonnes of pilchards.

His Honour said (at 169-170):

The appellants accept that Mr Lees knew this fact on 29 January, and probably knew it on 17 January, when the topic first seems to have been raised with him. However, his Honour went on to say:

"Also, Lees had been informed by [TIA] that an 18 fishermen delegation had undertaken to supply 2,500 tonnes of pilchards. The purchase of Corio Quay would eliminate the nine day fortnight limitation. The pilchard arrangement with the fishermen indicated that [TIA] had already made arrangements for the supply of over 80% of the pilchards needed to meet W17299 and this fact was known to UBA."

The appellants accept that it is technically correct to say that this information about the fishermen was given to Mr Lees before he issued the W contract; the evidence was that it was not given to Mr Lees before he agreed with TIA, on 4 and 11 February, as to those prices and tonnages.

A further matter relating to chronology raised by the appellants is that the Counsel for the respondent say:

"The evidence ... shows ... that ... the heads of agreement of 26 March were in fact sent, ... to Mr Pridmore on that very day. So instructions were given
ten days before, to draw up [the] shareholders agreement, and on the day of execution of the actual heads of agreement is the first time that the investors see the heads of agreement that have been made between [TIA] and [UBA]."

The appellants accept that, technically, it is correct to say that they first saw the actual Heads in final form on 26 March. No one else had ever seen it in its final form before that day because it was only on that day that Mr Lees made the appropriate changes and sent it to TIA. But, the appellants' argument runs, the respondent's point, first, ignores cl 4.1(m) of the Shareholders' Agreement in which the new investors stipulated for the sighting of that document; secondly, it ignores the fact that the draft Heads that led to the ultimate Heads had been around since 21 February, were given to the investors no later than 18 March, and these drafts differed very little from the final version.

(2) The second topic raised in reply by Counsel for the appellants relates to the capacity of the plant. In his statement Mr Horrobin gave this evidence, by way of background, which the appellants contend is not controversial:

"6. On or about 13 April 1987 [TIA] purchased from PGA a 56 year lease of the whole Geelong factory and cold store complex and also purchased the plant and equipment located in the PGA complex. Prior to this purchase, whole Jack Mackerel caught for [TIA] by the fishermen arrived at the Geelong processing works on trucks, held in large yellow one tonne fibreglass bins, packed with ice. These bins were unloaded by the PGA utilising the PGA's forklift and held in the yard of the factory complex. As required by [TIA] for processing, each bin was picked up by the PGA forklift and deposited onto a bin unloader located in [TIA's] fish processing room. [TIA's] workers then tipped the fish onto a conveyor, where they washed, sorted and packed the wet fish into smaller bins (sometimes called `tubs'), each of approximately 15 to 25 kilos capacity.

7. At this point [TIA] and [TIA's] workers were required by PGA to surrender control of the process to PGA, whose employees conveyed the tubs of wet fish into an adjoining PGA room (called the `breakout
room') where they stacked the tubs of wet fish onto wooden pallets, with each layer of tubs being separated from other layers by the insertion of `freezer slats'. PGA then placed each loaded pallet of raw, wet fish into the blast freezer; blast froze the raw fish over a period of hours (which varied depending upon the size and type of fish and the specifications of [UBA]; removed the pallets of frozen fish back into the breakout room; manually separated each frozen block from the wall of the tub to which the wet fish had become adhered whilst being blast frozen (a process described as `break out')); stacked the blocks of frozen fish onto pallets (roughly one tonne per pallet); covered each pallet of frozen fish with a plastic film which was then `shrunk wrapped'; and loaded each completed pallet of frozen fish into the PGA coldstores awaiting collection by [UBA]. Pallets of frozen fish held in the coldstores would then be loaded by PGA into refrigerated trucks sent by [UBA] for that purpose. A similar procedure was also utilised to process Pilchards for supply by [TIA] to [UBA].

8. The blast freezers were refrigerated rooms located on the ground floor of the PGA factory and coldstore complex, in which fish were frozen by being blasted with refrigerated air directed by large fans. In order to meet [UBA's] contract specifications it was essential that the temperature of fish being processed by [TIA] for [UBA] be reduced to the temperature level specified by [UBA] within the time specified by [UBA]. [TIA's] daily capacity to process tonnages of fish for [UBA] was controlled by the time taken by the blast freezers to freeze fish down to the temperature required by [UBA]. If the blast freezer could not keep pace with the arrival of raw fish at [TIA's] factory, then the fish would spoil and [TIA] would be unable to supply fish to the specifications required by [UBA] and the tonnages required by [UBA].

9. Prior to 13 April 1987, only part of the approximately 1500 tonne cold storage capacity at the PGA complex was available to be utilised by [TIA] for cold storage of frozen fish for [UBA]. This limitation was caused by any one or more of three varying constraints. These were, firstly, the competing demands for cold storage space of other frozen food customers of Port of Geelong Authority (such as frozen potato chips stored by McCains); secondly, the problem that fish smell can contaminate some other foodstuffs even when frozen, making it sometimes necessary to set aside separate storage space for fish in one or other of the separate cold storage rooms situated on each of the three floors of the Geelong cold store building; and thirdly, the PGA would only allow its blast freezers and coldstores to open during normal working hours, on a nine day fortnight basis, and would not allow any overtime to be worked by PGA employees. This rendered impossible a continuous 24 hours per day, 7 days per week processing and blast freezing operation of the sort required for large volume industrial fish processing by [TIA] for [UBA]."

The appellants submit that it is necessary to distinguish between what happens in the blast freezer and the transmission to the cold stores; and that it would be wrong to give the impression, as the respondent's argument might suggest, that there was "just a sort of cold store in operation like a large refrigerator". In truth, the appellants say, there were a number of stages. As his Honour found, it was the blast freezer which controlled the capacity of the plant. Paragraph 8 of Mr Horrobin's statement was corroborated by Mr Lees' evidence that the operational capacity of the cold storage sections was 1500 tonnes. With that background, it is not true to say that Atasco or TIA owned and operated a "cold store" at any time before 13 April; the appellants contend, it is true to say that the blast freezer controlled the rate of through-put.

Counsel for the respondent had contended that the evidence as to the freezing trials at the end of 1985 was inconclusive. The appellants submit that this evidence indicated that the trials were wholly conclusive of an incapacity to meet specifications. There is nothing, the appellants contend, to suggest that that incapacity ever changed.

In relation to the visit of Mr McBurnie to TIA premises at Geelong on 16 February, the primary Judge said: "This seems to be a similar problem to that noted earlier in September 1985". Mr McBurnie gave evidence that it was a different problem. His Honour does not seem to accept Mr McBurnie's explanation, perhaps for several reasons. One was that Mr McBurnie was rather uncertain as to what problem he was talking about eight years earlier when he noted: "Still minus .5 to plus .7 six hours after placing in freezer, this could be a problem". The second was that Mr McBurnie said he was not an expert on these topics. A third explanation may simply have been that, since eight years had passed, Mr McBurnie's
recollection in late 1994 of what he meant, by a note in February 1987, is obviously not a secure foundation on which to base any particular conclusion.

The evidence that the second Wildridge and Sinclair report said that the capacity of the freezer was 50 tonnes but only if $475,000 was spent on it has been mentioned. Counsel for the appellants stressed the following note contained in that document:

"Note: It is not possible to fully freeze fish in tubs in a blast freezer in five hours."

Counsel for the respondent sought to interpret the Report to be saying "You cannot fully freeze fish the way you are doing it, you have them in tubs and that is not on".

Counsel for the appellants submits that the evidence establishes that there is no other way to freeze fish except in tubs if they are to be "hard frozen in blocks", and all of the specifications called for them to be hard frozen in blocks; UBA were perfectly happy with the use of tubs; the problem was not the use of the tubs, it was the inability of the blast freezer to freeze what was in the tubs; so that, what Wildridge and Sinclair were saying was that the specification for pilchards could not be complied with because the fish could not be frozen in tubs in that time. The effect of the Wildridge & Sinclair Report, the appellants say, is that it was impossible for TIA to comply with the pilchards specification, which was nearly half of what it was contractually obliged to supply under the W contract.

Counsel for the respondent had relied upon the Gordon Brothers Report which said:

"Gordon Brothers have indicated that the plant room is more than adequate to service our blast and chiller units."

Counsel for the appellants refer to Mr Horrobin's evidence of the layout of the facility described as the processing room, blast freezing room and two refrigerator storerooms; all those things were powered by a plant room. According to the appellants, what Gordon Brothers were saying was that the plant room was adequate; what Wildridge and Sinclair were saying was that the blast freezing room was not adequate.

(3) It will be recalled that the third topic relates to reliance. The respondent's submission was that, even if there were representations, and even if they were misrepresentations, they were not relied upon, because the appellants had an ambition to expand TIA's business.

The appellants argue that, assuming they were to transform the business into "something new and strange" (and there was evidence that they were hoping to do just that) this does not automatically nullify or wipe out any inducing cause to lay out the money for the original thing that was going to be used as the basis of the expansion.

(4) The final topic addressed the question of whether an inconsistent case has been put on appeal from that which was put below, because, it was suggested, matters were not put to witnesses, specifically to Mr Lees, and furthermore whether it is impermissible for the appellants to seek to use such findings as the primary Judge did make in their favour in order to support a conclusion of liability. In one or two instances, where the primary Judge found that a representation had been made, it was narrower, or a little different, from the corresponding one which had been pleaded.

The respondent has contended that in those circumstances, it was not possible for an appellant to seek to mount any argument before an appellate Court in reliance on the findings of the trial Judge.

The appellants, however, say that there are numerous instances where appellants have to work with what they have before the Full Court; there is no bar to seeking to support a case on liability by deploying some findings and putting other arguments to extend them.

As to the respondent's proposition that matters were not put to Mr Lees, the appellants contend that Mr Lees was cross-examined on all of the important issues in which he gave positive evidence. Even if he were not so cross-examined, the principle of Browne v Dunn (1893) 6 R 67 cannot apply in this case where there were pleadings which were particularised.

Counsel for the appellants made it clear that they did not seek to conduct the appeal in a manner different from the way it was pleaded. The fourth representation is not pleaded to be fraudulent, as can be seen from the allegation of common law deceit in the statement of claim that relates to that representation as follows:

"4A. Further, or in the alternative, at the time of making the representations pleaded in sub-paragraphs 3(a), (b) and (c) above, UBA knew those representations to be false, or in the alternative, made the said representations not caring whether they were true or false."

Thus, it is said, the appellants disavowed fraud for representation (iv). However, in para. 4(d) they stated:

"UBA knew [TIA] did not have the capacity or ability to supply to it the specified quantity of product in accordance with the terms of the said contract or alternatively did not have reasonable grounds for believing that [TIA] had that capacity or ability."

To charge that there were no reasonable grounds for beliefs is not, the appellants say, to charge fraud; to charge knowledge that TIA did not have the capacity is getting perhaps close to fraud, but that is the structure of the pleadings.

Counsel for the respondent had suggested that the case below was for "full-blooded" sham and fraud but that the appellants had now retreated from this on appeal.

Counsel for the appellants submit that where two people purport to enter into a transaction and propound a form which does not correspond to the substance or reality, or essence of what has been done, then there is a shared element of deception. Paragraph 4 of the statement of claim sets out the four representations. Paragraph 4(a) says that "UBA did not regard the contract as a legally binding one". It does not allege that TIA did not regard the contract as legally binding. Paragraph 4(d) says that "UBA knew"; it does not state that TIA knew. It may be that TIA did in fact share that knowledge, but that may not necessarily be the case.

The appellants accept that, obviously, there are considerable difficulties in persuading an appellate court to find fraud where a primary Judge has declined to do so. However, the appellants say, there are two factors which distinguish this case. The first is the special features of his Honour's approach; and, secondly there is the question of an important fact not being found. His Honour's stated approach was to rely essentially only upon the objective circumstances, the documents and general probabilities of the case. However, it is submitted that his Honour did not actually apply that approach because, on occasions, he seems to have weighed in the balance all the evidence, including Mr Lees' evidence, and apparently concluded that Mr Lees was to be positively believed. In contrast, his Honour did say very hard things about Mr Lees and he did find him guilty of deceit. There is, it is submitted, a kind of internal contradiction between his Honour's two approaches, and that conflict, or difference in method, must cast substantial doubt on the validity of some of his Honour's conclusions. The key fact which para. 3 of the statement of claim propounds for consideration is the mental state of Mr Lees in relation to the use to which the W contract would, or might, be put. As has been said, no finding was made on this issue. It was an allegation laid out for examination at the trial but the primary Judge did not make a finding, either that Mr Lees knew those things, or that he did not know those things. The appellants say that, therefore, the most important finding that had to be made one way or the other in the case, so far as the first four representations were concerned, was not made.

CONCLUSIONS ON THE APPEAL

It will be convenient to consider first the claims said to arise out of alleged representations (ii), (iii) and (iv).

(a) The claims said to arise out of alleged representations (ii), (iii) (iv)

As has been seen, although the case sought to be made by the appellants in this area was literally framed in terms of a representation, so far as s.52 is concerned, the inquiry is necessarily a wider one; that is, whether in all the circumstances the respondent’s conduct was misleading or deceptive, or likely to be so (see, e.g. Parkdale Custom Built Furniture
Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191). By their particulars of para.3 of the statement of claim, the appellants pleaded a case which was wide enough, in our view, to include a claim that by virtue of writing and conduct, circumstances were created by the respondent, or were allowed to be created by it, which amounted to conduct that could be characterised as misleading conduct. It will be borne in mind that under the modern system of pleading, "the question is whether it would be open to the [appellants] upon the pleadings to prove facts at the trial which would constitute a cause of action" (see The Mutual Life & Citizens’ Assurance Company Limited v Evatt (1968) 122 CLR 556, at 631).

Although it will be convenient for us to continue to refer to the appellants’ case in terms of alleged representations, we intend that such references be understood in the wider sense that we have mentioned, that is, as a reference to conduct of the kind particularised which, when viewed in the totality of the circumstances, may be seen to mislead, or be likely to do so.

As has been noted, the learned primary Judge had to deal with several alleged misrepresentations, or instances of misleading conduct. Of the 24 misrepresentations pleaded and pressed at the trial, 15 relied solely on conversations alleged to have taken place between Messrs Lees, Horrobin and Pridmore. Mr Lees denied each of the conversations. In this connection, that is, the alleged oral misrepresentations, none of which were pressed on the appeal, it was one thing for the Court to reject this aspect of the appellants’ claim once the Court was unable to be satisfied of the credibility of some of the oral testimony of the appellants’ witnesses. But, with all respect to the primary Judge, it was another thing to reject a claim which was said to be based, not on any conversation, but upon written material, the existence of which was not disputed. That is to say, there was no dispute that
the W contract, the Heads and the Shareholders’ Agreement existed, whatever oral discussions may, or may not, have occurred at the time.

In particular, it was not, and could not be, disputed that by cl.4.1(m) of the Shareholders’ Agreement, it was provided:

"4.1 Prior to the Completion Date, [TIA] shall make available, and the Proprietors shall procure that the Company shall make available for inspection by [the appellants]...

(m) A copy of a contract acceptable to the [appellants] between [TIA] and [UBA] for the supply of fish by [TIA] to [UBA]."

It was not, and could not be, disputed that such a provision was of a kind that investors in the position of the appellants would ordinarily require in making a commercial judgment to invest. Given TIA’s difficult financial position at the time, it was only reasonable to expect that the investors, and, equally important the financiers funding the investors, would require, as a condition of their investment, that they be provided with some tangible, concrete evidence that UBA was committed to providing TIA with a cash flow which was sufficient to justify the substantial investment the appellants proposed to make. This would accord with common sense and ordinary business practice.

His Honour saw nothing unusual or extraordinary about a provision such as cl.4.1(m). In dealing with the issue of reliance, the Judge said (at 249):

"Another significant consideration is that in the shareholders’ agreement with itself which Atasco signed on 30 March 1987, there is express reference made in clause 10.6 to the representations, warranties and undertakings made to Cumbeline being set out in the agreement, and that Cumbeline had entered into the agreement on the basis of, and in reliance on, those representations,
warranties and undertakings. That clause makes it quite clear that Cumbeline entered into the shareholders’ agreement on the basis of the representations, warranties, and undertakings which had been carefully drawn and spelt out in the document. Furthermore, clause 2.1 of that agreement sets out a series of conditions precedent, including provision of evidence that Trawl has certain rights, licences, consents, waivers and other assurances.

Clause 4, as is usual in such agreement, provides that prior to the completion date a large number of documents, records and papers shall be supplied and that certain actions will be taken by the parties. There was no attempt to include a reference to any assurances by UBA or to make the agreement conditional on such assurances." [emphasis added].

We agree, as has been said, that a provision such as cl.4 is usually to be found in circumstances of the present kind.

As we followed his Honour’s process of reasoning, the key, central or decisive section is the passage at 122-3 which we have already set out. Having said (at 122) that "[c]redit in this matter assumes a significant role because almost all of the representations alleged are specifically and categorically denied", as has been noted, his Honour then proceeded to comment adversely on the credibility of aspects of the evidence of the appellants and of Mr Lees. The central passage, found at 122-3, was, it will be remembered, as follows:

"I should add that my final conclusion is that having regard to the seven to eight year period that has elapsed between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on. The witnesses in this case unfortunately did not come within that exceptional class. The discussions referred to in evidence were capable of bearing quite opposed meanings depending on subtle differences of nuance and emphasis, and a proper appreciation of the significance of those matters must necessarily be considerably diminished over such a long period of time." [emphasis added].

There are, in our view, difficulties with this reasoning, when it is sought to be applied to the written material in question, namely, the W contract, the Heads and the Shareholder’s Agreement, the existence of which is not disputed and the tenor of which accords with usual commercial practice. We acknowledge that such reasoning may have been appropriate in rejecting the appellants’ case so far as it was based on the alleged oral misrepresentations; but, with all respect, we cannot see how this process of reasoning could justify rejection of the claims made in para.3 of the statement of claim when it is recalled that those claims were grounded on written material the existence of which is not disputed. To this extent, in our view, his Honour misdirected himself.

What then are the consequences of this misdirection?

It is well established that from the point of view of an appellate court, the distinction between written, undisputed, material on the one hand, and oral testimony on the other, is critical (see, e.g., Zuvela v Cosmarnan Concrete Pty Ltd (1996) 71 ALJR 29 at 31).

It is true that, in other respects also, his Honour was not satisfied that the appellants had made good a cause of action on the claims made in para.3 of the statement of claim. It is also true that a misdirection in one respect on an issue does not necessarily mean that there should be a new trial on that issue. As Lord Steyn said in Smith New Court Securities Ltd v Citibank NA [1996] 3 WLR 1051 at 1070:

"It follows that the Court of Appeal was entitled to conclude that in respect of the first representation the trial judge misdirected himself. That meant that the Court of Appeal was at large to disregard the judge’s findings of fact, even though based on credibility. I understood counsel for Citibank at one stage to suggest that this vitiates all the judge’s findings of fact and the whole
case on fraud collapses. That is quite unrealistic. The impact of a misdirection is not governed by fixed rules. The appropriate course is dictated by considerations of common sense and fairness as well as close attention to the nature of the misdirection and the circumstances of the particular case. Here the Court of Appeal was fully entitled to take the view that the misdirection only vitiated the judge’s findings on the first representation. In all other respects the Court of Appeal was entitled to act on the judge’s findings so far as they were unaffected by the misdirection." [emphasis added].

But, so far as concerns the claims made in para.3(b), (c) and (d) of the statement of claim it is, in our view, difficult to see how it can be said that "the final conclusion" of his Honour at 122-3 can, as it were, be severed from the residue of his Honour’s reasoning, especially on the issue of reliance, and then that other reasoning applied. Not only was the "final conclusion" central, as has been said, to his Honour’s approach in this area, but the other reasoning largely proceeded on the basis, that even if the oral representations alleged had been made, the appellants did not rely on them and instead relied on first, the statements made in the Shareholder’s Agreement, and then their own judgments that in the future, TIA would become profitable. This raises the difficulty already mentioned, that is, that once it is accepted, as his Honour did, that the statements made in the Shareholder’s Agreement were relied upon it must follow, on this approach, that his Honour was accepting that the appellants relied upon the performance by TIA of the obligations imposed by the provisions of cl.4.1(m); that is to say, that TIA would produce for inspection "a copy of a contract acceptable to the [appellants] between [TIA] and [UBA] for the supply of fish by [TIA] to [UBA]".

In these circumstances, it is not open to the Court to sever, as it were, the "final conclusion" of his Honour from the other parts of his Honour’s reasoning which led him to dismiss the
claims made in para.3(b), (c) and (d) of the statement of claim. This means that we cannot accept his Honour's central reasoning.

It then follows, in our view, that, to this extent the appeal should be allowed and there should be a new trial of those claims so far as they allege causes of action said to arise under s.52 of the Trade Practices Act.

It is true that other causes of action were pleaded in this connection, in particular, fraud and negligence. However, as has been seen, the case presented on appeal on behalf of the appellants has concentrated on the causes of action said to arise under s.52. In terms of the ingredients necessary to establish the other causes of action, and in terms of the measure of damages for those causes of action, there are obvious practical circumstances which would support the approach taken by the appellants in this regard. That is to say, it may reasonably be expected that the other causes of action would be more difficult to establish and, if established, it would seem that no greater measure of damages could be claimed than under any cause of action which might be made good under s.52.

As has been seen in the appellants’ written submissions, an attempt was made, initially at least, to present an argument that if the appeal were to be allowed and the orders at first instance set aside, this Court should itself form a view favourable to the appellants, at least on the issue of liability. In the written submissions, and orally, the appellants also made an alternative submission, as we have noted, that a new trial be ordered on these issues.

In our view, there is no alternative to a new trial in this connection. Given the nature of the material, it is not open to us to make a finding on the issue of liability one way or the other. Several points should be mentioned here. In the first place, regard should be had to the dimensions of the material before us. There are 17 volumes of appeal books, which included thousands of pages of the transcript of the oral evidence. There is a vast amount of documentary material recording events over a considerable period of time. The character of nearly all of the evidence, as has been indicated in the summary we have made of the appellants’ submissions, is both complicated and controversial. This character is also reflected in his Honour’s 272 page reasons for judgment. Secondly, in such a complex matrix of events and multi-party dealings, it is hardly possible to isolate a few aspects only and to draw from these a conclusion. As has been said, s.52 requires a consideration of all the relevant circumstances. Nor, as we see it, is it possible, even after forming an adverse view of the credit of all of the witnesses, to reconstruct what happened from the documents alone. If there were discussions, they may explain aspects of the documentation. It would be an impossible task for us to consider whether, on all the material, including any relevant oral discussions, there had been a contravention of s.52. In our opinion, it is in the interests of justice that a new trial be ordered on these issues.

(b) The claims said to arise out of alleged representations (xii)-(xiv)

As has been seen, his Honour held that, at least to a limited extent, the Heads could be viewed as making a representation that a continuing long term relationship was contemplated, but that there was no misrepresentation.

In our view, the appellants have failed to make out any case for interfering with his Honour’s conclusions on this point. The finding of the making of the representation made by the learned primary Judge was clearly open. Further, in our opinion, his Honour was justified in concluding that there have been no misrepresentations here. Cases such as Prints for Pleasure Ltd v Oswald-Sealy (Overseas) Ltd (1968) 88 WN(NSW) 375 illustrate the distinction made by his Honour (at 208) in the passage which we have set out above. That is to say, a clear distinction exists, in commerce, and in point of legal analysis, between a contract which establishes a term relationship between a seller and a purchaser on the one hand, and specific contracts for the sale of goods between those parties on the other. The former kind of contract operates so as to establish a relationship between the parties (often but not necessarily, to deal exclusively with one of them) by which it is contemplated that specific transactions will be negotiated between them in the future. While the former type of contract may impose relevant obligations (for instance to deal with one of them exclusively or to use best endeavours to negotiate on certain matters), ordinarily this kind of agreement will not, in its own terms, constitute an enforceable agreement for the sale of particular goods. That kind of transaction will ordinarily be dealt with by the second kind of contract. In other words, whilst the former type of agreement operates so as to establish a framework, or an umbrella, pursuant to which it is contemplated that sales of individual goods will be negotiated, no such sale then occurs. The sale transaction arises under a subsequently negotiated contract in which all relevant terms and detail are agreed.

The distinction we make is, in truth, reflected here in the Heads of Agreement on the one hand, and the W contract on the other. It is clear, we think, that the Heads had no more
operation than to establish the relationship between TIA and UBA, whereas the W contract constituted the sale of goods.

It follows that we agree with his Honour’s conclusions in this respect.

ORDERS

We make the following orders:

1. Appeal allowed in part.

2. Order a new trial of the claims made in paras. 3(b), (c) and (d) of the further amended statement of claim that, in the respects there alleged, the respondent engaged in conduct in trade or commerce that was misleading or deceptive, or likely to be so, contrary to the provisions of s.52 of the Trade Practices Act 1974.

3. Appeal otherwise dismissed.

4. Costs of the proceedings at first instance, and on appeal, reserved. Direct that the parties file and serve written submissions on the question of costs within 60 days.

We would only add that we hope that, given the scope and dimensions of the litigation to this point, there may now be some prospect of a mediated outcome that is mutually satisfactory to both sides. It has always been the policy of the common law to encourage and promote the compromise of claims about which there is room for reasonable argument, without
litigating to the finish. The present case is surely of this kind, and it calls for an appropriate solution, perhaps by mediation, rather than by litigation to the very end. The history of the matter shows that after months of trial time in this Court, and in the Supreme Court of New South Wales, and after 5 days of oral argument before us (against the background of lengthy written submissions), the parties and their advisers must by now be fully aware of the strengths and weaknesses of their respective cases. We take the liberty of suggesting that, in their own interests, given especially the professional costs likely to be incurred, the parties now consider turning their minds to a resolution of the residue of dispute without the need for a further court hearing.

I certify that this and the preceding one hundred and seventeen (117) pages are a true copy of the reasons for judgment herein of the Court.

Associate:

Date: 24 APRIL 1997

A P P E A R A N C E S

COUNSEL FOR THE APPELLANTS: MR J.D. HEYDON QC

with MS P. WINES

INSTRUCTED BY: BLAKE DAWSON WALDRON

COUNSEL FOR THE RESPONDENT: MR J.N. WEST QC

with MR R.M. SMITH

INSTRUCTED BY: DEACONS GRAHAM & JAMES

DATES OF HEARING: 19, 20, 21, 22, 23 FEBRUARY 1996

DATE OF JUDGMENT: 24 APRIL 1997

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