FEDERAL COURT OF AUSTRALIA

Osric Investments Pty Limited v Woburn Downs Pastoral Pty Ltd [2001] FCA 1402

CONTRACTS - whether or not contracts lapsed - contracts not executed until after date specified in contract - whether money paid on contract deductible under s51(1) Income Tax Assessment Act 1936 (Cth)-for an expense to be "incurred" and therefore deductible under s51(1) it must presently exist and not be contingent - Federal Commissioner of Taxation v Flood (1953) 88 CLR 492; Ogilvy and Mather Pty Ltd v Federal Commissioner of Taxation (1990) 90 ATC 4,836 - as contracts not executed until August, expense was not sufficiently certain in previous financial year to be an expense "incurred" - therefore not deductible - contracts lapsed.

CONTRACTS - contracts not void despite named lessor being different from that named in two related contracts as disconformity can be remedied by normal principles of contractual interpretation - Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303; Fitzgerald v Masters (1956) 95 CLR 420.

CONTRACTS - breach - journal entries not sufficient to give effect to obligation to pay in cash amount owed under the agreement - Manzi v Smith (1975) 132 CLR 671 - applicant entitled to cancel contracts for fundamental breach - right to cancel not lost until facts of the breach became fully known to the applicant - Greig & Davis, The Law of Contract, 1987

at 1257 - 1258

CORPORATIONS - ss 1064(1), 1065(1), 1073(2) Corporations Law - whether or not applicant had a "prescribed interest" under s1073(2)- "prescribed interest" defined in s9 as "participation interest" - entry into each suite of contracts constituted a "common enterprise" such as to be a "participation interest" - Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR - whether applicant provided the required "notice" to void the contract under s1073(2) - to constitute "notice" it must be sufficient from its terms to bring to other party's attention that contract being voided under s1073(2) - applicant did not provided required "notice".

DAMAGES - warranty collateral to contract - no liability in contract on collateral warranty when exactly same subject matter of collateral warranty is the subject matter of a promise in the contract - De Lassalle v Guildford [1901] 2 KB 215 - statement outside written agreement reflected exactly in the agreement can only be a separate source of liability if it can be a basis for relief not obtainable in reliance on the agreement - measure of damages for breach of warranty is to place party in position it would have been in had warranties been true - Gould v Vaggelas (1985) 157 CLR 215 - not same as restitutionary damages - no quantification of damages attempted by applicant - court not in position to attempt such quantification.

DAMAGES -ss 82 and 87 Trade Practices Act 1974 (Cth) - proper measure of damages is difference between amount paid by applicant under the contract and any benefits received, including tax benefits - whether or not applicant entitled to indemnity for possible imposition of CGT or GST - no established general rule that award of damages attracts CGT or GST - Namol v Baulderstone - accordingly no indemnity given.

TRADE PRACTICES - Trade Practices Act 1974 (Cth) - s52 - misleading and deceptive conduct - sixth and seventh respondents liable for representations they made to applicant, as agents for first to third respondents, because they did more than merely pass on information - they did not establish express or implied disclaimer - Yorke v Lucas (1984) 158 CLR 661.

Trade Practices Act 1974 (Cth), ss 52 and 87

Income Tax Assessment Act 1936 (Cth)

Corporations Law, s 1073

Lehmann & Coleman, Taxation Law in Australia, 2^nd ed, 1991

Greig & Davis, The Law of Contract, 1987

Andrews v The Nominal Defendant (1968) 70 SR(NSW) 419, followed

Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492, followed

Ogilvy and Mather Pty Ltd v Federal Commissioner of Taxation(1990) 90 ATC 4,836 followed

Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303, referred to

Fitzgerald v Masters (1956) 95 CLR 420, referred to

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, followed

Manzi v Smith (1975) 132 CLR 671, followed

Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359, referred to

J.J. Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435, referred to

De Lassalle v Guildford [1901] 2 KB 215, referred to

Alati v Kruger (1955) 94 CLR 216, referred to

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, referred to

Gould v Vaggelas (1985) 157 CLR 215, referred to

Yorke v Lucas (1985) 158 CLR 661, referred to

The Saints Gallery Pty Ltd v Plummer (1988) ATPR 40-882, referred to

Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121, followed

Austin v Department of Family and Community Services (1999) 92 FCR 138, followed

Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353, followed

Kwikspan Purlin System Pty Ltd v FCT (1987) 87 ATC 4,297, referred to

Namol Pty Ltd v AW Baulderstone Pty Ltd (1993) 93 ATC 5,101, followed

Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1977] 2 NSWLR 827, followed

Duke Group Ltd v Pilmer (1999) 31 ACSR 213, not followed

OSRIC INVESTMENTS PTY LIMITED (ACN 010 175 050) v WOBURN DOWNS PASTORAL PTY LTD (ACN 060 597 015), WOBURN DOWNS MANAGEMENT PTY LTD (ACN 010 997 298), HEATH CREDITS PTY LTD (ACN 010 997 289), ERNEST LESLIE SUARES, HEATHER RUSSELL SUARES, BENTONY PTY LTD (ACN 009 913 517) AND BRYAN WALTER LOUKS

QG 75 OF 1996

DRUMMOND J

3 OCTOBER 2001

BRISBANE

THE COURT DECLARES THAT:

1.                  The Third Respondent has never advanced any money on behalf of the Applicant.

2.                  The Applicant is not indebted to the Third Respondent in any amount.

THE COURT ORDERS THAT:

3.                  The Applicant have judgment against each of the First, Second, Third, Fourth, Fifth, Sixth and Seventh Respondents in the sum of $131,847.00 together with interest thereon at the rate of 10% per annum (such interest calculated in the sum of $94,580.40).

4.                  The Third Respondent’s Cross-Claim against the Applicant is dismissed with costs.

5.                  Each of the First, Second, Third, Fourth, Fifth, Sixth and Seventh Respondents pay the Applicant’s costs of and incidental to the proceedings to be taxed or agreed.

6.                  The First, Second, Third, Fourth and Fifth Respondents’ Cross-Claim against the Sixth and Seventh Respondents is dismissed with costs.

7.                  The Sixth and Seventh Respondents’ Cross-Claim against the First, Second, Third, Fourth and Fifth Respondents is dismissed with costs.

8.                  Leave is granted to the Applicant to apply on two days notice for an order for costs against the Liquidator of the First, Second, and Third Respondents (DAVID LEWIS CLOUT) in the event of the failure by the First, Second and Third Respondents to pay those costs within one month of demand.

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

REASONS FOR JUDGMENT

1                     The applicant and the fifth, second and third respondents each executed three suites of agreements, described as “contracts T, U and V”. They are all dated 23 June 1993. Under each, the applicant was to acquire over the five years from that date a number of stud cattle to be bred by embryo transfer technology. In August 1993, the applicant entered into a second lot of similar arrangements executed by the first, second and third respondents, called “contracts W, X and Y”. The fourth and fifth respondents, husband and wife, are associated with each of the first to third respondents. Each of these six contracts was marketed to the applicant as an investment that would confer substantial tax benefits as well as the opportunity to acquire a small herd of valuable stud cattle.

2                     By October 1995, when it stopped all payments, the applicant had paid over to the first and third respondents $84,000 and $265,021 respectively, ie, sums totalling $349,021 in respect of these contracts. It has brought this action for declarations that none of the contracts was ever concluded and that if they were, they should be voided ab initio. Recovery of the $349,021, with interest, is the main object of the action. Recovery of this sum is sought against all respondents under ss 52 and 87 the Trade Practices Act 1974 (Cth) and as damages for breach of warranty and against the first to fifth respondents, in restitution on the basis that these moneys were received to the use of the applicant or were paid by the applicant for a consideration that has wholly failed; recovery is also sought under s 1073 the Corporations Law in force at the relevant time.

3                     In May 1997, the third respondent gave notice to the applicant under cl 2 of each Loan Agreement of its intention to terminate the Agreement and to require payment of the outstanding balance of each loan. Confronted with this demand for payment, the applicant also seeks a declaration that it has never been indebted to the third respondent. The third respondent has now cross-claimed for a total of $461,580 as the balance of all six loans outstanding as at 29 July 1998, together with interest at the rate prescribed by each Loan Agreement from that date. Another major issue litigated at the trial relates to this part of the dispute. It is whether the applicant was entitled to cancel all Agreements with the first, second and third respondents from January 1996 because of the respondents’ breaches. No damages are claimed for such breaches. The applicant did not articulate with precision the relief it claimed on the basis of its cancellation of all the Agreements. But if the applicant was entitled to take this action, it would provide another answer to the third respondent’s cross-claim, at least in respect of most of the moneys now claimed by the third respondent, since most only became due to that respondent under the Loan Agreements after January 1996.

4                     The first to fifth respondents have cross-claimed against the sixth and seventh respondents for indemnity in the event that they are held liable to the applicant pursuant to its claim based on the Corporations Law; in addition, the third respondent claims an indemnity from the sixth and seventh respondents in respect of any loss it might suffer if it is unable to recover from the applicant on the Loan Agreements by reason of those Agreements being void under the Corporations Law. Finally, the sixth respondent has cross-claimed against the first to fifth respondents for an indemnity in respect of any liability the applicant may be able to establish against it in respect of information provided by it to the applicant on the grounds that it was not the agent of the first to fifth respondents to give information to the applicant about the Woburn Downs investment and further, that it was, in effect, a mere conduit for the transmission of information for which the first to fifth respondents are responsible.

THE PARTIES

5                     The applicant has long conducted business as a fruit and vegetable wholesaler at the Brisbane Markets. Mr Tighe, its principal, took over the business on his father’s death in 1986. Until then, he had not been involved in the financial side of the business. Thereafter, he relied heavily on the business’ external accountant, Mr Wells, for advice and guidance in such matters. This remained the position during the period of present relevance.

6                     The sixth respondent traded as Australasian Business Consultants and, at least until 28 September 1993, the seventh respondent was one of its directors. Its activities included the marketing to investors of a range of tax-effective investments. Another of the four directors of the sixth respondent at all relevant times was a Mr Peter Hopkins.

7                     Save for a few years in the late 1970s, the fifth respondent, Mrs Suares has been involved in the cattle industry all her adult life. In 1980, she purchased the 1,200 acre “Woburn Downs” property near Canungra in south-east Queensland. She became interested in the early 1980s in producing high quality cattle by what was then a new embryo transfer technology. By this technology, multiple embryos, rather than the single one that is produced in a cow’s natural ovulation cycle, can be produced and fertilised in each cycle of a stud cow; each of the embryos is then removed from the stud cow and implanted in an ordinary cow. The recipient cows act only as incubators of the embryos: they have no genetic influence on the progeny. That is governed by the genetic qualities of the embryo donor cow and the bull which fertilised the donor cow’s embryos. High quality progeny of the stud cow and bull can thus be produced in large numbers much more quickly than by breeding naturally from the stud cow.

8                     In 1986 Mrs Suares sold the 1,200 acre property and purchased a smaller one, also in the Canungra district, as more suitable for a property dedicated solely to stud work. By the late 1980s, Mrs Suares was running a substantial stud operation and had established a reputation as a breeder of high quality Santa Gertrudis stud cattle. She was assisted in the technical side of her activities by Dr Jillella, a veterinarian at the University of Queensland involved in the development of embryo transfer technology, as well as by a local veterinary surgeon. Many of the progeny originating on Woburn Downs were of sufficient quality to be accepted for classification by the Santa Gertrudis Breeders’ Association. This Association recognises only one category of classification (the Standard of Excellence) which a beast either does or does not meet. Mrs Suares said about 80% of her stud cattle reached that Standard, a high success rate. Until mid-June 1993, she traded as a commercial stud under the business name “Woburn Downs Pastoral Co”.

9                     The fourth respondent, Mrs Suares’ husband, had extensive business experience in retailing and in building and property development. He was closely involved in the running, initially on behalf of Mrs Suares and then on behalf of the first respondent, of the business side of the cattle breeding venture in which the applicant later invested and which Mrs Suares had started in 1990 after discussions involving herself, her husband and the seventh respondent and his associates, Mr Hopkins and Mr Dwyer. Mrs Suares, though also involved in the same area of activity, was much more involved than him in the stud operations upon which that venture was based.

10                  In 1991, Mrs Suares moved operations from Canungra to a larger property at Springsure in Central Queensland, which she also called “Woburn Downs”. Her herd had increased in size. She set up a substantial establishment, including laboratory facilities, on the Springsure property. An important reason for the move was to avoid the drought conditions the Canungra property had been experiencing for some time. However, drought also struck at Springsure. The long drought had a significant disruptive impact on Woburn Downs’ operations generally and on the first to third respondents’ ability to meet their obligations to their investors, including the applicant.

11                  Mr and Mrs Suares controlled the activities of each of the first to third respondents around which the cattle embryo investment scheme in which the applicant invested was structured.

THE WOBURN DOWNS CATTLE EMBRYO INVESTMENT PLAN

12                  How this plan worked can be gathered from the Woburn Downs respondents’ “Overview” document for the 1992-3 year given to Mr Tighe. Under the heading “CATTLE EMBRYO INVESTMENT - AN OVERVIEW”, the document begins with the following statements:

“High quality stud cattle represent an excellent investment opportunity. There are also associated tax advantages which makes this investment even more attractive provided of course the investor can satisfy the requirements of the Commissioner referred to below.

Although prices are depressed at present due to drought conditions and the recession, the Australian cattle industry is continuing to expand and develop, and this trend will accelerate over the next 5-10 years as the markets in Japan, Taiwan and South Korea grow and mature. Obviously beef prices, especially at the sale year level, will undergo their normal cyclical patterns. However the long-term price trend will continue upwards, and the industry will be an excellent area to be invested in.

One segment of the cattle industry is decidedly more stable and yet will experience more growth than the industry as a whole. We refer of course to high quality stud cattle for breeding and herd improvement purposes.

…

… It is this market segment where the demand growth is, where the prices are higher and more stable, and where astute cattlemen are aiming to be in the long term.

This investment makes available the opportunity to invest in elite Santa Gertrudis cattle which will be reared and managed by the renowned Woburn Downs Stud.

…

This particular investment is an opportunity for you to establish or carry on a continuing business of cattle breeding. That is, you will be investing in bulls and cows (and semen and embryos) which you may onsell to other cattlemen who wish to increase the quality of their own herds. Excellent prospects of profitability are anticipated over the period of the investment, and tax benefits are available due to the fact that the management fees and lease payments incurred in the production of embryos are a legitimate tax deduction provided the investor meets the Commissioner’s requirements. Our accountants, Messrs. Deloitte Haskins & Sells have advised in this regard that ‘while the programme as submitted should entitle an investor to the tax deductions as mentioned, investors should note that the Commissioner examines each case on its owns (sic) merits. For example, the Commissioner could attempt to impugn a particular investor’s arrangements if he was of the view that the investor’s intention was not to build up a herd of cattle and that the activities did not amount to the carrying on of a business of cattle breeding by the investor.”

13                  Then, under the heading “HOW DOES EMBRYO TRANSFER WORK”, the document provides a brief description of the technology. Next, under the heading “THE EMBRYO TRANSFER STORY”, the following appears:

“The technique of Embryo Transfer has been developed to a high degree in Australia and whole herds are being founded on a few donor cows.

The success of Embryo Transfer is due to the fact that only the very top cattle are used as Donor Cows and Bulls and a Donor Cow can produce more than her lifetime of calves in one year.

…

Heifers may be flushed and can produce more than their lifetime of calves before their first natural calf is born.

It is this multiplying effect which enables a herd to be developed in a fraction of the time of normal breeding. …”

14                  The “Overview” document then sets out a “LIST OF SUCCESSFUL EXISTING & PAST [Woburn Downs] CLIENT BASE OF INVESTORS AS AT JANUARY, 1993” and continues under the heading “CATTLE EMBRYO INVESTMENT SUMMARY” with the following:

“This investment comprises leasing 6 recipient cows already carrying or to be impregnated with embryos from top quality Santa Gertrudis stock. From the resultant progeny the investor develops his own herd of high quality stud cattle.

The minimum initial investment is 6 breeding units, which evens out genetic variation and generates a commercially viable agricultural business and the guaranteed number of cattle produced during the 5 year agreement is 22.

This is a five year program under total and very professional management. The chosen stud is known as Woburn Downs, and is located at Springsure, Queensland.

100% of the investor’s cost is tax deductible, so that the investment is therefore substantially funded by tax savings subject of course to each investor verifying that they qualify for these deductions through their own accountant.

COST

There are two agreements entered into:-

Lease and Breeding Agreement

Lease of 6 recipient cows carrying or to be impregnated with Santa Gertrudis embryos, $40,000

Management Agreement

Total Management of the stud enterprise for 5 years is $80,000.00 payable in advance with a proportionate refund paid to the Breeder should the management agreement be terminated through no fault of the Breeder.

Full details of all services provided under the Lease and Breeding Agreement and the Management Agreement are outlined on the attached Schedules A and B.

FINANCE

The project is financed by Heath Credits Pty. Ltd. at an interest rate of only 7.0% repayable over 5 years.

TAXATION (6 breeding units)

The investor receives a tax deduction for the whole of the Lease and Breeding Agreement upon entering the contract, i.e. $40,000.

The investor should also be entitled to a deduction equivalent to $16,000.00 for each year of the Management Agreement.

Interest payable on the finance borrowed is also deductible.

Although no guarantee is given that these deductions are available to each individual investor our accountant has expressed the opinion that ‘an investor in the programme would be entitled to the tax deductions as set forth in the overview document’.”

15                  A “CASH FLOW ANALYSIS” based on the lease of six breeding cows and the management of those cows in the initial thirteen month period and of their progeny and the progeny’s offspring for a total of five years is set out. (Under the Lease and Breeding Agreement for six cows and the associated Management Agreement, the investor was committed to making up-front payments totalling $120,000, with all, save $14,000, to be borrowed from Heath Credits.) This analysis indicates that, for an outlay by the investor consisting of the cash deposit of $14,000 and loan repayments to Heath Credits made over five years totalling nearly $140,000, tax deductions totalling nearly $140,000 (with $56,000 of them being available in the first year) and estimated returns from cattle sales in the last two years totalling $72,000, are obtainable. In addition, the analysis makes the point that, at the end of the fifth year, the investor will own cattle (ie, the unsold residue of the twenty-two progeny) “very conservatively estimated to be valued at $56,670 (at today’s dollar values)”. The “Overview” document concludes with two schedules summarising the services covered by the Lease and Breeding Agreement and those covered by the Management Agreement.

THE DEVELOPMENT OF THE WOBURN DOWNS PLAN

16                  A major issue between the first to fifth respondents and the sixth and seventh respondents was whether the latter were responsible for providing the Suares with the framework for the scheme which they then sold on behalf of the first to fifth respondents to investors, including the applicant (as the first to fifth respondents contend) or whether the sixth and seventh respondents only came into the project after that scheme had been developed by the Suares with the assistance of a Mr Dwyer, to perform the limited function of marketing that scheme for the Woburn Downs respondents (as the sixth and seventh respondents contend was the position).

17                  Mrs Suares said that, until the late 1980s, her main source of income came from selling recipient cows within which a Santa Gertrudis embryo had been implanted, though she also sold frozen embryos, embryo transfers and embryo flushes. She said that as at mid 1988, when she and her husband received the approach that resulted in them setting up the scheme in which the applicant invested, she had not considered commercialising her activities in any other way.

18                  She and her husband both said that they were contacted by a Mr Ken Steele in 1988. He told the Suares that he had experience with a cattle investment plan at Canundra in South Australia involving embryo transfer and suggested that the Suares should contact a Mr Mike Dwyer of Delta Investment Services Pty Ltd in Melbourne. They contacted Dwyer and he put them in contact with Mr Hopkins, of the Brisbane-based sixth respondent. The Suares both said that soon after, certainly some time in 1988, Messrs Hopkins and Louks visited them at Woburn Downs at Canungra. There was only one such visit. They both say it was at this meeting that Mr Hopkins explained the structure of the South Australian cattle embryo investment scheme with which he and Mr Louks were associated, explained the tax benefits of that scheme that made it attractive to investors and the advantages of the scheme to the Suares. Both say it was Hopkins and Louks who said they would arrange for Dwyer to send up the documents used in the South Australian scheme and that that occurred soon after. These documents consisted of an “Overview” document, as well as a Lease and Breeding Agreement, a Management Agreement and a Loan Agreement. Thereafter, they had a number of telephone discussions with Dwyer in which they discussed Dwyer’s revision of the South Australian documents to suit their own operations and the revision of the draft documents at meetings with Dwyer at Woburn Downs between Mr and Mrs Suares and Dwyer. It took some considerable time for the Suares, in discussions with Dwyer, to develop the Woburn Downs scheme documentation. It is certain that was completed by March 1990.

19                  I do not accept that Mr and Mrs Suares were simple cattle breeders who were swept along into the cattle embryo investment scheme by Messrs Hopkins, Louks and Dwyer as the real promoters of that scheme. Nor do I accept that Dwyer was the sole author of the Woburn Downs Cattle Embryo Investment scheme, with Mr and Mrs Suares’ more or less passive acquiescence in what he devised.

20                  Schemes like the Canundra Limousin breeding scheme had become popular during the 1980s. By 1990, the offering, with the involvement of people established in the cattle industry, of interests in cattle breeding ventures of various kinds with the prospect of associated tax benefits to investors had become so common and was giving some industry leaders such concern that in July 1990 the Australian Registered Cattle Breeders’ Association (“ARCBA”) published its “Code of Practice Offers and Sale of Interests in Cattle Genetic Material” for the guidance of people in the industry who might become involved in such activities. This area of investment activity was also of concern to the Australian Securities Commission. Its concerns focused on whether the cattle investment proposals circulating among the public complied with the “prescribed interest” provisions of Division 5 of Part 7.12 of the Corporations Law then in force. In June 1991, at the ASC’s invitation, the ARCBA took on the role of supervising applications by promoters of such ventures for exemption from the requirements of the Corporations Law to have an approved deed and a registered prospectus for their ventures.

21                  Mr and Mrs Suares themselves had promoted a tax-driven investment scheme involving the leasing by investors of recipient cows implanted with embryos well prior to the approach Steele made to them in 1988. It appears that this scheme was set up in early 1986 by Mr Suares. Mrs Suares ran the cattle breeding side of this early venture.

22                  She and her husband, in the letter dated 19 August 1991 which they sent to Mr Rickards, the Executive Director of the ARCBA, described how they were then marketing embryos using two different arrangements, the earlier which they first developed in late 1986 they called “The Santa Venture” and the newer, they called the “Cattle Embryo Investment”. The latter is the scheme in which the applicant invested. Under cover of this letter, Mr and Mrs Suares forwarded to Mr Rickards a brochure entitled “The Santa Venture” describing that scheme and also a document describing the newer scheme entitled “Cattle Embryo Investment - An Overview - 1990-1991 Year”. They said that “Over the past five years we have been signing agreements with Investors, some with substantial cattle interests and others business and professional people with a desire to enter the cattle industry, choosing to do so by means of Embryo Transfer and as a result thereof, taking advantage of the legitimate taxation deductions available”. They told Mr Rickards that they were aware that these agreements “could come under the provisions of the Prescribed Interest Act” and asked him to peruse “the enclosed documents with a view to acting on our behalf in securing an exemption from the ASC”.

23                  On 26 August 1991, Mr Rickards replied to the Suares’ letter of 19 August, saying of the documentation with respect to their cattle breeding ventures which they had sent to him: “There is no doubt that they fall within the ASC definition of prescribed interests”. Soon after, the Suares asked Mr Rickards to proceed with his examination of their scheme documentation and paid the $500 fee.

24                  In his next letter of 16 September 1991, Mr Rickards drew the attention of the Suares to the numerous respects in which he considered that their documentation would fail to meet the requirements of the ASC for exemption from the prescribed interest provisions of the Corporations Law. He said of their Cattle Embryo Investment scheme “Overview” document that “it will need to be upgraded considerably to meet the required standard”. He queried the accuracy of some of the factual information recorded in the “Overview” document, queried what the “Overview” document said about the profitability of the scheme, suggested that they provide investors with precise information on where “the breeding units” would be run and that they should also declare in the “Overview” document the maximum number of breeding units they would offer in a particular year “so that investors can make an assessment of the logistics of managing the whole operation and the number of progeny which could come on the market from the scheme”. He criticised the cash flow analysis in the document and questioned what was the basis for “such a high average price” for the sale of each of the cattle assumed in this analysis. He drew attention to the deficiencies in the guarantee of the total number of calves that would be classified by the Santa Gertrudis Association.

25                  Mr Rickards says that a little while after he sent them his letter of 16 September 1991, the Suares orally advised him that they did not wish to proceed with their application for exemption. Though the comments by Mr Rickards in his letter of September 1991 were directed to the “Overview” document for the 1990 - 1991 year, the “Overview” document for the 1992 - 1993 year contains similar deficiencies.

26                  The earlier Santa Venture, as described by Mr and Mrs Suares in their letter to Mr Rickards of 19 August 1991 and the explanatory brochure enclosed with it, was a simpler scheme than the later Cattle Embryo Investment scheme: it involved only a lease agreement between the investor and “Woburn Downs”, ie, Mrs Suares, under which the latter leased to the investor a recipient cow implanted with a Santa Gertrudis embryo and undertook to manage the cow and the resultant calf for thirteen months from signing of the agreement. Woburn Downs also guaranteed each investor a live calf that would be classified by the Santa Gertrudis Society. The Cattle Embryo Investment scheme appears to be a more sophisticated, developed version of the Santa Venture. The second scheme provided for the leasing under each investment package of a small herd of recipient cows (rather than a single cow), the production of a herd of progeny initially twenty-four, then twenty-two all told, over the five year life of the scheme and, importantly, the availability of a loan agreement under which investors were told they could obtain the finance necessary to buy into the scheme.

27                  The “Santa Venture” document drew the attention of investors to the tax benefits of investing in that particular scheme and included a letter from the Suares’ accountant, Messrs Hart Larwill, dated 13 August 1990 addressed to Mr Suares in which they expressed the following quite heavily qualified opinion:

“We believe that a tax deduction is available to investors in the year that the Fees [ie the lease and management and agistment fees payable under the Santa Venture] are paid provided that investors can demonstrate that they are carrying on the business of primary production.

The question as to whether a business is being carried on is a matter of fact and there have been a number of Court decisions on the matter, eg, Ferguson’s case and Hanlon’s case.

In the case of investors who already are primary producers and have properties and livestock, the Fees are deductible under section 51(1) as Lease/Breeding fees.

Where investors are not already carrying on business as primary producers, it is necessary for them to demonstrate that the Lease/Breeding Fees are part of a genuine business and the costs were not incurred as an arrangement to obtain a tax deduction.

They will be required to demonstrate that they intend to continue in the business and that they propose to further develop their herd by continued breeding and that this is not an isolated transaction. …”

28                  The accountants’ letter from Deloitte Ross Tohmatsu dated 26 February 1990, which was included with the first “Overview” document produced for the Suares’ newer Cattle Embryo Investment scheme, ie, the “Overview” document for the 1989 - 1990 year, contains a much more optimistic opinion than this on an investor’s prospects of persuading the Commissioner of Taxation that it was truly entitled to the tax deductions promoted as being available in the “Overview” document for the newer scheme. The Deloitte Ross Tohmatsu letter of 26 February 1990 includes the following “Advice”:

“… it is our view that an investor in the programme would be entitled to the tax deductions as set out in the overview document. That is, given that the services to be provided under the Lease and Breeding Agreement are carried out within thirteen (13) months from the date an investor incurs the expenditure under that agreement - this date generally being the date on which the investor signs the agreement - the investor would be entitled to a tax deduction in that year of income for the $40000 expenditure provided under the agreement. Further, the investor would be entitled also to a tax deduction for the expenditure of $14,800 in that income year under the Management Agreement.

The total tax deduction of $54,800 would be available to the investor in the first year notwithstanding that the investor’s initial cash outlay in that first year would be only the amount of the deposit funds. In subsequent years the investor would be entitled to deductions for payments under the Management Agreement and interest payments on any funds borrowed to meet the programme’s expenditures.

While the programme as submitted should entitle an investor to the tax deductions as mentioned, investors should note that the Commissioner examines each case on its own merits. For example, the Commissioner could attempt to impugn a particular investor’s arrangements if he was of the view that the investor’s intention was not to build up a herd of cattle and that the activities did not amount to the carrying on of a business of cattle breeding by the investor.”

29                  This letter of 26 February 1990 is (save for the dollar figures - which differ to reflect the change in interest rate offered to investors through the third respondent) in identical terms to the letter from Hart Larwill of 12 January 1993 to Mr Suares included in the “Overview” document for the 1992 - 1993 year given to the applicant.

30                  It is a fair inference that one reason why the more elaborate Cattle Embryo Investment scheme was adopted by the Suares was to better assist scheme investors not already carrying on business as graziers or cattle breeders to satisfy the Commissioner of Taxation that, by participating in the newer investment, they were truly carrying on the business of cattle breeding. That could only serve to make the scheme more saleable to investors not already involved in the cattle industry.

31                  I accept Mr and Mrs Suares’ evidence to the effect that the introduction into the scheme of the third respondent, Heath Credits, as the company put forward as being prepared to finance investors into the scheme came from a suggestion by Mr Dwyer based on the South Australian scheme. Their evidence here is supported by the suite of agreements into which Mr Tighe entered in respect of the South Australian scheme in 1989. I also consider that Mr Suares (and Mrs Suares) saw the introduction of Heath Credits as the scheme financier as another feature likely to make investment in their plan more attractive to investors than it would be if investors had to pay the large entry fees in cash or find their own sources of finance at the interest rates then prevailing (which were higher than the rate offered by Heath Credits). With cheap finance from Heath Credits, investors would be able to obtain substantial upfront tax deductions without having to find the large upfront cash payments required to be made to the first and second respondents from their own funds. They would thus retain the use of the moneys they would have had to pay in tax in exchange for making relatively small monthly payments, the interest component of which would be tax deductible also.

32                  Mr Suares no doubt found the South Australian documentation sent to him by Mr Dwyer useful in developing the Woburn Downs Cattle Embryo Investment scheme. But I consider that, with the assistance of that documentation and his own Santa Venture documentation, Mr Suares was, in large part, the person responsible for developing the Cattle Embryo Investment scheme into the form in which he then gave it to Mr Dwyer to market. In doing this, Mr Suares worked closely with his and his wife’s solicitors and accountants. He and their accountants were responsible for preparing the cash flow section in the 1992 - 1993 “Overview” document and its two forerunners. He sought advice from both lots of advisers as to the lawfulness and the tax-effectiveness of what became the Woburn Downs scheme. Mrs Suares was also involved in this activity, as was Mr Dwyer. There is no suggestion by Mr or Mrs Suares that Mr Hopkins or Mr Louks had any involvement in the preparation of any of the Cattle Embryo Investment documentation.

33                  By letter dated 15 March 1990, Mr Suares forwarded to Mr Dwyer what he, in effect, told Mr Dwyer were the final form of the documents which Mr Dwyer was to use in marketing the Woburn Downs Cattle Embryo Investment Scheme. The material he sent to Mr Dwyer included not only the versions of the various agreements that were to be proffered to potential investors, but some notes for the assistance of Mr Dwyer and the others involved in marketing the scheme. Mr Suares later updated this documentation to be given to investors and sent it to Mr Hopkins.

34                  The first version of the “Overview” document which the Suares produced was that entitled “Cattle Embryo Investment - An Overview - 1989-1990 year”. They first offered the embryo transfer investment plan to investors just before the end of the 1990 financial year. A copy of their updated “Overview” for the 1992 - 1993 year was provided to Mr Tighe, the principal of the applicant, and his accountant, Mr Wells. The Suares did not themselves seek out investors in their second scheme, but rather relied on Mr Dwyer and his associates at the sixth respondent, Messrs Hopkins and Louks, to do that. That is, all three, though primarily Hopkins and Louks, were responsible for marketing the Suares’ scheme.

35                  Though the sixth respondent, by Mr Hopkins and Mr Louks, was extensively involved in marketing this scheme, no commissions were paid to any of those three: Woburn Downs paid all the commissions of $13,200 per investor procured by their efforts to Mr Dwyer’s company, Delta Investment Services Pty Ltd. The material included with Mr Suares’ letter to Dwyer of 15 March 1990 included a memorandum recording Mr Suares’ agreement with Mr Dwyer that the Suares would pay a commission of $13,200 in respect of each investment Mr Dwyer (and Mr Hopkins and Mr Louks) were able to procure. This note shows that while it was agreed that most of this commission was to be regarded as earned upon the procuring of an investor, the $13,200 payment included a $2,000 component as remuneration “for services to clients over period of Agreements”. It is apparent from the evidence that, as envisaged in Mr Suares’ memorandum, in addition to the marketing of the scheme to investors, Mr Dwyer and, to a lesser extent, Mr Hopkins (though not, it would appear, Mr Louks) were involved with Mr Suares in administering arrangements with various investors over a substantial period of time; these activities included their working out how to answer investors’ concerns and dealing from time to time with complaints received from investors. Mrs Suares confirmed that throughout the course of the project, she had substantial dealings with Mr Dwyer. But the evidence shows that she and Mr Suares also had fairly extensive dealings with Mr Hopkins throughout the project with respect to the administration of the Woburn Downs scheme.

36                  Mr Louks said in effect that the sixth respondent did not seek any payment for its activities and his own activities on its behalf in marketing the Woburn Downs scheme because that scheme “expanded the products which [the sixth respondent] could offer to clients and because there was a history of dealings between [the sixth respondent] and Mike Dwyer which included cross referral of work from time to time”. This is an incomplete picture of the sixth and seventh respondents’ roles in the Suares scheme painted by Mr Louks as part of an attempt to distance himself from any responsibility for the development of that scheme and for the information in the “Overview” document that he gave to the applicant and other investors. Delta Investment Services was beneficially owned as to 50% by Mr Dwyer and as to the remaining 50%, by Mr Hopkins and Mr Louks in equal shares. Hopkins and Louks benefited financially in this way from their success in finding investors for the Suares and from the resultant commissions paid by the Woburn Downs respondents to Delta Investments.

37                  Mr Hopkins and Mr Louks deny that they had any role in developing the Woburn Downs cattle breeding investment scheme ultimately sold to the applicant and other investors. Mr Hopkins, like Mr Louks, sought to distance himself from development and oversight of the Woburn Downs scheme. His evidence also was that the sixth respondent’s involvement in the Woburn Downs scheme was limited simply to providing the promotional material to clients so they could make an independent decision as to whether they wished to become involved in the venture. Correspondence passing between the Suares, Mr Dwyer and Mr Hopkins shows that Hopkins and Dwyer had ongoing involvement with investors after they had committed to contracts by way of dealing with various matters including investor’s complaints and ongoing administration of investors’ contracts. See, eg, exhibits O30, O35, O45 and O50. This documentary evidence gives the lie to Mr Hopkins’ attempt to paint the sixth respondent as a mere “post box” between clients of the sixth respondent who had invested in Woburn Downs and the Suares. It also shows that the Suares relied on both Hopkins and Dwyer for ongoing advice on how they might deal with problems they encountered, some of major significance, over the years in running the Woburn Downs investment operation.

38                  I have already summarised what the Suares said about how they came into contact with Messrs Hopkins, Louks and Dwyer. Their evidence was that it was the visit by Hopkins and Louks that generated their interest in developing what became their embryo investment plan.

39                  Mr Hopkins dated the one visit he and Louks made to Woburn Downs as taking place in about April 1990, much later than the Suares said was the case, and after the Woburn Downs scheme documentation had been finalised and forwarded by Mr Suares, under cover of his letter of 15 March 1990, to Dwyer. In cross-examination, Mrs Suares conceded that the meeting with Hopkins and Louks only took place in April 1990. Mr Suares initially said this meeting occurred about three months after Steele’s initial contact in 1988. He did not resile from the position that the visit occurred before he had finalised the documentation which he sent to Dwyer in March 1990.

40                  I doubt that the meeting was as late as April 1990. Hopkins was the first of Dwyer, Louks and he to learn of the existence of the Suares and to become interested in their breeding operation. That happened well before April 1990. Hopkins said he learned of the Suares’ operations from Smibert, the principal of the South Australian scheme, who told Hopkins some time in 1989 that the South Australian scheme was reaching investor capacity. There was a consequent need then to find another cattle investment scheme which could replace the South Australian one in the sixth respondent’s portfolio of investments on offer to its clients. In a way not revealed by the evidence, this information that Hopkins received from Smibert about the Suares was transmuted into an approach by Steele to the Suares in which he recommended that they contact Dwyer, Hopkins’ business associate, who put the Suares in contact with Hopkins. Whether Hopkins and Louks’ visit to the Suares took place only after the Woburn Downs investment plan was finalised, as they suggest, or very early in the piece as the visit which set in train the development of the scheme by Mr and Mrs Suares working with Dwyer is an important issue. Dwyer could obviously give material testimony about this issue. The evidence indicates that Hopkins could have arranged for Dwyer’s attendance to give evidence if he had wished to. I think it is more likely that Hopkins and Louks visited the Suares early in the piece to assess whether their operation was suitable for and whether the Suares were prepared to participate in the kind of cattle investment scheme that Hopkins, Louks and Dwyer were looking for when the South Australian scheme reached capacity than Hopkins and Louks’ account of only visiting the Suares very late in the piece after the scheme had been developed without any involvement on their part and for reasons given by Hopkins and Louks that lack cogency. I find that they arranged and made their visit to the Woburn Downs stud well prior to 1990 for the purpose of confirming the suitability of the Suares’ operations for such an investment scheme and that they did make the proposal to the Suares that ripened into the scheme, an example of which Mr Louks marketed to the applicant in mid 1993. I find that they did assist the Suares in developing the latter’s cattle breeding scheme by arranging for Mr Dwyer to provide the Suares with documentation used in the Canundra venture which the Suares modified with some professional assistance.

41                  The sixth respondent, through both Mr Hopkins and Mr Louks, was I think much more closely involved in the scheme than as a mere marketing agent for the Woburn Downs respondents. The evidence shows that Hopkins, Louks, Dwyer, the sixth respondent and Delta Investment Services worked together over a long period of time in marketing and administering tax-driven investment schemes, of which the Woburn Downs scheme was one:

(a)                Mr Louks and Hopkins both said the sixth respondent for whom they acted had an association with Dwyer’s Delta Investment Services that was of long standing which involved the provision to investors of investment products and services made available by the two companies.

(b)               In 1989, Louks acting for the sixth respondent was involved in procuring Mr Tighe’s investment in the South Australian cattle venture and Dwyer (acting for Delta Investments) and Hopkins were involved in the subsequent administration of Tighe’s contract. See exhibits B1 to B4.

(c)                Hopkins put Dwyer in contact with the Suares (through Steele) in a search for a cattle investment scheme the sixth respondent could market to investors in place of the South Australian scheme with which Hopkins, Dwyer and Louks had been associated for some years to 1988.

(d)               In the period 1990 to 1993, Louks, acting for the sixth respondent, procured investments, including the applicant’s, in the Woburn Downs scheme in return for commissions from Woburn Downs which Hopkins, Dwyer and Louks shared through their beneficial interests in Delta Investment Services. That commission payments were made only to Delta Investments provides, in the circumstances, no basis for concluding that the sixth and seventh respondents and Mr Hopkins were in a relationship with the Woburn Downs project tantamount to being mere unpaid conduits for passing on to investors the information given them by the Suares which contains the representations sued on by the applicant. The inference is that Delta Investments was chosen as the recipient of the commissions for the marketing of the project and the contract administration efforts of Messrs Dwyer, Hopkins and Louks to meet the financial or other convenience of those three gentlemen.

(e)                The sixth respondent received Wells’ invoices for what Hopkins called his “spotter’s fees” in respect of the applicant’s and others of Wells’ clients investments in the Woburn Downs scheme sold to them by the sixth respondent and then the sixth respondent forwarded to Wells Delta Investment Services cheques in payment of those fees. Further evidence that Dwyer, Hopkins and Louks running operations were conducted through Delta Investments and the sixth respondent in a linked way is provided by the fact that though Dwyer was based in Melbourne, Delta Investments was not confined to operating in Melbourne: it had a Brisbane bank account and also held money on deposit in Brisbane and Hopkins was a signatory on that account. He described how this Brisbane bank account was used: whenever the sixth respondent or Delta Investments had surplus funds, they would bulk them into a package for investment on the short term money market at rates higher than could be obtained for small sums.

(f)                 In the period 1990 to 1993, Hopkins and Dwyer, through the sixth respondent and Delta Investment Services, provided contract administration and support services to Woburn Downs with respect to the various investor contracts that Louks had procured for Woburn Downs. Moreover, Hopkins as the representative of the sixth respondent, as well as Dwyer, was involved in the ongoing administration of investors’ contracts. The documentation passing between Mr Suares and Mr Hopkins [eg, O45, O30 and O50] shows that. That Mr Suares may have contacted Mr Hopkins in connection with such matters only when Mr Dwyer was not available does not alter the significance of the fact that Mr Hopkins did engage in some of those activities: he was associated with Mr Dwyer in providing such assistance to the Suares.

(g)                In the same period, Hopkins and Dwyer, as representatives of the sixth respondent and Delta Investment Services, gave general business advice to Mr and Mrs Suares with respect to how the latter might modify the Woburn Downs business operations to deal with ongoing problems in performance of the first to third respondents’ obligations to investors.

42                  In my opinion, the evidence justifies a finding that, in relation to a range of activities comprising encouraging and assisting the Suares to establish the Woburn Downs cattle embryo investment scheme in 1990 and in marketing and administering it, Hopkins and Louks (and thus the sixth respondent for whom they acted) and Dwyer and Delta Investment Services worked together for their mutual benefit in a form of business association the precise details of which are not revealed by the evidence.

43                  The sixth and seventh respondents deny that they were agents of the first, second, third, fourth or fifth respondents in providing the “Overview” document to Messrs Wells and Tighe and in making, by Louks, the oral statements he made to them. I accept the Suares’ evidence to the effect that none of the Woburn Downs respondents sought out investors, they left that to Mr Dwyer, Mr Louks and Mr Hopkins. Mr Louks confirmed that he had proffered the Woburn Downs investments to clients in each of the 1990, 1991, 1992 and also the 1993 financial years, though he only suggested it to the applicant in the 1993 year. He acknowledged he procured “probably 10” investors over that period. Some took up several contracts each. The sixth (and seventh) respondents were remunerated, albeit indirectly, for these efforts.

44                  The sixth respondent and its directors, Mr Hopkins and the seventh respondent, together with their associate Mr Dwyer were closely involved in proposing to the Suares what became the Woburn Downs cattle breeding investment scheme and in developing the documentation for dissemination to potential investors in the scheme and for marketing the scheme to investors, including to the applicant. Just as I reject the attempts by Mr Hopkins and Mr Louks to distance themselves and the sixth respondent from development of the scheme, so do I reject the submission put on behalf of the first to fifth respondents that, in their dealings with the applicant, Mr Tighe and Mr Wells, the sixth and seventh respondents were acting solely in the latter’s own business interests. Rather did they solicit investors on behalf of and with the authority of the first to fifth respondents. Accordingly, the seventh respondent not only acted on behalf of the sixth respondent in his dealings with Mr Tighe and Mr Wells, but also on behalf of the first to fifth respondents, ie, as their agent.

THE APPLICANT’S ENTRY INTO THE WOBURN DOWNS SCHEME

45                  Between 1986 and 1993, Mr Tighe, on behalf of the applicant, had fairly extensive dealings with the sixth and seventh respondents and also with Mr Louks’ co-director, Mr Hopkins. His accountant, Mr Wells introduced Mr Tighe to them and it was on Mr Wells’ advice that Mr Tighe placed superannuation business with the sixth respondent through Mr Louks. With his mother, Mr Tighe had also invested in an afforestation project and, in 1989, in the Canundra cattle venture conducted by South Eastern Agribusiness. Mr Tighe was introduced to both projects by the sixth respondent (through Mr Louks) and Mr Wells. He spoke of Mr Louks’ practice of visiting him near the end of each financial year with various tax-effective proposals.

46                  Though Mr Tighe hoped for a return on the applicant’s investment in the Woburn Downs contracts T, U and V in the belief generated by what he was told by Louks and Wells and what he read in the “Overview” document the project had good prospects of turning a profit, it was the prospect of obtaining the end of year tax deductions that Louks said they offered that was the primary reason he committed the applicant to the first three Woburn Downs contracts and also to the second three contracts. His evidence makes this clear. He said, by way of example:

“In the first half of the 1992/1993 financial year the applicant had generated a substantial turnover, and it became clear to me, both from my own observation and from advice from John Wells that it would make a substantial profit in that year. For that reason I was interested in participating in a venture which could provide the Applicant with taxation advantages as well as a worthwhile return on investment.”

47                  Mr Wells, upon whom Mr Tighe relied so heavily for advice, gave evidence to the effect that the most important reason that various investments in superannuation, afforestation projects and cattle breeding projects, including the Woburn Downs project, were selected by the applicant and by Mr Tighe was the tax benefits they offered. He agreed that a fair summary of his advice to Mr Tighe in relation to these various investments was “there was an immediacy of a tax advantage and no reason not to invest”.

48                  Though the second group of contracts W, X and Y were entered into quite early in the 1994 financial year and Mr Tighe could not know in August 1993 with any precision what the applicant’s tax position was likely to be at the end of the 1994 year, Mr Tighe’s experience, after he took over the business in 1985, had been that the applicant’s profits had increased year by year, with increasing exposure to tax. Mr Tighe was keen to minimise this to be able, as he put it, to invest moneys back into the applicant’s business that otherwise would have been paid in tax. The opportunity presented by the second lot of three contracts for tax minimisation was a powerful consideration for Mr Tighe to commit the applicant to those contracts also. He only did this, in any event, after taking Mr Wells’ advice. Mr Tighe I think accepted what he was told by Mr Louks and Mr Wells about there being pressure on taking up the second lot of three contracts dated 3 August 1993 because of foreshadowed changes in the tax laws which might bar deductions in respect of investments in projects like the Woburn Downs project.

49                  While I have no doubt that Mr Tighe hoped that the applicant’s investment in each of the six Woburn Downs contracts would turn out to be profitable, he well appreciated the speculative nature of the investment in a cattle breeding project to run for as long a period as five years. He gave this evidence:

“You’re a businessman. You deal with commodities. You know how adverse circumstances in primary industry can drive prices downwards. Yes?‑‑‑Yes.

Or for that matter adverse circumstances can create demand and drive them upwards?‑‑‑Yes.

But in either event, the prices remain open to change?‑‑‑That’s correct.

And nothing is assured, is it?‑‑‑No.”

50                  Mr Tighe here really does nothing more than acknowledge what is a matter of common knowledge, though his awareness of the uncertainty of commodity prices in primary industry over periods of as long as five years cannot but have been sharpened by his own involvement in the wholesale fruit and vegetable trade. It is true that, at various points in his evidence, he qualifies what he had to say to the effect set out above. But his qualification was limited to suggesting that he committed the applicant to the various contracts in a more optimistic frame of mind about the stability of cattle prices than he acknowledged common experience justified because, in the information given him on behalf of the Woburn Downs respondents with respect to the project, “there was never any indication of a downturn in the market and it would only keep expanding and increasing because of the breeds of cattle that were being developed and devised and the way they were being done”. Despite this qualification, I think Mr Tighe committed the applicant to contracts T, U and V and W, X and Y once Wells recommended that course in the knowledge that there was no assurance they would turn out to be anything like as profitable, as investments, as the “Overview” document suggested.

51                  Under cover of the letter from Australasian Business Consultants dated 21 June 1993 addressed to the applicant’s accountant, Mr Wells, the applicant received confirmation of receipt of its cheque for $42,000, ie, $14,000 paid earlier in June by it in cash in respect of each of contracts T, U and V with the Woburn Downs organisation. The letter describes the cheque as having been paid to “Woburn Downs Pastoral Company”. Under these three contracts, the applicant undertook to lease a total of eighteen breeding cows for thirteen months which Woburn Downs would impregnate with Santa Gertrudis embryo in that period and was promised a total of sixty-six progeny to be produced and cared for over the five year term of the contractual arrangements. Before 30 June, Mr Tighe caused the applicant to execute these contracts and they were returned, undated, by Wells to the sixth respondent for execution by the various Woburn Downs parties. Ultimately - Mr Tighe cannot say when, though he thinks it was after August 1993 - the applicant received back these contracts executed by the Woburn Downs parties. They were all dated 23 June 1993. The documents comprising each of what are referred to as the first three contracts (contracts T, U and V) consist of the following:

(a)                a Lease and Breeding Agreement between Mrs Suares trading as Woburn Downs Pastoral Company as lessor and the applicant as breeder;

(b)               a Management Agreement between Woburn Downs Management Pty Ltd as manager and the applicant as breeder;

(c)                a Loan Agreement between Heath Credits Pty Ltd as “the Credit Provider” and the applicant as “the Borrower”;

In addition, each lot of contract documentation included a direct debit authority to the applicant’s bank in favour of Heath Credits Pty Ltd in respect of monthly loan repayments by the applicant to commence on 31 July 1993.

52                  Under the Lease and Breeding Agreement, the applicant leased from the lessor “the Herd” for a term of thirteen calendar months from the date of the agreement, ie, 23 June 1993. “The Herd” was defined to consist of six cows, each identified by a unique brand number, “and includes any replacement thereto made in accordance with the provisions of Clause 3.1”. By cl 1.3 the Lessor promised to provide the applicant with “members of the herd impregnated with Santa Gertrudis Embryo [ie at the outset] or during the period specified in Item 14 of the Schedule [ie, the period of thirteen calendar months from the date of the agreement], shall cause each remaining member of the Herd … to be impregnated with Santa Gertrudis Embryo chosen by the Lessor in its absolute discretion”. By cl 2.3.5 the Lessor warranted, in respect of “production of progeny”, that “the herd will produce six live calves which will be capable of being registered and classified with the Santa Gertrudis Association of Australia”. Such progeny were, by cl 1.6, to “belong absolutely to the [applicant]”. By cl 1.4 and cl 2.2.1 the applicant promised to pay $40,000 to the lessor, being the Rental for the Herd of $3,000 for the thirteen month term of the agreement and the “Breeding Fee” of $37,000 for the same thirteen month period “in cash or by bank cheque … upon execution of” the Lease and Breeding Agreement.

53                  By way of assurance to the applicant that it would get the initial six classified progeny promised by the Woburn Downs lessor, cl 3.1 entitled that lessor to make substitutions for the six specifically identified breeding cows leased for the thirteen month term but only if that breeding cow turned out to be infertile or otherwise incapable of producing a high quality calf. By cl 3.2, the Lessor was obliged to notify the applicant “in writing of the replacement of the Incapacitated Member”.

54                  Under the Management Agreement, Woburn Downs Management Pty Ltd as manager agreed, by cl 1.1, to “procure the agistment and depasture on the Land [ie, any land owned, leased or used for the purposes of agistment by the manager] of each of the Herd of six female cattle leased by the applicant ‘from Heather Russell Suares trading as Woburn Downs Pastoral Co … as set out in Lease and Breeding Agreement between the [applicant] and the Lessor”, all progeny thereof and all offspring of such progeny “during the Management and Agistment Term relevant thereto’”. This term is defined in respect of each of the six cows forming the “leased Herd [to be] the period commencing from the date of [the Management Agreement , ie, 23 June 1993,] and expiring thirteen (13) months from signing of agreement”. The Management and Agistment Term in respect of each of the progeny is defined to mean:

“…the period commencing from the date of birth of such progeny and expiring on the earliest to occur of the following:

(a)               the date upon which such progeny is sold pursuant to the provisions of this Agreement or dies;

(b)               the date five (5) years from the date of this Agreement;

…”

55                  The leased herd of six cows and all their progeny and the offspring of their progeny was defined as “the Extended Herd”. By cl 1.8, the Manager was required “at the beginning of the Management and Agistment Term and periodically thereafter when the Manager deems necessary”, to mark all of the Extended Herd with Distinguishing Marks. By cl 2.1, the Manager was given the right, at its absolute discretion, to impregnate any member of the female progeny of the original leased herd of six cows by paddock mating, embryo transfer or artificial insemination. By cl 4.1, the Manager undertook to provide, in respect of each member of the Extended Herd, certain husbandry services during the Management and Agistment Term relevant to each such herd member “in consideration of the payment of the Management Fee”. By cl 4.6.1, the applicant undertook to pay to the Manager the Management Fee of $80,000 “in cash or by bank cheque … upon execution of” the Management Agreement. Various provisions of the Management Agreement required the Manager to supply the applicant with information about the Extended Herd. By cl 6.1, the parties acknowledged that the applicant had entered into the Management Agreement on the basis that it would have received “during the period of the Management Agreement, 22 Santa Gertrudis progeny suitable for classification and Registration”. By cl 6.2 it was provided that, to the extent that the applicant does not receive sufficient female progeny to ensure that the Extended Herd will, during the period of the Management Agreement, accumulate to twenty-two registrable Santa Gertrudis progeny, the Manager was required to use its best endeavours from time to time to sell or swap any excess number of the one sex of progeny owned by the applicant and still agisted on the land in exchange for the same number of the other sex of stud cattle of the desired “Santa Gertrudis” breed as are available for purchase or swap. By cl 9.1.1, the applicant acknowledged that, at the conclusion of the Management Agreement, any progeny in excess of twenty-two were to become the property of the Manager. By cl 10.1.6, the Manager was to attend to and meet the costs of registration of all progeny.

56                  In terms, cll 1.3 and 2.3.5 of the Lease and Breeding Agreement do not oblige Woburn Downs Pastoral Pty Ltd to produce for the applicant six classifiable calves by the end of the thirteen month term of that Agreement; they only required Woburn Downs Pastoral Pty Ltd to provide the applicant with the six leased cows in a pregnant condition by the end of that thirteen month term. But cl 1.1 of the associated Management Agreement only obliges Woburn Downs Management Pty Ltd to care for the six recipient cows leased to the applicant by Woburn Downs Pastoral Pty Ltd under the Lease and Breeding Agreement for its thirteen month term. It is therefore arguable that Woburn Downs Pastoral Pty Ltd was obliged to produce from the six cow herd it leased to the applicant six classifiable calves by the end of that thirteen month. But the case was run on the basis that the Woburn Downs respondents only had to provide the applicant with six impregnated leased cows by the end of the thirteen month term of each Lease and Breeding Agreement.

57                  Entry into each Lease and Breeding Agreement and each Management Agreement can be seen to have committed the applicant to paying $40,000 and $80,000 respectively, in cash, by no later than the date of execution of the agreements, ie, by 23 June 1993 in respect of each of the first three lots of contracts. However, the plan presented to the applicant (and other investors) by those marketing it, as outlined in the “Overview” document, and adopted by the applicant, required the applicant to pay only $14,000 in cash upon execution of the agreements comprising each contract. An important element of the plan was the availability of loan finance at an attractively low rate of interest from Heath Credits Pty Ltd to the extent of the balance of $106,000 due in cash by the investor on execution of each Lease and Breeding Agreement and each Management Agreement. By outlaying $14,000 of its own money and by entering into a Loan Agreement with Heath Credits, an investor could thus expect to discharge its obligations to pay, in cash, on the date of execution of the Agreements, the $40,000 then payable by the investor to Woburn Downs Pastoral Pty Ltd under the Lease and Breeding Agreement and the $80,000 then also due to Woburn Downs Management Pty Ltd under the Management Agreement.

58                  Each $14,000 payment by the applicant in respect of contracts T, U and V was paid to Delta Investments, no doubt on the instructions of Mr Louks. $13,200 was retained by Delta under the commission arrangement set out in Mr Suares’ letter to Mr Dwyer of 15 March 1990 and Delta forwarded the balance of $800 on to Woburn Downs Pastoral Co.

59                  The Lease and Breeding Agreement, the Management Agreement and the Loan Agreement are interdependent so far as performance of each is concerned. An investor, electing as did the applicant to rely on finance, could not therefore be required to perform its obligations under either the Lease and Breeding Agreement or the Management Agreement if Heath Credits did not perform its obligations under the Loan Agreement; nor could the investor be required to proceed with any one or two of the three agreements if the Woburn Downs parties to the other agreement or agreements refused to enter into them or refused to perform their obligations thereunder. The contrary was not suggested to be the position by any of the respondents.

60                  Together, the three agreements comprising each of contracts T, U and V constituted an arrangement whereunder the investor, in return for upfront payments totalling $120,000 to Woburn Downs Pastoral Pty Ltd and Woburn Downs Management Pty Ltd, financed to the extent of $106,000 by Heath Credits Pty Ltd, was entitled to expect that the two Woburn Downs companies would provide to the investor the specifically identified six leased cows (or permissible substitutions), all to be impregnated by the end of the first thirteen months of the arrangement and that the management company would build the six progeny of those leased cows up into a total of twenty-two classified cattle over a total five year term.

61                  As the result of a second approach by Mr Louks in late June/early July and after obtaining Mr Wells’ advice that the applicant should enter into them, Mr Tighe arranged for the applicant to enter into a further three contracts in respect of Woburn Downs in late July/early August 1993. These are identified as the W, X and Y contracts.

62                  Mr Louks told Mr Tighe that Woburn Downs would accept immediate payment of $5,000 of the $14,000 cash required from the applicant on execution of each Lease and Breeding Agreement, with the remaining $9,000 being paid “in early 1994”. On 30 July 1993, Mr Tighe arranged for a cheque for $15,000, covering these part payments, to be sent to the sixth respondent’s Brisbane office. Mr Tighe received the documentation soon after, and caused the applicant to execute it. It was also executed by the various Woburn Downs parties. All these documents bear the date, 3 August 1993. Whereas the Lessor, under each of the Lease and Breeding Agreement components of contracts T, U and V was Mrs Suares herself trading as Woburn Downs Pastoral Co, the Lessor under each of the Lease and Breeding Agreements in the W, X and Y contracts was Woburn Downs Pastoral Pty Ltd. All the other parties to all the other agreements comprising the W, X and Y contracts were the same as the parties to the T, U and V contracts. In April 1994, on Mr Wells’ advice that the balance of the $14,000 payable by the applicant in respect of each of contracts W, X and Y was due, Mr Tighe arranged for a cheque for $27,000 to be drawn on 18 April 1994 and sent to the sixth respondent.

63                  Despite the arrangement for the splitting of the $14,000 payable by the applicant in respect of each contract into two instalments, the various agreements constituting each of contracts W, X and Y provide for them to commence on 3 August 1993, for each Lease and Breeding Agreement to end thirteen calendar months thereafter and for the $40,000 payable thereunder to be paid on 3 August 1993; for each of the Management Agreements, 3 August 1993 was identified as the date of the agreement, the term of the agreement in relation to each leased herd was the period expiring thirteen calendar months later and, in respect of each of the progeny, the period expiring five years from 3 August 1993. The $80,000 management fee was also made payable “upon execution of the agreement”, ie, on 3 August 1993. In contrast, however, to the direct debit authorities in respect of each of contracts T, U and V, which provided for monthly loan repayments to Heath Credits to commence on 31 July 1993, ie, at the end of the first complete calendar month after the date of execution of each of those contracts, the direct debit authorities in respect of each of contracts W, X and Y provide for loan repayments to Heath Credits to commence nearly a year after the date of each of those agreements, ie, on 31 July 1994.

64                  A suggestion was made in closing argument that it was mutually intended that the commencement date of all the arrangements constituting contracts W, X and Y, not just for the instalments payable under the Loan Agreements, was to be 30 June 1994 rather than the date stated in the documents, 3 August 1993. The only evidence given at trial touching on this was that by Mr Tighe of his discussion with Mr Louks about splitting the deposit referred to above. No one on behalf of Woburn Downs gave evidence to suggest that an arrangement was made under which Woburn Downs Pastoral Pty Ltd could extend performance of its obligations under the Lease and Breeding Agreements beyond thirteen months after the date of those agreements, 3 August 1993. Late in the day, and after the parties were in dispute, the solicitors for the Woburn Downs respondents in their letter of 15 December 1995 reminded the applicant that it had been agreed between all parties that the agreements dated 3 August 1993 “did not take effect until July 1994” (sic - not by no later than 30 June 1994). The applicant’s solicitors in their response did not dispute this. That suggestion is unsupported by any documentation other than the direct debit authority in respect of the second lot of contracts. As will appear, such an arrangement would have been sufficient to destroy the applicant’s entitlement to claim, in respect of its 1994 year income, the deductions of $40,000 in respect of the three Lease and Breeding Agreements. There is no sufficient evidence to justify a finding that each of the Lease and Breeding Agreement components of contracts W, X and Y was varied to permit Woburn Downs Pastoral Pty Ltd to have thirteen months from 30 June 1994 to perform its obligation to provide the applicant with six impregnated cows.

65                  It is clear enough, however, that it would have been advantageous to the first to fifth respondents to so defer the commencement of the second lot of three contracts. In the third quarter of 1993, those respondents were experiencing serious difficulties, caused in large part by the long continuing drought, in performing their obligations to produce, in sufficient numbers, the progeny needed to fulfil the obligations of the first and second respondents to earlier investors in the Woburn Downs Cattle Embryo Scheme under arrangements similar to those they had later entered into with the applicant. And as will appear, Mr Suares decided to commit the first, second and third respondents to contracts W, X and Y in late July 1993 only after carefully considering whether the first and second respondents would have the capacity to produce the progeny necessary to service those three contracts.

THE TAX-DRIVEN BASIS OF THE WOBURN DOWNS SCHEME

66                  An understanding of the framework of the taxation laws around which the cattle embryo investment plan was structured enables the argument relied on by the applicant as central to a number of its claims for relief to be dealt with, viz, that it was essential, if they were to satisfy their contractual obligation, for the Woburn Downs respondents to strictly perform all their obligations under all six contracts because only by doing that would the applicant be able to obtain the taxation benefits promised by them. This argument was repeatedly advanced by the applicant without any attempt being made by it (or any of the respondents) to identify the basis upon which investors in the Woburn Downs scheme could expect to obtain the tax benefits that were held out by the respondents and seen by the applicant to be a major attraction of the scheme.

67                  The need referred to in the letter from the respondents’ accountants, Hart Larwill, included in the “Overview” document for the services under the Lease and Breeding Agreement to be delivered within thirteen months from the date of the agreement in order to ensure the deductibility in the 1993 year of the entire contract price of $40,000 is explained by ss 82KZL to 82KZO Income Tax Assessment Act 1936 (Cth) (ITAA). Lehmann and Coleman, in Taxation Law in Australia, 2^nd ed, published in 1991, ie, a little before the “Overview” document for the 1992 - 1993 year was produced, say that, prior to the introduction of these provisions, many taxpayers used pre-payments to accelerate deductions and to obtain an immediate and often substantial deduction when, at times there was only a faint possibility of income ever being derived from the investment some time later. (p 426) The authors continue (at p 427):

“Sections 82KZL to 82KZO were inserted to apply to arrangements entered into after 25 May 1988. The sections operate so that where pre-payments involve the provision of services, the amounts are only deductible if the services are provided within thirteen months after [the] date of the contract. Where the services are provided over a longer period, a proportion is deductible annually over the term of the contract …”

68                  These provisions establish a criterion additional to that in s 51 that must be satisfied if a person carrying on business, including one of primary production, wants to claim as deductions under s 51, not just business outgoings in the year in which they are incurred, but a deduction in one year in respect of the prepayment of such outgoings to be incurred over a number of years: prepayments for the provision of services will be deductible immediately only if those services are all provided within thirteen months of the date of the contract.

69                  This is the explanation for each Lease and Breeding Agreement having a term of thirteen months and for Hart Larwill’s emphasis upon the need for the services to be provided under those particular Agreements to be carried out within thirteen months from the date of signing the Agreement if the entire $40,000 contract price was to be deductible in the financial year in which the investor committed itself to the arrangement. The statement by Lehmann and Coleman also explains why only $16,000, ie, one-fifth of the $80,000 total price payable by an investor under the Management Agreement, was said by Hart Larwill to be deductible in each of the five years of the life of the Management Agreement.

70                  The division of the arrangements into a Lease and Breeding Agreement and a Management Agreement appears to have been entirely tax driven to ensure that investors could be offered a large upfront tax deduction consisting, in substantial part, of the entire $40,000 payable on execution of the Lease and Breeding Agreement which the respondents considered Woburn Downs Pastoral Pty Ltd would be able to perform within the critical thirteen month period at least when the scheme was initially set up. There appears to be no other reason why the obligations of the parties under these two Agreements could not have been contained in a single agreement, all to be performed on the Woburn Downs side by a single entity over five years.

71                  Lehmann and Coleman add that: “Even with the introduction of these sections, the issue of the taxpayer’s purpose [in making the pre-payments claimed as deductions in the particular financial year] and the scope of the taxpayer’s income-producing activities is still relevant” since, if the Commissioner considers there is no commercial reason for a taxpayer making the pre-payment and there is also present the element of the taxpayer obtaining a tax benefit by making that pre-payment, the Commissioner will deny the deduction claimed. This last comment explains Hart Larwill’s closing statement in the letter included in the “Overview” document warning that, though they considered investors in the scheme would be entitled in the year in which the investor entered into the scheme to deductions including the upfront deduction of $40,000 payable on execution of each Lease and Breeding Agreement, and a further $16,000 in respect of the Management Agreement, the Commissioner could nevertheless “attempt to impugn a particular investor’s arrangements if he was of the view that the investor’s intention was not to build up a herd of cattle and that the activities did not amount to the carrying on of a business of cattle breeding by the investor”.

72                  It is the possibility, referred to in the Hart Larwill letter, that the Commissioner of Taxation might not accept that, by reason of its entering into the six contracts with the Woburn Downs respondents, the applicant was engaged in the business of cattle breeding that is of central importance to whether the totality of the payments made by the applicant under the six contracts to January 1996 are deductible under s 51(1), not whether the contracts were in all respects strictly performed by the Woburn Downs respondents. So far as the deductibility of the $40,000 payment under each of the Lease and Breeding Agreements in the year in which those Agreements were entered into is concerned, in addition to that, the Commissioner would also need to be satisfied that those particular agreements were performed by Woburn Downs Pastoral Pty Ltd within thirteen months of that date.

73                  As will appear, Woburn Downs Pastoral Pty Ltd did not complete performance of its obligations under any of the six Lease and Breeding Agreements until after expiry of the relevant thirteen month period. These breaches by Woburn Downs Pastoral Pty Ltd are sufficient by themselves to deprive the applicant of the right to deduct the $120,000 claimed in respect of those particular Agreements in each of the 1993 and 1994 years which it has claimed and to date been allowed. Apart from that impact of Woburn Downs Pastoral Pty Ltd’s failure to perform its obligations under the Lease and Breeding Agreements on the applicant’s tax position for the 1993 and the 1994 financial years, other departures by one or other of the Woburn Downs respondents from strict performance of its obligations under any of the agreements could be relevant to whether the applicant was entitled to the tax benefits promised. But that would only be the case in so far as those departures bear upon the question whether the applicant could satisfy the Commissioner (if he sought to reopen the applicant’s tax affairs) that, by reason of its contractual arrangements with the Woburn Downs respondents, the applicant was truly engaged in the business of cattle breeding so as to be entitled to the deductions under s 51 ITAA of outgoings totalling $448,686 in the 1993 to 1996 years claimed and allowed to date as incurred by it in carrying on that business.

WERE ANY CONTRACTS CONCLUDED?

74                  The applicant contends that no contracts were ever concluded despite its execution of the Lease and Breeding Agreement, the Management Agreement and the Loan Agreement components of each of contracts T, U, V and W, X, Y. The applicant accordingly claims restitution of all the payments which the applicant made under these six contracts.

75                  The applicant contends that no binding agreements were entered into in respect of contracts T, U and V because the offers to enter into each of the three Lease and Breeding Agreements made by the applicant by delivery to the sixth respondent of the forms of agreement executed by it, was made personally to the fifth respondent and only she could accept those offers. But because she had already disposed of her stud operations to Woburn Downs Pastoral Pty Ltd, she was incapable of performing her side of those Agreements and so was incapable of accepting the relevant offers by the applicant. In consequence, and because each was inter-dependent with the associated Lease and Breeding Agreement, it was not open to Woburn Downs Management Pty Ltd or to Heath Credits Pty Ltd to accept the offers constituted by delivery to them of the forms of Management Agreement and Loan Agreement already executed by the applicant. Secondly, the applicant alleges that its offers lapsed because they were not accepted prior to 30 June 1993, the last date upon which they could be accepted in the circumstances of the case.

76                  The applicant here ignores, and the Woburn Downs respondents have not sought to rely upon the fact that from mid 1993 to at least October 1995, when it stopped monthly payments to Heath Credits, the applicant and all the Woburn Downs respondents conducted themselves on the basis that contractual arrangements were in force between them. Though the applicant did not receive contracts T, U and V back from the Woburn Downs respondents executed by them until sometime after August 1993, it made no complaint about that, nor any inquiry about when in fact they were executed. It was content to treat the contracts as in force from the date they bear, ie, 23 June 1993. It claimed tax deductions in respect of the 1993 financial year on that basis. The applicant’s conduct included claiming and receiving the other tax deductions (including deductions for interest paid by it to Heath Credits from July 1993 to October 1995). They were an important benefit it bargained for when it entered into the arrangements. The Woburn Downs respondents’ conduct includes the allocation to the applicant in purported compliance with its obligations under various of the Lease and Breeding Agreements and Management Agreements of recipient cows and their progeny and some of the progenies’ own progeny, together with the management of those cattle; their conduct also includes telling the applicant of what they were doing in those respects. All parties treated contracts T, U and V as on foot until the applicant terminated them on 31 January 1996. It is difficult to say, in these circumstances, that contracts to the effect of T, U and V never came into effect at any time. (The same is true of contracts W, X and Y.)

77                  But the first argument is founded on the now admitted fact that Mrs Suares ceased to carry on her stud business on her own account on 22 June 1993 - the day before the date ultimately inserted in contracts T, U and V by someone on behalf of the five Woburn Downs respondents. This was done as part of a restructure of her stud and embryo transfer operations which involved her, her husband, Heath Credits and Woburn Downs Management Pty Ltd entering into a joint venture agreement on 23 June 1993, effective from 1 July 1993, with a third party who undertook to inject substantial cash into those operations. The restructure involved the transfer to a new company as the joint venture vehicle, Woburn Downs Pastoral Pty Ltd, the first respondent, by Mrs Suares of her entire breeding operation and the giving of a covenant by Mr and Mrs Suares to contribute to the joint venture as from 1 July 1993 “all their respective skills, experience and expertise relating to the business of breeding of cattle and embryo implant”.

78                  When regard is had to the obligations that Mrs Suares assumed under the joint venture agreement also executed on 23 June 1993, it is apparent that she was herself, on that date and thereafter, incapable of performing any of the obligations in terms imposed on her by the three Lease and Breeding Agreements.

79                  The first to fifth respondents’ answer to this is that Mrs Suares executed the three Lease and Breeding Agreements in late July 1993 as agent for the joint venture company, Woburn Downs Pastoral Pty Ltd, as undisclosed principal. It can be inferred that, unbeknown to the applicant, Mrs Suares (who has little recollection of how she came to sign the relevant Lease and Breeding Agreements) executed those Agreements for contracts T, U and V with the applicant as agent for Woburn Downs Pastoral Pty Ltd: she signed the first three Agreements at the direction or request of Mr Suares acting as one of the two directors of Woburn Downs Pastoral Pty Ltd after Mr Suares had decided, in discussions with Mr Knight in late July 1993 that the company should commit itself to the three contracts.

80                  It has long been established that, when a person makes a contract with another and the first person is the duly authorised agent of a principal, “the principal can sue or be sued on that contract although, when it was entered into, the first person did not disclose to the other party to the contract that he was entering into it in the capacity of agent for a principal and the other party entered into the contract in the belief that the person with whom he was contracting was contracting as a principal”: Andrews v The Nominal Defendant (1968) 70 SR(NSW) 419 at 431. There are a number of exceptions that prevent this rule applying. The one of relevance here is the exception which arises when “from the nature and circumstances of the contract, the importance of the personality of the contracting party excludes any intention that an unknown principal shall acquire rights or liabilities thereunder”: Andrews at 431 - 432.

81                  In my opinion, the applicant fails to show that the case is within this exception to the general rule.

82                  Apart from his ambiguous statement in par 46 of his affidavit, no evidence was led in the applicant’s case to suggest that Mr Tighe himself regarded it as important that the applicant contract personally with Mrs Suares rather than with some company associated with her. His oral evidence was to the contrary. In so far as the evidence suggests that Mr Tighe had an interest in the project being well managed and run, that turned on it being under the control of the “Woburn Downs Stud”. That the dominant motive for Mr Tighe’s decision to commit the applicant to all six contracts was to obtain large tax benefits in the 1993 and 1994 financial years, is further reason for concluding that it was not so important to Mr Tighe that the applicant should enter into the Lease and Breeding Agreement components of the first three contracts only with Mrs Suares personally that the case should be regarded as within this exclusion to the undisclosed principal rule. Mrs Suares had a continuing involvement in what began as her business, which she transferred to Woburn Downs Pastoral Pty Ltd. Thereafter, she had just as much role in ensuring, so far as she could, that the desired tax and investment benefits were obtained from contractual arrangements between the applicant and Woburn Downs Pastoral Pty Ltd as if she were the principal in each of the first three Lease and Breeding Agreements.

83                  The objective circumstances also indicate that just who it was the applicant was contracting with in respect of each of the Lease and Breeding Agreement components of the six contracts was a matter of no significance to the applicant, provided the parties to the Lease and Breeding Agreement and the Management Agreement were either Mrs Suares or companies with which she was associated.

84                  By each Lease and Breeding Agreement, Mrs Suares undertook obligations to the applicant to provide the applicant in the first thirteen months of the project with six cows impregnated with Santa Gertrudis embryo which would each produce a calf capable of registration and classification. There is no basis, on the evidence, for thinking that these obligations were such that they could be performed only by Mrs Suares and by no one else. The evidence is that she ran a stud with veterinary and other assistance in the course of which operations impregnation of recipient cows and production of progeny was achieved and the animals cared for.

85                  Moreover, the Lease and Breeding Agreement which Mrs Suares personally executed as lessor and breeder was but one component of a suite of three inter-dependent Agreements that constituted each of contracts T, U and V. Mrs Suares was named in the contract documents only as a party to the Lease and Breeding Agreement component of each of the first three contracts. A different entity (a company associated with her) was named as the Manager in the Management Agreement component of each of those contracts. Under the Management Agreement, that management company undertook similar breeding obligations to the applicant to those which, in terms, Mrs Suares undertook to the applicant under each Lease and Breeding Agreement. It is therefore difficult for the applicant to establish that it was of critical importance to it to have a contractual arrangement with Mrs Suares personally to breed six calves from the original leased herd, when it cannot suggest that it was equally important to the applicant for it to contract with her personally to breed the further eighteen offspring from the initial six progeny to which the applicant was entitled.

86                  Though the Lease and Breeding Agreement component of each of contracts T, U and V was, unbeknown to the applicant, executed by Mrs Suares acting only as agent for Woburn Downs Pastoral Pty Ltd as her undisclosed principal, the contracts are legally binding and Woburn Downs Pastoral Pty Ltd was at all relevant times entitled to enforce them against the applicant (subject, of course, to the other challenges made by the applicant to the contracts which are yet to be determined).

87                  The second attack on contracts T, U and V remains to be dealt with. Reflecting the importance that Mr Tighe attached to the tax benefits he believed the applicant would obtain by entering into contracts T, U and V, the applicant submitted that each of these agreements had to be in place by 30 June 1993; they were not because the offers it made, consisting of the executed forms of agreement which Mr Wells returned to the sixth respondent on 21 June 1993, lapsed because those offers were not accepted by the offerees until after 29 July 1993.

88                  The evidence from Woburn Downs Pastoral Pty Ltd’s records for 29 July 1993 and that of Mr Suares indicates that the decision made that day on behalf of that company to enter into these three contracts was no mere formality but instead, a considered one. The company was then facing difficulties in performing its obligations under contracts with existing investors because the drought had seriously disrupted the breeding program upon which Mrs Suares and then the joint venture company were relying to produce sufficient progeny from the breeding cows to fill the various investor contracts. The decision to contract was made only after Mr Suares, in consultation with Mr Knight, the respondents’ accountant and secretary of the company, decided that the offer should be accepted in the expectation that Woburn Downs Pastoral Pty Ltd would be able to perform its obligations under these contracts. Until this decision was made, Mr Suares treated Woburn Downs Pastoral Pty Ltd as being free to refuse to enter into the Agreements, ie, he treated the executed Agreements proffered by the applicant as no more than offers which Woburn Downs Pastoral Pty Ltd could accept or reject as it chose.

89                  The Woburn Downs respondents emphasised in their “Overview” document the availability to investors of large tax deductions in the 1993 year should an investor enter into the scheme by 30 June 1993. All parties regarded those deductions as a major attraction of investment in the scheme. The applicant would very likely not be entitled to any deductions in respect of its 1993 year income in relation to contracts T, U and V, including the large deductions under the Lease and Breeding Agreements which were so attractive to Mr Tighe, unless those contracts had become legally binding by no later than 30 June 1993. Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492 has been long accepted as authority for the proposition that a liability must presently exist in order for it to be “incurred” and thus deductible under s 51(1) ITAA 1936. There is also authority that an outgoing may be “incurred” notwithstanding that there is no legal liability to make payment if commercially, that amount is certain to be paid in the future. But an outgoing will not be incurred in the year of income if it is, at the end of that year, still no more than a contingent or expected liability: see, eg, Ogilvy and Mather Pty Ltd v Federal Commissioner of Taxation (1990) 90 ATC 4,836 at 4,865. The evidence as to the circumstances in which Mr Suares, in discussions with Mr Knight, decided on 29 July 1993 that Woburn Downs Pastoral Pty Ltd should itself execute the documentation comprising contracts T, U and V suggests that the applicant may well have difficulty in showing that it was by 30 June of that year sufficiently committed to the expenditures it claimed in its 1993 year return in respect of those three contracts to make them deductible under s 51(1).

90                  I therefore accept that the applicant’s offers, in relation to contracts T, U and V, constituted by delivery to the Woburn Downs respondents’ agent on or about 23 June 1993 of the various forms of Agreement executed by it were only open to acceptance by the relevant Woburn Downs respondents until 30 June 1993 and they were not accepted in time.

91                  Prima facie the applicant would therefore be entitled to a declaration in relation to all the agreements comprising contracts T, U and V that no enforceable Agreements were entered into before 30 June 1993. But there is no utility in making such a declaration. It is apparent that, by reason of their conduct between July 1993 and at least October 1995, the applicant and the relevant Woburn Downs respondents conducted themselves on the basis that there was in force between them contracts broadly to the effect of contracts T, U and V, with each apparently accepting the performance each tendered to the other. Any monetary award that the applicant might be entitled to because of the absence of any binding agreements in the form of contracts T, U and V by 30 June 1993 cannot, I think, be assessed in these circumstances unless the applicant undertakes the task of establishing just what is its restitutionary entitlement. This cannot be assessed without an evaluation of benefits it received under the contracts to the effect of contracts T, U and V that were probably in existence between the parties in the period July 1993 to at least October 1995. For example, if the relevant offers had been accepted by 30 June 1993, the applicant would have had a prospect (but not the certainty) of persuading the Commissioner of Taxation that, by entering into the relevant contracts by 30 June 1993, it had become, by that date, engaged in the business of cattle breeding so as to permit it to deduct relevant outgoings, including prepayment of outgoings from its 1993 year income. Though it may well not be entitled to any of the deductions allowed to date in respect of the 1993 year, because none of contracts T, U and V were in place by 30 June 1993, it may be entitled, even now, to have its 1994 assessment re-opened to give it the benefit of those particular deductions. This is dealt with later. Further, it appears some cattle were allocated by Woburn Downs to the applicant by reason of the contractual arrangements then in force during 1994 to 1995 and it further appears the applicant accepted those allocations even though it did not persist in its claim made in its cancellation letter of 31 January 1996 in respect of those cattle. It is not therefore possible to assess the amount of the restitutionary payment, if any, to which the applicant is entitled by reason of the fact that no binding contracts were in existence by 30 June 1993, though contracts to the same effect appear in all probability to have come into effect soon after that date and to have continued on foot until they were cancelled by the applicant in January 1996.

92                  Contracts W, X and Y differ from contracts T, U and V because, in the Lease and Breeding Agreement component of each, the Lessor is named not as Mrs Suares but as Woburn Downs Pastoral Pty Ltd. Moreover, each of these agreements in respect of each of contracts W, X and Y was executed by that company. The applicant points out that, though the change I have referred to was made to the Lease and Breeding Agreement component of each of contracts W, X and Y, that change was not made in the accompanying Management Agreement and Loan Agreement: both, wherever they refer to the Lessor under the relevant Lease and Breeding Agreement, describe Mrs Suares, rather than Woburn Downs Pastoral Pty Ltd, as the Lessor under that particular agreement.

93                  It is said that Mr Tighe, when he executed the Lease and Breeding Agreement component of each of contracts W, X and Y was unaware that the Lessor had been changed from Mrs Suares to the company. I doubt if his evidence goes that far. But, in any event, he executed three forms of Lease and Breeding Agreement on the same page that showed Woburn Downs Pastoral Pty Ltd as the other party to the particular agreement. Moreover, the covering sheet of each agreement describes it as one between Woburn Downs Pastoral Pty Ltd as Lessor and the applicant as Breeder. Though he may not have been told by any of the Woburn Downs respondents prior to his executing these forms of agreement that the Lessor had been changed from Mrs Suares to Woburn Downs Pastoral Pty Ltd, I am not prepared to accept, in the state of the evidence before me, that he was, in fact, unaware of that change at the time he executed the agreements on behalf of the applicant. I think it is more likely that it was a matter of no importance to Mr Tighe: he was content to commit the applicant to the second set of contracts without being concerned as to the exact identities of the particular parties on the other side.

94                  The disconformity between the Lessor named in the Lease and Breeding Agreement component of each of contracts W, X and Y and the person described as that Lessor in each of the associated Management and Loan Agreements is, in these circumstances, the sort of disconformity readily correctable by the application of the principles of contractual interpretation discussed in Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303 at 306 and Fitzgerald v Masters (1956) 95 CLR 420 at 426 - 427.

BREACHES OF CONTRACT

95                  The issue here is whether the Woburn Downs respondents committed breaches of the various agreements of such a nature that the applicant was entitled to cancel the six contracts, T, U and V and W, X and Y, for breach as it did on 31 January 1996. Damages in contract are not claimed in respect of such breaches. But the applicant relies on its asserted entitlement to cancel the contracts in January 1996 as a good answer to the third respondent’s cross-claim for moneys due under the six Loan Agreements. This cross-claim is based on the proposition that the third respondent advanced a total of $636,000 to the first and second respondents at the applicant’s request under the six loan contracts. The outstanding balance due to it by the applicant, as at 29 July 1998, is said to be $529,783, leaving a net amount the subject of the cross-claim of $461,580 after allowing for what is described as the “net proceeds of sale of [the applicant’s] cattle sold”. Interest continuing to accrue on that amount is also claimed.

96                  The first and second respondents acknowledged that they departed in a number of ways from the performance required by the Agreements.

97                  In breach of cl 1.3 of the Lease and Breeding Agreement component of each of the six contracts T, U and V and X, Y and Z, Woburn Downs Pastoral Pty Ltd failed, according to their admissions, to provide to the applicant any of the precisely identified recipient cows - thirty-six in all - that were to comprise the six leased herds: Woburn Downs Pastoral Pty Ltd substituted other cows for all the thirty-six cows specified in the six Lease and Breeding Agreements. (Mr Tighe says that correspondence he received from the fifth respondent shows that two of the thirty-six recipient cows specified in the six agreements were, in fact, allocated to the applicant.) Woburn Downs Pastoral Pty Ltd did not have an unfettered entitlement to substitute, only the limited one conferred by cl 3.1. It did not attempt to show that all these substitutions were authorised by that clause. Further, written notice to the applicant was a condition of an effective substitution. It is now common ground that no such notices were ever given.

98                  In further breach of cl 1.3, it is admitted that Woburn Downs Pastoral Pty Ltd did not provide to the applicant any of these substitute cows impregnated with Santa Gertrudis embryos until after expiry of the thirteen month period commencing on the date of the particular Lease and Breeding Agreement. The justification for these admissions is apparent when regard is had to the letters sent by Mrs Suares to the applicant in late 1994 - early 1995. In relation to the first three Lease and Breeding Agreements in contracts, T, U and V, Woburn Downs Pastoral Pty Ltd did not impregnate, within the thirteen month period ending 30 July 1994, any substitute recipient cows which they were prepared to allocate to any of the three Lease and Breeding Agreement components of these three contracts. That appears from Mrs Suares’ letters to the applicant of 15 and 18 July 1994 and 29 August 1994. (The late performance by Woburn Downs Pastoral Pty Ltd may have been even worse if Mrs Suares’ letter of 19 November 1994 to Mr Dwyer accurately states the position.) So far as contracts W, X and Y are concerned, the Lease and Breeding Agreement components were to be completed by Woburn Downs Pastoral Pty Ltd by 30 September 1994. Mrs Suares wrote to the applicant on 4 February 1995 to say that “5 Pregnant Recipient Cows have been allocated to each of your latter three packages, we will be flushing on 16/17^th February and another pregnant Recipient cow will be added to each of your packages from this flush”.

99                  It is apparent from the Woburn Downs respondents’ own discovered material referred to by Mr Tighe in his affidavit that, despite the elaborate provisions of the Lease and Breeding Agreements and the Management Agreements, those respondents ran their operation without any regard to the contractual obligations they had assumed to the applicant and other investors under similar agreements: they appear to have made no attempt to manage, as a discrete herd, any of the herds of six precisely identified recipient cows leased to the applicant (or to any other investor under agreements similar to the Lease and Breeding Agreements into which the applicant entered). Rather does it appear that the Woburn Downs respondents managed all their cattle as a single herd and allocated progeny produced by their recipient cows to particular investor contracts as and when it was convenient for the respondents to do that, ignoring the carefully structured obligations imposed by the Lease and Breeding Agreement.

100               Mrs Suares’ position was that, irrespective of what the various Lease and Breeding Agreements required of Woburn Downs Pastoral Pty Ltd, she regarded the identity of the recipient cow as irrelevant and considered that all an investor such as the applicant was entitled to in respect of a particular Lease and Breeding Agreement was six progeny to be allocated to the particular contract whenever it was convenient, or perhaps more accurately, possible, for Woburn Downs Pastoral Pty Ltd to do that and, so far as the Management Agreement was concerned, to ensure that, by the end of five years, the particular investor would have had allocated to it a total of twenty-two classifiable progeny from any stud animals that happened to be available from time to time to Woburn Downs Pastoral Pty Ltd and Woburn Downs Management Pty Ltd. She cannot have believed this. Mrs Suares agreed that she knew that it was critical that each Lease and Breeding Agreement be performed within thirteen months otherwise the tax deductions would be put at risk. She also agreed that she had got advice from two separate accountants, Hart Larwill and Joyce, “that this venture would only work if the Lease and Breeding Agreement was performed within the thirteen months stipulated”.

101               Quite apart from the breaches by Woburn Downs Pastoral Pty Ltd of the Lease and Breeding Agreements constituted by the unauthorised substitutions for the leased cows and the breaches by Woburn Downs Management Pty Ltd of its obligations under the Management Agreements to keep the progeny of the leased cows and their own progeny ear-marked for the applicant, there can be no doubt as to the seriousness of Woburn Downs Pastoral Pty Ltd’s breaches of its obligation to complete performance under the Lease and Breeding Agreements within thirteen months: timely completion was critical to ensuring that the applicant would be in the best possible position to establish a claim to deduct in the 1993 year the payments under the first three of those Agreements totalling $120,000 and to deduct in the 1994 year the payments totalling a further $120,000 under the second lot of those Agreements.

102               The reason for all these breaches is clear enough. It is apparent that at the time Woburn Downs Pastoral Pty Ltd entered into contracts T, U and V with the applicant, it was having difficulty in finding sufficient numbers of progeny to fill from any source the numbers of calves required to perform Mrs Suares’ obligations under both the Lease and Breeding Agreement and Management Agreement components of contracts with other investors who had got into the scheme earlier on.

103               A long running drought appears to have been a major cause of Mrs Suares’ difficulties in this regard. Mrs Suares referred to “drought conditions and the recession” as depressing prices in the Australian cattle industry in the “Overview” document for 1992 to 1993. She acknowledged that as at mid 1993, a bad drought had been affecting the industry for about two years. The drought continued, at least into 1995. Its impact on the Woburn Downs operations was severe. For example, on 21 September 1993, Mr Suares wrote to Mr Hopkins expressing willingness to allow one of the earlier investors who had become dissatisfied with its involvement in the Woburn Downs Cattle Embryo Investment scheme to simply “walk away” from its contractual obligations to the first, second and third respondents, noting that these the first and second respondents would then be able to “re-allocate their cattle to other investors which would relieve the pressures due to the drought a little”. Mrs Suares agreed that by the end of 1994 the drought was having a serious impact on Woburn Downs’ ability to comply with its obligations under contracts with various investors (not including the applicant) to deliver to each of them twenty-four classifiable progeny at the end of the five year contract periods of each of the Management Agreements. When she wrote to Mr Dwyer on 10 November 1994, Mrs Suares assessed the position as being that, by the end of June 1995, Woburn Downs would need to have 216 classified progeny to fill those contracts but were likely to have only 80. She also then raised with Mr Dwyer the possibility of making an offer to investors to waive certain charges that Woburn Downs Management Pty Ltd was entitled to levy on them under the Management Agreements:

“as we have been dragging the chain due to the endless droughts. Surely it must break soon …”

104               A further measure of the difficult situation Woburn Downs Pastoral Pty Ltd emerged from Mrs Suares’ evidence that, as at February 1995, the company had an accumulated overdraft of nearly $450,000 and the bank was pressuring it for repayment. In addition, it had a fully drawn bridging loan from the same bank of $400,000 which it was also under pressure to repay. Another debt of $950,000 was due and it was essential to sell off the Springsure property as the only means of raising the necessary funds to meet these obligations. This was no sudden deterioration in the company’s financial position. On 12 April 1995, the company’s accountants wrote to its solicitor that: “The company has been severely affected by the drought …” and has incurred trading losses for the year ended 30 June 1994 of $60,038 and a loss of $119,279 for the eight months ended 28 February 1995. The accountants expected that the trading loss for the year to 30 June 1995 would exceed $200,000. They noted that “the directors are aware of the dire predicament that the company is in and have agreed to put one of the company’s two properties up for auction in May”.

105               The question is whether the first and second respondents by their conduct in breach of the relevant Agreements showed an intention not to be bound by the various Lease and Breeding Agreements and Management Agreements. That the respondents say they always intended to perform their fundamental obligations under these Agreements and that they may have done their best to perform all their contractual obligations does not conclude the issue in their favour. After drawing a distinction between a party evincing an intention to carry out a contract only if and when it suits the party to do so and evincing an intention to carry out a contract as and when it suits the party to do that, Mason CJ, in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 said, at 634:

“In the first case, the party intends not to carry out the contract at all in the event that it does not suit him. In the second case, the party intends to carry out the contract, but only to carry it out as and when it suits him. It is much easier to say of the first than of the second case that the party has evinced an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way. But the outcome in the second case will depend upon its particular circumstances, including the terms of the contract. In some situations the intention to carry out the contract as and when it suits the party may be taken to such lengths that it amounts to an intention to fulfil the contract only in a manner substantially inconsistent with the party’s obligations and not in any other way.”

106               The last comment can, I think, fairly be applied to the first and second respondents (and to the fourth and fifth respondents who controlled their conduct).

107               The first and second respondents made the decision to enter into each of the six contracts in circumstances where they and the fourth and fifth respondents were concerned at their ability to perform those contracts because of the difficulties the entire Woburn Downs operation was facing in mid 1993 due to the long continuing drought in fulfilling their obligations to other investors under agreements similar to those which they ultimately decided to enter into with the applicant. In particular, the first and second respondents (and the fourth and fifth respondents) must then have been well aware of the very real risk that Woburn Downs Pastoral Pty Ltd would not be able to perform its critical obligations under each of the six Lease and Breeding Agreements to provide the applicant with six impregnated cows by no later than expiration of the thirteen month term of each of those Agreements. The respondents well knew that under the tax laws then in force, the applicant could not lawfully deduct the whole of the $40,000 payment due by the applicant under each Lease and Breeding Agreement in the financial year in which the payment was made if the first respondent failed to perform within that thirteen month period. That appears from the statements in the “Overview” document prepared by Mr Suares and from Mrs Suares’ own evidence already referred to.

108               It does not, I think, matter that the applicant has, in fact, claimed and enjoyed the benefit of those particular deductions: the conduct of the first respondent in not performing its critical obligation within the thirteen month period made the applicant’s claim to those deductions legally insupportable. Further, Mrs Suares’ assertion that it really did not matter that the first respondent did not allocate to the applicant each of the precisely identified six cow herds it promised to so allocate under each Lease and Breeding Agreement and that it was enough, if at the end of the five year term of each Management Agreement, the first and second respondents were able to provide the applicant with a total of twenty-two classifiable calves in respect of each set of contracts must be rejected. The contractually required allocation to the applicant of the six recipient cows identified in each Lease and Breeding Agreement was an important assurance that the applicant would have its own small herd of calves in good time to enable it to be built up to the promised herd of twenty-two progeny by the end of the five year term of the Management Agreement. Such assurance was reinforced by the promise that the first and second respondents would in effect manage the leased herd and the progeny of the leased herd so as to enable them to be always identifiable as cattle allocated to the applicant. The inability of the first and second respondents to perform both their obligations under the contractual arrangements with investors other than the applicant and under their contractual arrangements with the applicant demonstrates the value of such assurance.

109               Even if Mrs Suares’ view of what was the significant objection assumed by the Woburn Downs companies was legally sound, I am not prepared to accept the statement in cross-examination by one of the applicant’s witnesses, Mr Miller, a veterinary surgeon with extensive experience in various methods of stud cattle breeding, as establishing that Woburn Downs would have been able to produce for the applicant under each of its six contracts a total of twenty-two classifiable calves by the end of the five year term of each. Mr Miller’s attention was not here drawn to the difficulties Woburn Downs was experiencing in servicing all their investor contracts due, in large part, to the problems created for them by the long drought. In any event, the applicant and the first and second respondents did not contract for an ultimate result, but rather for a process and a result. An important feature of the process was designed to ensure, so far as that could be achieved by the respondent, that the applicant would be lawfully entitled to substantial tax deductions at the outset. The first and second respondents’ failure, in breach of their contracts to follow this process, at least in relation to the Lease and Breeding Agreements, was such as to deprive the applicant of any lawful entitlement it might otherwise have had to those upfront deductions. That departure, by itself, is sufficient to answer, in my opinion, the argument that all the applicant was really entitled to expect was delivery at the end of the five year term of each contract of twenty-two classifiable calves from any of the donor and recipient cows available to the first and second respondents.

110               Well prior to January 1996, when he caused the applicant to cancel all six contracts, Mr Tighe was given information by Woburn Downs showing that they were not complying with these particular contractual obligations. He said he did not scrutinise closely any of the correspondence which he received from Mrs Suares, referred to above, until after he had cancelled the contract for other reasons. But the respondents did not contend that, prior to January 1996, the applicant had lost, by election to affirm the various contracts, the right it then purported to exercise to cancel them, in so far as the applicant seeks to justify cancellation on the breaches by the first and second respondents now relied on. (The first to fifth respondents did submit, in answer to the applicant’s specific complaint that no notice of substitution of cows under the Lease and Breeding Agreements was ever given to it, that the applicant made no complaint about those substitutions when they were drawn to its attention. But they did not go beyond that and try to make out a case that the applicant had lost rights because of its inaction.)

111               It is unnecessary, however, to decide whether, by reason of its inaction in the face of the respondents’ advice as to how it was purporting to perform the six contracts, the applicant had lost the right in reliance on the breaches now relied on to cancel them by January 1996. The applicant’s entitlement to cancel all the contracts in January 1996 is, in my opinion, established when regard is had to the fact that, in relation to each of the six contracts, the Loan Agreement was breached in a fundamental respect by the third respondent, Heath Credits.

112               The only obligation of significance in each Loan Agreement that Heath Credits undertook to the applicant was to discharge, by the date of execution of the relevant Lease and Breeding Agreements and Management Agreements, the applicant’s liability to pay in cash the full amount owing by the applicant to Woburn Downs Pastoral Pty Ltd and Woburn Downs Management Pty Ltd, less the $14,000 deposit paid in respect of each of the six contracts. That was never done. Only by disbursing cash could Heath Credits ensure that the applicant’s obligations to each of the first and second respondents were satisfied. Heath Credits never performed this fundamental obligation resting on it under each of the Loan Agreements. The evidence shows that it was never the intention of Mr and Mrs Suares, as the persons controlling Heath Credits, that that would be done. They set up Heath Credits as an empty shell, to act as a conduit through which Woburn Downs Pastoral Pty Ltd (and Woburn Downs Management Pty Ltd) would receive month-by-month what investors paid and, in the applicant’s case, believed it was paying by way of monthly loan repayments to Heath Credits in respect of the cash advances made at the outset of the relevant arrangement to Woburn Downs Pastoral Pty Ltd and Woburn Downs Management Pty Ltd by Heath Credits.

113               Although this emerged in the course of the trial to have been the situation from the outset, the position was obfuscated in the Woburn Downs respondents’ pleadings. Initially, those respondents pleaded what can only be understood as an actual advance of cash by Heath Credits to the first and second respondents of the full amount of $106,000 the subject of each of the six loan contracts from its own funds from a specified bank account. Initially, Heath Credits, in formal particulars, asserted that copies of the bank statements evidencing these payments were available for inspection at the offices of the solicitors for the respondents. When that obfuscation was uncovered by the applicant when it found that the third respondent’s banking records provided no support for the third respondent’s pleaded assertions, the third respondent amended these assertions in the particulars to assert that it never advanced any of the moneys it promised the applicant it would advance at its request to the first and second respondents, but merely created journal entries in its books on 23 June and 3 August 1993 purporting to evidence its assumption of an obligation to make these advances to the first and second respondents. In answers to interrogatories filed much later, it appears that the journal entries were not in fact made until late 1994.

114               Woburn Downs Pastoral Pty Ltd and Woburn Downs Management Pty Ltd may have been prepared to accept the assumption by Heath Credits of liability to them by way of journal entry to make the payments in question and diversion to them of monthly loan repayments to Heath Credits as acceptable performance by Heath Credits of the obligation it assumed under the Loan Agreement for the benefit of those two companies. But that was not the consideration for which the applicant bargained when it entered into each Loan Agreement. The applicant did not accept such a radically different mode of performance by Heath Credits of the obligation it assumed to the applicant to pay cash to Woburn Downs Pastoral Pty Ltd at the outset as the Woburn Downs respondents have submitted. The journal entries made in Heath Credits’ books with the knowledge and acquiescence of Mr and Mrs Suares as principals of Woburn Downs Pastoral Pty Ltd and Woburn Downs Management Pty Ltd may be effective to create a debt due by Heath Credits to the two Woburn Downs companies in an amount totalling that which Heath Credits promised the applicant it would advance in cash to those Woburn Downs companies. But that arrangement made without any knowledge at all on the part of the applicant cannot affect the enforceability by the applicant, as against Heath Credits, of the latter’s promise to advance those moneys in cash to the Woburn Downs companies on the date of execution of the relevant Agreements. Cf Manzi v Smith (1975) 132 CLR 671 at 673 and 675.

115               Since performance by the applicant of its obligations of prompt payment under each of the Lease and Breeding Agreements and each of the Management Agreements was inter-dependent with Heath Credits’ performance of its obligations to advance the moneys in question to Woburn Downs Pastoral Pty Ltd and to Woburn Downs Management Pty Ltd upon the execution of the contracts, in the case of the first three on 23 June 1993 and in the case of the second three on 3 August 1993, the applicant was entitled to cancel the contracts for those breaches by Heath Credits. The applicant stopped all payments to Heath Credits under the loan contracts in October 1995. By no later than January 1996, it made clear its refusal to further perform its contractual obligations. The breach by Heath Credits of its fundamental obligation under each loan contract to advance in cash at the outset the balance of the moneys payable by the applicant under each Lease and Breeding Agreement and each Management Agreement was sufficiently serious to justify the applicant refusing to further perform any of the loan contracts and interrelated Management Agreements still on foot in January 1996, even though the applicant was not then aware of those breaches. It could justify cancellation in January 1996 on that basis. See Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 377 - 378.

116               It did not learn of these breaches by Heath Credits until shortly before 31 January 1996 at the earliest. On 13 December 1995, Mr Suares, as joint Managing Director of Woburn Downs Pastoral Pty Ltd, wrote to the applicant:

“We are now extremely concerned at the mounting arrears of monthly payments which will total $37,782 if no payment is made at the end of December.

We know you are re-arranging the affairs of your company and have been happy to co-operate with you in that regard. However we ask you to appreciate that our embryo programmes are based upon the cash flow coming from our investors and obviously delay in payments of this magnitude provide us with difficulties.” (emphasis added)

117               In its solicitors’ reply of 5 January 1996, the applicant made a request for evidence that Heath Credits had paid the loan moneys in respect of each contract “as stipulated ‘in cash or by bank cheque’ because the contents of your clients’ letter suggests that this has not occurred and therefore might be the real reason why the project is experiencing cashflow problems”. This demand was rejected in the response of 10 January 1996 from the Woburn Downs solicitors.

118               Mr Suares’ letter of 13 December 1995 appears to be the first indication to the applicant that, in order to carry on their operations, the Woburn Downs respondents were depending not on upfront cash payments made by Heath Credits on behalf of investors or other sources of funding of their own, but by the monthly loan repayments made by investors to Heath Credits which were being passed on to Woburn Downs Pastoral Pty Ltd. There is no suggestion that the applicant knew before this that the first and second respondents’ financial position was such that they could only survive to carry out their obligations to investors, including the applicant, if investors maintained monthly repayments to Heath Credits which were funnelled back in full to the first and second respondents. Mr Suares’ frank admission revealed to the applicant, at this very late stage, that its investment in the Woburn Downs scheme was in a scheme in fact being operated on a very significantly different basis from that presented to it.

119               The applicant could not lose the right to cancel the contracts for these particular breaches by electing to affirm the contracts notwithstanding these breaches by the third respondent until it knew of the facts constituting these breaches (and also of its legal entitlement to cancel the contracts for that reason). See Greig and Davis, The Law of Contract 1987, at pp 1257 ‑ 1258. The contrary was not argued by the respondents.

THE THIRD RESPONDENT’S CROSS-CLAIM AGAINST THE APPLICANT

120               This counter-claim by the third respondent must fail. It claims an amount equal to the sum of monthly instalments unpaid between October 1995 and May 1997, when Heath Credits purported to cancel the six Loan Agreements, and the accelerated amount of all monthly instalments that would have become due after May 1997. It is based upon it having made “loans on behalf of the applicant pursuant to the terms of the six Loan Agreements in the sum of $636,000”. For the reasons given, it never made any loan of the kind stipulated for in each Loan Agreement.

REPRESENTATIONS

121               The applicant alleges that oral statements were made by the seventh respondent, acting on behalf of the sixth respondent and as agent for each of the first to fifth respondents, to Mr Tighe and to the applicant’s accountant, Mr Wells, which constitute false representations that are misleading and deceptive conduct within s 52 the Trade Practices Act which were relied on by the applicant in entering into the contracts, thereby entitling the applicant now to orders under s 87 voiding the contracts ab initio and orders for repayment of all moneys paid by the applicant under those contracts. It is also said that the statements constitute warranties, ie, warranties not incorporated in but collateral to the executed Agreements for breach of which the applicant is entitled to damages equivalent to the total of moneys paid by it under all those contracts.

122               It is said that written statements constituting similar representations, misleading conduct and warranties were made by the first to fifth respondents by production by the fourth and fifth respondents on behalf of the first to third respondents of the “Overview” document for the 1992 - 1993 year in circumstances where Mr and Mrs Suares intended it to be distributed to potential investors, including the applicant, and also by the actions of the seventh respondent, on behalf of the sixth respondent, acting as agent for the Woburn Downs respondents in giving a copy of the “Overview” document to the applicant’s accountant.

THE WARRANTY CLAIM

123               Some of these statements, eg, those touching on anticipated proceeds of cattle sales in the future, the likely value of cattle at the end of the five year term of the arrangement and the possible availability of taxation benefits, are, at most, representational rather than promissory and so incapable of constituting warranties: see J.J. Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442. Other statements, eg, those touching on the production of the investor’s herd of progeny from the specific recipient cows leased from Woburn Downs are promissory in character. But they are merely paraphrases of contractual obligations undertaken by the relevant Woburn Downs respondents to the applicant under the various Agreements ultimately entered into and so cannot provide a source of contractual liability additional to that arising from the promises to the same effect contained in the executed Agreements. I do not think any liability in contract can arise on what would otherwise be a warranty collateral to an agreement when exactly the same subject matter of the collateral warranty is the subject matter of a promise in the agreement: see De Lassalle v Guildford [1901] 2 KB 215 at 222. Further, breach of such a collateral warranty could only give rise to a claim for damages and the conduct amounting to such breach would also constitute a breach of the corresponding promise in the agreement for which exactly the same damages would be recoverable: a statement outside a written agreement reflected exactly in a promise in the agreement can only be the source of liability separate from liability on the promise in the agreement if it can be made the basis for a claim for relief not obtainable in reliance on the promise in the agreement. Cf Alati v Kruger (1955) 94 CLR 216 at 222.

124               In any event, the applicant has made no attempt to identify the proper measure of damages to which it says it is entitled by reason of the breaches of those warranties. Its submission is that the measure of damages payable to the applicant will be the same whether damages are assessed in contract, as restitution, or under ss 82 and 87 the Trade Practices Act, viz, repayment of the whole of the $349,021 paid by the applicant to the first and third respondents. That submission is incorrect. The applicant would be entitled to damages for breach of the warranties set up assessed on a basis quite different from complete restitution of all moneys paid over. Such restitution might well be, prima facie at least, the measure of damages recoverable under s 87 for a contravention of s 52 the Trade Practices Act since assessments under ss 82 and 87 direct attention to a comparison between the position in which the party who alleges it has suffered loss or damage is in and the position in which that party would have been but for the contravening conduct: Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 512. The measure of damages for breach of warranty is, in contrast, to place the injured party in the position it would have been in if the warranted statements were true: Gould v Vaggelas (1985) 157 CLR 215 at 265. It is apparent, by way of example, that the damages recoverable for breach of a warranty that the investor’s herd of progeny would be produced from the specific recipient cows leased would very likely be something quite different from restitution of all moneys paid by the applicant to the first and second respondents. In the circumstances of this case, assessment of the damages flowing from the breaches of the first and second respondents of warranties that the investor’s herd of progeny would be produced from the specific leased cows and the progeny of those cows only would be a complex task. It has made no attempt to quantify the measure of its contractual damages. The Court is not in a position to make any such assessment.

125               The applicant’s claims to repayment of the entirety of the moneys paid over to the first and third respondents as damages for breach of warranty must therefore fail.

REPRESENTATIONS MADE BY MR LOUKS TO MR TIGHE

126               For some years, Mr Louks, acting for the sixth respondent, regularly met with Mr Tighe and also with Mr Wells near the end of each financial year to discuss arrangements and investments which the sixth respondent was marketing to people like Mr Tighe interested in minimising their current tax liabilities. I accept what Mr Louks says to the effect that, at the end of each financial year, once Mr Wells had estimated the applicant’s likely tax liability for the year, there would be something of a rush instigated by Mr Wells to obtain details from Mr Louks of any tax effective investments currently being marketed by the sixth respondent and that it was in those circumstances that Mr Louks drew the attention of both Mr Tighe and Mr Wells to the benefits offered by the various investment proposals which Mr Louks was involved in arranging for Mr Tighe and the applicant in years prior to 1993.

127               As the end of the 1993 financial year loomed, Mr Tighe was told by Mr Wells, once again, of the large tax bill the applicant was facing for the 1993 year unless it could do something to minimise that liability. Mr Tighe says that, at Mr Wells’ suggestion made in late May 1993, he met Mr Louks in early June in order to discuss the Woburn Downs venture. He says that at this meeting Mr Louks commented in particular upon the availability of finance for investors in the project from a company called Heath Credits Pty Ltd at an attractively low interest rate. He says Louks also told him that a tax deduction of $56,000 per contract up front, ie, in the first financial year of the investment was available. He also told Mr Tighe that the Woburn Downs venture operated in the same way as the Canundra venture (in which Mr Tighe had previously invested, at Mr Louks’ instigation).

128               There are some differences between the accounts given of this meeting by Mr Tighe and Mr Louks. I think it likely that Mr Louks did draw Mr Tighe’s attention to the tax benefits offered by the Woburn Downs project: that was one of its key features and from his part experience with Mr Tighe, Mr Louks was well aware of Mr Tighe’s interest in such matters when he called on him once again near the end of the current financial year: I accept that he made an oral representation to the effect set out in par 2 of the latest version of the statement of claim. I also think it likely that Mr Louks did draw to Mr Tighe’s attention, as an attractive feature of the Woburn Downs proposal, to the availability of finance at a low rate of interest through Heath Credits: I accept Mr Louks made a representation to the effect set out in par 3(c) of the pleading. Mr Tighe’s evidence does not support the allegation that Mr Louks made the representation pleaded in par 3(a) of the pleading. I do not accept Mr Tighe’s evidence that Mr Louks made a representation to the effect set out in par 3(b) of the pleading: I think it likely that Mr Louks stuck pretty closely to the outline of the scheme contained in the “Overview” document and Mr Tighe’s evidence here conflicts in a radical way with the information in that document about there being a guarantee that twenty-two cattle would be produced during the five year term of the agreement and the estimated values of cattle referred to in the document. I also accept that Mr Louks made a representation to Mr Tighe to the effect set out in pars 3(e) about there being only three contracts left for the 1993 financial year. I accept Mr Tighe’s evidence to the effect that Louks told him there were many satisfied customers already in the scheme, ie, that he made a representation to the general effect alleged in par 3(d).

129               But in my opinion, little of significance turns on what Mr Louks said to Mr Tighe. Mr Tighe relied on Mr Wells to the extent that he was only prepared to invest himself or to commit the applicant to investments, including all those investments they took up and which were proffered by Mr Louks over the years, if Mr Wells was prepared to recommend them to Mr Tighe. Mr Tighe explicitly says that the first meeting he had with Mr Louks when the latter drew his attention to the Woburn Downs proposal ended with him telling Mr Louks to speak to Mr Wells “because I would only decide to proceed if John [Wells] was satisfied with the proposal”. Mr Tighe’s best recollection appears to be that he did not even retain a copy of the “Overview” document that Mr Louks had with him at this meeting, but only looked at it after Mr Wells had spoken with Mr Louks and then delivered the document to him, with Mr Wells’ recommendation. I accept that Mr Tighe then looked at the document and may have remarked on some of the points made in it. It is unnecessary to analyse the evidence in any more detail since I do not think Mr Tighe made any decision to commit the applicant to any of the six contracts with Woburn Downs on the basis of his own assessment of what he was told either by Mr Louks or what he read in the “Overview” document. He said that it was “because I couldn’t make the decision or didn’t believe I could make the decision on my own, I referred [Mr Louks] to Mr Wells”. Mr Tighe also says that when Mr Louks approached him about taking the further three contracts in the Woburn Downs venture, he again referred Mr Louks back to Mr Wells even though Mr Louks told Mr Tighe that he had already discussed the matter with Mr Wells and “he [Louks] and John [Wells] believed my company could invest in more contracts”.

130               There was, I think, no prospect of Mr Tighe committing the applicant to any of the six contracts in the Woburn Downs proposal without Mr Wells’ recommendation. What Louks told Wells and what reliance the latter placed on the “Overview” document are the important matters so far as the applicant’s claim based on the Trade Practices Act is concerned.

MR WELLS’ ROLE

131               From about 1983 until 1997, Mr Wells acted as accountant, taxation and general financial adviser to the applicant and to Mr Tighe personally. For a time, he actively assisted Mr Tighe in the management of the applicant’s business after the death of the latter’s father in 1986. He had a longstanding business connection with both Mr Louks and Mr Hopkins and knew they were the owners of the sixth respondent. His dealings with Mr Louks personally, on behalf of clients, including the applicant and Mr Tighe, largely involved the provision to Mr Wells’ clients of insurance and superannuation arrangements. His dealings with Mr Hopkins largely turned on the provision by the latter, on behalf of the sixth respondent, to Mr Wells’ clients of various other tax driven investments. He confirms that it was common for Mr Louks to call on him personally near the end of each financial year to discuss possible arrangements for Mr Wells’ clients that it would be advantageous for them for tax reasons to have in place before the end of that year.

132               In his dealings with Hopkins and Louks, Mr Wells did not act solely in his clients’ interests. Mr Wells received, in respect of each of the two lots of three contracts that the applicant entered into, commission of $2,880 from the sixth respondent. He at first suggested the one payment of $2,880 which he acknowledged in his affidavit he received from Delta Investments related to reimbursement of his business overheads and for the time he spent in perusing the Woburn Downs documents in connection with the applicant’s first investment.

133               But it appears $2,880 was his standard rate of commission with respect to Woburn Downs: he received the same amount from Delta Investments in respect of other investments by his clients who accepted his recommendation to enter into the Woburn Downs scheme. It emerged that Mr Wells had a standing arrangement with the sixth respondent to be paid in relation to investment proposals which the sixth respondent and through Mr Louks, proffered to clients of Mr Wells, and which Mr Wells recommended to his clients. But he was only paid in respect of proposals which they entered into. Not only did Mr Louks approach Mr Wells with the products of possible interest to the latter’s clients, but Mr Wells said he actually took the initiative in referring some clients to Mr Louks.

134               Mr Hopkins describes the payments made to Mr Wells as a “commission or spotter’s fee”. Messrs Louks and Hopkins were a source of regular additional income to Mr Wells in the form of the payments they procured for him through Delta Investments in connection with advice he gave to his clients to enter into investments marketed by Mr Hopkins and Mr Louks. It is necessary, in evaluating Wells’ evidence to have regard to his having an interest of his own in recommending investments proffered by Louks to the applicant.

135               Near the end of the 1992/1993 financial year, Mr Louks came to him, after having spoken to Mr Tighe, and gave him a copy of the “Overview” 1992-1993 year document in relation to the Woburn Downs project. Mr Louks, as a director of the sixth respondent, was, as Mr Wells said of his long experience of Mr Louks, in the business of marketing financial arrangements and tax effective investments particularly to regular clients such as the applicant. It is difficult to accept his account that, in carrying on the business from which indirectly he earned part of his own income, he did not point out to prospective investors in the products the sixth respondent was marketing the potential benefits to those investors of committing to those products. I accept Mr Wells’ evidence in preference to that of Mr Louks’ that the latter did recommend, for reasons Louks gave in some little detail, the Woburn Downs investment as a suitable one for the applicant. I do not accept Mr Louks’ assertion that he did little more than act as a passive conduit for transmitting to Mr Wells the “Overview” document so that Mr Wells’ clients, together with him and their solicitors, could “make an independent decision on whether they wished to become involved in the venture”.

136               I accept generally Mr Wells’ evidence that he discussed with Mr Louks the applicant’s needs for some form of tax planning for the 1993 year and how the Woburn Downs proposal might meet those needs. I accept generally Mr Wells’ account of their discussions which focused primarily on the tax advantages, including those immediately obtainable in the 1993 year, from an investment in Woburn Downs. I accept that Mr Louks pointed out that, provided the applicant paid a deposit in respect of each contract for $14,000, the balance of the investment moneys could be borrowed at a low rate of interest from Heath Credits Pty Ltd, ie, I accept that Mr Louks made a representation to Wells to the effect alleged in par 4(b) about finance being available from Heath Credits. It was an important selling point of his scheme flagged as such in the “Overview” document. I accept what Mr Wells has to say about Mr Louks not making any mention of the fact that Heath Credits was associated with the Woburn Downs companies or of the fact that Heath Credits would not in fact advance to the Woburn Downs companies in cash the balance due by an investor on top of the deposit in respect of any contract that the investor was prepared to enter into with Woburn Downs. Mr Louks does not suggest he made any such disclosure to Mr Wells. The “Overview” document is also silent here. I accept, too, Mr Wells’ evidence that Mr Louks represented that, at the end of the first thirteen months, the investor was guaranteed to own six calves, though this representation differs slightly from that pleaded in par 4(c). I also accept what Mr Wells had to say about there being some discussion concerning the details of a cattle breeding project and that there was a guarantee offered of the number of cattle that an investor would end up with at the end of the five year period of the investment.

137               I think discussions between Mr Louks and Mr Wells revolved around the “Overview” document, with Mr Louks emphasising the main advantages of the investment highlighted in that document. I accept that Mr Louks did suggest to Mr Wells that it would be necessary for the applicant to commit itself to the investment very quickly because, in effect, there was strong investor demand for the limited number of contracts available in Woburn Downs: I find that Mr Louks did make to Mr Wells a representation to the effect alleged in par 4(a) of the applicant’s pleading.

138               I also accept, contrary to Mr Louks’ evidence, what both Mr Tighe and Mr Wells say about the second approach Mr Louks made around the end of the 1993 financial year to propose that the applicant invest in a second lot of three contracts in the Woburn Downs project for the 1994 financial year. Mr Louks justified this approach on the ground that any such further investment would need to be put in place before the August 1993 Federal Budget because there was a risk that changes might be made in the tax laws which would make such investments ineffective for tax planning purposes. It is likely that Mr Louks, fully sensitive to Mr Tighe’s interest in tax effective investments, made a statement to this effect as both Mr Tighe and Mr Wells say he did. I also accept the evidence of both Mr Tighe and Mr Wells that, at this time, Mr Louks told each that only three contracts remained available for the 1994 year, ie, that he made the representation alleged in par 13(c) of the pleading. I further accept that, by urging the applicant to enter into the second lot of contracts in the circumstances in which he did that, he made by implication the same representation as to the availability of finance as he expressly made in connection with the first lot of contracts both orally and by handing over the “Overview” document.

139               I also accept Mr Wells’ evidence that the decision ultimately made by the applicant to enter into the second lot of three contracts, this time for the 1994 financial year, was instigated by an approach made by Mr Louks to each of Mr Tighe and Mr Wells. The order of those approaches does not I think much matter. There is no reason to doubt what Mr Louks has to say about going on holidays on 9 July 1993 and flying out to the United Kingdom on 13 July 1993. But the second approach was made, I think, prior to this. Neither Mr Tighe nor Mr Wells was certain about exactly when it was made by Mr Louks, though they were certain it was soon after the initial approach in late June. Mr Hopkins’ letter of 21 June 1993 gives some support to their recollections. Mr Hopkins, in his affidavit, suggests that it was Mr Wells, not Mr Louks, who took the initiative that ultimately led to the applicant entering into the second lot of contracts and that Mr Wells did this after Mr Louks had left. But Mr Wells was not cross-examined on behalf of the sixth and seventh respondents on this allegation, quite significant in view of the influence Mr Wells had with Mr Tighe. I am not prepared to accept Hopkins’ untested assertion as precluding the assessment I have made in this respect of the evidence of Mr Tighe and Mr Wells even though the latter stood to benefit personally if the applicant took up the second lot of contracts.

140               I do not think the pressure Mr Louks put on Mr Tighe and Mr Wells to commit to each lot of three contracts, reflected in the allegations in pars 3(e), 4(a) and 13(c) of the statement of claim, can be the foundation of any liability in them to the applicant. It is clear from the evidence of Mr Wells and also Mr Tighe that the decision to enter into the first three contracts was made in what was for the applicant a typical end of financial year rush to put in place an effective tax minimisation arrangement: the applicant did not need any urging from Mr Louks or Mr Hopkins to act quickly for fear of there being no more Woburn Downs contracts available. Similarly, it was the risk of losing the opportunity to take up more of the Woburn Downs contracts as tax effective investments, said to be threatened by the forthcoming Budget, that I think was the cause of the applicant’s decision to take up the second lot of contracts rather than fear that no more Woburn Downs contracts might be available if it did not move quickly. Immediate tax benefits, not the prospect of possible profits in the distant future, was the driving reason for the applicant’s decisions to take up the Woburn Downs contracts.

141               The applicant has sought to establish that Mr Wells and Mr Tighe, between them, relied on many of the statements in the “Overview” document that could be characterised as representational in recommending, so far as Mr Wells is concerned, to Mr Tighe that the applicant enter into the venture and in deciding, so far as Mr Tighe is concerned, to commit the applicant to the venture. Mr Wells suggested in cross-examination that, in effect, he required Mr Louks to go through the “Overview” document with him in detail so that he could satisfy himself about the wisdom of the Woburn Downs investment for the applicant: “the “Overview” document wouldn’t have got past my waste paper bin” unless Louks had so satisfied him. The realities are, I think, quite different.

142               I do not think that Mr Wells engaged in anything like the process that the applicant would have to prove was followed to make out such a case. Mr Wells had a long association with the sixth respondent. Mr Wells had been receiving substantial commissions from the sixth respondent, or those associated with it, for recommending to his professional clients (including Mr Tighe and the applicant) products marketed to them by the sixth and seventh respondents for five or six years before June 1993. Mr Wells was familiar with the nature of the scheme outlined in the “Overview” document: he appreciated that the Woburn Downs cattle embryo scheme was similar to the Canundra scheme marketed years before by Mr Louks and which Mr Tighe had entered into on Mr Wells’ recommendation. It is unlikely in these circumstances that he would have subjected the “Overview” document to the meticulous investigation he claims he undertook. He acknowledged he did not study the “Overview” document “in depth”.

143               I think Mr Wells relied, in a general way, on the “Overview” document in so far as it described what looked like a scheme offering investors substantial immediate tax deductions and ongoing tax advantages for a small initial commitment of cash of their own that might be accepted by the Commissioner of Taxation. Mr Wells, in his evaluation of the proposal, was very conscious of what he understood to be the Tax Office’s concern to distinguish between genuine cattle breeders and people who were merely investing in a few animals in order to get the advantages of being classified as a primary producer. He said he considered the fact that an investor was promised twenty-two cattle over five years was important in making it likely that the Tax Office would accept the investor as genuinely involved in the business of cattle breeding. I think he did consider what he was told by Louks and what appeared in the “Overview” document so far as that touched on the prospect of the Commissioner of Taxation accepting that an investor in the scheme was involved in the business of cattle breeding.

144               Mr Wells cannot, however, have believed that the scheme would certainly pass the Commissioner of Taxation’s scrutiny and certainly result in investors, including the applicant, obtaining on a permanent basis the tax benefits the scheme was said to offer. He was an experienced tax adviser, as well as accountant. He had long experience in considering the various tax effective schemes marketed by Mr Louks over the years. His evidence shows that he well knew that, for a person like the applicant not involved in the business of cattle breeding, there was always a significant risk that the Commissioner of Taxation might, at the outset or ultimately by an amended assessment, reject an investor’s claims to the tax benefits which the Woburn Downs scheme was said to offer. The statement in the “Overview” document:

“Although no guarantee is given that these deductions are available to each individual investor our accountant has expressed the opinion that ‘an investor in the programme would be entitled to the tax deduction set forth in the Overview document’.”

cannot have been understood by Mr Wells as offering any assurance that any particular investor, including the applicant, would ultimately succeed in obtaining the deductions which it was suggested in the “Overview” document an investor might anticipate. The caveat in the last paragraph of the Hart Larwill letter warning that “the Commissioner examines each case on its own merits” could not have been a revelation to Mr Wells. He knew, when he recommended to Mr Tighe that the applicant enter into this arrangement, that it was a scheme which carried a significant risk that the Commissioner of Taxation might ultimately refuse to allow deductions claimed by an investor in the scheme for one reason or another. Mr Wells, as an experienced tax adviser, also knew the significance of the need emphasised in the Hart Larwill letter bound up in the “Overview” document for the Lease and Breeding Agreement to be completed within thirteen months from the date of the agreement: he was concerned about was the possibility that the August 1993 budget might announce the abolition of the provisions in the ITAA permitting the deductibility of prepayments of business outgoings.

145               Mr Tighe does not suggest that he understood from the “Overview” document or from any other source that he was being asked to consider a proposal guaranteeing significant tax benefits. He committed the applicant to the two groups of contracts, in my opinion, in the belief, confirmed by Mr Wells, that while there was a good prospect that the tax benefits which he so much desired would be obtained, there could be no certainty that the scheme would pass the scrutiny of the Commissioner of Taxation. He committed the applicant to the investments in Woburn Downs taking the risk that the suggested tax benefits might ultimately not be obtained.

146               The “Overview” document contains many over-optimistic statements about the prospects that an investor would end up after five years, in addition to having earned a significant income from the sale of cattle during that period, with a small but valuable herd of stud cattle, all in addition to having obtained substantial tax benefits. Mr and Mrs Suares had no reasonable basis for making the statements as to the estimated value of the cattle that an investor would have at the end of the five year term. The “Overview” document for the 1992 to 1993 year asserts that the twenty-two cattle promised an investor over the five year term would have an average value of $5,848. The corresponding figure in the Suares’ “Overview” document for the 1990 to 1991 year on which they sought Mr Rickards’ comments was $6,302. In his letter of 16 September 1991, Rickards questioned this figure and asked “what is the basis for such a high average price?” There is no satisfactory evidence from the respondents justifying the slightly lower but still high average price which the “Overview” document represented that investors could expect. I prefer, as much more credible, the evidence led on this issue by the applicant. Given the uncertainties of how cattle prices move over time, it is not possible to do what the Suares did in the “Overview” document and purport to make an estimate, having some reliability, of the return an investor was likely to obtain from the twenty-two cattle promised over such a long period as five years.

147               But the document repeatedly flags the uncertain and speculative nature of the investment considered as an investment in a cattle venture quite apart from the tax benefits that accompanied it. There is the statement that “prices are depressed at present due to drought conditions and the recession”, to the fact that beef prices will “obviously … undergo their normal cyclical patterns”. The cash flow analysis with its optimistic projections contains, in one of two quite short notes, the following warning:

“Estimates and projections are based upon current market values and should be treated by investors as an estimate only and not a representation that these estimates and projections will be achieved as such estimates and projections cannot take into account unforeseen circumstances such as dramatic market fluctuations.”

148               A person of ordinary common sense could be expected to be well aware of extensive fluctuations in beef and cattle prices. People like Mr Wells, with his experience as an adviser to persons engaged in the marketing of agricultural produce, and Mr Tighe, who was himself engaged in just that line of business, could not fail to be aware of the speculative character of a long term investment in a commodity such as beef cattle, including stud cattle. Mr Tighe acknowledged as much.

149               I think that Mr Tighe decided to commit the applicant to the Woburn Downs investment in the hope that, in addition to the highly desirable tax advantages he considered it was likely to obtain, the applicant would end up at the end of the five year period having made real money on the cattle it was to own. It was the dawning realisation in late 1995 that the investment return from the Woburn Downs scheme was likely to be very poor indeed that caused Mr Tighe to become disenchanted with it, then to stop payments to the third respondent and, finally, to cancel all the contracts in January 1996. But I do not think he relied, either directly or indirectly through Mr Wells, on anything said in the “Overview” document in making that decision, which might be taken as suggesting that there was something in the nature of an assurance that the cattle would generate any particular level of return, ie, that they would be saleable at about the prices suggested in the “Overview” document. I think that Mr Tighe committed the applicant to this venture knowing that there was a significant risk that the arrangement, so far as it consisted of an investment in cattle to be produced over a lengthy future period, that it might not turn out to be anything like as profitable as the optimistic statements in the “Overview” document suggested.

150               However, I think that one statement in the “Overview” document was considered to be important by Mr Wells when he made his recommendation to the latter that the applicant enter into the investment and when Mr Tighe made the decision to commit the applicant to it. This is the statement to the effect that the project was “financed by Heath Credits Pty Ltd at an interest rate of only 7% repayable over five years”. This statement was made in the context of the further statement in the document under the heading of “Cash Flow Analysis” which showed that the investor would only have to find a cash part-payment of $14,000 for each suite of contracts and could borrow the balance from Heath Credits.

151               The statement about the availability of finance, in the context in which it was made, in my opinion, constitutes a representation that apart from deposit moneys of $14,000 to be provided by the investor, the balance of the $40,000 and $80,000 sums payable in cash upon entry into the Lease and Breeding Agreement and the Management Agreement can be borrowed from Heath Credits on terms involving repayment over five years. It is a statement reflecting the contractual obligation Heath Credits undertook on entry by it into the Loan Agreement. Presentation to the applicant a little later of the relevant forms of Lease and Breeding Agreement, Management Agreement and Loan Agreement for execution by the applicant reinforce, rather than qualify, that this is how these statements in the “Overview” document are to be understood.

152               Neither Mr Tighe nor Mr Wells were told the true position in relation to Heath Credits, ie, that it was not intended to advance any cash to either of the first or second respondent and that, far from receiving upfront substantial cash sums in respect of each investor’s contracts, the first and second respondents depended on what were presented to investors as monthly loan repayments to Heath Credits for the cash flow needed to conduct their operations. The representations in the “Overview” document and by Mr Louks about the availability of finance was untrue.

153               I consider that this representation was made by the first to fifth respondents in the knowledge that it would make an investment in Woburn Downs attractive to people like the applicant interested in tax-effective investments. I consider that Mr Wells did place reliance upon the fact that the proposal was represented as enabling an investor to obtain from a suite of agreements an upfront deduction of $56,000 for a cash outlay of only $14,000 because all the other funds, $106,000, in all, for each individual package of contracts comprising the Lease and Breeding Agreement and the Management Agreement, could be borrowed from Heath Credits and borrowed moreover at an attractively low rate of interest.

154               Mr Wells said that he was not told by Mr Louks that there was any association between Heath Credits and any of the Woburn Downs respondents other than a business relationship. He said that if he had been aware that the loans by Heath Credits to each of Woburn Downs Pastoral Pty Ltd and Woburn Downs Management Pty Ltd were to be effected by way of book entry only and that Heath Credits was under the control of the fourth and fifth respondents, he would have had such immediate reservations about the viability of the Woburn Downs project that he would not have advised Mr Tighe to have the applicant invest in it. His evidence was not challenged. I accept his evidence here. It is inherently probable that he would not have been prepared to run the risk of keeping such information from Mr Tighe if he had known the true position, notwithstanding the fact that Mr Wells only received commission from the sixth respondent on contracts which his clients actually entered into.

155               I accept that Mr and Mrs Suares were experienced stud cattle breeders and that Woburn Downs was run as a bona fide stud operation. I also accept that they, with their technical advisers, had developed skill in breeding by embryo transfer technology. It was, however, a new technology requiring care in its implementation and expensive to operate: it was this last fact that has caused it not to become a popular method of breeding, despite the advantages in rapid herd production that it offers. Mr Suares confirmed that the only moneys the Woburn Downs respondents expected to receive to enable them to operate the embryo technology project for investors were the monthly repayments made by investors to Heath Credits which it simply passed on in full to the first and second respondents. I do not, however, think that the experience and reputation of the Suares is any answer to the case the applicant makes out, that it was induced by a representation that was misleading to enter into the contracts to the effect that most of the moneys investors were required to put into the project would be advanced by Heath Credits.

THE POSITION OF THE FOURTH AND FIFTH RESPONDENTS

156               In closing submissions, the fourth and fifth respondents conceded they were active controllers of the first, second and third respondents. During the period of present relevance, the fourth respondent was a director of the first, second and third respondents and the fifth respondent was a director of the second and third respondents. Both were involved in the preparation of the “Overview” document for the 1992 - 1993 years and in its provision to Louks, as an aid to soliciting investments like that of the applicant’s in the Woburn Downs cattle embryo scheme. They are both therefore, by force of s 75B(1)(c) and ss 82 and 87 the Trade Practices Act, jointly liable with the first to third respondents for the latter’s contraventions of s 52 by reason of which the applicant is entitled to relief.

THE POSITION OF THE SIXTH AND SEVENTH RESPONDENTS

157               I have already dealt with the role of the sixth and seventh respondents in developing the Woburn Downs cattle embryo investment scheme and have found that, in marketing that scheme, Mr Louks and the sixth respondent acted as agents for the Woburn Downs respondents.

158               A person, including an agent, who does no more than pass on information supplied by another is not necessarily himself guilty of engaging in misleading or deceptive conduct if the information turns out to be false. As was pointed out in Yorke v Lucas (1985) 158 CLR 661 at 668, knowledge by the conduit of the falsity of the information prepared by another and passed on is not a condition of the conduit’s liability under s 52 or s 75B. Their Honours then said at 666:

“If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive.” (emphasis added)

159               As the words in emphasis and the decision in The Saints Gallery Pty Ltd v Plummer (1988) ATPR 40-882 at 49,562 show, it is essential, if a conduit for misleading information is to escape responsibility for itself having engaged in misleading conduct by disseminating that information, that the conduit must establish an express or implied disclaimer for the accuracy of the information.

160               Louks and Hopkins and thus the sixth respondent did much more than merely pass on to Mr Tighe and Mr Wells an “Overview” document in the preparation of which they were not involved for what it was worth.

161               The representations alleged against the seventh (and thus the sixth) respondent in relation to both lots of contracts include a representation that finance was available from the third respondent to enable the applicant to make the bulk of the payments to the first and second respondents that had to be made on execution of the agreements. That I think is a representation of an existing fact. Finance, in the sense in which that term must be understood in the context of the “Overview” document with its references to payments of $40,000 and $80,000 being required to procure a Lease and Breeding Agreement and a Management Agreement, was not available to investors. The representations to that effect made by the seventh respondent orally and in writing were thus misleading and deceptive. The sixth and seventh respondents are incorrect in characterising this as a representation that Heath Credits had, in fact, advanced money pursuant to Loan Agreements. The applicant has not alleged against any respondent the making of such a representation. It is that representation which I consider was made by the sixth respondent, both orally by Louks and by him presenting the “Overview” document to Mr Wells at Mr Tighe’s suggestion. Even if Louks did not know the true position in relation to the third respondent, viz, that it was a shell company with no funds to lend anyone, he and thus the sixth respondent cannot say that this information in the “Overview” document was merely passed on by Mr Louks to Mr Wells for what it was worth. The finance representation in the “Overview” document given to Mr Wells was drawn to his attention by Mr Louks as an important consideration in favour of the scheme. The “Overview” document was prepared with the involvement of Dwyer, Hopkins and Louks’ business associate. It was prepared to further the sixth respondent’s business interests in having such a scheme available to market to the sixth respondent’s clients.

162               The sixth and seventh respondents are therefore liable to the applicant in respect of the oral representations made by Mr Louks with respect to the availability of finance and his conduct in providing Mr Wells and Mr Tighe with the “Overview” document containing a similar representation. The oral representations by Mr Louks for which the sixth respondent is also responsible constitute conduct in contravention of s 52. Louks’ actions in providing Mr Wells and Mr Tighe with the “Overview” document containing the same finance representation makes him and the sixth respondent for whom he acted liable by being knowingly concerned in the contravention of s 52 constituted by the first to third respondents’ actions in disseminating through Mr Louks and the sixth respondent the “Overview” document.

163               I reject the submission of the sixth and seventh respondents that, in the absence of binding contracts between the applicant and the first to third respondents, there is no causal link between the representation as to the availability of finance pleaded against the sixth and seventh respondents and the loss suffered by the applicant. Because of the representation, the applicant did all that was necessary on its part to come under a contractual duty to make the payments; even if no contract was in fact conducted, the applicant made the payments in the belief it was duty bound to do so. It would not have made those payments but for the representation. Any loss suffered by the applicant that can be said to be measured by those payments was therefore directly causally related to the representation and so compensable as damages under ss 82 and 87 the Trade Practices Act.

THE CORPORATIONS LAW POINT

164               The applicant further contends that if the six contracts became legally binding, the first to fifth respondents, by inviting the applicant’s participation in the Woburn Downs scheme made up of the forms of agreement comprising each of those six contracts, contravened ss 1064(1) and 1065(1) the Corporations Law then in force and that the applicant has avoided each of those contracts under s 1073(2) the Corporations Law. The applicant accordingly claims repayment of all moneys made by it in respect of the six contracts as moneys had and received by the relevant respondent to the use of the applicant.

165               The key issues for determination raised by this particular claim are whether one or other of the Woburn Downs respondents made available a “prescribed interest” or issued an offer or invitation to subscribe for such an interest and, if so, whether the applicant gave a notice sufficient for the purposes of s 1073(2) to avoid each of the six contracts.

166              Relevantly, s 9 of the Corporations Law defined a “prescribed interest” to mean a “participation interest”, in turn defined to mean “any right to participate, or any interest:

(a) in any profits, assets or realisation of any financial or business undertaking or scheme whether in Australia or elsewhere;

(b) in any common enterprise, whether in Australia or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party; or

(c) in any investment contract;

whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset. …”

167               In Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121, Mason J, at 133, said of a provision not materially different from par (b) of the definition of “participation interest” in the Corporations Law:

“An enterprise may be described as common if it consists of two or more closely connected operations on the footing that one part is to be carried out by A and the other by B, each deriving a separate profit from what he does, even though there is no pooling or sharing of receipts or profits. It will be enough that the two operations constituting the enterprise contribute to the overall purpose that unites them. There is then an enterprise common to both participants and, accordingly, a common enterprise.”

168               In my opinion, the applicant and the first, second and third respondents from entry into the Lease and Breeding Agreements, the Management Agreements and the Loan Agreements that comprised each of the six contracts T, U, V and W, X, Y were engaged in a common enterprise within paragraph (b) of the definition of “participation interest”. For the reasons given, each of these three Agreements was interdependent with the other. Under the first two Agreements, the applicant was required to provide the funds to both the first and second respondents for them to carry out the activities of breeding, tending and selling cattle for the applicant; these activities by these two respondents were intended to produce for the applicant a herd of saleable cattle of its own and to earn profits for these two respondents. By the Loan Agreements, the third respondent was to assist the applicant in providing the necessary funding to the first and second respondents in return for profits for itself in the form of interest payments. That is how the scheme offered to the applicant was presented. It matters not that unbeknown to the applicant the first, second and third respondents and those controlling them, the fourth and fifth respondents, never intended that the third respondent would be the source of any of the funds which the applicant was required to commit to the enterprise.

169               It follows that the first, second and third respondents each infringed ss 1064(1) and 1065(1) the Corporations Law by offering to enter into each Lease and Breeding Agreement, Management Agreement and Loan Agreement respectively with investors, including the applicant, when they authorised or permitted the sixth and seventh respondent to market the Woburn Downs Cattle Embryo Investment Scheme based on those Agreements.

170               However, I do not accept that the applicant has effectively exercised the option available to it under s 1073(2) the Corporations Law to avoid the various Agreements comprising the six contracts, T, U and V and W, X and Y. Sections 1073(2), (3) and (4) at relevant times provided:

“1073(2) [Contract voidable] Where:

(a) an offer of a prescribed interest for subscription has been made; or

(b) an invitation to subscribe for a prescribed interest has been issued;

in contravention of a provision of this Law, a contract entered into by any person (other than the management company) to subscribe for the prescribed interest as a result of the acceptance by the person of the offer, or the acceptance of an offer made by the person pursuant to the invitation, is voidable at the option of that person by notice in writing given to the management company.

1073(3) [Obligations of parties suspended] The obligations of the parties to a contract are suspended:

(a) during the period of 21 days after a notice is given under subsection (2) in relation to the contract; and

(b) during the period beginning when an application is made under subsection 1073A(1) in relation to a notice so given and ending when the application, and each appeal (if any) arising out of it, have been finally determined or otherwise disposed of.

1073(4) [When subsection (2) notice takes effect] Subject to an order under subsection 1073A(3), a notice under subsection (2) of this section takes effect:

(a) unless, within 21 days after the notice is given, the management company applies under subsection 1073A(1) in relation to the notice - at the end of those 21 days; or

(b) otherwise - at the end of the period during which the obligations of the parties to the contract are suspended because of paragraph (3)(b) of this section.”

171               The giving of the notice provided for by s 1073(2) suspends the obligations of both parties to the relevant contract during the initial period of twenty-one days after the notice is given (s 1073(3)(a)) and triggers the right of the management company to make application within twenty-one days of receipt of the notice to the Court for an order declaring the notice to be of no effect (s 1073A(1)). Once an effective notice has been given and the management company has made application for a declaration under s 1073A, the obligations of both parties to the relevant contract are further suspended during the period between the making of the application for the declaration by the management company and the final determination of that application (s 1073(3)(b)).

172               A contract within s 1073(2) can only be effectively avoided if the applicant has given a notice to avoid the particular contract to “the management company” that meets the requirements of these provisions. The management company in respect of each of the Lease and Breeding Agreements, the Management Agreements and the Loan Agreements are the first, second and third respondents respectively. The applicant relies upon the letter of 31 January 1996 from its then solicitors to the solicitors for all the Woburn Downs respondents and also upon the issue and service of the proceedings out of the Supreme Court in February 1996 as each constituting a notice in relation to all Agreements sufficient for the purposes of s 1073(2).

173               In Austin v Department of Family and Community Services (1999) 92 FCR 138, I reviewed some of the authorities dealing with the interpretation frequently placed in the cases on the word “notice”, in the context of statutes that provide for rights or obligations to be created or affected by the giving of notice. For the reasons there stated, I consider that a communication will be a “notice” within s 1073(2) only if it is sufficient to bring to the attention of the relevant Woburn Downs respondents the fact that the applicant is treating each of the various Agreements as void in reliance on the right given it by s 1073(2) the Corporations Law. Because the giving of a notice under s 1073(2) creates rights in the recipient management company, it is, in my opinion, essential that a communication, to be effective as such a notice, must be sufficient from its terms to bring to the management company’s attention that it is that provision of the Corporations Law that is being relied upon to avoid the relevant contract, ie, to avoid it ab initio.

174               The letter by the applicant’s then solicitors of 31 January 1996 is not capable of constituting such a notice. This letter, in express terms, is confined to communicating to the Woburn Downs respondents the applicant’s election to cancel each of the various Agreements in futuro because of the second respondent’s breach of what is said to be a fundamental provision of each of the Management Agreements. The letter goes on to claim the right, given by cl 8 of the Management Agreement and available to the applicant notwithstanding cancellation, to what is termed a “refund” of part of the management fee of $80,000 paid at the outset by the applicant to the second respondent under each of the six Management Agreements. The letter also concludes with a demand for another right that the applicant then asserted had accrued to it under the Agreement prior to cancellation, viz, that it be given possession of the progeny advised by the Woburn Downs respondents as having been allocated to the applicant’s various contracts from time to time but prior to the letter of cancellation of 31 January 1996. There is nothing in this letter to suggest to the Woburn Downs respondents that the applicant might have in mind relying on the right given by s 1073(2) to avoid the Agreements ab initio. There is thus nothing to alert any of the Woburn Downs respondents that the twenty-one day period allowed to them by s 1073A to apply to the Court to destroy a right claimed by the applicant in reliance on s 1073(2) was then triggered. The letter is inconsistent with an intention to avoid the Agreements ab initio. It is, in my opinion, clear that the author of the letter of 31 January 1996 gave no thought to the possibility that the applicant may then have been able to exercise that right.

175               Proceedings were commenced in the Federal Court in June 1996. The applicant does not rely upon the originating application and the accompanying statement of claim filed in this Court (in which a claim based on s 1073(2) is made) as constituting notice sufficient for the purposes of that sub-section. Rather, it does rely upon the writ issued out of the Supreme Court by the applicant’s then solicitors in February 1996. This writ suffers from the same deficiency as the letter of cancellation of 31 January 1996. The only claim made in the endorsement on the writ of a right to avoid the relevant Agreements ab initio is a claim expressed to be based on s 87 the Trade Practices Act. Service of the writ did not constitute the giving of notice sufficient for the purposes of s 1073(2) either.

total failure of consideration

176               So far as the suggestion of a total failure of consideration is concerned, the applicant has received a very substantial part of the benefits for which it contracted, viz, the tax deductions. The tax benefits which were the main thing it bargained for when it entered into the six contracts and which it has received, coupled with the absence of evidence showing that retention of those benefits by the applicant is at risk, is of itself a sufficient answer to a restitutionary claim based on an allegation of total failure of consideration.

DAMAGES

177               As I have said, the applicant seeks recovery of the whole of the moneys paid by it to the first and third respondents under the six contracts.

178               For the reasons given, there is no basis for assessing any damages in contract. So far as ss 82 and 87 the Trade Practices Act are concerned, the respondents having been found to have acted in contravention of s 52 and to have thereby induced the applicant to enter into all six contracts, the applicant’s entitlement to compensation is limited to recovering for the “loss or damage by [that] conduct”. Prima facie the applicant is, I think, entitled to recover all the payments made, given the nature of the contravening conduct and its role in leading the applicant to enter into the six contracts. It is unlikely it would have entered into any of those contracts if that misrepresentation had not been made. The dispute between the parties on the assessment of damages centred on whether the tax benefits received by the applicant from its investment in the Woburn Downs scheme should be ignored in the assessment of damages and whether an allowance should be made in those damages for the possibility that they might attract capital gains tax and goods and service tax.

179               The applicant contends that it is entitled to recover from the respondents the entirety of the $349,021 it paid to the first and third respondents up to October 1995 (and interest thereon) without making any allowance in favour of any of the respondents for the fact that it has to date claimed and been allowed deductions in respect of the 1993, 1994, 1995 and 1996 years of income totalling $448,686 thereby achieving a total saving in tax of $217,164 (which Mr Tighe said he was able to put back into the applicant’s business). That is, the applicant contends that its damages should be assessed without reference to the fact that it has, to date at least, received the main benefit which it bargained for when it committed itself to the Woburn Downs scheme.

180               The applicant was, at least initially, reluctant to put evidence of its tax savings before the Court, preferring to contend that the fact that it has obtained this benefit was irrelevant to its entitlements against the various respondents, for the reason that all the deductions and thus all the tax savings it has enjoyed to date “are defeasible and likely to be challenged by the ATO” because of the Woburn Downs respondents’ breaches of the various agreements. It asserts that the risk that the Commissioner will reassess the applicant and disallow all these deductions is so great as to justify that course. It is said that the applicant, far from receiving a windfall if the tax savings it has to date enjoyed are ignored in assessing damages, it is the respondents who will receive a windfall if those tax savings are brought into account against the applicant’s damages: if the Commissioner for Taxation does reassess the applicant and disallows all the deductions in respect of the Woburn Downs investment, the applicant is likely to be visited with interest and penalty tax which it would be entitled to recover as part of its damages. The applicant further submits that, in order to give finality to the proceedings, what it calls its “temporary” tax savings of $217,164 should be ignored, given that it is prepared to waive any claim against the respondents in respect of the possibility that it may ultimately have to pay interest and penalty tax after any re-assessment of its taxable income for the 1993 to 1996 years.

181               The applicant elected not to lead evidence on the extent to which these tax benefits might be “defeasible”, though it had ample opportunity to do so: the issue was raised early in the trial and there was an adjournment part way through the hearing necessitated by the failure of the first to fifth respondents to make proper discovery of which it could have taken advantage to assemble evidence on the point.

182               The sixth and seventh respondents rely on Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 in submitting that, in the circumstances of this case, the whole of the tax savings received by the applicant should be brought into account in reduction of any order for monetary compensation that might be made against them in favour of the applicant. There, the Court of Appeal affirmed the trial judge’s decision that investors had relied on certain conduct contravening s 52 to enter into a tax-driven racehorse breeding investment, but overturned his orders under s 87 that voided the relevant contracts ab initio and required the scheme promoter to pay each investor an amount equal to the net payment made by each to the promoter. Mason P (Priestly JA agreeing) held that, given the limited loss suffered by the investors as a result of the particular contravention of s 52 established, the trial judge was in error in voiding the entire contractual arrangements and that the proper order under s 87 was one which made good only the loss suffered by reason of the s 52 contravention. He therefore set aside the voidance and payment orders of the trial judge, but conditionally upon the promoter tendering to the investors an amount equal to the limited loss assessed as that resulting from the s 52 contravention. One of the reasons Mason P gave for this approach was that it was unjust to the scheme promoter for the trial judge to make the payment order in favour of the investors under s 87 which ignored the fact that they had received the substantial tax benefits which were a major factor in causing them to enter into the scheme. The order proposed by Mason P recognised receipt of those tax benefits.

183               At trial, the scheme promoter had argued for restitution of the loan principal advanced to each investor as part of implementation of the scheme in the event that the investors’ claim (ultimately rejected by the trial judge) that the contractual arrangements were void for illegality, was successful. The investors argued that, if the scheme promoter was entitled to restitution in respect of the loan principal, that should be reduced to take into account the likelihood that the investors would not be able to retain the tax savings they had obtained. In this context, the trial judge, Rolfe J, said at 360, in words directly applicable to the situation before me:

“The defendants submit also that they may not be able to retain that financial advantage if the arrangement is struck down as being void for illegality, because the Commissioner of Taxation may seek to re-assess them. There is not a skerrick of evidence before me that this will occur, notwithstanding that the possibility of the Commissioner taking such a course must have been in the minds of the defendants when these proceedings were commenced and defended. Certainly since the commencement of the case I have directed attention to the possible consequence that the Commissioner may take the view that there would be a re-assessment. Yet the defendants have not placed any evidence before me that this will occur. In these circumstances it seems to me that I can only deal with the matter on the evidence and that is quite clear, namely there has been a financial benefit by the reduction in the amount of income tax payable and there is no evidence that the Commissioner will seek to re-assess.”

184               Mason P, at 370, expressly approved this as the correct approach to be followed whenever it is said that tax benefits expected and received should be left out of account in assessing damages because of the risk that the Commissioner may claw back those benefits by reassessing the claimants. I respectfully agree.

185               The evaluation of the risk of the applicant ultimately losing the whole or a part of the tax savings it has enjoyed to date can only be made on the basis of evidence. I do not think a submission directing the Court’s attention to various taxation rulings is sufficient. The rulings relied on, IT2195 and TR97/11, are not binding public rulings, but rather opinions of the ATO on its understanding of the law governing whether a taxpayer can establish that it is carrying on the business of primary production so that outgoings will be deductible. Neither ruling is judicially noticeable, though no objection was taken to their being put before me as part of the applicant’s closing submissions. The impact these rulings may have on the Woburn Downs scheme is not self-evident.

186               The applicant has always faced the risk that the Commissioner might not accept the scheme as sufficient to constitute investors in it as persons engaged in the business of primary production even if the respondents performed in strict accordance with those contractual arrangements. In that event, no deductions would be claimable by the applicant. The applicant was never promised that it would receive those tax benefits. The risk that the Commissioner would not accept the proposal as tax effective was specifically flagged in the accountant’s letter in the “Overview” document. It is not, I think, clear that the breaches of the agreements committed by the Woburn Downs respondents necessarily increase that risk. They do not appear to me necessarily to put the applicant in any worse position vis-à-vis the Commissioner of Taxation than it would have been in, if the Woburn Downs respondents had performed the contracts strictly in accordance with their terms. It is only if the respondents’ breaches have increased that risk of re-assessment and the risk of the loss of the tax benefits so far enjoyed that the applicant can say that those benefits are to be ignored in the assessment of its damages. The first, second, fourth and fifth respondents conducted what appears to be a bona fide cattle breeding business. The long drought conditions they encountered produced many of the difficulties they had which led them to committing those breaches. They sought to perform their contracts as best they could in those conditions. Though the third respondent did not advance the cash payments it promised to the applicant at the outset, it did put all the “loan” repayments from the applicant into the first and second respondents’ business which they used to carry it on. The applicant did receive cattle (to which it made claim in its cancellation letter of January 1996) from its investment, though not to the extent or at the times he bargained for. On the material before me, the Woburn Downs scheme was one involving the carrying on by the promoters of a substantial cattle breeding business utilising the entirety of the funds provided by the applicant (though in a form and at times different from what was envisaged by the contractual arrangements). Moreover, the scheme was one in which the applicant’s investment was exposed to a real commercial risk of losing its money even if the scheme had been implemented as promised, a loss that has now occurred.

187               The applicant did not lead any evidence which might enable the Court to evaluate the extent of this risk, though the failure of Woburn Downs Pastoral Pty Ltd to perform each of the six Lease and Breeding Agreements within the relevant thirteen month period is ground for saying that the applicant is not truly entitled to the deductions of $120,000 which it claimed in respect of the first three of those Agreements in the 1993 year and the further amount of $120,000 which it claimed in respect of the second lot of those Agreements in the 1994 year.

188               The Commissioner’s power to amend the applicant’s 1993 assessment at this late stage depends on him being able to invoke s 170(3) the ITAA. Even if the applicant can make good its case that the Woburn Downs respondents induced it to enter into the contracts by fraudulent misrepresentations, that does not necessarily mean that the Commissioner is entitled to form the view under s 170(3) that its 1993 year assessment was affected by fraud. No attempt was made by the applicant to develop any argument that it is now exposed to the risk of a reassessment in respect of its 1993 tax. In the absence of submissions on this point, I do not think that it would be proper to conclude that it is clear that the Commissioner is empowered by this provision to issue such an amended assessment. Nor, if the Commissioner were now to have that power, am I prepared to conclude, in the absence of submissions and evidence, that there is a sufficiently high risk that the Commissioner will, in fact, exercise it and issue an amended assessment and that, in that event, he will be able to maintain such an amended assessment as to justify my ignoring the fact that the applicant has for long now enjoyed one of the major benefits in the form of tax deductions in respect of the 1993 financial year which it bargained for when it entered into contracts T, U and V.

189               Even if the Commissioner were able to establish his right now to amend the applicant’s assessment for the 1993 year by disallowing the deductions hitherto allowed in respect of the first three contracts, it may be possible for the applicant to obtain the benefit of those same deductions in respect of its 1994 and later years of income on the basis that it became sufficiently committed to making the relevant payments once the contracts were executed on 29 July 1993 to enable it to say that the outgoings in question were incurred in the 1994 (and the later) years. Section 170(6) only permits a taxpayer to make application to amend an assessment if he does that within four years of the assessment. It may be too late now for the applicant to apply to re-open its 1994 and 1995 and 1996 year assessments to bring to account in those years the deductions so far claimed for the 1993 year. But if the Commissioner were to be able to amend now its 1993 year assessment, it is highly likely that he will also reassess in respect of the 1994 year income, given the question about the applicant’s entitlement to deduct the whole of the payments under the Lease and Breeding Agreement within contracts W, X and Y in the 1994 year because they were not performed in time: any reassessment by the Commissioner in respect of the 1994 year might very well open up an opportunity for the applicant to bring into account in that reassessment the whole (or part) of the payments under the Lease and Breeding Agreements in contracts T, U and V. Cf s 170(6) and Kwikspan Purlin System Pty Ltd v FCT (1987) 87 ATC 4,297 at 4,299. Again, this possibility was not the subject of argument, though it is relevant to assessing just what is the true measure of the loss and the true measure of the restitutionary entitlement that the applicant has.

190               The applicant dealt with the whole complex matter of the extent to which the applicant may face an increased risk of being denied the tax benefits offered by the scheme by reason of the Woburn Downs respondents’ misconduct by simply asserting, without any informative explanation, that the applicant would lose its entitlement to the tax benefits offered by the scheme unless the respondents strictly performed their contractual obligations in all respects.

191               It is not, I think, open to the Court to make its own evaluation of the existence and extent of such increased risk in the absence of expert evidence. Mr Wells, the applicant’s accountant and tax adviser, gave some evidence in par 37 of his first affidavit which, if it were acceptable, would go some of the way to remedying this evidential gap. He there said he considered it important in ensuring the availability of the promised taxation benefits that separate herds of identifiable cattle be maintained by Woburn Downs for each investor. But in oral evidence, he contradicted this by saying that he did not regard it as essential that the twenty-two cattle promised at the end of the five years had to come from the six recipient cows nominated in the Lease and Breeding Agreements. And he later made a point of saying that, though he understood from the “Overview” document that the scheme involved each investor starting with a herd of six recipient cows which would produce a certain number of calves, which in turn would breed more calves, “that aspect of it was not greatly my concern”.

192               In the absence of argument that the Commissioner can properly invoke the power in s 170 ITAA 1936 to reassess the applicant now in respect of its 1993 to 1996 returns and in the absence of evidence as to the likelihood, in the events which have happened, that the Commissioner will seek to invoke that power and will be able to maintain a re-assessment of each of these years’ income to exclude the Woburn Downs deductions and evidence of what the applicant’s overall tax position for the period 1993 to 1996 would be likely to be in comparison to the now existing position, I think the submission of the sixth and seventh respondents is correct that the applicant’s loss caused by the conduct in question is $131,857, ie, the difference between the total amount paid by the applicant and the amount of the tax savings it has enjoyed. The risk of giving the applicant a windfall is too great to justify ignoring that it has enjoyed those tax savings.

CAPITAL GAINS TAX AND GOODS AND SERVICES TAX ISSUES

193               In its closing written argument, for the first time the applicant claimed in a brief submission a declaration that if the Commissioner of Taxation holds the applicant liable to pay any CGT or GST in relation to any of the moneys that may be awarded to the applicant under a judgment in its favour, then the applicant is entitled to be indemnified by the relevant respondents for any such tax. The sixth and seventh respondents opposed the grant of such relief. They rely on Namol Pty Ltd v AW Baulderstone Pty Ltd (1993) 93 ATC 5,101. There, an applicant who obtained a large award of damages for breach of copyright submitted unsuccessfully that the award should be increased to include compensation for the CGT at “33%, the ordinary rate of company tax” which it was submitted was likely to be payable on those damages. Davies J made what he described as “some general observations with respect to that legislation and with respect to an award of damages to take that legislation into account” at 5,103 - 5,104, saying:

“The first observation I would make is that adjustments of awards of damages for taxation ought to be made on proper evidence. In the present case, there is no affidavit or even a written opinion before the Court as to the likely potential of Namol for capital gains tax upon the damages awarded in this matter. I have the firm view that, if capital gains tax is to be taken into account, there should be at least an opinion of an experienced tax practitioner as to the likely tax consequences of the judgment and as to the basis on which that opinion is held.”

194               His Honour gave as a second reason for rejecting the submission that it was inconsistent with the once-and-for-all approach of the common law to the assessment of damages by reference to the probabilities proven by evidence led at trial. His third reason for rejecting the submission was that he did not accept that CGT was exigible on all awards of damages made as compensation for loss resulting from a wrong or default.

195               The first basis upon which Davies J relied is consistent with that taken by the majority in Akron Securities and by Hutley JA in Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1977] 2 NSWLR 827, later referred to. Its correctness, in my opinion, is supported by the third reason Davies J gave, viz, that there is no general principle established that awards of compensation by courts always or even as a general rule involve a taxable capital gain (or a taxable “supply” within the GST legislation): whether an award of damages attracts either tax must therefore depend on the circumstances of the particular case.

196               In its answering submissions, the applicant submitted that it was futile and impossible to argue now whether CGT or GST would be chargeable on any award the applicant might recover “because one does not know what findings of fact will be made”. The applicant also there relied on the South Australian Full Court decision in Duke Group Ltd v Pilmer (1999) 31 ACSR 213 at pars 559 - 562. In that case, a declaration of the kind sought by the applicant was made in respect of any liability that might ultimately be established in the successful plaintiff to CGT on the compensation awarded in its favour though no attempt was made to prove that the award might attract CGT.

197               In the conflicting state of the authorities, I propose to follow Davies J in Namol, supported as it is by the approach of the majority in Akron Securities and by Hutley JA in Pennant Hills. That seems to me the preferable course when, as Davies J observed, there is no general rule that awards of compensation or damages always attract CGT (or GST for that matter) and where the applicant has neither led evidence to show that it may be liable to either tax on its award or has even advanced an argument in submissions showing why that might be the case.

198               Hutley JA’s comments in Pennant Hills, in my opinion, show why such an approach is justified here. He gave, as one reason for refusing to include in an award of damages anything in respect of what was submitted to be the successful company’s liability to income tax in respect of those damages, the following:

“It lay upon it to prove its losses, which must include the way in which its tax position will be affected. In Taylor v O’Connor [1971] A.C.115 the court was informed of the financial structure of the family, and were able to anticipate the effect of tax upon the widow. With a company it is very different. The effect of the acceleration of compensation for a series of deductible expenses may lead to no tax liability. The company may have accumulated losses which it can use to absorb the extra income, or part of it. A company can accelerate outgoings, when faced with an accession of income, in order to diminish taxation. The company should not be permitted to gain advantage from speculation in vacuo, when there is the means of proof at hand. If allowance is to be made for tax liability it should be for the tax liability of the particular party. Pennant Hills Restaurants kept its finances strictly to itself.”

199               (This point was not argued on appeal to the High Court: see 145 CLR at 642.) These remarks are, in my opinion, applicable to the applicant’s claim for an indemnity in respect of CGT and GST. As the sixth and seventh respondents point out, the applicant has not exposed its financial arrangements in evidence and the Court should not assume that, even if the damages in this case were regarded as subject to CGT, there was no off-setting capital loss in existence not otherwise useable by the applicant or that any tax might, in fact, be payable in the relevant income year, given the admitted history of tax minimisation practices adopted by the applicant.

CROSS-CLAIM BY THE FIRST TO FIFTH RESPONDENTS AGAINST THE SIXTH AND SEVENTH RESPONDENTS

200               The Woburn Downs respondents limit their cross-claim against the sixth and seventh respondents to indemnification in respect of any liability the applicant may establish against any of the first to fifth respondents because they offered a “prescribed interest” to the applicant in breach of the Corporations Law and that, in consequence, the applicant voided all contracts with the Woburn Downs respondents. So far as the third respondent is concerned, an indemnity is only sought from those two respondents against any loss it might suffer by reason of its inability to recover the debt for which it has cross-claimed against the applicant if the loan contracts are avoided by the applicant on that same ground.

201               The applicant having failed to fix any of the first to fifth respondents with liability under the Corporations Law to repay the moneys it has paid to the first and third respondent, the foundation for the first to fifth respondents’ cross-claim against the sixth and seventh respondents has not been established.

202               In any event, the Suares did not place unquestioning reliance on these respondents to advise on the setting up of the Woburn Downs scheme, a claim central to this cross-claim, though limited in its being focused on the sixth and seventh respondents’ alleged failure to take care in ensuring the scheme would comply with the Corporations Law. Mr Suares, in particular, took a major role in having the documentation for the Woburn Downs cattle embryo scheme, including the loan contracts with the third respondent prepared, in close consultation with his accountants and his lawyers. In any event, the Suares were alerted by Rickards in 1991 to the fact that the scheme sold to the applicant in 1993 infringed the Corporations Law. The first to fifth respondents could not establish that they relied on advice from the sixth and seventh respondents with respect to the structure of the Woburn Downs cattle embryo scheme which they allowed those two respondents to market to the applicant in 1993, so as to make them liable to indemnify the Woburn Downs respondents.

CROSS-CLAIM BY SIXTH RESPONDENT

203               This respondent has cross-claimed against the first to fifth respondents for an indemnity in respect of any liability that may be imposed on it in favour of the applicant.

204               However, its involvement through Hopkins and Louks with Dwyer in the encouragement given to the Suares to set up the Woburn Downs scheme on the model of the South Australian scheme, the assistance that Dwyer gave the Suares in that behalf in furtherance of the business activities that he, Hopkins, Louks and the sixth respondent were engaged in, the role Hopkins, Louks and the sixth respondent played in marketing the scheme (including the payment through the sixth respondent by Dwyer, Hopkins and Mr Louks’ company, Delta Investment Services, of commissions to Wells to find and recommend investors for the scheme) and what Hopkins and Dwyer did in relation to ongoing advice and contract administration with respect to Woburn Downs scheme investors, again as part of the business activities that Dwyer, Hopkins and Louks were jointly involved in, through the sixth respondent and Delta Investments, shows that the sixth respondent is not entitled to the indemnity sought: it was knowingly concerned in the actions of the first to fifth respondents that have resulted in them being held liable to the applicant.

THE RESULT OF THE CASE

205               The applicant is entitled to judgment against the fourth, fifth, sixth and seventh respondents for the sum of $131,847 (the difference between the total of the payments it made to the first and third respondents and its tax savings), together with interest at 10% on that sum calculated in accordance with the schedule in the applicant’s written submissions. The first to third respondents being in liquidation and no leave having been sought by the applicant to continue the proceedings against those respondents, it cannot recover judgment against them. The applicant is also entitled to a declaration that the third respondent never advanced any money on behalf of the applicant and that the applicant is not indebted to it in any amount.

206               Though the applicant has failed on a number of issues, I do not think the circumstances of the case, taking into account the way the various respondents conducted the litigation, are such as to deprive the applicant of its entitlement to the costs of its proceedings as against each of the fourth to seventh respondents.

207               The fourth and fifth respondents’ cross-claim against the sixth and seventh respondents is dismissed with costs. The sixth respondent’s cross-claim against the fourth and fifth respondents is also dismissed with costs.

208               No leave has been obtained to permit the Court to make orders with respect to the outcome of the cross-claims in so far as the first to third respondents are involved in them.

209               The applicant must bring into Court minutes of the formal orders to be made in accordance with these reasons.

Associate:

Dated: 3 October 2001