FEDERAL COURT OF AUSTRALIA

RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd (No 4) [2019] FCA 686

ORDERS

THE COURT ORDERS THAT:

1.    The matter is adjourned to 2.15 pm on Friday, 24 May 2019 for the hearing of submissions with respect to interest, costs and the appropriate form of orders.

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

REASONS FOR JUDGMENT

WHITE J:

Introduction

1    Temporary fencing made up of connected panels is commonly used in Australia at construction sites, road works, work sites, temporary entertainment venues and the like. Frequently, the panels are hired from third party providers rather than purchased by their users.

2    In 2011 and 2012, the Second Respondent (Mr Nestorovic) saw the potential for a business hiring temporary fencing panels containing features making them highly visible in both daylight and in darkness. He referred to this form of fencing as “Visible Temporary Fencing” (VTF) and I will do likewise.

3    On 26 August 2013, Mr Nestorovic incorporated the First Respondent, Visible Temporary Fencing Australia Pty Ltd (VTF Aust), with the intention that it develop a business of hiring out VTF panels. The initial directors of VTF Aust were Mr Nestorovic and the Third Respondent (Ms Pinneri), who is his daughter. Neither Mr Nestorovic nor Ms Pinneri had had any previous experience in hiring out fencing panels.

4    Subsequently, separate companies were established in South Australia, Western Australian, Queensland, the Northern Territory, Tasmania, Victoria and New South Wales to undertake the hire of VTF panels. These were respectively the Fourth Respondent, Visible Temporary Fencing (SA) Pty Ltd (VTF (SA)), the Fifth Respondent, Visible Temporary Fencing (WA) Pty Ltd (VTF (WA)), the Sixth Respondent, Visible Temporary Fencing (Qld) Pty Ltd (VTF (Qld)), the Seventh Respondent, Visible Temporary Fencing (NT) Pty Ltd (VTF (NT)), the Eight Respondent, Visible Temporary Fencing (Tas) Pty Ltd (VTF (Tas)), the Ninth Respondent, Visible Temporary Fencing (Vic) Pty Ltd (VTF (Vic)) and the 10th Respondent, Visible Temporary Fencing (NSW) Pty Ltd (VTF (NSW)). The parties referred to these companies as “the State Companies” and, again, I will do likewise.

5    The First Applicant, RRG Nominees Pty Ltd (RRG), was incorporated on 30 September 2013 to be the trustee of the RRG Unit Trust. The RRG Unit Trust was to be the vehicle through which investments could be made in the VTF businesses. It was established by Mr Robert Falzon, Mr Robert Forrest and Mr Glen Stephens (collectively, the RRG Founders). Subsequently, RRG did make investments into at least three of the State Companies.

6    Through Mr Falzon, Mr Rocama (known as Rick) Schirripa (Mr Schirripa) was introduced to the VTF group of companies. Commencing on 14 April 2014, in the circumstances to be described shortly, companies with which Mr Schirripa is associated invested in RRG and later directly into the State Companies (other than VTF (Qld)). The investing companies are the Second Applicant, Schnik Nominees Pty Ltd (Schnik), and the Third Applicant, Frank Schirripa Nominees Pty Ltd (FSN).

7    In August 2014, Mr Schirripa or the companies with which he was associated bought out the interests of Messrs Falzon and Forrest in RRG and in the RRG Unit Trust. He did not buy out the interest of Mr Stephens.

8    The contemplated businesses of hiring the VTF panels failed. Each of the State Companies, as well as VTF Aust and the 11th Respondent, Status Shop Maintenance Pty Ltd (Status), entered into voluntary administration on 5 July 2017 and each is now being wound up. The proceedings against these Respondents have been stayed. The trial proceeded against Mr Nestorovic and Ms Pinneri only and I will hereafter refer to them as “the Respondents”.

9    This judgment concerns the Applicants’ claims that they were induced to invest in the State Companies by the misleading or deceptive conduct of the Respondents. The Applicants seek in the alternative damages pursuant to the Misrepresentation Act 1972 (SA) and for common law deceit. They rely on the same conduct for each of these causes of action.

10    For the reasons which follow, I am satisfied that the Applicants have made out most of the pleaded causes of action and that they are entitled to the relief which they seek.

The parties

11    Until 19 August 2014, the directors of RRG were its founders. On 19 August 2014, Mr Schirripa was appointed as director and it seems that Messrs Falzon and Forrest resigned as directors on or about the same date. Since then, Messrs Schirripa and Stephens have been the decision-makers within RRG. Mr Schirripa was appointed a director of each of the State Companies (other than VTF (Vic) and VTF (Qld)) but resigned his directorships on 15 October 2015.

12    The Second Applicant (Schnik) is the trustee of the RJ Schirripa Family Trust. Mr Schirripa and his wife Jacqueline have been the directors of Schnik at all material times.

13    The Third Applicant (FSN) is the trustee of the Frank Schirripa Family Trust. Mr Frank Schirripa is Mr Schirripa’s father. He and his wife have been directors of FSN at all material times. FSN contributed funds to VTF (Tas) only.

14    Each of the Respondents has been a director of VTF Aust since its incorporation on 26 March 2013. Mr Nestorovic has also been a director and secretary of each of the State Companies from the time of their incorporation. With the exception of VTF (Qld), whose shares it wholly owns, VTF Aust holds 55% of the shares in each of the State Companies.

15    The 11th Respondent (Status) was incorporated on 31 January 2006. The Respondents are its shareholders. The principal business of Status has been the importation of manufactured goods from China and their sale in Australia. The items it has imported have principally been equipment for use in restaurants and bakeries, and safety equipment such as cones, bollards, gloves and glasses, for use in the mining industry.

16    Mr Nestorovic has been the person who has travelled to China sourcing products and who, within Australia, has had the principal role in locating customers. Ms Pinneri has been principally involved in the administrative aspects of Status’ business. In some communications, Ms Pinneri described herself as the “Director/Marketing Manager” of Status and of Visible Temporary Fencing.

17    The Respondents have been the directors of Status at relevant times. On 6 April 2011, Status entered into joint venture and exclusivity agreements with Linhai Hedda Import & Export Co Ltd (Linhai Hedda). Linhai Hedda is a Chinese company through which Status obtained a variety of products which it imported into Australia. These included the VTF panels. There are issues in the trial concerning the relationship between Status and Linhai Hedda and the manufacture of the VTF panels in China to which it will be necessary to return.

18    Status maintained showrooms on Prospect Road, Prospect (a suburb of Adelaide). It has also operated from Mr Nestorovic’s home at Burton Road, Paralowie, another suburb of Adelaide.

19    At one stage, Mr Nestorovic and the initial directors of RRG had contemplated the appointment of distributing agents in the various States and Territories who would be responsible for the hire of the panels. Mr Schirripa had contemplated becoming such an agent for South Australia but did not pursue that course. In the events that happened, neither VTF Aust nor any of the State Companies ever appointed an agent.

20    The Respondents did not have legal representation at the trial. However, they had had legal representation in the proceedings until two months before the commencement of the trial, when their previous solicitors, Griffins Lawyers, had ceased to act for them. Griffins Lawyers had been acting for Mr Nestorovic and Ms Pinneri at the time the affidavits containing their evidence in chief and the tender books containing the documents which the parties wished to adduce into evidence were prepared. It is also appropriate to record that the evidence indicates that Griffins Lawyers had carried out legal work for Status or VTF Aust in 2013, 2014 and 2015. That work appears to have been extensive as the bank records of Status indicate that Status paid a total of $101,340.98 to Griffins Lawyers in the period between 21 October 2013 and 14 September 2015.

The investment in the State Companies

21    Although the amounts outlaid by the Applicants in respect of the VTF businesses are readily identifiable in the evidence, it is less easy to identify all the amounts paid in respect of each State Company and the character of those payments. In particular, it is not always apparent whether some amounts were outlaid as contributions of capital or as loans and, in some instances, it is not clear to which State Company amounts paid directly to Status were to be credited.

22    I commence with my findings as to the amounts outlaid by RRG.

23    The total amount paid by RRG to each of the entities listed in the previous table is as follows:

24    In these proceedings, RRG seeks to recover the amount of $1,649,811.80.

25    In the period between 11 October 2013 and the commencement of investments by the Schirripas on 14 April 2014, the amounts invested by RRG totalled $210,750. The evidence did not disclose the precise source of those funds but it seems that they came from other investors in the RRG Unit Trust. Mr Dimech, a witness in the trial, was one of those investors.

26    From 1 April 2014, the funds outlaid by RRG ($1,431,302.80) were derived from contributions by Mr Schirripa personally ($445,460), from a Mr Murray ($130,000) and from Schnik ($855,842.80). Mr Schirripa, in some instances in conjunction with his wife Jacqueline, had caused Schnik to make its contributions to RRG.

27    Schnik also made payments directly to Status as follows:

28    In these proceedings, Schnik seeks to recover the amount of $1,244,105.50.

29    I am satisfied that it was Mr Schirripa who caused Schnik to make the contributions to VTF (Vic) and to VTF (NSW). Ms Jacqueline Schirripa was not involved in those decisions.

30    FSN made payments as follows:

31    I am satisfied that it was Mr Frank Schirripa who caused FSN to make these payments. I am also satisfied that the payment of $4,500 was for 45 shares at $100 per share. The evidence did not disclose why FSN paid the full amount of $253,275 and $4,500 when it and Schnik were sharing the investment into VTF (Tas), but I infer that it was pursuant to a private arrangement between Schnik and FSN. In the final submissions, FSN abandoned its claim to recover the payment of $4,500. In these proceedings, FSN seeks to recover the amount of $253,275.

32    The payments made by the Applicants can be summarised as follows:

33    The amounts paid by RRG include the amounts contributed by Schnik which were recorded earlier. The moneys paid to the State Companies were usually paid straight to Status. The evidence did not disclose who was responsible for effecting these transfers, but I infer that it was Ms Pinneri.

34    Shortly after RRG, Schnik and FSN made their respective initial investments into the State Companies, they entered into shareholder agreements (SHAs) with VTF Aust (which was the majority shareholder) and the State Company concerned.

35    The following table contains my findings regarding the SHAs and the acquisition of shares in the State Companies.

36    As is apparent, none of the Applicants advanced funds to VTF (Qld). Schnik contemplated doing so in early 2015 and made a “holding payment” of $145,000 for that purpose. However, those funds were later reimbursed.

37    Other than in the case of VTF (Tas), the shareholding acquired by the listed Applicant in each other case was 45%. In the case of VTF (Tas), Schnik acquired a 22% shareholding and FSN acquired a 23% shareholding.

38    I mentioned that it is not easy to identify the character of the contributions made by the Applicants. The documentary evidence did not include the financial statements or balance sheets for Status or for any of the State Companies which may have indicated the way in which the payments were treated by these recipients. The only financial reports in evidence were those of VTF Aust for the 2014, 2015 and 2016 financial years, and I will refer to them later.

39    Some indication of the character of the payments can be obtained from the SHAs as these contained acknowledgments of loans having been made to the State Company to which the SHA related and identified the entities which made the loans. I summarise those acknowledgements in relation to each entity as follows:

40    At least with respect to VTF Aust, the reliability of the recording of the loans must be doubtful. There is no evidence that it paid any amounts to the State Companies, let alone that it had the means with which to do so. Mr Nestorovic acknowledged that VTF Aust had not made the loan of $107,000 to VTF (SA) shown in the table. He said that it was Status which had paid for the VTF panels provided by VTF Aust to which the loan amounts had been applied. Subject to the qualification mentioned earlier in respect of VTF (Tas), the payments by RRG, Schnik and FSN are confirmed by the documentary evidence and I am satisfied that they were made. On balance, the majority of the funds advanced seem to have been characterised as loans, although it is apparent that, at least in some instances, some were characterised as payments for shares.

41    The actual amounts which the Applicants contributed were, in the main, determined by the number of VTF panels which each State Company was to acquire. Status had a unit price for each panel and the associated equipment. It was the number of panels multiplied by the unit price which (generally) fixed the amount of the contribution.

The pleaded representations

42    The Applicants pleaded 17 representations but did not pursue their claims with respect to the fifth and ninth representations.

The first representation

43    The Applicants plead that the first representation was made by Mr Nestorovic in about September 2013 to Messrs Falzon, Forrest and Stephens as follows:

(a)    the VTF panels would be rented at a price of $15 per panel per week;

(b)    distributing agents receiving 20% of net rental income would earn approximately $18,000 per month in April 2014, rising to $90,300 per month (over $1 million per annum) by August 2015;

(c)    distributing agents in Western Australia receiving 10% of gross income from renting fences at $15 per panel per week would receive monthly income rising from $6,450 in February 2014 to $430,000 in November 2015; and

(d)    distributing agents in New South Wales receiving 10% of gross income from renting fences at $15 per panel per week would receive monthly income rising from $6,450 in February 2014 to $430,000 in November 2015.

44    The Applicants plead that this first representation was re-conveyed by the RRG Founders to Mr Schirripa in or about February 2014.

The second representation

45    The Applicants allege that, in the period between September 2013 and March 2014, Mr Nestorovic made oral representations to the RRG Founders and to Mr Schirripa that he had conducted extensive market research and that the panels would be in very high demand.

The third representation

46    The Applicants allege that, in the period between September 2013 and March 2014, Mr Nestorovic made oral representations to the RRG Founders and to Mr Schirripa that he had a guaranteed contract in place with a union representative at the Brisbane Airport to supply a large quantity of fencing panels to the Airport, and all that was required to begin the job was the importation of fences from China.

The fourth representation

47    The Applicants allege that, in about February or March 2014, Mr Nestorovic made oral representations to the RRG Founders and to Mr Schirripa that:

(a)    a contract would be obtained with the Coober Pedy Council for the use of 800 fencing panels at $17 per panel per week for six to 12 months for an upgrade to the drive-in theatre and football oval;

(b)    the price of $17 per panel per week was $7 less than the price offered by a competitor, Australian Temporary Fencing (ATF); and

(c)    he had made the arrangements with a lady at the Council.

The sixth representation

48    The Applicants allege that, on or about 30 June 2014, Mr Nestorovic made oral representations to Mr Schirripa that:

(a)    a contract would be obtained with Rio Tinto in Western Australia for the supply of 2,000 short fencing panels at $12 per week and 3,000 tall fencing panels at $14 per week for a period of 10 years; and

(b)    he had made these arrangements through his contact with a person named Gavin, who was “in charge” at Rio Tinto.

The seventh representation

49    The Applicants allege that, in or about July 2014, Mr Nestorovic made oral representations to Mr Schirripa that a contract would be obtained with Transfield for between 3,000 and 5,500 fencing panels for the upgrade at the Royal Australian Airforce (RAAF) Base at Edinburgh in South Australia over five to seven years, beginning in December 2014, leading to further jobs at Bases in Darwin and in Perth.

The eighth representation

50    The Applicants allege that, Mr Nestorovic made oral representations in or about July 2014 to Mr Schirripa that there was strong interest from the organisers of the Melbourne Grand Prix for the supply of 6,000 tall fencing panels at $14 per week and 2,500 short fencing panels at $12 per week.

The 10th representation

51    The Applicants allege that, in or about January 2015, Mr Nestorovic made oral representations to Mr Schirripa that he had done a deal with VicRoads for the supply of fencing panels to highlight roadside trees involved in motor vehicle accidents.

The 11th representation

52    The Applicant allege that, in about late January 2015, Mr Nestorovic made oral representations to Mr Schirripa that a contract would be signed with the Alice Springs Council for the supply of fences for up to 10 km of a road leading off the Stuart Highway towards the Airport to stop rocks falling on the road, and that the signing of this contract was dependent only on the Council terminating an existing agreement with another supplier of temporary fencing.

The 12th representation

53    The Applicants allege that, in about February 2015, Mr Nestorovic made oral representations to Mr Schirripa that an agreement was in place with a Mr Russell Lynch to act as an agent for VTF in Alice Springs, and that Mr Lynch had good connections which would enable VTF to obtain contracts to provide fencing for the redevelopment of the local courthouse and police station.

The 13th representation

54    The Applicants allege that, in about April 2015, Mr Nestorovic made an oral representation to Mr Schirripa that a contract was in place to supply 1,000 fences at $7 per week to be used by the Australian Federal Police at Parliament House in Canberra and it would commence as soon fences could be supplied out of Sydney.

The 14th representation

55    The Applicants allege that, in about April 2015, Mr Nestorovic made oral representations to Mr Schirripa that:

(a)    he had spoken with the Mayor of the Liverpool Council in New South Wales regarding a contract to supply fences for the redevelopment of the local mall; and

(b)    that VTF would soon conclude the contract discussed.

The 15th representation

56    The Applicants allege that, in about July 2015, Mr Nestorovic made an oral representation to Mr Schirripa that he had spoken with the Mayor of the Blacktown Council in New South Wales regarding a contract for the supply of 24,000 fencing panels at $7 per week and that VTF would soon conclude the contract discussed.

The 16th representation

57    The Applicants allege that, between September 2013 and July 2015, Mr Nestorovic represented to RRG, Schnik and to Mr Schirripa that VTF Aust would match, or had matched, any funding provided to the State Companies by RRG, Schnik and FSN through the provision to the State Companies of fencing panels and ancillary equipment to a value equivalent to the amount of the investment of RRG, Schnik or FSN. The Applicants allege that this representation was made by Ms Pinneri as well as Mr Nestorovic and was made partly orally, partly in writing and partially through conduct.

The 17th representation

58    The Applicants allege that, between May 2013 and July 2015, Mr Nestorovic and Ms Pinneri made representations to Mr Schirripa that Status was the manufacturer of the fencing and ancillary equipment for the VTF business.

General matters

59    With the exception of the first, 16th and 17th representations, the Applicants allege that the representations were made orally. The 16th and 17th representations are alleged to have been made partly orally, partly in writing and partly by conduct.

60    The Applicants allege that the representations were made by Mr Nestorovic and Ms Pinneri, as the case may be, in their own right, on behalf of VTF Aust, and on behalf of Status.

61    The Applicants also allege that, insofar as the pleaded representations were representations of opinion, each carried with it an implied representation that the representor in fact held the opinion represented (the Representation of Honesty) and had reasonable grounds for the opinion (the Representation as to Reasonable Grounds).

The statutory provisions and principles

62    The Applicants plead four causes of action:

(a)    damages pursuant to s 236 of the Australian Consumer Law (which comprises Sch 2 to the Competition and Consumer Act 2010 (Cth) (the CC Act)) in respect of contraventions of s 18 of the ACL;

(b)    damages pursuant to s 1041I of the Corporations Act 2001 (Cth) in respect of contraventions of s 1041H of the Corporations Act;

(c)    damages pursuant to s 7 of the Misrepresentation Act in respect of the misrepresentations; and

(d)    damages in deceit.

The Applicants also sought other forms of relief, which will be identified later.

63    Section 18(1) of the ACL provides:

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

64    Insofar as the pleaded representations are representations concerning future matters, the Applicants rely upon s 4 of the ACL. Section 4 provides (relevantly):

4 Misleading representations with respect to future matters

(1)    If:

(a)    a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b)    the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of this Schedule, to be misleading.

(2)    For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:

(a)    a party to the proceeding; or

(b)    any other person;

the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.

…

65    The effect of s 4 is that a representation with respect to a future matter is taken to be misleading if the maker of the representation does not have reasonable grounds for the representation. Further, it is the maker of the representation who has the onus of establishing the presence of reasonable grounds.

66    As the Applicants acknowledged, the application of the ACL, including ss 4 and 18, in relation to their claims is subject to the operation of s 131A of the CC Act. Before referring to s 131A, it is appropriate to note some aspects of the Applicants’ claim in respect of contraventions by the Respondents of s 1041H(1) of the Corporations Act. That section provides:

A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.

67    The term “financial product” used in s 1041H is defined in s 763A. It includes the shares in a company: see s 763B. The Applicants allege that 10 of the 15 representations which they pursued at trial had been made in relation to shares. Their pleading as to the shares to which the representations related are as follows:

(a)    the first, second, third, 16th and 17th representations were made in relation to shares in VTF (SA), VTF (NT) and VTF (WA);

(b)    the ninth, 16th and 17th representations were made in respect of shares in VTF (Tas);

(c)    the 13th, 14th, 15th, 16th and 17th representations were made in respect of shares in VTF (NSW); and

(d)    the eighth, 10th, 16th and 17th representations were made in respect of shares in VTF (Vic).

68    The representations which were not claimed to have been made in relation to a financial product or a financial service are the fourth, sixth, seventh, 11th and 12th representations

69    The term “financial service” appearing in s 1041H is elaborated in Ch 7 Div 4 of the Corporations Act. By s 766A(1), a person provides a “financial service” if they:

(a)    provide financial product advice (see section 766B); or

(b)    deal in a financial product (see section 766C); or

…

70    Section 766B(1) identifies when a person provides “financial product advice”:

(1)    For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:

(a)    is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or

(b)    could reasonably be regarded as being intended to have such an influence.

71    Section 766C of the Corporations Act identifies when a person “deals in a financial product”:

766C Meaning of dealing

(1)    For the purposes of this Chapter, the following conduct (whether engaged in as principal or agent) constitutes dealing in a financial product:

   (a)    applying for or acquiring a financial product;

   (b)    issuing a financial product;

(c)    in relation to securities or managed investment interests—underwriting the securities or interests;

   (d)    varying a financial product;

   (e)    disposing of a financial product.

(2)    Arranging for a person to engage in conduct referred to in subsection (1) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice.

…

(3)    A person is taken not to deal in a financial product if the person deals in the product on their own behalf (whether directly or through an agent or other representative), unless:

(a)    the person is an issuer of financial products; and

(b)    the dealing is in relation to one or more of those products.

(3A)    For the purposes of subsection (3), a person (the agent) who deals in a product as an agent or representative of another person (the principal) is not taken to deal in the product on the agent’s own behalf, even if that dealing, when considered as a dealing by the principal, is a dealing by the principal on the principal’s own behalf.

…

72    By s 131A(1) of the CC Act, Pt 2-1 of the ACL (which includes s 18) has no (presently relevant) application to the supply of “financial products” or of “financial services”. These terms are defined in Sch 2 by reference to ss 12BAA and 12BAB of the Australian Securities and Investments Commission Act 2001 (Cth). The Applicants accepted that these definitions are, for relevant purposes, identical to the corresponding definitions in the CC Act. This had the consequence, the Applicants accepted, that they could not rely on s 18 of the ACL with respect to those of the pleaded representations found to relate to the acquisitions of shares.

73    The Respondents did not, understandably, make any submissions concerning the effect of s 131A in this case. That being so, I will proceed on the basis conceded by the Applicants, that being the basis most favourable to the Respondents.

74    Whether it be s 18 or s 1041H which is applicable, the principles for assessing whether or not the impugned conduct was misleading or deceptive are, subject to the matter to be mentioned next, the same. It is sufficient for present purposes to refer to the following passage in the judgment of McHugh J in Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592:

[109]    The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.

(Citations omitted)

75    One difference between s 18(1) of the ACL and s 1041H of the Corporations Act is that the latter Act does not contain any equivalent of s 4(1) of the ACL concerning representations with respect to future matters.

76    Predictions or opinions which prove incorrect, are not, without more, misleading or deceptive: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88. An expression of opinion may, however, convey that the opinion expressed is held and that there is a reasonable basis for it: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [33].

77    Dishonesty or an intention to mislead or deceive are not elements of contraventions of either s 18(1) of the ACL or s 1041H of the Corporations Act. However, the Appplicants allege that some of the conduct of the Respondents was dishonest or that they were, at the least, reckless as to the truth of their statements. Dishonesty or recklessness as to the truth of a statement is of course an element of the tort of deceit.

78    Section 7(1) of the Misrepresentation Act, on which the Applicants rely for their third cause of action, provides (relevantly):

7 – Damages for misrepresentation

(1)    Where a contracting party is induced to enter into a contract by a misrepresentation made –

   (a)    by another party to the contract; or

(b)    by a person acting for, or on behalf of, another party to the contract; or

(c)    by a person who receives any direct or indirect consideration or material advantage as a result of the formation of the contract,

and any person (whether or not he or she is the person by whom the misrepresentation was made) would, if the misrepresentation had been made fraudulently, be liable for damages in tort to the contracting party subjected to the misrepresentation in respect of loss suffered by him or her as a result of the formation of the contract, that person is, subject to subsection (2), so liable to that contracting party, in all respects as if the misrepresentation had been made fraudulently and were actionable in tort.

  (2)    It is a defence to an action under subsection (1)—

(a)    that the person by whom the representation was made had reasonable grounds to believe, and did believe, that the representation was true; or

(b)    that the defendant was not the person by whom the representation was made and did not know, and could not reasonably be expected to have known, that the representation had been made, or that it was untrue.

…

(6)    In assessing any damages under this section, a court must take into consideration any award of damages under any other provision of this section, or of damages or compensation under any other law, and in assessing damages or compensation in any proceedings under any other law relating to a contract, a court must take into consideration any award of damages under this section.

79    I will refer later in these reasons to relevant aspects of the tort of deceit.

The witnesses

80    The Applicants led evidence from seven witnesses.

81    The first was Mr Simon Miller, who is one of the joint and several liquidators of the State Companies, VTF Aust and of Status, concerning the prospect of the Applicants recovering their investments from the companies in liquidation. I regarded Mr Miller’s evidence as honest and reliable.

82    Mr Schirripa was the Applicants’ principal witness. He has some experience in business and management. Over a period of 22 years, he worked in the Schirripa family business, Adelaide Mushrooms. That business, which was very successful, was sold in 2013. Mr Schirripa’s position in Adelaide Mushrooms at that time was Sales Manager. This involved him in supervising staff and having day-to-day responsibility for a market store. In addition to his position in Adelaide Mushrooms, Mr Schirripa was President of the South Australian Chamber of Fruit and Vegetable Industries for 10 years. He was also a director of the Australian Chamber of Fruit and Vegetable Industries for an equivalent period.

83    It was apparent that Mr Schirripa believes that he had been deceived by Mr Nestorovic and Ms Pinneri and that the Respondents had used the monies he was induced to advance for their own personal expenditures. I thought that those beliefs coloured his evidence to an extent as it was evident that Mr Schirripa feels strongly about the wrong which he perceives to have been done to him. However, I considered that Mr Schirripa gave his evidence well and, while taking into account the matters just mentioned, regard his evidence as generally reliable.

84    I have reservations about the evidence of Mr Falzon. He had as much interest as did the Respondents in inducing persons to invest in the VTF business, and ultimately received a return of $80,000 for the sale of his interest in RRG without having invested any funds into it. I had the distinct impression that Mr Falzon sought in his evidence to minimise his own involvement in the establishment of the VTF businesses and to attribute matters giving rise to culpability to Mr Nestorovic. I consider that care is to be exercised before acting on his evidence.

85    Mr Mark Dimech invested in RRG before Mr Schirripa became involved. He was induced to do so by Mr Glen Stephens. I considered that Mr Dimech’s evidence was generally reliable although I thought that there was some tendency in his evidence to enlarge matters suggesting culpability by Mr Nestorovic.

86    I considered that the remaining witnesses called by the Applicants (Ms Jacqueline Schirripa, Mr Lynch and Mr Frank Schirripa) were honest and reliable and am willing to act on their evidence.

87    The Applicants had provided, in advance of the trial, an affidavit containing the proposed evidence in chief of Mr Stephens. However, they did not call him to give evidence. Counsel explained that Mr Stephens was overseas, and the Respondents did not dispute that that was so. In these circumstances, it would not be appropriate to draw any adverse reference by reason of the Applicants’ failure to lead evidence from Mr Stephens.

88    Mr Nestorovic and Ms Pinneri gave evidence themselves and did not lead any other oral evidence. I keep firmly in mind that they did not have legal representation in the trial and were participating in a process with which they were unfamiliar. I also take into account that English is not Mr Nestorovic’s first language. He speaks with a pronounced accent and there were some questions whose meaning he did not understand immediately. In her final submissions, Ms Pinneri submitted that it may have been appropriate for Mr Nestorovic to have given his evidence with the assistance of an interpreter. I record, however, that even when the Respondents had legal representation, there was no suggestion that an interpreter would be appropriate. Further, it was obvious, that for the most part, Mr Nestorovic grasped immediately the import of a question and often sought to answer questions even before they had been completed. I am satisfied that Mr Nestorovic’s comprehension was more than adequate for him to have given evidence in English.

89    I did not regard either Mr Nestorovic or Ms Pinneri as an impressive witness. I have maintained that assessment of reading and re-reading the transcript.

90    Much of Mr Nestorovic’s evidence was marked by implausibility. There were occasions when I had the strong impression that he was fabricating matters as he thought convenient from time to time. There were numerous inconsistencies in his evidence. Some instances of the implausibilities or inconsistencies in Mr Nestorovic’s evidence are these:

(a)    he claimed to have spent $1-$2 million in research and development of the fencing panels but, remarkably, did not produce any records to support expenditure of that magnitude. The claim is in any event inherently implausible because, as counsel for the Applicants submitted, the VTF is not a sophisticated product, and there is no evidence that Status itself or the Respondents had had the resources to expend such a sum on “research and development”;

(b)    he claimed that his factory in China had acquired an injection moulding machine with which to make plastic components for the fencing panels, whereas it became obvious from his description of the use of the machine that he did not know what an injection moulding machine is, or how it works. I had the firm impression that Mr Nestorovic was prompted to make the claim concerning the injection moulding machine by reason of a question asked in the cross-examination of Ms Pinneri, who had given evidence before him;

(c)    he claimed to have remembered precise dates of travel to China in 2009 and 2010 without reference to his passport;

(d)    he claimed to have spent six to eight months a year in China in relation to the research and development of the fencing panels, when that was inconsistent with his presence in Australia, as indicated by business records received in the trial;

(e)    it was very apparent that Mr Nestorovic would “talk up” the use of the fencing panels, even when his statements were not truthful. An example is his attempt in January 2015 to induce Mr Lynch to participate in the hiring out of panels in Alice Springs. Mr Nestorovic told Mr Lynch that he had a job at a Tennant Creek mine and for some road works on a section of the Old South Road outside Alice Springs. Neither claim was correct. Mr Lynch’s evidence and other evidence indicated that Mr Nestorovic generally had a tendency to equate a conversation with a person about possible use of the VTF panels with a commitment by the person’s entity to use the panels; and

(f)    he claimed in the affidavit containing his evidence in chief that it was not until about September or October 2015 that he had realised that, when quoting for jobs, it was necessary to consider not just the cost of providing the VTF panels, but the extra cost of delivering and installing them and of removing them at the conclusion of the hire. Mr Nestorovic contradicted himself on this topic in his cross-examination by asserting that he had told Mr Falzon and Mr Stephens in September 2015 that account had to be taken, in fixing the rental price of the cost of delivering, installing and retrieving the VTF panels. He claimed that he had given regular attention to these costs. When confronted with the inconsistency, Mr Nestorovic said that the statement in his affidavit was incorrect.

91    It is very apparent that Mr Nestorovic was enthused by his development of the VTF panels. He had invested a good deal of time and energy in developing the concept and how it could be realised. The Respondents were prone to describe this as “research and development” but I think that this overstates the position. Instead, Mr Nestorovic worked out how the concept could be converted into reality.

92    Mr Nestorovic also is a natural salesman. He has the innate ability to see opportunities to promote his product. He also knew how to interest others in investing, in particular, by promoting the potential returns. On my assessment, he was prepared to “talk up” the VTF concept and its potential even when that meant exaggerating beyond the bounds of truth, the actual circumstances.

93    I considered that Ms Pinneri gave her evidence in a capable manner. In addition, she conducted the Respondents’ defence in the trial. Again, I considered that she did so in a competent manner, taking into account her lack of familiarity with the trial process. I also considered that Ms Pinneri was quick to appreciate where the interests of the Respondents lay in the trial as it developed, and understood ways by which adverse points could be addressed. She had a strong inclination to defend the Respondents’ position from the witness box. Some of her evidence was argumentative in nature and there were occasions when I considered that she sought to avoid answering directly questions which she regarded as inconvenient.

94    In the first affidavit containing her evidence in chief made on 14 July 2017, Ms Pinneri deposed to Status being the manufacturer of the VTF panels. However, in cross-examination she acknowledged that she had told the administrators appointed to Status, VTF Aust and the State Companies that there was a “separate” manufacturer of the panels. That must have been before 31 July 2017 because the administrators referred to the debt to the manufacturer in the report of 31 July 2017.

95    Ms Pinneri’s credibility was not enhanced by her action on the final day of trial in tendering for admission into evidence a bundle of invoices said to have been provided directly to Status from Ms Zheng in China. These documents were of doubtful authenticity and had not been discovered pursuant to the Court’s orders concerning discovery.

96    The effect is that I do not consider that the evidence of Mr Nestorovic or Ms Pinneri can be regarded as reliable on key issues and that I should be circumspect before accepting their evidence about disputed matters.

97    The Court also received a considerable volume of documents comprising business records.

98    In my findings of fact on disputed matters, I have relied generally on the evidence of Mr Schirripa, and indicate now that, with few exceptions, I have rejected the evidences of Mr Nestorovic and Ms Pinneri when it was in conflict with his.

The factual setting

99    Mr Nestorovic, who was born in the former Yugoslavia in 1948, came to Australia in 1972. Most of his work in Australia has been as a self-employed businessman. The businesses which he has conducted have been diverse: truck driving, a vigneron, a service station proprietor, operator of chicken shops, import/export, small farming, cleaning and shop maintenance.

100    In 2006, Mr Nestorovic incorporated Status and commenced importing items from China for sale in Australia. As noted earlier, the principal items it has imported have been equipment for use in restaurants and bakeries and safety equipment for use in the mining industry. Mr Nestorovic would travel to China periodically with a view to sourcing products which could be imported.

101    In about 2008, as a result of an inquiry from one customer, Mr Nestorovic commenced investigating the potential for importing panels of temporary fencing from China. In particular, he spoke to Nancy Zheng and her father who operated Linhai Hedda. Over the ensuing months, Mr Nestorovic decided on improvements which could be made to the kinds of temporary fencing panels then available. Some of these were of a structural kind; others involved galvanising so as to inhibit rusting; and a third involved the addition of reflective tape covered by thin plastic so as to make the fencing panel highly visible at night.

102    The matters which I have recounted above are drawn from the evidence in chief of Mr Nestorovic. I am willing to accept that evidence as reliable.

103    I will refer later to two agreements, both dated 6 April 2011, made between Status and Linhai Hedda.

104    The VTF panels came in three sizes: 2100 mm (L) x 1800 mm (H) (sometimes referred to as “Tall” fences), 2100 mm (L) x 1800 mm (H), and 2100 mm (L) x 1200 mm (H) (sometimes referred to as “Short” fences).

105    The development of the VTF business proceeded slowly. In mid-2011, Mr Nestorovic caused two full-sized fencing panels to be included in a container of items which was delivered on his behalf to Perth. In August 2012, Status purchased 10 fencing panels from a company in Anping Hebei in Northern China. These panels were sent to Adelaide.

106    In January 2013, Mr Nestorovic caused a testing agency in Shanghai (Leading Testing International Co Ltd) to carry out testing of the VTF panels and he received favourable results. The testing related to the compliance of the panels with Australian Standards and with standards published by the International Standards Organisation and included their tensile strength, ability to withstand wind force impacts, climbing and the like.

107    Although Mr Nestorovic commenced using the name Visible Temporary Fencing Australia in late 2012 or early 2013, VTF Aust was not incorporated until 26 August 2013.

108    On 25 June 2013, an innovation patent for the VTF panels was issued to Ms Pinneri. She and her father were recorded as the inventors.

109    Mr Nestorovic caused 360 VTF panels to be delivered to Adelaide in July 2013. Another 140 panels were delivered to Adelaide in September 2013.

110    The momentum for the development of the VTF businesses increased following a chance meeting between Mr Falzon and Mr Nestorovic in May or June 2013. In that meeting, Mr Nestorovic told Mr Falzon of the nature of his business and of his proposed business with the VTF panels. Mr Falzon and Mr Nestorovic exchanged contact details. There was disagreement between the two of them as to the circumstances in which they next had contact. Mr Falzon said that two or three weeks after their chance meeting, Mr Nestorovic telephoned him and said that he had a business proposition to discuss. Within a few days of that telephone call, he met Mr Nestorovic at Status’ Prospect Road showrooms. Mr Nestorovic denied that he had called Mr Falzon, who he said had just appeared at the Prospect showrooms. Mr Nestorovic said that he showed Mr Falzon “what Status did” and some sample fencing panels. He said that Mr Falzon said there and then that he wished to go into business with him in relation to the fencing. Mr Nestorovic gave Mr Falzon a sample of the fencing to take away with him. I regard Mr Falzon’s account as more plausible and, as already indicated, have doubts about the reliability of much of Mr Nestorovic’s evidence. I consider that Mr Falzon’s account of their initial contact is more likely to be accurate.

111    On the basis of Mr Falzon’s evidence, I make the following findings concerning the meeting at the Prospect Road showrooms. Mr Nestorovic showed Mr Falzon the VTF panels and said:

    he had invented the product after extensive research;

    he owned a patent on the product;

    he wanted to hire the VTF panels rather than selling them because he wished to be in control of his invention;

    there was “a massive demand” for temporary fencing panels;

    because the VTF panels had high visibility and no one else in Australia had them, they could be rented for much more than standard fencing panels; and

    he had a manufacturing plant in China which could produce the panels.

112    Mr Nestorovic asked Mr Falzon whether he would like to go into business with him in relation to the hiring of the VTF panels throughout Australia. Mr Falzon responded by saying that he was not in a financial position to invest but could bring manpower. Mr Nestorovic told him that he would need to secure some investment of funds in order to help buy VTF panels if he wished to be involved. He said that he (Mr Nestorovic) would go 50/50 with any investment made by Mr Falzon in order to buy fencing. He also said that the money would be used to pay for the cost of manufacturing the fencing in China.

113    Following the meeting, Mr Falzon contacted Mr Stephens and Mr Forrest and told them about the business proposal. Both were interested in being involved. Messrs Falzon, Stephens and Nestorovic then had another meeting at the Prospect Road showrooms. Shortly afterwards, and probably towards the end of May 2013, Mr Forrest came to Adelaide from Perth. Messrs Falzon, Stephens and Forrest had a further meeting with Mr Nestorovic at his Paralowie property.

114    In late July 2013, Messrs Falzon, Stephens and Forrest agreed to raise money to invest in the VTF business. Their discussions with Mr Nestorovic and Ms Pinneri had, by that time, developed to the extent that there was agreement that there should be a separate VTF company in each State and Territory and that VTF Aust would own 55% of the shares in each company. The number of State Companies in which the RRG Founders would become involved would depend on the amount they were able to obtain for investment.

115    Some other events occurred in the same period. Mr Falzon made a “cold call” to another hire company, Australian Temporary Fencing (ATF) and ascertained that their prices were around $9 per panel per month. This was much less than Mr Nestorovic had suggested as the available hire rates.

116    Mr Falzon and Mr Stephens prepared some spreadsheets containing projections of the income which agents could derive from the hire of the VTF panels in Western Australia, New South Wales and “All States” as well as cash flow projections. Mr Falzon claimed that Mr Nestorovic had requested that they prepare those projections and had provided the inputs for them. However, on my assessment of Mr Falzon and Mr Nestorovic, I think that unlikely. The spreadsheets are much more likely to have been the initiative of Messrs Falzon and Stephens. They were the ones who were actively trying to interest potential agents, and the spreadsheets were prepared for that purpose.

117    Mr Falzon said that Mr Nestorovic had given him the pricing figures which he and Mr Stephens used in the spreadsheets. He said that he had discussed the figures with Mr Nestorovic “a number of times”. Mr Nestorovic denied having any input into the preparation of the spreadsheets. On my assessment of Mr Nestorovic, I doubt that he would be capable of preparing a spreadsheet by himself. But that does not mean that he did not provide some of the inputs used by others.

118    I have considered the evidence of Mr Falzon carefully given my reservations about the reliability of his evidence. On balance, I am willing to accept that Mr Nestorovic did contribute to the preparation of the spreadsheets. I think it unlikely that Mr Falzon would have guessed the cost of the VTF panels so as to derive the costs figures in the spreadsheets. Nor is it likely that he would simply have selected for himself the projected numbers of VTF panels which could be hired out. In his cross-examination, Mr Nestorovic agreed that he had discussed rental pricing with Messrs Falzon and Stephens, including the prices Bianco Hire had suggested would be appropriate, the need to cover delivery, installation and pick-up costs, and the variable locations to which the VTF panels may have to be delivered. It is pertinent that the rate of hire of $15 per panel per month is less than the hire rates which Mr Nestorovic was asserting at the time, but that may reflect some compromise. I also think it unlikely that Messrs Falzon and Mr Stephens would have prepared projections of an agent’s income without reference to Mr Nestorovic, who was to control these agreements.

119    Finally, I note that, on 7 October 2013, Mr Falzon sent an email to Mr Stephens, Mr Forrest and Ms Pinneri attaching what he described as “my first go at fence prices”. These were proposed prices to customers. It is consistent with Mr Falzon seeking the involvement of the Respondents in the pricing arrangements. For these reasons, I do not accept as truthful Mr Nestorovic’s denial of any involvement in the preparation of the spreadsheets. I think it likely, and so find, that each of Messrs Falzon, Stephens and Nestorovic collaborated in the preparation of the spreadsheets and the projections.

120    Mr Falzon also prepared a promotional brochure for the VTF panels for use in the VTF business.

121    Mr Falzon said, and I accept, that he had numerous conversations with Mr Nestorovic about the proposed VTF business. Some were of a general kind but in some Mr Nestorovic spoke of the hire contracts he had in prospect:

    a job at Coober Pedy in relation to the redevelopment of the football oval involving the hire of 250 panels at $23 per panel per week;

    a job at the Brisbane Airport to be obtained through a “union contact”, which could involve the hire of 10,000 panels at $18 per panel per week; and

    a job in Darwin involving a member of the Paspaley family which would require 1,000 panels.

Other jobs too were mentioned. Mr Nestorovic told Mr Falzon repeatedly “it’s all happening” and that the jobs were “ready to go”.

122    Mr Falzon said, and I accept, that it was the prospect of the job at Brisbane Airport, as described by Mr Nestorovic, which really attracted his interest. He believed what he had been told.

123    Messrs Falzon, Stephens and Forrest agreed to establish an investment vehicle by which shares in the State Companies could be acquired. On 30 September 2013, RRG was incorporated and the RRG Unit Trust Deed executed. The RRG Founders then solicited investments from friends and acquaintances.

124    By the first week of October 2013, the RRG Founders had raised $100,000. Over the next few months, they raised a further $120,000. This was the source of the monies advanced by RRG to Status in the period from 11 October 2013 to 22 January 2014 as shown in the table set out earlier in these reasons.

The involvement of Mr Schirripa

125    Later, in November 2013, Mr Falzon spoke to Mr Schirripa, with whom he was acquainted. Mr Falzon told Mr Schirripa about the VTF business and interested him in it.

126    In November 2013, Mr Schirripa had a meeting with Mr Falzon at the latter’s office at Edwardstown at which Mr Falzon outlined to Mr Schirripa the VTF product and business. Mr Falzon showed Mr Schirripa some of the VTF panels. I accept Mr Schirripa’s evidence that, at this meeting, Mr Falzon told him of the following matters:

(a)    Mr Nestorovic:

    had spent around seven years developing the product;

    owned a patent on the product;

   had conducted extensive market research and had received positive feedback regarding the level of demand for the VTF panels;

   owned the manufacturer of the VTF panels, being Status;

(b)    Status owned the factory in China at which the VTF panels were made;

(c)    Mr Nestorovic’s daughter, Anna Pinneri, also worked in the business;

(d)    that Mr Falzon, Mr Stephens and Mr Forrest were trying to raise money to invest in the VTF business;

(e)    RRG, of which he was a director, was the vehicle being used for the investment;

(f)    RRG was trying to raise $800,000 to buy a 45% share in the VTF businesses in South Australia, Western Australia, Queensland and the Northern Territory; and

(g)    Mr Schirripa had the option of investing directly into the VTF business or of becoming an agent for VTF.

127    I am satisfied that Mr Schirripa must have expressed some interest in becoming involved in the VTF business at that meeting, but it does not seem that either he or Mr Falzon did anything at that time to pursue that interest.

The February 2014 café meeting

128    The next step in Mr Schirripa becoming involved occurred in February 2014 when he met Mr Falzon and Mr Stephens at a Hindmarsh café. At this meeting, Mr Falzon or Mr Stephens told Mr Schirripa that RRG had raised over $200,000 for investment into the VTF businesses; that that money had been used to purchase most of the 45% share in the South Australian and Western Australian companies; that RRG had insufficient monies to complete the investment in the Western Australian and Northern Territory companies; that if he invested, his funds would be used to purchase the remainder of the 45% share available in the Western Australian and Northern Territory companies; that Mr Nestorovic would own the majority 55% shareholding in each of the businesses into which RRG invested; that all the money invested by RRG was to be used to buy VTF panels to be hired out; that whatever number of VTF panels RRG’s investment bought, Mr Nestorovic and Ms Pinneri would make an equal contribution by providing the same number of fencing panels; and that the plan was to secure agents in other places who would assist in renting the VTF panels in consideration for receipt of a share of the profits.

129    Mr Schirripa said that he could not recall who of Mr Falzon and Mr Stephens made these statements but that each had confirmed the statements made by the other.

130    During the course of the meeting, Mr Falzon gave Mr Schirripa several documents entitled:

(a)    Offer of Investment;

(b)    Agents Cashflow per State estimated;

(c)    Agents and VTF Forecast – Western Australia;

(d)    Agents and VTF Forecast – New South Wales;

(e)    Agents and VTF Forecast – All States; and

(f)    Agents Cashflow All States.

131    Each of these documents had been prepared by Mr Falzon and Mr Stephens. Documents (b) to (f) were copies of the spreadsheets to which I referred earlier.

132    The document entitled “Offer of Investment” comprised one and a half pages. It provided (relevantly):

OFFER OF INVESTMENT

Preamble

An offer of investment is presented to prospective investors for a new start up business in the construction industry.

The offer is not an investment scheme or registered managed investment and is presented based on the assumptions and forecast of the business owner’s knowledge and experience.

Visible Temporary Fencing Investments

The Business

RRG Unit Trust is a Unit Trust being formed by Robert Falzon, Glen Stephens and Robert Forrest as trustees. Each trustee is a unit holder and holds 25% unit holdings each of the newly formed Unit Trust. The trust will hold 45% share holding in 7 newly formed companies to be called Visual Fencing SA, Visual Fencing WA, Visual Fencing Vic, Visual Fencing NSW, Visual Fencing QLD, Visual Fencing NT and Visual Fencing ACT. The Trust is allotting another 20 units to investors in minimum 1 unit lots at $40,000 per unit in order to raise $800,000.00 for the purchase of 4000 visible fencing panels as part of its 45% share holding in each newly formed company for the whole of the Australian Market. The offer and price for unit[s] may change at anytime.

The other 55% of each newly formed company is owned by the inventor of the Visible Temporary Fencing product. They will also put in 4000 fences giving the shared investment 8000 fences.

It is our intention over the next 3 years to get to 250,000 rented annually fence panels Australia wide and hoping to get to a figure of around 500,000 panels in the following years. Please note attached is profit and loss figures based on 1000 panels starting in Perth and growing through self funding to 50,000 panels. We have deducted 10% for agents to act for us to run the business if we feel it’s a faster option. These figures are assumptions only as this is a new release product and we have no previous figures to compare to. There are over 5 million temporary fences in Australia and only Visual Fencing has the rights to Visible Temporary Fencing patent and product. The figures supplied in the attached cashflow projections are for the 100% share of the business. We being RRG Unit Trust will have 45% of the proceeds.

133    The periods to which each spreadsheet related varied but most were for the period February 2014 to November 2015 and projected handsome income in each of the months in those periods. The figures in the spreadsheets were based on an expected income of $15 per panel per month. Mr Schirripa said, and I accept, that Mr Falzon told him that he and Mr Stephens had prepared the spreadsheets using information on pricing provided by Mr Nestorovic.

134    Mr Schirripa also said, and I accept, that he was impressed by the information in the spreadsheets. He thought that, even if the VTF panels could be hired out for only half the predicted price of $15 per panel per month and the business generated only half of the predicted volumes, the hiring would still generate “a decent return”.

135    At the conclusion of meeting, Mr Schirripa told Mr Falzon that he was interested in investing in VTF but that he wished to know more about RRG and the unit prices. Shortly afterwards, Mr Falzon sent the following letter to Mr Schirripa:

Hi Rick

RRG was originally Founded by Glen [Stephens], Robbie [Forrest] and myself.

We agreed to set up on the basis that we give Michael an extra 5% of the business therefore the split was 55/45 for VTF. This way RRG had 45% share. We were asked to put in $800,000 over a period of time into the business to get all States signed up.

It was also agreed that we would help Anna [Pinneri] and Michael [Nestorovic] in running the business and setting up all the States and Robbie would look after Perth and Darwin and Glen was happy to go and look after Queensland and NSW while I looked after South Australia and Victoria. Obviously now with the setting up of agencies our workload in the other states will be far easier moving forward.

Michael had another party who wanted to buy into the business but not work it. However Michael chose us as he did not have the time to run the business and that we agreed not to bleed the company of funds while it was getting started.

The three of us were not going to draw any wages and would only get dividen[d]s from the company when other shareholders received theirs. It is our hope to pay out dividen[d]s as we receive them with 50% going back to all investors and 50% to be used to give all investors back their initial investments.

We decided to find investors in the company to help us raise the $800,000.

Our plan was to sell 10 shares at $20,000 each for the first stage. We would then sell another 10 shares at $40,000 each and finally another 4 shares at $50,000 each. This would then leave us with approx 75% of the company between the 3 of us.

We sold the initial 10 shares and raised $200,000 last year and since we have been in discussion with yourself re the next stage. We have also put in approx $25,000 of our own money for Legal Fees and other start up costs.

I cant tell you due to confidentiality how much each person put in but I can tell you that my daughter put in $20,000 for one share last October. No one has paid under $20,000 for a share.

Regards

Robert

136    Mr Schirripa said, and I accept, that he ascertained from this document that none of Messrs Falzon, Stephens or Forrest had put any of their own money into RRG.

Mr Schirripa meets Mr Nestorovic

137    Mr Falzon then arranged for Mr Schirripa to meet Mr Nestorovic. This meeting, which was also attended by Mr Falzon and Mr Stephens, occurred at a café. Mr Schirripa said that the discussion of the meeting was “broad and general” but that, during the course of the meeting, Mr Nestorovic made statements to the following effect:

(a)    he had been developing the VTF product for several years;

(b)    he had researched the demand for the product extensively;

(c)    he had received extremely positive market feedback regarding the level of demand for the fencing, and his research demonstrated significant interest in Australia for the product;

(d)    he had several national leads and contacts which would help him launch the business successfully;

(e)    he contemplated the business in each State being conducted by a separate company with agents secured to hire out the fencing in each State;

(f)    his Company, Status, manufactured the fences in China; and

(g)    he would provide the contacts and that Messrs Falzon, Stephens and Schirripa would do more of the “leg work” for the manual setting up of the fences in South Australia.

138    In addition, the spreadsheets were discussed at the meeting. Mr Schirripa said, and I accept, that during the course of the discussion, Mr Nestorovic said that his research indicated that rentals of $15 per panel per week could be achieved, and that he knew that was so because “I have been working on this for long time now”.

139    Mr Schirripa met Mr Nestorovic for a second time at a café meeting in which Mr Falzon and Mr Stephens also participated. Mr Schirripa said, and I accept, that he could not recall whether some matters had been said at the first or the second of the café meetings, but that Mr Nestorovic had said:

(a)    he had made arrangements with a female member of the Coober Pedy Council for it to hire 800 VTF panels at $17 per panel per week for between six and 12 months for the upgrade to the Town’s drive-in theatre and football oval. He also said that the Coober Pedy Council had a place for storage of the panels and that he, Mr Stephens, Mr Falzon and Mr Schirripa would travel to Coober Pedy to erect the fencing;

(b)    he had a contact with a union representative in Brisbane through which VTF would be contracted to supply panels for a development at the Brisbane Airport. This was to be a large job for which many panels would be required; and

(c)    that he had been to Darwin to research the potential for the use of the fencing panels there and had had a lot of interest.

140    At about this time, Mr Schirripa assisted Mr Nestorovic and Mr Falzon to erect some VTF panels for display purposes on the corner of Port Road and South Road. The purpose was to promote VTF panels for use in the major Torrens to Torrens development of South Road. I reject Mr Nestorovic’s claim that he met Mr Schirripa for the first time on this occasion and that Mr Schirripa had told him then that he was “involved with” RRG.

The early March 2014 Paralowie meeting

141    In early March 2014, Mr Schirripa attended a meeting at Mr Nestorovic’s Paralowie property. Mr Falzon and Mr Stephens were also present. In this meeting, Mr Schirripa met Ms Pinneri for the first time. Mr Schirripa said that by this time he had learnt that the Respondents held their investment through a holding company, VTF Aust. He also said that at this stage he was “seriously interested” in joining the VTF business and was looking at the option of becoming VTF’s selling agent in South Australia. Ms Pinneri provided him with a document entitled “Visible Temporary Fencing South Australia Agency Agreement” which set out the basic terms of the proposed agency agreement. Amongst other things, this agreement contemplated the agent paying an “upfront fee” of $300,000 plus GST, the agent securing hiring contracts, and the agreement being for a term of five years with an option of a further five years.

Events subsequent to Mr Schirripa’s first investment

142    Mr Schirripa then discussed the agency proposal with his accountant, Mr Letcher, in the firm of Letcher Moroney Chartered Accountants. Following that discussion, he sent an email to Ms Pinneri raising a number of queries about the proposed arrangement. One question which Mr Schirripa asked was:

In relation to supply is the factory in China owned or contracted out by Status?

143    Ms Pinneri responded by email on 17 March 2014. In response to the query concerning the ownership of the factory in China, Ms Pinneri said:

[T]he company in relation to Status is owned and run by Status which has nothing to do with VTF, Status is the supplier of the fence to VTF there will be a contract between the 2 parties for supply.

144    At about the same time, Mr Schirripa telephoned another temporary fencing hire company, ATF, and enquired as to their hiring costs. However, he did not obtain a clear answer because ATF made it plain that any quotation which it was prepared to give would depend upon details of the proposed hire including, the number of panels, the period, the location and circumstances in which the panels would be used.

145    Following discussions with his wife, Mr Schirripa decided not to become an agent because he would not have any control over the VTF panels. At the same time, he told Mr Falzon that he was still interested in making a direct investment into RRG.

146    During the remainder of March 2014 and in early April 2014 before Mr Schirripa made a decision to invest, he had numerous discussions by telephone with Ms Pinneri in which she asked him to indicate whether he was “in or out”. In the course of those conversations, Ms Pinneri made a number of statements to Mr Schirripa which I am satisfied included the following:

(a)    the price of each VTF panel was $224 plus GST;

(b)    the VTF panels made by Status were of high quality and that was the reason for the cost;

(c)    if Mr Schirripa invested in the business to buy VTF panels, they (the Respondents) would match his investment by putting in the same value of stock and so provide the same number of VTF panels for the business;

(d)    the Respondents would make their contribution through VTF Aust; and

(e)    Mr Nestorovic did not want the VTF business to be held up because Mr Schirripa did not invest, as they had VTF panels ready to come from China.

The third of these statements is particularly pertinent to my findings concerning the 16th representation.

147    At about this time, Mr Schirripa made the decision in principle to invest in the VTF business by purchasing units in RRG. He and his wife agreed that the investment would be made through Schnik.

148    Mr Schirripa was absent from Australia on a holiday from 2 April to 17 May 2014. Before he left, he discussed the investment with Mr Letcher and provided him with a copy of the RRG Unit Trust Deed and the SHA for VTF (SA). He also transferred $435,000 from Schnik to the Letcher Moroney Trust Account as he had been told by Mr Falzon and Mr Stephens that this was the amount which RRG would need to fund the purchase of VTF panels for the Northern Territory and Western Australia. While absent from Australia, Mr Schirripa received advice from Mr Letcher to the effect that he and a solicitor had reviewed the documents and were satisfied that they were complete. Mr Schirripa then authorised Mr Letcher to pay the sum of $435,000 on behalf of Schnik to RRG and the latter did so on 14 April 2014. This was the first investment of monies by interests associated with Mr Schirripa.

149    Shortly after Mr Schirripa’s return to Australia, on 20 May 2014 he was appointed a director of each of VTF (SA), VTF (WA) and VTF (NT). Mr Stephens had resigned as a director of each of those companies a month earlier and Mr Schirripa was appointed director in his place.

150    One of the means by which Mr Schirripa sought to locate potential jobs was by accessing the Cordell website. That was a website, accessible only by subscription, which listed with appropriate details, invitations to tender for construction and like jobs.

151    I will make findings regarding subsequent events when addressing the individual pleaded misrepresentations. In the meantime, I record that Mr Schirripa commenced spending time at the Prospect office of Status, where he had his own desk and associated equipment. In discussions between himself and the Respondents, it was agreed that he would promote the VTF panels to potential customers and seek to obtain contracts for their hire. He also participated in the unloading and storage of the VTF panels as they arrived in Adelaide. These generally were the kinds of activities in which Mr Schirripa engaged.

152    There was disagreement at the trial as to the number of contracts for the hire of the panels which had actually been achieved. I am satisfied on the evidence that there were the following contracts:

(a)    January 2015: VTF (SA) for the supply of 140 panels for seven days in relation to the Tour Down Under;

(b)    20 August 2015: VTF (SA) for the supply of 50 panels at $3 per panel per week to Ace Traffic Control for two weeks;

(c)    August 2015: VTF (SA) for the supply of 122 panels at $3 per panel (as well as the supply of shade cloth) to the Tea Tree Gully Council; and

(d)    2 June 2015: VTF (Vic) for the supply of five panels at $5 per day to Caulfield RSL.

153    There is also evidence that VTF (NT) may have obtained a job at Darwin Airport, but the evidence did not disclose the details.

154    It is not possible on the evidence to make findings about whether there were any other contracts but I am satisfied that, if there were, they were in the period between April 2014 and October 2015 and of limited number.

155    On 15 October 2015, Mr Schirripa resigned as a director of the State Companies, other than VTF (Qld) and VTF (Vic) of which he had never been appointed director. Thereafter, he ceased to have any active involvement in the VTF business. Thereafter, the Respondents were the active participants in the business. As already noted, all the VTF companies and Status passed into administration in 5 July 2017.

The representations - introductory matters

156    In this section of the reasons, I will make findings concerning the alleged representations and whether they were misleading or deceptive. It will be necessary in doing so to take account of the Applicants’ concession that s 18 and s 4(1) of the ACL do not apply to all the representations.

157    It is convenient to make findings about the 17th representation first.

The 17th representation - the Manufacturing Representation

158    As noted earlier, the Applicants allege that, throughout the period between May 2013 and July 2015, the Respondents made representations to Mr Schirripa that Status was the manufacturer of the fencing and ancillary equipment for the VTF business. The Applicants referred to this representation as the “Manufacturing Representation”.

159    The Applicants do not plead that this representation had been made dishonestly.

160    The Applicants accepted that, if the conduct relied upon is established, this representation had been made with respect to all the State Companies with the effect that s 18(1) of the ACL was inapplicable.

161    The Respondents accepted that they had made the 17th representation. In fact, they maintained the truth of the representation. Mr Nestorovic said that he had wanted Mr Falzon and Mr Schirripa to believe that Status would be manufacturing the VTF panels at its own factory and would not be paying a third party for them. Ms Pinneri said that, when making statements of the corresponding kind to Mr Schirripa, she had wanted him to believe that Status was the manufacturer of the VTF panels.

The relationship between Status and Linhai Hedda

162    Mr Nestorovic described Ms Nancy Zheng and her father as “people in China who assisted Status in relation to the Status business”. He also said that Ms Zheng was paid commissions by Status. He deposed to actions he had undertaken in China with Ms Zheng to locate suitable fencing panels and to suggestions which he had made for their improvement.

163    Mr Nestorovic deposed that, in relation to the actual manufacture of the VTF panels, Ms Zheng and her father had established Linhai Hedda. Subsequently, on 6 April 2011, Status entered into two agreements with Linhai Hedda: a Joint Venture Agreement (JVA) and an Exclusivity Agreement. The substantive parts of the JVA were:

COMMENCEMENT DATE: 06/04/2011

Linhai Hedda takes on the commitment and undertaking to commence a joint venture with Status Shop Maintenance Pty Ltd.

Joint Venture meaning that both parties Linhai Hedda and Status Shop Maintenance Pty Ltd will be working in conjunction with each other exclusively to source various products from various companies throughout China.

Status Shop Maintenance Pty Ltd to use all sourcing relations through Linhai Hedda and Linhai Hedda to not work with any other company but Status Shop Maintenance Pty Ltd.

Status Shop Maintenance to bare (sic) all costs in relation to all expenses that are incurred within the joint venture

-    Rent commitments

-    Outgoings

-    Travel expenses throughout China

-    Freight expenses within China

-    Product purchases and sample purchases

-    Payments to be made in full on commencement of orders

All costs to be bared (sic) by Status Shop Maintenance Pty Ltd in relation to any work that is to be done at the request of Linhai Hedda.

Linhai Hedda to fully commit to obtaining the correct sources of various companies and factories relating to any product lines that Status may request.

Linhai Hedda to pay only company costs in relation to Linhai Hedda and ensure all requirements are fulfilled.

Status Shop Maintenance to bare (sic) all costs within Australia. Joint venture is valid until both parties are no longer willing to commit.

164    The substantive terms of the Exclusivity Agreement are:

COMMENCEMENT DATE: 06/04/2011

Linhai Hedda takes on the undertaking to work exclusively with Status Shop Maintenance Pty Ltd in relation to any new product that needs to be developed, deigned (sic), tested, patented, produced and manufactured by Status Shop Maintenance Pty Ltd.

Any products that Status has rights or undertakings and ownership with, will be produced under the leadership of Status Shop Maintenance Pty Ltd. All costs in relation to any ownership deals will be at the cost of Status Shop Maintenance Pty Ltd.

Linhai Hedda takes the undertaking to full fill (sic) all obligations of physical production under the leadership and guidelines of Status Shop Mainteance Pty Ltd. All manufacturing costs will be paid by Status Shop Maintenance Pty Ltd to formulate

-    Factory, manufacturing, production costs

-    Testing requirement costs if and when needed

-    All outgoing costs in relation to the manufacturing of any product lines directly through Linhai Hedda

Linhai Hedda to make a full exclusive commitment to ensure

-    All exclusive manufacturing in China warehouse to be running smoothly and in timely fashion while Status directors are not in China

-    Ensure all monies that are sent are used for the manufacturing process and expenses

-    Ensure all information is to stay within Linhai Hedda and no other Chinese manufacturers or companies are able to obtain exclusive information or designs that are introduced by Status Shop Maintenance Pty Ltd

Exclusivity agreement is to be full filled (sic) until both parties are willing to end. All product designs, information, rights and patented products are owned outright either by Status Shop Maintenance Pty Ltd or by the directors individually.

165    As is apparent, neither of the two agreements was prepared professionally.

166    The subject matter of the JVA appears to be the sourcing of products in China. It does not purport to be an agreement concerning manufacture.

167    The effect of the Exclusivity Agreement is not altogether clear, but it does seem to contemplate that Status would manufacture some products in China.

168    Mr Nestorovic deposed in the affidavit containing his evidence in chief that, in April 2013, Status and Linhai Hedda had established “a bigger factory space” to start making more VTF panels. He said that the factory was operated by Status and Linhai Hedda pursuant to the JVA and the Exclusivity Agreement; that Status paid all outgoings such as rent and the expenses relating to the manufacture of the VTF panels; that the factory operated in accordance with his directions; and that he had referred to the factory as “my” or “our” factory. The Respondents had pleaded the same matters in their filed Defence, at [16.17]. In his oral evidence, Mr Nestorovic claimed that the factory was about 4,000 m2 and that ordinarily six to eight people worked in it, more if they wished to increase production. He said that the raw materials in the form of tubing, mesh and the reflective tape came from elsewhere but the fabrication of the panels and the manufacture of the feet for the panels occurred in the factory.

169    Mr Nestorovic deposed that some of the costs associated with the manufacture of the VTF panels were paid directly by Status and the balance by Linhai Hedda. Linhai Hedda would invoice Status a certain amount in relation to each item that was manufactured and transported. Throughout his evidence, Mr Nestorovic referred to Status as having manufactured the VTF panels. At times, he insisted that Linhai Hedda had not produced the panels but was just a trading company.

170    Ms Pinneri deposed in the affidavit containing her evidence in chief that Status had been liable for all the manufacturing costs and outgoings, including rent, in relation to the manufacture of the VTF panels. She said that, because of this, she had been accustomed to refer to the factory in China making the VTF panels as “Status’ factory” or as “our factory”. She agreed that she had made statements to that effect to Mr Schirripa.

171    Apart from the JVA and the Exclusivity Agreement, the documentary evidence does not support the Respondents’ claims that Status was the manufacturer of the VTF panels. Instead, it indicates that Status acquired the VTF panels (and other products) from Linhai Hedda and that the two companies operated on an arms-length basis as importer and exporter respectively.

172    Linhai Hedda (describing itself as “Linhai Hedda Import & Export Co. Ltd”) rendered invoices (each entitled “Commercial Invoice”) to Status in relation to each supply of VTF panels. Commonly, the invoices also included charges for other products supplied by Linhai Hedda to Status.

173    I summarise the details on the Linhai Hedda invoices concerning the supply of VTF panels as follows:

174    With the exception of the first two invoices, all the prices shown are FOB prices.

175    The VTF panels referred to in the invoices were shipped from China to the various States as follows:

176    The total amount paid by Status by way of international transfers (these being payments to Linhai Hedda) in the period 11 October 2013 to 22 July 2016 was $1,648,689. The difference between that figure and the figure of $1,346,075 shown in the above table appears to relate principally to products which Status acquired from Linhai Hedda other than VTF panels and ancillary equipment. This meant that there was no, or very little, money which could have been expended by Status in China on rent, wages, raw materials and the like.

177    The Linhai Hedda invoices indicated that payment was to be “T/T”, which I understand meant that it was to be in accordance with the terms of trade between Linhai Hedda and Status. Further, the invoices included the notation “The items on the above commercial invoices are new and unused and have not been field tested or factory trialled”.

178    The provision of a commercial invoice of the kind provided by Linhai Hedda to Status in respect of the VTF panels would not have been necessary had the relationship between the two companies been that as described by the Respondents. Nor would the notations concerning terms of trade and the character of the items have been necessary in that circumstance. Mr Nestorovic’s claim that Linhai Hedda had raised the invoices only for the purposes of satisfying government requirements and to facilitate customs clearance was not credible.

179    There is no documentary evidence of Status having paid the rent and other outgoings of a factory in China. There is no documentary evidence of Status having purchased machinery and other equipment for a factory, as Mr Nestorovic claimed. Nor is there evidence of Status having purchased the raw materials or components with which to make the VTF panels. Nor is there any documentary evidence of Status having engaged in the activities which would be expected incidents of the operation of a factory. Mr Nestorovic accepted that Status had not been registered to manufacture in China. It is in any event implausible that Status would have owned and operated its own factory in China. It is also implausible that, as Ms Pinneri claimed, Linhai Hedda had in late 2011 or early 2012, rented a factory for the sole purpose of manufacturing VTF panels. The development of the product at that stage was still embryonic and there had not been any orders for the factory to fill.

180    Ms Pinneri acknowledged in her cross-examination that Status did not have a business address in China and that it was Linhai Hedda which had supplied the VTF panels to Status. She said that she had “deemed” Status to be the manufacturer because the VTF panels had not been manufactured previously, because the Chinese company had been “opened … just to do our fence in conjunction with us” and because “we paid the expenses, we paid the rent … we paid freight and transport charges and all that within China”.

181    Ms Pinneri acknowledged that the Tender Bundle of Documents (which had been prepared by the parties through a process of consultation and at a time when the Respondents were legally represented) did not include any documents evidencing payments by Status to Linhai Hedda for rent. She also acknowledged that Linhai Hedda had not manufactured any of the other products acquired from it by Status, saying that Linhai Hedda manufactured only the VTF panels and the associated equipment such as the feet.

Status was not the manufacturer

182    In my opinion, neither the JVA nor the Exclusivity Agreement can reasonably be understood as describing the relationship of an owner and operator of a factory and its local agents. Even if that be wrong, the evidence is inconsistent with Linhai Hedda and Status having conducted themselves, in relation to the supply of VTF panels, in accordance with the JVA and the Exclusivity Agreement. Instead, their relationship was that of exporter and importer respectively.

183    Mr Nestorovic himself described Linhai Hedda as a trading company and not a manufacturing company.

184    Having regard to all the evidence to which I have just referred and my unfavourable assessment of the Respondents as witnesses, I do not accept that Status manufactured the VTF panels in its own factory in China.

185    I conclude, therefore, that the Respondents’ claims concerning the ownership and conduct of the factory in China were false. This means that the Applicants have established that the Manufacturing Representation was made and that, on each occasion it was made, it was misleading or deceptive.

The significance of the Manufacturing Representation

186    The falsity of the 17th representation is significant in a number of ways. First, it meant that instead of the State Companies acquiring the VTF panels from the manufacturer, as the Applicants believed, they were acquiring them from an intermediary and, further, an intermediary controlled by the Respondents. Amongst other things, this meant that there was the potential for the intermediary to be charging its own margin.

187    Secondly, the representation had the effect of obscuring the nature of the price of the VTF panels invoiced to the Applicants. Instead of the amounts which the Applicants were invited to invest from time to time being determined by reference to the manufacturer’s costs of manufacturing the VTF panels and the cost of transporting them to Australia, these amounts were, in effect, determined at the discretion of the Respondents because they determined the mark-up Status would charge on the cost of the acquisition from China. The representation had the effect that the Applicants were not alerted to that fact. Although as a director of each of the State Companies, Mr Nestorovic had duties to each, he did not bring this significant information to the attention of his co-director, Mr Schirripa. Instead, Mr Nestorovic and Ms Pinneri induced him to believe that the price which the State Companies were paying for the VTF panels was the manufacturer’s price together with the transport and importation costs.

188    Thirdly, the 17th representation bears on the 16th representation (the Matching Representation), to which I will turn shortly. It meant that instead of the Respondents, by VTF Aust or Status, making their contributions to the State Companies by providing VTF panels which Status itself had manufactured, they would do so by providing panels obtained from an intermediary.

189    Mr Schirripa explained the significance to him of the representation that Status was the manufacturer of the VTF panels as follows:

Believing Status was the manufacturer was one of the main reasons I invested because I thought the manufacturer would be able to provide the fences for the best price. If I knew that Status was not the manufacturer, I would have thought the State Companies would engage directly with the manufacturer to purchase fencing. If I had known that Status was not the manufacturer of the fencing, I do not believe I would have caused Schnik to invest the way it did, either directly or via RRG. If I had known that [Mr Nestorovic and Ms Pinneri] were being untruthful to me about who the manufacturer of the fencing was, there is no way I would have caused Schnik to invest any money in the VTF business, whether directly or via RRG.

190    Mr Schirripa also explained the significance to him of Status not being the manufacturer in the following answer in his cross-examination:

Why would I go down to the shop and pay $200 for a jug when I can go to the manufacturer myself and pay $20 for it? It makes no sense. Why would I want to be involved with someone who represented to me to be the manufacturer and then turned out not to be the manufacturer just so they could take and pocket an extreme amount of money from investors that were being genuine and honest with their investment?

191    The Respondents sought to counter that answer by pointing out that, because of the patent which they held, it would not have been open to the Applicants to have acquired the products from the manufacturer without their consent. Mr Schirripa’s response was straightforward: he simply would not have been interested in investing his funds to acquire the product at a mark-up on the manufacturer’s price.

192    Evidence of this kind has to be treated with caution as it involves a witness giving evidence of his or her attitude in a hypothetical situation and in which the potential for ex post facto rationalisation is obvious: Rosenberg v Percival [2001] HCA 18, (2001) 205 CLR 434 at [26]; Campbell v Backoffice Investments at [146]. Nevertheless, I accept Mr Schirripa’s evidence: partly because of my assessment of his evidence generally and partly because Mr Schirripa had indicated contemporaneously the importance to him of knowing the identity of the manufacturer.

The 16th representation - the Matching Representation

193    The Applicants referred to the 16th representation as the “Matching Representation”. There are two parts to the pleading of the representation. In the first part, the Applicants allege that between September 2013 and July 2015, Mr Nestorovic represented to RRG, Schnik and Mr Schirripa that VTF Aust would match, or had matched, any funding provided to the State Companies by RRG, Schnik and FSN by providing the State Companies with fencing panels and ancillary equipment to a value equivalent to the amount of the investment of RRG, Schnik or FSN, as the case may be. In the second part, the Applicants allege that Ms Pinneri had made the same representation to RRG, Schnik and Mr Schirripa in the period between March 2014 and July 2015.

194    The representation was to the effect that the Respondents would, through VTF Aust, make the same level of contribution to the VTF business as did the investors. They would do so by a contribution in kind (by providing VTF panels) rather than in cash. At times in the submissions, counsel for the Applicants put the claim slightly differently, namely, that the representation was that the Applicants’ money would be used to purchase half the required stock from Status and that the Respondents would match that by contributing, from their own resources, the other half of the required stock. This was said to be a misrepresentation because in fact, the Respondents used the investors’ money to acquire the whole of the VTF panels for the State Company in question. They were able to do this by acquiring the panels at a cheaper price than that represented to the investors.

195    The Respondents deny making the Matching Representation. Despite the Respondents’ denial, there is a good deal of evidence indicating that a form of representation that they would match the Applicants’ investments was made, and that it was made more than once. The issue is whether that representation was in the form, or to the effect, alleged by the Applicants.

196    The Applicants accepted that, if the conduct they allege is established, the 16th representation had been made with respect to the acquisition of shares in all the State Companies, with the consequence that they could not rely on s 18(1) or s 4(1) of the ACL.

197    The Applicants emphasised that, in considering whether the Matching Representation had been conveyed in the pleaded terms, it was the conduct of the Respondents viewed as a whole which should be considered: Campbell v Backoffice Investments at [25] (French CJ); Butcher v Lachlan Elder Realty at [109] (McHugh J). This meant that regard should also be had to all the surrounding facts and circumstances. They submitted that, in the context in which the Respondents had told the Applicants that they would match the number of VTF panels which they funded, the Respondents had represented that they would provide VTF panels of equivalent value.

198    Although some of the Applicants’ submissions suggested that the Respondents had made misrepresentations by silence, there was no pleading to that effect.

The making of the Matching Representation

199    I have already referred to the evidence of Mr Schirripa that, in March 2014, Ms Pinneri had told him that if he invested in the business to buy VTF panels, the Respondents would match his investment by putting in the same value of stock, and so provide the same number of VTF panels. He also said that, in about May 2014, Ms Pinneri had told him that “Status did not make any money off the fences”. She explained that this was because the Respondents wanted “to get the VTF business going”. In addition, Mr Schirripa deposed to having been told by Mr Nestorovic in August 2014, at a time when the Respondents were soliciting further investment by RRG, that “the deal would be the same as before, and … he would put in the same amount as me in stock”.

200    Mr Schirripa said that, in relation to the investment in VTF (Tas) and VTF (NSW), Mr Nestorovic and the Respondents together had told him that his investment would be done in the same way as before (“everything is the same no matter where we go” and “everything is the same”).

201    Mr Dimech, who was introduced to the VTF business before Mr Schirripa, gave a similar account. He said that in around September 2013, Mr Nestorovic had told him that he (Mr Nestorovic) “would put in the same amount as anything we put in”.

202    The accounts of Mr Schirripa and Mr Dimech are supported by the evidence of Mr Falzon who said that, at his first meeting at the Prospect premises of Status, Mr Nestorovic had told him that “he would go 50/50 with any investment I got to buy fencing”. Although, as already indicated, I am proceeding on the basis that caution should be exercised before acting on Mr Falzon’s evidence, I consider that its consistency with the evidence of Mr Schirripa and Mr Dimech makes it appropriate to do so in this instance.

203    The oral evidence concerning the Respondents having made a form of the Matching Representation is also consistent with the documentary evidence. As noted earlier, shortly after RRG, Schnik and FSN made their respective initial investments into the State Companies, they entered into a SHA with VTF Aust and the State Company concerned. The SHAs were in template form and had been prepared by the Respondents or persons retained by them for that purpose. Clause 6.2 provided as follows:

[6.2]    Initial Loan

[6.2.1]    The Company acknowledges that each of the initial Members set out in clause 5.1.1 or their respective Related Entities have made the following loans to the Company on or about the Operative Date as follows:

…

204    Each SHA then recorded that VTF Aust and the investor or investors had made matching loans. So, for example, in the case of VTF (SA), it recorded that VTF Aust and RRG had each made loans of $107,000. The amounts recorded in cl 6.2 in each SHA are summarised in the table concerning the SHAs set out earlier in these reasons. It is pertinent that cl 6.2 recorded the contributions by VTF Aust and the investor in monetary terms, and not in terms of the number of VTF panels each had contributed. By including matching dollar figures, VTF Aust (and the Respondents) were representing that its contribution matched, in dollar terms, the contribution by the investor.

205    Clause 6.2 contained, in effect, an express representation that a contribution matching that of the investor had been made by VTF Aust. Although the representation was made after the initial advance of monies by the investor, its content is consistent with the Matching Representation alleged by the Applicants. It is appropriate to record, however, that the Applicants do not assert that they relied on the statements in cl 6.2 of the SHA. None of Mr Schirripa, Mr Falzon, Mr Dimech or Mr Frank Schirripa said that he had been aware of the clause. Nevertheless, those statements do form part of the circumstantial background by which the issue of whether the Respondents did make the pleaded representations is to be determined.

206    The Respondents also represented to the investors that the whole of their investment was used for the purchase of VTF panels or associated equipment. They did this by the invoices which Ms Pinneri caused Status to issue to the State Company involved. These indicated that the whole of the invested monies had been applied to the purchase of VTF panels or associated componentry at the identified prices. Coupled with the Manufacturing Representation, this was a representation that the whole of the monies had been used to pay for the manufacture of the VTF panels and associated equipment.

207    Much of the Respondents’ own evidence also supports the conclusion that they had each made a form of representation that they, through VTF Aust or Status, would match the contributions of the Applicants, although not exactly in the form alleged by the Applicants. I list the following aspects of their evidence:

(a)    Mr Nestorovic said that in meetings with Mr Falzon and Mr Stephens in mid to late 2013 “I also discussed how they would put in cash to purchase the fencing products from Status and I would arrange for a matching set of the fencing products to be provided. I mentioned that the price Status was going to charge for the fencing was about $200, plus GST, for one panel”;

(b)    later, Mr Nestorovic said:

Initially 1,000 fence panels were purchased from Status for [VTF (SA)] and 1,000 fences were purchased from Status for [VTF (WA)], with half [of] each amount being purchased using funds provided by RRG and the other half being procured by [VTF Aust]. Prior to making any payment, RRG was provided an invoice regarding, amongst other things, the portion of the fencing products that its funds were paying for. Upon making the payment, [VTF Aust] would procure for the VTF State/Territory company from Status a set of products that matched the products in the invoice sent to RGG.

(c)    at [96] of his affidavit, Mr Nestorovic said “[t]he arrangement was always the same. RRG would provide funds to purchase half the amount from Status, and then [VTF Aust], [VTF (WA)] and [VTF (NT)] would procure from Status the provision of the other half”;

(d)    Mr Nestorovic made other statements to like effect, at [116], [118], [121], [133] and [145] of his affidavit;

(e)    in his cross-examination, Mr Nestorovic accepted that he had told Mr Falzon, at the time that VTF (SA) was being established, that he would “go fifty-fifty on any money that Mr Falzon or his colleagues contributed” and that he had told Mr Dimech that, if he brought 1,000 fences, he (Mr Nestorovic) would also buy 1,000 fences;

(f)    Mr Nestorovic admitted in cross-examination that he had told Mr Schirripa in relation to his investments in VTF (WA) and VTF (NT) that the money he invested would be used to buy half of the fencing panels required by the business and that he (Mr Nestorovic) would match that by putting in the other half. He agreed that he had wanted Messrs Falzon, Stephens and Dimech to believe that all of the money they invested would be used to pay for half of the fences; and

(g)    Mr Nestorovic agreed in his cross-examination that he had wanted “the RRG investors” to believe that he would be matching them dollar for dollar with their investment.

208    In her affidavit, Ms Pinneri deposed that, at the meetings in 2013 in which she participated with her father, Mr Falzon and Mr Stephens, “it was discussed and agreed that to obtain fencing and related products for the business, Glen, Rob and David would provide cash to purchase products from Status and my father [and] I would produce a matching set of the products from Status. This was always how the arrangement was”. In several other places in her evidence, Ms Pinneri referred to the procuring or the provision of matching sets of fencing products. See for example, [31], [33], [39], [41], [46], [50] and [53]-[55].

209    The Respondents submitted that they had represented only that they would, through VTF Aust, procure the same number of VTF panels as purchased with the investors’ funds and, further, that they had honoured that commitment. That is to say, for each VTF panel acquired with the investors’ funds, VTF Aust had supplied, or procured the supply of, a matching panel. The Respondents denied that they had said anything about providing panels to a value equivalent to those funded by the Applicants. They submitted that it had been a matter for them how they acquired the matching panels, whether by inter-company loans with Status, or otherwise. Ms Pinneri acknowledged that she had not told Mr Schirripa the amount which Linhai Hedda was charging to Status for each panel.

210    The Applicants accepted that matching numbers of VTF panels had been received by each State Company, but did not accept that they had been “provided by” either VTF Aust or Status. Instead, the Applicants contended that the matching panels had been provided using the funds which they themselves had advanced for the acquisition of the VTF panels whose purchase they were to fund. That is, they contended that the funds advanced by the investors had paid for all the VTF panels acquired by the State Companies.

211    The unit prices which Linhai Hedda charged Status for the VTF panels contrast with the unit prices which Status charged the State Companies for the VTF panels. I summarise the latter prices, derived from the Status invoices in evidence, in the following table:

212    As is apparent, the prices charged by Status to the State Companies were many multiples of the price charged by Linhai Hedda to Status. The evidence indicates that Status used the balance of the funds advanced by the investors to pay for the VTF panels which VTF Aust was to contribute, to pay for other products imported from China by Status, to pay for the general operating expenses of Status, and to fund the personal expenditures of the Respondents.

213    One indication of the reliance of Status on the funds advanced by the Applicants is that, in the period between October 2013 and September 2015 during which the Applicants advanced a total of $3.147 million, Status received only $597,085.18 from other sources. It was common for the Status bank account to be overdrawn until the funds of the Applicants were received. This meant that neither VTF Aust nor Status had the funds from its own resources to provide VTF panels matching those purchased with the Applicants’ funds. I am satisfied that both Respondents knew that that was so.

214    The Respondents submitted that Status had, in addition to paying the Linhai Hedda invoices, also paid for the shipping, customs and other transport costs associated with importing the VTF panels. I accept that that was so. The total amount paid by Status for logistics and customs services between 1 October 2013 and 30 September 2015 was of the order of $384,000. The total amount paid by Status for logistics and customs services between 1 October 2013 and 17 August 2016 was $477,460.12. However, some of the logistics and customs services encompassed in these aggregate figures related to the importation by Status of products other than the VTF panels and associated equipment and so cannot be attributed entirely to them.

215    In other words, there was a considerable surplus available to Status from the funds contributed by the Applicants. That surplus was more than sufficient to pay for the entire costs of acquiring and importing all the VTF panels, including the matching panels to be supplied by VTF Aust. It follows that Ms Pinneri’s statements (which she acknowledged making to Mr Schirripa in March/April 2014 before he made his first investment) that all of the money invested by RRG would be used to acquire half of the VTF panels for the State Companies were false. Ms Pinneri’s denial in her cross-examination that that was so did her no credit.

216    It was common ground that VTF Aust itself had not made any payment in respect of the matching quantities of VTF panels it was to provide. That conclusion is in any event supported by the statements for the bank account operated by VTF Aust, from Ms Pinneri’s evidence, and from the annual financial statements of VTF Aust.

Conclusion on the Matching Representation

217    Much turns on the precise words said to have been used. Clearly, Messrs Schirripa, Falzon and Dimech were unaware that VTF Aust and Status were, in effect, using the monies which they had advanced to fund the VTF Aust contribution of VTF panels. I accept that they thought that the Respondents were providing these funds from their own resources.

218    I am not persuaded that the Respondents ever said expressly that they would provide the matching VTF panels from their “own resources” or even that they said they would provide panels “of the same value”. In my view, the weight of the evidence is to the effect that the Respondents said only that they would provide matching numbers of VTF panels, and that they did not express that commitment in terms of “value”. Despite my general preference for the evidence of Mr Schirripa, I consider that his attribution to Ms Pinneri of a statement that the Respondents would contribute panels of equivalent “value” is a product of retrospective rationalisation.

219    Nevertheless, I am satisfied that, in the circumstances of the arrangements between the parties, the implication in the Respondents’ statements that they would provide matching numbers of VTF panels was that they would do so as their own independent contribution to the State Company concerned. That is to say, the Respondents were representing impliedly to Messrs Schirripa, Falzon and Dimech that they would do so from their own resources. That is what they wanted the Applicants to believe, so that they would think that they, as well as the Applicants, were carrying the risk of the investment. That was part of the Respondents’ reason for making the Manufacturing Representation.

220    A representation may be conveyed by implication from conduct, as well as by express words. In combination, the Respondents’ statements that Status was the manufacturer of the panels, their statements that they would “match” the Applicants’ contributions by the provision of panels, Ms Pinneri’s statement in May 2014 that the Respondents did not make any money “off the fences”, Mr Nestorovic’s statement that the Respondents would go “50/50”, and the Respondents’ statements that the monies the Applicants contributed would be used to pay for half the fences all contributed to the making of the representation by implication. As Mr Nestorovic acknowledged, he wanted the Applicants to believe that he would be matching their contributions dollar for dollar.

221    The Applicants’ understanding that they were paying the manufacturer’s price for the panels also contributed to their belief that the Respondents were contributing panels of the same value.

222    The Matching Representation was plainly false, because the Respondents had set the price to the Applicants for the VTF panels at a level which meant that the Applicants’ funds paid for all the VTF panels, and the Respondents did not carry any risk in that respect.

223    In short, the underlying arrangement was that the Respondents would make a matching contribution by providing an equivalent number of panels. It was implicit in the arrangement that the Respondents would do so by using their own resources. This was the effect which they conveyed to the Applicants.

The submission that the Matching Representation was not false or misleading

224    In the final submissions, Ms Pinneri submitted that Status had in fact provided the State Companies with matching numbers of VTF panels of the same value because it had charged VTF Aust the same amounts as it had charged the State Companies. Ms Pinneri referred in this respect to the annual financial statements of VTF Aust. These indicated that it had non-current liabilities in the form of borrowings in each year as follows:

225    These non-current liabilities were described in the financial statements as “shareholder loans”. Although the evidence did not indicate this expressly, I am willing to accept that the non-current liabilities in each of the annual financial statements related to the provision to VTF Aust by Status of the VTF panels. The precise manner of computation of the shareholder loans was not made apparent in the evidence but I note that the figure of $3,246,318.10 is reasonably proximate to the total amount of $3,147,192.30 advanced by the Applicants.

226    The annual financial statements of VTF Aust were prepared by the Respondents’ external accountant.

227    I do not consider that the entries in the annual financial statements warrant the conclusion that VTF Aust or the Respondents had in fact provided VTF panels of equal value. They appear to be in the nature of book entries, reflecting the position on which VTF Aust and Status had decided as between themselves. The annual financial statements of VTF Aust were not adopted by the Applicants as they had not been provided to them at relevant times. They do not reflect the position represented to the Applicants by the Respondents. In particular, they do not reflect contributions by the Respondents or VTF Aust of VTF panels from their own resources to a value equivalent to that contributed by the Applicants.

228    This submission of the Respondents fails.

229    I am satisfied that the Matching Representations were made and that they were misleading or deceptive.

The first representation - price and income projections

230    As previously noted, the Applicants plead that Mr Nestorovic made the first representation in about September 2013 to Messrs Falzon, Forrest and Stephens as follows:

(a)    the VTF panels would be rented at a price of $15 per panel per week;

(b)    distributing agents receiving 20% of net rental income would earn approximately $18,000 per month in April 2014, rising to $90,300 per month (over $1 million per annum) by August 2015;

(c)    distributing agents in Western Australia receiving 10% of gross income from renting fences at $15 per panel per week would receive monthly income rising from $6,450 in February 2014 to $430,000 in November 2015; and

(d)    distributing agents in New South Wales receiving 10% of gross income from renting fences at $15 per panel per week would receive monthly income rising from $6,450 in February 2014 to $430,000 in November 2015.

231    The Applicants submitted that each of these statements was a representation of opinion and thereby conveyed implicitly that Mr Nestorovic did, at the time, hold the opinions expressed and, further, that he had reasonable grounds for the opinions: Campbell v Backoffice Investments at [33], but see also Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 at [102]-[103]. They did not seek to rely on s 4(1) of the ACL as they accepted that the pleaded representations had been made in relation to the shares in VTF (SA), VTF (NT) and VTF (WA).

The making of the first representation

232    The Applicants’ claim was that Mr Nestorovic had made each of these representations in the course of the preparation of the spreadsheets. I have already made findings about that preparation. In particular, I have found that the preparation of the spreadsheets was an initiative of Messrs Falzon and Stephens and that they, together with Mr Nestorovic, collaborated in their preparation. The rental price of $15 per panel per week and the projections of the income that might be derived were the product of that collaboration. I think it likely, and so find, that each of Messrs Falzon and Stephens also contributed to the selection of the price and to the projections. In those circumstances, it would not be appropriate to find that the pleaded matters were represented by Mr Nestorovic to Messrs Falzon and Stephens. They were as much the author of the pleaded matters as was Mr Nestorovic.

233    Accordingly, I reject the Applicants’ claim based on the first pleaded representation said to have been made by Mr Nestorovic to Messrs Falzon and Stephens.

234    The position with respect to the representation of the matters in the spreadsheets to Mr Schirripa in March 2014 stands differently. On the findings which I have already made, Mr Falzon gave Mr Schirripa the spreadsheets in his meeting with Messrs Falzon and Stephens in the first café meeting in February 2014. The content of the spreadsheet attracted Mr Schirripa’s interest. The spreadsheets were again discussed at Mr Schirripa’s first meeting with Mr Nestorovic, being at the second café meeting in about February or March 2014. I have previously held that, during the course of that discussion, Mr Nestorovic told Mr Schirripa that his research indicated that rentals of $15 per panel per week could be achieved and, further, that he knew that was so because “I have been working on this for a long time now”.

235    I accept that Mr Nestorovic did make the statement to Mr Schirripa about the price which could be obtained on the rentals. He did so because he believed that his VTF panels were superior to any comparable product and should therefore command a premium in the rental market.

The representation as to price was misleading or deceptive

236    Mr Nestorovic did not have a reasonable basis for his opinion as to the rental price. At that time, Mr Nestorovic had not achieved the rental of even a single VTF panel and so had no actual experience in the market. Nor had he engaged in any other recognised form of testing of the market. Mr Nestorovic seems to have relied instead on his own subjective belief about the superiority of the VTF panels.

237    Some evidence of what both Mr Schirripa and Mr Nestorovic later thought the price which market would bear for large projects is seen in the tenders of VTF (SA) for the Torrens to Torrens Project (effectively $3.15 per 1.8 m panel) and for the Darlington Project (effectively $3.11 per 1.8 m panel). However, both tenders were made well after late 2013 and early 2014 and each involved the rental of panels on a large scale. Neither tender was successful.

238    In summary, I find that the Applicants have made out the first pleaded representation only to limited extent that Mr Nestorovic expressed confidence to Mr Schirripa that the panels could be rented at the rate of $15 per panel per week. That representation was misleading or deceptive.

The second representation - extensive market research

239    The second pleaded representation is that, in the period from September 2013 to March 2014, Mr Nestorovic made oral representations to the RRG Founders and to Mr Schirripa that he had conducted “extensive market research” and that the VTF panels would in “very high demand”.

240    The first part of the pleaded representation is a representation of fact. The second part is a statement of opinion. Again, the Applicants pleaded that the statement of the opinion contained implicitly a representation that Mr Nestorovic did hold the opinion that the VTF panels would be in very high demand, and that he had reasonable grounds for that opinion.

241    The Applicants accepted that they could not rely on the ACL in relation to this representation.

The making of the second representation

242    There is a considerable body of evidence supporting the conclusion that Mr Nestorovic did make the second representation, and that he did so on more than one occasion. Indeed, Mr Nestorovic admitted doing so. I will return to his admissions shortly.

243    Mr Falzon said that, at his initial meeting at the Prospect Road showrooms, Mr Nestorovic told him that there was “a massive demand” for temporary fencing panels and the high visibility feature of the VTF panels meant that they could be rented at a higher price than standard fencing panels. Mr Falzon also said that, at the meeting in about May 2013, Mr Nestorovic told both Mr Stephens and him that “he would get $23 per panel per week in hire fees, … that he definitely knew they were worth that much, … that he could basically put any pricing figure on them that he liked because he was the only one that had them”, and that the panels could be rented for “around $18-23 per panel per week”. Finally, Mr Falzon said that Mr Nestorovic told Mr Stephens and him that “he had a lot of friends in the industry and that he knew what they would pay for the fencing”.

244    Mr Dimech gave evidence of a generally similar kind. He said that in a meeting in August 2013 in which Mr Nestorovic participated on speaker phone, he (Mr Nestorovic) said that he had done “extensive market research” and that the VTF panels could be hired out for $15 per panel per week. Mr Dimech said that he questioned Mr Nestorovic about this pricing and was told that it was “cheap”. Mr Nestorovic had added that the price of $15 per panel per week was to get the VTF panels into the market and that once he had performed the “Brisbane contract”, he could set his own prices.

245    Mr Schirripa said that, at his first meeting with Mr Nestorovic at the café in February or March 2014, Mr Nestorovic told him that he had been “developing the VTF product for several years, and that he had researched the demand for the product extensively”. Mr Nestorovic also said that he had “received extremely positive market feedback regarding the level of demand for the fencing, … that his research demonstrated significant interest in the Australia marketplace for the VTF business to target and that he had several national leads and contacts that would help him successfully launch the business”. Mr Schirripa said that, in addition, Mr Nestorovic had said that his research indicated that a price of $15 per panel per week could be achieved, and that he knew that was so because “I have been working on this for a long time now”.

246    In the affidavit containing his evidence in chief, Mr Nestorovic said that, at the meeting at Paralowie in about August 2013, he had told Messrs Falzon and Stephens that “I had spoken to lots of people regarding fencing, … I thought there would be a demand for the fencing product, … [that] the fencing … was of a higher quality than was presently on the market …, … that our product was better than other products, so we should charge a little bit more than others”. Mr Nestorovic also acknowledged telling Mr Schirripa in about March 2014 when he came to the Paralowie property that “I had spoken to a range of people regarding renting temporary fencing and that I considered that there was a demand for such fencing that was of a higher quality than was presently on the market, in particular fencing that was more visible”. In his cross-examination, Mr Nestorovic acknowledged that, at a meeting at Mr Dimech’s Camden Park premises in about September 2013, he had told Messrs Falzon, Stephens and Dimech that he had done “extensive market research into the product”. He also acknowledged telling Mr Falzon, before RRG made its first investment in the VTF business, that there was “a massive demand” for the VTF panels. Mr Nestorovic went on to say that that was true because at that time there were not many companies renting out temporary fencing panels.

247    Having regard to all this evidence, I am satisfied that the Applicants have established that Mr Nestorovic did make the second pleaded representation.

The second representation was misleading or deceptive

248    I am also satisfied that the second representation was misleading or deceptive because Mr Nestorovic had not conducted “extensive market research”. Mr Nestorovic admitted as much in his cross-examination. Quite apart that admission, Mr Nestorovic’s evidence establishes only that he had spoken informally to persons who may be potentially interested. Some of those conversations occurred in chance encounters while Mr Nestorovic was undertaking the more general business of Status. The persons to whom Mr Nestorovic may have spoken encouragingly, but it was not on any reasonable view “market research”. There is no documentary evidence of Mr Nestorovic having engaged in an activity which could sensibly be described as “market research”, let alone “extensive market research”. I am satisfied that Mr Nestorovic did not have reasonable grounds for his assertion that the VTF panels would be “in very high demand”.

249    Accordingly, I am satisfied that the Applicants have established that the second pleaded representation was made, and that it was misleading or deceptive.

The third representation - Brisbane Airport

250    The third pleaded representation is that, in the period from September 2013 to March 2014, Mr Nestorovic orally represented to the RRG Founders and to Mr Schirripa that he had “a guaranteed contract in place with a Union representative of the Brisbane Airport to supply a large quantity of fencing panels to the Airport, and all that was required to begin the job was the importation of fences from China”.

251    The Applicants accepted that they could not rely on s 18 of the ACL in relation to this representation.

The making of the third representation

252    Mr Nestorovic denied making the third representation. There is, however, a good deal of evidence indicating that he did make statements to the effect alleged.

253    Mr Falzon’s evidence concerning the Brisbane job was as follows:

[48]    Michael [Nestorovic] also told me that a friend of his was involved with the redevelopment of the Brisbane Airport. He said his friend was high up in the Union who controlled the job, and that he had told Michael that they would only use VTF panels due to their high visibility and his connection with Michael. It sounded like the Union contact knew everyone in the area and could guarantee VTF the work on the airport development.

[49]    Michael said that they needed 10,000 panels for this job at $18 per week per panel. I can't recall exactly how long he said the job was for, but I believe [it] was for a couple of years.

[50]    This job was really the one that got my attention, as it was obvious how much money was to be made.

[51]    He also said that he was going to get the contract soon and that we could take the contract to the bank and there would be no problem with the bank financing the job for us.

[52]    Michael even asked [Mr Stephens] at one point whether he would be interested in moving up to Brisbane to look after the job.

254    In his cross-examination, Mr Falzon said that Mr Nestorovic had spoken of the Brisbane Airport job as one that was “ready to go”.

255    Mr Dimech said that he had first been told about a contract at the Brisbane Airport by Mr Stephens who said that he was relaying what he had been told by Mr Nestorovic. He said, however, that Mr Nestorovic had spoken of the Brisbane job at the meeting in which he participated by speaker phone in August 2013 and that, in that conversation, Mr Nestorovic said that he had recently been to Brisbane “to confirm the Airport contract and that it was go-ahead, … that VTF needed 8,000 panels of fencing for stage one of the Brisbane Airport development, … that [the fencing] was to fence the basic hub of the development, including the plant and equipment in portable offices, … [and] that nothing could go ahead until the fences were there to secure the initial lockdown for the development”.

256    Mr Dimech said that, at a later meeting in September 2013, Mr Nestorovic said that he “had recently been to Brisbane, and that all that was holding up the contract was the manufacturing of the fencing in China”.

257    Mr Dimech also deposed that, in March or April 2014, he had queried Mr Nestorovic as to “why he was trying to roll out the fencing across Australia” when there were not enough VTF panels to start the Brisbane Airport contract. Mr Nestorovic had responded by saying that he had contracts in place to supply panels in other States, including Darwin and Western Australia, that he did not want to let those customers down, that it would be embarrassing to move fences from other States to supply the Brisbane Airport contract, and that he wanted to be seen as being big enough to supply everyone.

258    In his cross-examination, Mr Dimech said that Mr Nestorovic’s “words were that we had a contract with the Brisbane City Airport and the only thing that we needed now was to produce enough panels to get Stage 1 on the go”.

259    Mr Schirripa said that in the second meeting in the café in February or March 2014, Mr Nestorovic said:

He had a contact who was a Union representative in Brisbane, and through whom a contract had been set up for VTF to supply panels for a development at the Brisbane Airport. He said that this was going to be a very large job and the details had been worked out, it was just a matter of getting the panels in place, which would require purchasing fencing.

260    In his cross-examination, Mr Schirripa explained that he regarded what he had been told about the Brisbane job as significant because it indicated that the job “was on” and that others would be investing money into the business. He also said that at the time he decided on the initial investment into RRG, he had been contemplating investment into VTF (Qld).

261    Both Mr Dimech and Mr Schirripa said that, later, Mr Nestorovic had told them that the “Union contact” was away from work by reason of a broken leg, with the effect that he had lost the contact on whom he had being relying.

262    There is also contemporaneous documentation which is capable of supporting the Applicants’ case that the third representation was made by Mr Nestorovic. On 12 November 2013, Mr Falzon sent to Ms Pinneri a draft of the proposal for a prospective agent in Queensland. Mr Falzon’s accompanying email said:

Hi Anna,

This is a draft of what we thought for someone to run Queensland Fencing for us and also being a shareholder with RRG Unit Trust. Give us your opinion and we can all discuss next week when Michael is back.

263    The accompanying proposal included the following paragraph:

Currently we already have a deal on the Brisbane Airport so at this stage this is not part of the offer.

264    Mr Nestorovic denied in his evidence ever seeing the document and it is not necessary to make a finding as to the veracity of the denial. The significance of the document lies in its reference to the “deal” at the Brisbane Airport. It is of course possible that it was Mr Falzon or Mr Stephens who was the source of the statement concerning that “deal”. However, in context, I think it more likely, and so find, that Mr Falzon was referring to the Brisbane Airport contract job claimed by Mr Nestorovic.

265    Mr Nestorovic denied altogether making statements about the Brisbane Airport job and denied that he had ever been to Brisbane. He claimed that it was Mr Stephens who had had the discussions to which the Applicants’ witnesses referred. As the Applicants’ counsel noted, this claim had not been made in the affidavit containing Mr Nestorovic’s evidence in chief. It was made in the trial only after Mr Nestorovic learnt that, contrary to what had been expected, Mr Stephens would not be called to give evidence. The Respondents also referred to an email from Mr Stephens to Ms Pinneri on 8 November 2013 which indicates that Mr Stephens was at the time “at [the] Airport in Brisbane heading home”. It does not, however, cast any light on whether Mr Stephens had been engaged in any activity regarding the proposed contract at the Brisbane Airport.

266    In my view, it is implausible that each of Messrs Falzon, Dimech and Schirripa had, separately, fabricated the accounts which they gave of Mr Nestorovic’s statements concerning the proposed job at the Brisbane Airport. It was not suggested that they had somehow collaborated so as to present a common account. In my view, the accounts of Mr Dimech and Mr Schirripa in particular had the ring of truth about them. Further, the statements they attributed to Mr Nestorovic seem consistent with his general modus operandi.

267    Accordingly, I find that Mr Nestorovic did make the third pleaded representation concerning the job at the Brisbane Airport.

The third representation was misleading or deceptive

268    Brisbane Airport Corporation Pty Ltd has confirmed that it does not contract directly for the supply of temporary fencing, and has no record of any contact with a VTF company. When temporary fencing is required, it is supplied by the contractors undertaking the work.

269    I am satisfied that the third representation was false. The Respondents made no attempt to justify the truth of the representation or that there had ever been a reasonable basis for it. It is, of its very nature, inherently implausible.

The fourth representation - Coober Pedy Council

270    The fourth representation concerned a contract with the Coober Pedy Council. The Applicants allege that, in about February or March 2014, Mr Nestorovic made oral representations to the RRG Founders and to Mr Schirripa that:

(a)    a contract would be obtained with the Coober Pedy Council for the use of 800 fencing panels at $17 per panel per week for 6-12 months in relation to an upgrade to the drive-in theatre and football oval;

(b)    the price of $17 per panel per week was $7 less than the price offered by a competitor, ATF; and

(c)    he had made the arrangements with a lady at the Council.

271    In the final submissions, counsel for the Applicants said that the second of these representations should, in accordance with Mr Schirripa’s own evidence, be expressed as “the price of $17 per panel per week was several dollars less than the price offered by a competitor, ATF” rather than “$7 less”.

272    The Applicants contend that the fourth representation was made dishonestly.

273    Although the Applicants submitted that s 131A of the CC Act did not apply to this representation, I am not able to distinguish it from the first to third representations, and accordingly, find that s 18 is not applicable.

274    On its face, this is in part a representation as to fact (arrangements for a contract had been made with a Council representative) and in part on expression of opinion or prediction. In relation to the latter, the Applicants allege that it conveyed implicitly that Mr Nestorovic held the opinions and that he had a reasonable basis for those opinions.

The making of the fourth representation

275    Each of Mr Falzon, Mr Schirripa and Mr Nestorovic gave evidence concerning the alleged fourth representation.

276    Mr Falzon said that the Coober Pedy job was the first specific job about which he could recall Mr Nestorovic telling him. He said that Mr Nestorovic had said that the job was “for a redevelopment of the football oval” and that he was in discussions with the local Council about it. His recollection was that Mr Nestorovic had said that the job would require 250 panels for which he would charge $23 per panel per week.

277    Mr Schirripa’s account, which I summarised earlier in these reasons, was more detailed. He said that Mr Nestorovic told him at one or other of the two café meetings in February and March 2014 that the Coober Pedy Council was going to use 800 VTF panels at $17 per panel per week for between 6-12 months for the upgrade to the Town’s drive-in theatre and football oval. Mr Nestorovic said that he had already made the arrangements with a female member of the Council and that the Council had a place for the storage of the panels. He spoke of Messrs Stephens, Falzon, Schirripa and himself going to Coober Pedy to do the job. He also said that in late March or early April 2014 before he made his initial investment, Mr Nestorovic had telephoned him and said that the Coober Pedy job “was on”, that it required 800 panels and VTF’s price was “several dollars” per panel cheaper than the price of ATF.

278    Mr Schirripa said that in about late May 2014 (shortly after Schnik had made its initial investment), Mr Nestorovic told him that “the Coober Pedy job would be starting shortly, and that he would be calling the Council the following Monday to confirm when it was starting”. Mr Schirripa said, and I accept, that he made a contemporaneous note of the conversation in which Mr Nestorovic made this statement. That note, which was in evidence, includes “Cooper (sic) Pedy – Monday”.

279    Next, Mr Schirripa deposed that Mr Nestorovic had told him in July 2014 that the Coober Pedy Council wanted 700 panels, that he had quoted $24 per panel for a two year contract, and that the Council had accepted that quote. In addition, Mr Nestorovic said that he would be telephoning the Coober Pedy Council the following week to confirm when they wanted delivery of the VTF panels.

280    In his cross-examination, Mr Schirripa confirmed that Mr Nestorovic had told him that the Coober Pedy job was “a confirmed job” to be completed by VTF (SA).

281    Mr Nestorovic’s evidence concerning a job at Coober Pedy was as follows. In early 2013, he had driven to Darwin to deliver other products of Status. On the way back, he had spoken in Coober Pedy to a client of Status, Peter, who alerted him to the foreshadowed rectification works after the recent redevelopment of the Coober Pedy oval. Peter had said that he may be interested in becoming an agent of Status. Mr Nestorovic then continued:

I then visited the District Council of Coober Pedy (DCCP). I met a lady whose name I do not now recall. I mentioned about my fences. She told me that DCCP had previously rented 250 fence panels from Port Augusta for the oval for about $23 per panel per week, which included delivery, installation and removal. The price of $23 was $9 for the actual fence panel, but increased with further [charges] in relation to delivery, installation and removal. She admitted there was a problem with the oval and that DCCP may need further fences but did not specify the quantity that may be needed. I said that Peter was going to be our agent. I advised her I was going to bring up 500 fences and store them in Coober Pedy with Peter. She said this was good and that DCCP often needed to rent fences.

282    In his cross-examination, Mr Nestorovic maintained this account and also said that he had shown the lady at the Council a sample of a miniature VTF panel measuring 400 mm x 400 mm. He also agreed that he did not have a record of the meeting and that he had not followed the matter up with the Council.

283    Mr Nestorovic acknowledged that he had told Messrs Falzon and Stephens about speaking to someone at the DCCP, the possible opportunity regarding the oval, that DCCP had previously rented 250 panels at $23 per panel per week which was inclusive of delivery, installation and removal, and that the lady at the DCCP had said that it may need more temporary fencing panels in the future. However, he denied telling Messrs Falzon and Stephens the number of fencing panels which would be required, denied saying that he had a contract regarding the Coober Pedy Oval and denied stating a price at which VTF panels could be supplied to the DCCP.

284    In relation to Mr Schirripa, Mr Nestorovic said that Mr Schirripa had told him in about June or July 2014 that a lady from the DCCP had telephoned and wanted him to ring back. When he had returned the call, the lady made a query about purchasing another product and the question of the VTF panels was raised only incidentally. He denied that he had ever told Mr Schirripa that a contract had been secured for Coober Pedy, saying that he had referred only to “the possible opportunity” in relation to the oval works and that VTF (SA) should be able to beat the price of $23 per panel per week. He denied making the statements attributed to him by each of Mr Falzon and Mr Schirripa. In particular, he denied ever having said that he had a “contract” for VTF panels at Coober Pedy.

285    I find that Mr Nestorovic did make statements to the effect to which each of Mr Falzon and Mr Schirripa deposed. I make that finding having regard in particular to my acceptance of Mr Schirripa’s evidence and my view about Mr Nestorovic’s evidence. It is improbable that Messrs Falzon and Schirripa would have made up their accounts, especially as they were not identical. Further, Mr Schirripa’s evidence received some support from his contemporaneous note of the conversation in 2014. It is pertinent that Mr Nestorovic acknowledged that he had told the lady at the Council that he would be bringing 500 panels to Coober Pedy. This was at a time when Status had imported a total of 500 panels, so that Mr Nestorovic was committing his entire stock of panels to Coober Pedy.

The fourth representation was misleading or deceptive

286    The Coober Pedy Council has confirmed that it has never issued invitations for tenders in respect of upgrades to the Drive-in Theatre or the Football Oval, that there are no current plans for the upgrade of the Oval and that, while there are plans to perform work on the Drive-in Theatre “one day”, no scope of works has been finalised, that it has never received a tender from VTF (SA), and that it has not been able to identify amongst its current employees anyone who has spoken to Mr Nestorovic concerning the hiring and pricing of temporary fencing in relation to the Drive-in Theatre or the Oval.

287    In my view, the evidence concerning the potential for a job at Coober Pedy is but one instance of Mr Nestorovic’s tendency to “talk up” a conversation containing an expression of possible interest in the VTF panels into something more definite. I accept that that is the way he presented it to Messrs Falzon and Schirripa. It is also pertinent, in my view, that Mr Nestorovic made the second of his statements concerning the job at Coober Pedy to Mr Schirripa at the time when Mr Schirripa was on the cusp of his decision to invest. It suggests, and I so find, that Mr Nestorovic made the statement with a view to getting Mr Schirripa “over the line”.

288    The making of a finding that a representation was made dishonestly is a significant matter, and one which attracts naturally the operation of s 140 of the Evidence Act 1995 (Cth). Despite the seriousness of the finding, I am satisfied that the evidence establishes that Mr Nestorovic did make the representations concerning the Coober Pedy job which the Applicants attribute to him and that they were misleading because Mr Nestorovic had not made the claimed arrangements and had no reasonable basis on which to make the claims he did. He knew that was so at the time he made the statements. Mr Nestorovic made these representations dishonestly.

The sixth representation - Rio Tinto

289    The Applicants allege that on or about 30 June 2014, Mr Nestorovic orally represented to Mr Schirripa that:

(a)    a supply contract would be obtained with Rio Tinto in Western Australia for the supply of 2,000 short fences at $12 per week and 3,000 tall fences at $14 per week for a period of 10 years; and

(b)    he had made these arrangements through his contact with a person named Gavin, who was “in charge” at Rio Tinto.

290    The first part of this pleaded representation is in the nature of opinion or a statement about a future matter. The Applicants allege therefore that it conveyed implicitly that Mr Nestorovic did hold the opinion and that he had a reasonable basis on which to do so.

291    The Applicants allege that this representation had been made dishonestly. They also submitted that s 131A did not preclude the application of s 18(1) of the ACL, and I will proceed on that basis.

The making of the sixth representation

292    Mr Schirripa’s evidence concerning the Rio Tinto representation was as follows. On 5 June 2014, he and Mr Nestorovic had travelled to Perth to relocate VTF panels from one storage location to another. While that work was going on, Mr Nestorovic spoke to a cyclist who had stopped. Mr Schirripa could see that he was showing him brochures. Later, Mr Nestorovic told Mr Schirripa that the cyclist’s name was Gavin and that he was from Rio Tinto.

293    Shortly after their return to Adelaide, Mr Nestorovic told Mr Schirripa that Gavin had followed up to have a further discussion about the fences. Then, on 30 June 2014, Mr Nestorovic had told him that Rio Tinto in Western Australia wanted 3,000 tall fences and 2,000 short fences on a 10-year contract and that he had quoted $14 per week for the tall fences and $12 per week for the short fences. In addition, Mr Nestorovic had said that the VTF panels would need to be swapped over every six months in order to be cleaned. This meant that there would have to be sufficient VTF panels held in storage and that Rio Tinto would pay storage fees of $12 per week and $8 per week for the tall and short fences respectively. Mr Nestorovic described Gavin as one of the people “in charge” at Rio Tinto; that he had spoken to Gavin by telephone on several occasions; and that Gavin had said that VTF would be paid on 14-day payment terms. He reported Gavin as saying that the high visibility of the VTF panels meant that Rio Tinto would save on power costs in its underground operations. Finally, Mr Schirripa said that Mr Nestorovic had said words to the effect that “we have got the deal”, that “they want the fences”, that it was simply a question of working out the details, and that he was waiting to speak to Gavin further to finalise the contract.

294    Mr Schirripa made a contemporaneous note of this conversation in his notebook. That note was in evidence. It adds support to the veracity of Mr Schirripa’s account.

295    Mr Schirripa also deposed to later statements by Mr Nestorovic concerning the Rio Tinto contract. In mid-July 2014, Mr Nestorovic told him that Status could produce 3,000 fencing panels per week to meet the demand that would come from the Rio Tinto job.

296    Next, Mr Schirripa deposed that, on 10 August 2014, Mr Nestorovic had told him that the Rio Tinto job had changed so that now VTF would “simply drop off 5,000 panels and would not have to maintain or rotate panels at previously discussed”.

297    At a meeting in late September or early October 2014, Mr Nestorovic told Mr Schirripa that he would be meeting Gavin in three weeks’ time to finalise the Rio Tinto job.

298    Mr Schirripa said that Mr Nestorovic had told him during a trip to Toowoomba for the Surat Basin Mining and Expo Trade Show that he had spoken to Gavin, that Gavin was hoping to be at the Expo and to meet them, but that Gavin had said that he might be held up by reason of his work on a Rio Tinto project in Mongolia. As it happened, Mr Schirripa did not see anyone from Rio Tinto at the Expo.

299    Mr Schirripa said that the next mention of the Rio Tinto job occurred in mid-2015. Mr Nestorovic told him then that it was necessary for the storage area at which the VTF panels were held to be reorganised and tidied before Gavin was brought to inspect the panels. Mr Schirripa flew to Perth to undertake that task on 3 July 2015. In late August 2015, Mr Nestorovic told Mr Schirripa that he had been to Perth, that the current storage location of the VTF panels was “not professional enough”, and that he would not bring Rio Tinto to inspect the VTF panels until they had a new agent in Perth and had moved the panels to a new location. Mr Schirripa said that he told Mr Nestorovic that he disagreed with that assessment based on his own observations of the storage location.

300    Mr Schirripa’s account received support in some respects from the evidence of Mr Nestorovic. He confirmed that a cyclist, “Gavin”, had stopped and spoken to him about the possible supply of the VTF panels to Rio Tinto; that Gavin was interested in 3,000 tall panels and 2,000 short panels; that he had said that he may want the panels for 5-10 years; that the panels would be used underground so that the trucks could follow the fences and Rio Tinto could thereby save on electricity costs; and that when VTF had “set up the fences properly with an agent” he would bring some people to view them. Mr Nestorovic said that he did not recall discussing prices with Gavin at that time.

301    Mr Nestorovic said that Gavin had contacted him some four weeks later and had told him that he had not been impressed with the existing location of the panels (at the premises of a business known as Bravo Hire). He did not think that the premises were “good enough” for him to bring people to. Mr Nestorovic said that he told Gavin that the charge for the hire of the panels would be between $10 and $15 per panel per week and that Gavin had said that they would talk more about prices later and that payment terms could be 14 days. Mr Nestorovic agreed that he had conveyed to Mr Schirripa what he and Gavin had discussed.

302    Mr Nestorovic said that, in late 2014, there had been an issue concerning the person acting as the agent in Perth, as they did not wish to continue in that role and Bravo Hire wanted the VTF panels stored at its premises relocated to one of their other locations. He claimed that Mr Schirripa had then been involved in locating a replacement agent, Glen Mews.

303    Mr Nestorovic deposed that, in late 2014 or early 2015, he received another call from Gavin in which Gavin had told him that he would not have to worry about washing the fences and queried whether VTF was ready to commence supply. He had responded in the negative and asked if Gavin could send a letter setting out what it was that Rio Tinto wanted. Gavin had said that he would do so once VTF had an agent and office established. Mr Nestorovic agreed that there had been other occasions when Gavin had telephoned him and that it had been on one of those occasions when the periodic washing of the panels had been raised. Mr Nestorovic agreed that he had spoken to Mr Schirripa after each of his calls from Gavin but denied telling him that a job with Rio Tinto had been secured. He also denied telling Mr Schirripa that he would telephone Gavin because he never had Gavin’s contact details.

304    Mr Nestorovic confirmed that in July 2015 he had asked Mr Schirripa to go to Perth to tidy up the panels and to secure their location and that he himself had travelled to Perth between 14 and 19 August 2015 when he had inspected the places at which the VTF panels were stored. He regarded their location as unimpressive and did not think that he could take people from Rio Tinto, or from anywhere else, to that location.

305    In relation to several matters concerning the potential for a contract with Rio Tinto, there did not seem to be significant differences between the evidence of Mr Schirripa and Mr Nestorovic. Given my general preference for the evidence of Mr Schirripa, I am satisfied that conversations of the kind to which he deposed did occur.

The sixth representation was not misleading or deceptive

306    However, I am not willing to find that Mr Nestorovic did make a representation to the effect that a supply contract with Rio Tinto would definitely be obtained. What he communicated to Mr Schirripa was to the effect that a contract with Rio Tinto was in prospect but dependent on a number of unresolved matters. This included Rio Tinto being able to inspect the panels and understand the arrangements once VTF had an agent in place in Western Australia. It also included negotiation of the price, payment details and other like matters. In my view, Mr Schirripa’s evidence does not indicate that he understood any more from Mr Nestorovic’s statements than that VTF had the prospect of obtaining a substantial contract with Rio Tinto.

307    The Applicants have not established that Mr Nestorovic’s representations to that effect were misleading or deceptive.

308    Accordingly, the Applicants’ claim with respect to the sixth representation fails.

The seventh representation - Transfield

309    As previously noted, the Applicants allege that Mr Nestorovic made a seventh representation in or about July 2014 by oral statements to Mr Schirripa that a supply contract would be obtained with Transfield for between 3,000 and 5,500 panels in relation to the upgrade of the RAAF Base at Edinburgh over a period of five to seven years beginning in December 2014, with the prospect of this leading to further jobs at the RAAF Bases in Darwin and Perth.

310    Again, this representation appears to be in the nature of an opinion. The Applicants plead that Mr Nestorovic was representing implicitly that he did hold the stated opinion and that he had reasonable grounds on which to hold it. They allege that Mr Nestorovic made this representation dishonestly.

311    As with the sixth representation, I will proceed on the basis that s 131A of the CC Act does not preclude the application of s 18 of the ACL.

312    The evidence concerning this pleaded representation came only from Mr Schirripa and Mr Nestorovic.

The making of the seventh representation

313    Mr Schirripa’s evidence was to the following effect. In about mid-July 2014, Mr Nestorovic had told him that extensive works were being done at the RAAF Base at Edinburgh; that he (Mr Nestorovic) had spoken to a “head person” from Transfield who he said would be supervising the works; that they (Transfield) would need 3,000 to 5,500 VTF panels; that the contract would be for five to seven years; that the contract was due to commence in December 2014; that the opportunity had come about because he had stopped when driving past the Edinburgh Base and spoken to a Transfield crew; that the “head person” from Transfield had seen the VTF panels; and that other people from the RAAF Base had taken VTF panels for testing.

314    Mr Schirripa made a note of this conversation in his diary as follows:

Airport – RAAF 3,000 pieces 5-7 years

December to 5,500 pieces

315    Mr Schirripa said that in a meeting with Mr Nestorovic and Ms Pinneri on 10 August 2014, Mr Nestorovic had said:

    he had again spoken to his contact about the Transfield job;

    the contact had confirmed that Transfield wanted 3,000 tall panels and 2,000 short panels;

    he had quoted Transfield $14 per tall panel per week and $9 per short panel per week;

    the contract length would be for four years with an estimated start date of September 2014;

    his contact in Transfield was also in charge of the Darwin and Perth RAAF Bases;

    there was a good possibility of securing work in those other cities;

    the Transfield contact had taken his Darwin counterpart to see the VTF panels in Darwin; and

    that Transfield would give eight weeks’ notice of when the VTF panels were required so that they would have time to buy any more panels when required.

316    Again, Mr Schirripa made a contemporaneous note of part of this conversation, as follows:

RAAF = 3,000 tall $14 4 years

     2,000 short $9

September

317    Next, Mr Schirripa deposed that in late September or early October 2014, Mr Nestorovic had told him that the “Transfield job was going ahead, and that his contact would get back to him with formal confirmation in a month’s time”. Mr Schirripa recorded in his diary with respect to this information:

RAAF – 1 month

318    Finally, Mr Schirripa deposed that in July 2015 he had asked Mr Nestorovic about the Transfield job, by saying “where are we at?”. He deposed that Mr Nestorovic had responded by saying that the Transfield person had told him “I told you you have got the job. Do not bother me. I will call you when it is time”.

319    Mr Nestorovic’s evidence was quite different. He denied most of the elements of Mr Schirripa’s account.

320    Mr Nestorovic deposed that he had stopped at the Transfield depot in Port Augusta in early 2013. The person to whom he spoke (who was unidentified) mentioned that Transfield may have some big projects at RAAF Bases around Australia. That person told Mr Nestorovic that he would visit the Status showroom and provide him with details of the Transfield person in Newcastle (Transfield’s head office) to whom he should speak. Mr Nestorovic said that he did receive a visit from the Transfield person a month or two later and was then given the name and email address of the person in Transfield’s head office in Newcastle whom he should contact.

321    Mr Nestorovic agreed that he had spoken to Mr Schirripa about Transfield in about July 2014, that he had told him about Transfield’s head office being in Newcastle, and that he told him to look out for a tender regarding the RAAF Bases in South Australia, Western Australia and the Northern Territory. He denied telling Mr Schirripa that he had met the “head person” from Transfield at the RAAF Base at Edinburgh and denied telling Mr Schirripa that the opportunity had come about because of the location of the Edinburgh Base near his own farm. He also denied telling Mr Schirripa the precise details of what Transfield were looking for, let alone that a contract had been secured.

322    Mr Nestorovic said that, after speaking to a neighbour, he had gone to the RAAF Base at Edinburgh and had asked to speak to a supervisor from Baulderstones which was then working at the Base. He said that he gave that person his business card and a brochure and that, not long after, the person from Baulderstones telephoned him to say that a job at the RAAF Base was coming up for which he could put in a tender in about eight weeks. Mr Nestorovic said that he passed that information on to Mr Schirripa but that Mr Schirripa had decided not to submit a tender, being concerned that, if VTF (SA) obtained that job, it would have insufficient fences for the larger Torrens 2 Torrens job.

323    Mr Nestorovic’s account of his visit to the RAAF Base was somewhat implausible. In bare outline it involved him going to the Base security gate, speaking to a security person, that security person then closing the gate while he went to find a senior Baulderstone person, that senior Baulderstone person then coming to the gate and speaking to Mr Nestorovic, he showing that person a sample of his fencing, and the Baulderstone representative telling Mr Nestorovic that Baulderstones had a number of big jobs coming up.

324    Given my general preference for the evidence of Mr Schirripa, I accept his account of the statements made by Mr Nestorovic. That account is also supported to an extent by his contemporaneous notes. Mr Nestorovic may have had some communications with a person from Transfield but the contemplated arrangements were not nearly as definite as those which he communicated to Mr Schirripa in August 2014. This was another example of Mr Nestorovic “talking up” the prospect and making what was no more than a possibility appear to be of more definite character.

The seventh representation was misleading or deceptive

325    I am satisfied that Mr Nestorovic represented to Mr Schirripa that there was a definite prospect of a contract at the RAAF Base involving the quantities of panels and the prices which he conveyed. Mr Nestorovic had no reasonable basis for these statements, and they were misleading or deceptive. I am satisfied further that Mr Nestorovic knew that he had no reasonable bases for his statements and therefore that he made them dishonestly.

The eighth representation - the Melbourne Grand Prix

326    The eighth pleaded representation is that Mr Nestorovic orally represented to Mr Schirripa in about July 2014 that there was strong interest from the organisers of the Melbourne Grand Prix for the supply of 6,000 tall panels at $14 per week and 2,500 short panels at $12 per week.

327    The Respondents deny that Mr Nestorovic had made this representation and plead that Mr Nestorovic had told Mr Schirripa only that a potential opportunity to tender in the future may exist in relation to the Melbourne Grand Prix.

328    The pleaded representation is one of fact, that is, that there was an existing strong interest by the Melbourne Grand Prix.

329    The Applicants accepted that if the conduct relating to this representation was established, it related to the acquisition of shares in VTF (Vic) with the effect that s 131A of the CC Act precluded the application of s 18 of the ACL.

The making of the eighth representation

330    Mr Schirripa’s evidence was that, in a meeting in mid-July 2014, Mr Nestorovic had told him that he had been in discussions with a person involved in setting up temporary fencing for the Melbourne Grand Prix in March 2015; that that person liked the VTF panels and wanted to use 6,000 tall panels and 2,500 short panels; that he had quoted $14 per week for the tall panels and $12 per week for the short panels; and that they would not know whether they had the job until January 2015. Mr Schirripa recorded this in his notebook with the following entry:

Melb Grand Prix?    6,000 tall $14

            2,500 small $12

Confirm January

331    Mr Nestorovic’s evidence was that he had told Mr Schirripa matters to the following effect:

    that in 2014 he had gone to the Grand Prix in Melbourne and had seen some people unloading temporary fencing;

    after asking to speak to the person in charge, a “young man” had come over and spoken to him;

    the young man told him that the Grand Prix used about 14,000-15,000 “fences”;

    he could see that they were renting the fencing panels from ATF;

    he had told the young man that VTF had only about 6,000 tall fences and 2,500 small fences;

    the young man had responded by saying that “maybe” they could rent that number and get the remainder from someone else;

    the young man said that he thought that the ATF contract ended in 2015 so that VTF could tender for the 2016 Grand Prix; and

    the young man had suggested that he contact the head office in about January 2015 when more details would be available.

332    Mr Nestorovic denied that he had told Mr Schirripa the matters which the latter attributed to him concerning the Melbourne Grand Prix. He insisted that he had told Mr Schirripa only that VTF could tender in two years’ time for the Grand Prix work and denied, in particular, telling him that there was “strong interest” by the Grand Prix in the VTF panels. He said that he had not himself believed at the time that there was “strong interest” by the Melbourne Grand Prix in the VTF panels.

333    I accept Mr Schirripa’s evidence, partly because of my general preference for his evidence, partly because of his contemporaneous note, and partly because it seems inherently implausible that Mr Nestorovic had the conversation which he claimed at the Grand Prix site in Melbourne. In particular, it seems improbable that Mr Nestorovic would, in a chance encounter, have been able to speak to someone within the Grand Prix organisation concerning their arrangements for the hire of temporary fencing panels. It is also inherently improbable that an existing contractor would have chosen to give Mr Nestorovic the kinds of details which he claimed. Yet Mr Nestorovic claimed that it was the action of unloading temporary fencing panels which attracted his attention and which led him to ask to speak to someone concerning the renting of the temporary fencing panels.

The eighth representation was misleading or deceptive

334    I am satisfied that Mr Nestorovic did not have a reasonable basis on which to make the statements that the organisers of the Melbourne Grand Prix had expressed “strong interest” in renting the VTF panels, let alone that they had made any statements concerning the number and price of the panels they would require.

335    The Applicants have established that the eighth representation was made and that it was false or misleading.

The 10th representation - VicRoads

336    The Applicants allege that shortly after his return from the trip to Melbourne in about January 2015, Mr Nestorovic made oral representations to Mr Schirripa that he had “done a deal” with VicRoads for the supply of VTF panels to highlight roadside trees involved in motor vehicle accidents.

337    For the same reason as applied in relation to the eighth representation, the Applicants accepted that they could not rely on s 18 of the ACL in relation to this representation.

The making of the 10th representation

338    Mr Schirripa deposed that Mr Nestorovic had told him in December 2014 or January 2015 after a trip to Melbourne, that VicRoads were using VTF fencing to highlight roadside trees at which there had been accidents. He said that Mr Nestorovic described the VicRoads’ use as being in the nature of a trial.

339    Mr Schirripa also said that sometime later he told a Mr Cornish, who held a senior position with the Motor Accident Commission (MAC) in South Australia, that VicRoads were using VTF fences to highlight roadside trees. He said that Mr Cornish had expressed surprise to him about that because, although MAC and VicRoads frequently communicated about safety initiatives, he had not heard that that was happening. Mr Schirripa said that he told Mr Nestorovic about his conversation with Mr Cornish to which Mr Nestorovic had responded with words to the effect “that is unusual” and “they are doing it”.

340    Mr Nestorovic denied making the statements which Mr Schirripa attributed to him. He said that the discussion which he had had with Mr Schirripa concerning use of the VTF panels at crash sites had occurred in about June 2015 when he and Mr Schirripa were driving to Toowoomba for the Expo. He said that they had passed a tree containing a memorial for people who had died in a vehicle crash and had discussed between themselves the use of fences to highlight such trees. He said that he had suggested to Mr Schirripa that he (Mr Schirripa) contact councils to see if they would be interested in such use. Mr Nestorovic denied telling Mr Schirripa that he had “done a deal” with VicRoads for the provision of such fencing.

341    I accept Mr Schirripa’s account. I thought that his account of speaking to Mr Cornish had the ring of truth about it. It is improbable that he would have contacted MAC about the matter had Mr Nestorovic not told him what VicRoads were doing.

The 10th representation was misleading or deceptive

342    VicRoads has confirmed that it cannot find any record of contract, formal undertaking or formal agreement with Mr Nestorovic or VTF.

343    In the circumstances, I am satisfied that the 10th representation was made and that it was misleading or deceptive. However, it seems to be a matter of little consequence, as Mr Nestorovic had claimed only that the VicRoads’ use was in the nature of a trial.

The 11th representation - the Alice Springs Airport Road

344    The Applicants allege that, while on a trip to Alice Springs in January 2015, Mr Nestorovic told Mr Schirripa that a contract would be signed with the Alice Springs Council for the supply of fencing panels for up to 10 km of a road leading off the Stuart Highway towards the Airport. The Applicants plead, in addition, that Mr Nestorovic told Mr Schirripa that the fencing was necessary in order to stop rocks falling onto the road, and that the signing of the contract was dependent only on the Council terminating its existing agreement with another supplier of temporary fencing, described by Mr Nestorovic as substandard.

345    The Applicants submitted that, to the extent that this was a representation of opinion, it was one for which Mr Nestorovic had no reasonable grounds.

346    The Applicants contended that Mr Nestorovic had not made these representations in relation to the acquisition of shares in any of the State Companies, and accordingly, invoked s 18(1) and s 4(1) of the ACL. I accept that it was appropriate for them to do so.

347    The Applicants did not allege that the 11th representation had been made dishonestly.

The making of the 11th representation

348    Mr Schirripa’s evidence concerning the 11th representation was to the following effect. Mr Schirripa had telephoned Mr Nestorovic while the latter was on a trip to Alice Springs in January 2015 and had said that he had spoken to the owner of a scaffolding company who was interested in being an agent of VTF. This person had taken him to see a section of the road leading from the Stuart Highway to the Airport. Mr Nestorovic described the road as having a large amount of temporary fencing along it, up to 10 km, with the fences there to stop rocks falling onto the road. Mr Nestorovic told Mr Schirripa that vehicles had collided with panels which had been pushed onto the road because they were not very visible. In this respect, Mr Nestorovic described the temporary fencing in place as being “substandard”.

349    Mr Schirripa said that Mr Nestorovic had gone on to say that, through the scaffolder’s connection with the Alice Springs Council, he had spoken with someone at the Council which was going to use VTF fencing because of the safety which the reflective features provided. However, the Council had to first “get out of” its existing contract with its current fencing supplier. Mr Nestorovic had told him that lawyers and an independent occupational health and safety person had been brought in for a mediation between the Council and the existing fencing contractor.

350    Mr Schirripa said that, on Mr Nestorovic’s return to Adelaide, he told him that there would be a significant amount of fencing required for the job.

351    Finally, Mr Schirripa said that in July 2015, he had questioned Mr Nestorovic about the Alice Springs job, and that a conversation to the following effect had occurred:

  Mr Schirripa:        You told me we had the job;

  Mr Nestorovic:        [You] should “look out for a tender”;

  Mr Schirripa:        How has it gone from having the job to having to go to tender?

Mr Nestorovic:    I don’t know. I spoke to somebody else. It makes no sense to me either but that is what it is.

352    Mr Nestorovic’s account was confirmatory in some respects of that of Mr Schirripa, but different in other respects. He said that on his trip to Alice Springs, he had spoken to a person called Leroy who had referred to works along the Stuart Highway and to potential jobs in relation to the Alice Springs Courthouse and Police Station. Mr Nestorovic said that he had decided to leave three small panels and three large panels with Leroy and had spoken to him of the possibility of sending 500 panels in the future. Leroy had been keen and had said that he would send his truck to pick up the six panels. However, he did not do so and did not respond to Mr Nestorovic’s telephone calls. Mr Nestorovic said that he had not heard from Leroy again.

353    Mr Nestorovic said that he had next obtained the name of Mr Russell Lynch from the Yellow Pages and arranged a meeting with him. The pleaded 12th representation concerns Mr Lynch. Mr Nestorovic said that Mr Lynch had expressed doubts about the prospects of a job on the Alice Springs Airport Road but had spoken of other potential opportunities in Alice Springs, including in relation to the Courthouse and Police Station.

354    Mr Nestorovic also said that on the following morning, he had spoken to a person in a chance meeting at a coffee shop and had come to understand that that person was from the Alice Springs Council. That person had said that there may be a tender opportunity coming up in relation to temporary fencing some 10 km down the Stuart Highway.

355    Mr Nestorovic then said that, in telephone calls with Mr Schirripa during his trip and on his return to Adelaide, he had told him of his discussions with Leroy, Mr Lynch and the person from the Council, and that each of Leroy and Mr Lynch had mentioned possible opportunities regarding the Courthouse and the Police Station. He denied telling Mr Schirripa that he had been shown part of the Stuart Highway or of a road off the Stuart Highway to the Airport and had suggested that he look out for tenders in relation to those places.

356    Again, I prefer the account of Mr Schirripa. There were inconsistencies in Mr Nestorovic’s account. Further, and in any event, Mr Schirripa’s account received support from Mr Lynch. He deposed that Mr Nestorovic had told him that he would be securing a job for some roadworks on Old South Road, being a road coming off the Stuart Highway near the Airport. He also said that Mr Nestorovic had told him that the Alice Springs Council would specify that the fencing for works at the hospital and Courthouse needed to be high-visibility, with the consequence that he (Mr Nestorovic) would obtain those jobs. I regarded the evidence of Mr Lynch as important evidence because it was independent of the parties and gave a good insight into Mr Nestorovic’s proneness to exaggeration.

357    Accordingly, I am satisfied that the Applicants have established that the 11th representation was made.

The 11th representation was misleading or deceptive

358    It is plain that the 11th representation was misleading or deceptive. Mr Nestorovic had no reasonable basis on which to claim that a contract would be concluded with the Alice Springs Council for up to 10 km of temporary fencing.

359    I also note that the Alice Springs Town Council has confirmed that the Stuart Highway, the Supreme Court and the Police Station are not its responsibility. Furthermore, the Maintenance Manager of Roads in the Department of Infrastructure, Planning and Logistics in the Northern Territory Government has confirmed that it has never considered constructing a fence along the road from the Stuart Highway to the Alice Springs Airport roundabout.

The 12th representation - agreement with Mr Lynch

360    The Applicants allege that in about February 2015, Mr Nestorovic stated to Mr Schirripa, shortly after the former’s return from his trip to Alice Springs, that he had an agreement in place with Mr Lynch to act as an agent for VTF in Alice Springs. The Applicants also allege that Mr Nestorovic said that Mr Lynch had connections which would enable VTF to obtain contracts to provide fencing for the redevelopment of the local Courthouse and Police Station.

361    In their Defence, the Respondents pleaded that Mr Nestorovic had spoken to “someone” in Alice Springs in relation to a potential agency and in relation to potential opportunities in Alice Springs and that Mr Nestorovic had told Mr Schirripa about those matters. They pleaded, however, that Mr Schirripa had not wanted to send VTF panels to Alice Springs because he wished to focus instead on the “Torrens 2 Torrens” project in South Australia.

362    As with the 11th representation, I will proceed on the basis that the Applicants are entitled to rely upon s 18 of the ACL in relation to this representation.

The making of the 12th representation

363    As noted above, Mr Schirripa said that Mr Nestorovic had first told him about Mr Lynch, not mentioning that name, in a telephone conversation during Mr Nestorovic’s trip to Alice Springs.

364    I have set out above in relation to the pleaded 11th representation much of what Mr Schirripa said he was told by Mr Nestorovic, as well as relevant aspects of the evidence of Mr Lynch.

365    Mr Nestorovic’s account was that he had told Mr Schirripa on his return from Alice Springs, as well as in telephone calls during the trip, that “Leroy” and Mr Lynch had mentioned possible opportunities regarding the Courthouse and the Police Station and that Mr Schirripa should look out for tenders in relation to those jobs. He agreed that he had told Mr Schirripa that Mr Lynch had agreed to be a VTF agent and that he appeared to have “good connections”. Mr Nestorovic denied telling Mr Schirripa that contracts for jobs would definitely be obtained.

366    Given my general preference for the evidence of Mr Schirripa, I am willing to accept that Mr Nestorovic did make the 12th pleaded representation.

The 12th representation was not misleading or deceptive

367    However, I am not prepared to find that the representation was misleading or deceptive in any relevant sense. Mr Lynch had, albeit in an informal way, agreed to be an agent of a kind in respect of the VTF panels. It was not misleading or deceptive for Mr Nestorovic to say that Mr Lynch, being locally placed in Alice Springs and with connections to the building industry, may assist in obtaining forthcoming jobs. I am not satisfied that Mr Schirripa understood Mr Nestorovic to be conveying anything more than that.

368    Accordingly, the 12th pleaded representation need not be considered further.

The 13th representation - Parliament House

369    The Applicants plead that, in or about April 2015, shortly after returning from the trip to Sydney and Canberra, Mr Nestorovic orally represented to Mr Schirripa that a contract was in place to supply 1,000 fences at $7 per week for use by the Australian Federal Police (AFP) at Parliament House in Canberra, and that that contract would commence as soon as fences could be supplied out of Sydney.

370    In their filed Defence, the Respondents plead that Mr Nestorovic had told Mr Schirripa that he had had “some discussions with someone who worked at Parliament House Canberra who indicated he was keen to rent 1,000 fences at $7 per panel per week in the future when the VTF Business commenced in Canberra and there were fences in Canberra”. The Respondents went on to plead that the VTF business never commenced in Canberra and VTF panels were never stored there.

371    The Applicants accepted that, if the conduct they rely upon is established, s 131A of the CC Act precludes the application of s 18 of the ACL to this representation.

The making of the 13th representation

372    Mr Schirripa’s evidence was as follows:

[156]    In around early April 2015 Michael [Nestorovic] went on a trip to Sydney and Canberra for two weeks.

…

[158]    While Michael was in Sydney, he and I had a phone conversation during which he told me he had got a job for VTF at Parliament House in Canberra. He said that he had met with the second in charge of the Australian Federal Police, who was Serbian. (Michael is also Serbian). He said this contact had enabled him to secure the job (the Parliament House job). He said he had shown them the panels and he told me that “They want the fences”. I understood this to mean that there was a done deal.

…

[162]    During another meeting later in April 2015 at either the Show Room or the Office, Michael told me additional details about the Parliament House Job. He said that they required 1,000 panels for five years, and that he had quoted $7 per week per panel. He also told me that the job would start once the next container of fences arrived in Sydney.

373    In mid-August 2015, while Mr Nestorovic was in China, Mr Schirripa started to become concerned that he had been deceived into investing into VTF. He telephoned Mr Nestorovic in China and questioned him about the Parliament House job, asking when the job was to occur, the identity of Mr Nestorovic’s contact, and to whom he should provide the paperwork for the job. Mr Schirripa said that Mr Nestorovic would not give him these details, telling him “you don’t need to know who I’m talking to”. He said, however, that Mr Nestorovic repeated that the job was for 1,000 panels and would proceed one month after the delivery of the panels to Sydney.

374    Mr Nestorovic’s account was confirmatory in some respects of that of Mr Schirripa. He said that he was familiar with Canberra because he used to live and work there. While in Canberra he had spoken to the President of the Serbian Club, Branko, and his son Pavle who worked for the AFP. Pavle told him that he should go to Parliament House and show “them” the VTF panels because they may need some fencing there for security purposes. Pavle told him to ask for “the man in charge of maintenance at Parliament House” as he may be interested in the fences. Mr Nestorovic said that he had gone to Parliament House and had spoken to this maintenance man, showing him a small pedestrian panel. The “maintenance man” had then arranged for someone dressed more formally (wearing a tie) to speak to Mr Nestorovic. This person (who was not identified) had told the “maintenance man” that he could speak to Mr Nestorovic about renting 1,000 fences in the future for an extended period of time. Mr Nestorovic had then told the maintenance man that the fences would cost $7 per panel per week; that the maintenance man had said that that was “okay”; and that he should let him know when he would be commencing business in Canberra.

375    Mr Nestorovic went on to say that he had reported this conversation to Mr Schirripa but had pointed out that, because Canberra was in the ACT rather than in New South Wales, a separate VTF company would have to be established into which Mr Schirripa would need to make a further investment in order to buy the VTF panels. Mr Schirripa had responded by saying that he did not have sufficient money at that time to invest in the ACT.

376    Thus, there is a good deal in common between the two accounts. Mr Schirripa was not cross-examined on his account.

377    Mr Nestorovic’s account changed in some respects under cross-examination. He denied telling Mr Schirripa that Parliament House wanted 1,000 panels for five years and denied telling him that he had quoted $7 per panel per week. He said that he had told Mr Schirripa only that, when the VTF panels arrived in Sydney, he was to call Parliament House, that they would then come and have a look at them, and would discuss the period and price of the hire.

378    The detail which Mr Nestorovic provided concerning his meeting with personnel at Parliament House was also implausible. He said that he had initially spoken to a gardener and had asked where to go to see “the maintenance man”. He was told to wait and in due course a maintenance man had approached him in the public carpark. He said that the “maintenance man” had told him that his fence “would be very good” but he wished to see it erected and in place with feet. He then told Mr Nestorovic that, when he had fence panels and feet, to let him know so that he could come and inspect them. Initially, Mr Nestorovic said that he had not spoken to any person other than the maintenance man but, when confronted with the inconsistency with his affidavit, said that another person had approached to whom he had spoken about the VTF panels. Mr Nestorovic denied that his account of the conversations at Parliament House was a fabrication.

379    Mr Nestorovic’s evidence about the proposed arrangement at Parliament House was particularly unimpressive. In particular, his account of speaking to a gardener, a maintenance man and then someone more formal with last of these persons telling “the maintenance man” that he could speak to Mr Nestorovic about renting 1,000 fences in the future for an extended period of time and that he had quoted $7 per panel per week was implausible. It is not readily to be supposed that those responsible for security at Parliament House would contemplate arrangements of this kind.

380    I accept Mr Schirripa’s account. Again, I consider that it has the ring of truth about it.

The 13th representation was misleading or deceptive

381    Despite the seriousness of the finding, I am satisfied that Mr Nestorovic’s statements to Mr Schirripa that Parliament House required 1,000 panels for five years (or as Mr Nestorovic would have it, for an extended period) for which Mr Nestorovic had quoted $7 per panel per week was false. In particular, there was no arrangement which could commence once the next container of fences arrived in Sydney. In this respect, I note that the Department of Parliamentary Services has confirmed that it has no documents concerning the actual or potential award of a contract to a VTF group company or of any negotiations with Mr Nestorovic for such a contract.

382    The Applicants have established that these representations were false or misleading.

The 14th representation - Liverpool Council

383    The Applicants plead that shortly after returning from trip to Sydney and Canberra in April 2015, Mr Nestorovic orally represented to Mr Schirripa that:

(a)    he had spoken with the Mayor of the Liverpool Council (NSW) regarding a contract to supply temporary fencing for the redevelopment of the local mall; and

(b)    VTF would soon conclude the contract.

384    The Respondents denied that Mr Nestorovic made this representation.

The making of the 14th representation

385    Mr Schirripa’s evidence was that Mr Nestorovic told him, soon after his return from Sydney, that he had met the Mayor of the Liverpool Council in his office, that the Council needed to fence off a shopping mall for the duration of an upgrade, and that the Council wanted to use VTF fencing for that job.

386    The Applicants accepted that, if the conduct they rely upon is established, s 131A of the CC Act precludes the application of s 18 of the ACL to this representation.

387    Mr Nestorovic’s evidence was to the following effect. While in Sydney, he had been introduced to the Mayor of Liverpool, Mr Ned Mannoun, by an acquaintance, Moncilo Novotny. He wanted to speak to the Mayor because Mr Novotny had told him about the upgrading of the mall in Liverpool. Mr Nestorovic said that he showed the fences to the Mayor at Mr Novotny’s hardware store; that the Mayor had said the fences looked good; and that once they had arrived in New South Wales he would introduce him to someone at the Council who might be interested in using the fencing. The Mayor had also said that the project was not commencing yet but that he would have Mr Novotny notify him when it was about to commence.

388    Mr Nestorovic agreed that he had told Mr Schirripa of his discussions with the Mayor of Liverpool and Mr Novotny regarding the Liverpool Mall, but denied telling Mr Schirripa that a contract would soon conclude.

389    I accept Mr Schirripa’s account. Given Mr Nestorovic’s method of operation, it is likely that he would have reported to Mr Schirripa in favourable terms his discussion with the Mayor of Liverpool and would have represented that it was likely that VTF would secure the contract.

The 14th representation was misleading or deceptive

390    This is another instance of Mr Nestorovic presenting in more definite terms a prospect which was no more than a possibility, and which was likely to depend, in any event, on a tendering process. It was not misleading or deceptive for Mr Nestorovic to tell Mr Schirripa that he had spoken to the Mayor of Liverpool about the Mall upgrade job but Mr Nestorovic had no reasonable basis on which to represent that a contract with respect to the job would be concluded soon. His own cross-examination acknowledged that that was so.

391    The Applicants have established that this representation was made and that it was misleading or deceptive.

The 15th representation - Blacktown Council

392    The Applicants allege that, shortly after returning from a trip to Sydney and Canberra in about July 2015, Mr Nestorovic made an oral representation to Mr Schirripa that he had spoken with the Mayor of the Blacktown Council in New South Wales regarding a contract for 24,000 fences at $7 per week and that VTF would soon conclude that contract.

393    The Respondents deny this allegation and plead that Mr Nestorovic had told Mr Schirripa in 2015 that he had had discussions with the Mayor of Blacktown about a potential opportunity but had not indicated that the potential opportunity had been secured.

394    The Applicants accepted that, if the conduct they rely upon is established, s 131A of the CC Act precludes the application of s 18 of the ACL to this representation.

395    Mr Schirripa’s evidence indicated that the pleaded representation had been made in about April 2015, shortly after Mr Nestorovic’s return from his trip to Sydney and Canberra in that month. Mr Schirripa said that Mr Nestorovic had told him that he had met with the Mayor and the procurement officer of the Blacktown Council; that the Council was going to switch all temporary fencing on Council projects to VTF panels; that VTF would need to provide 24,000 panels; and that he was going take Council representatives to see the fences at the storage site on 12 July 2015 when the containers were being unloaded.

396    Mr Schirripa also deposed to a further conversation with Mr Nestorovic regarding the Blacktown Council job, which he said did occur in July 2015. Mr Nestorovic said in that conversation that he had had further discussions with Stephen Bali, the Mayor of the Blacktown Council, and that he had showed Mr Schirripa Mr Bali’s business card. Mr Nestorovic went on to say that the Blacktown Council job would be for 24,000 panels at $7 per panel per week; that he (Mr Nestorovic) was travelling to China to check whether Status’ factory could make the required amount of fencing; and that there would be penalties if VTF did not deliver what it promised.

397    Mr Nestorovic’s evidence was to the following effect:

    at a Serbian Club in Sydney he had been introduced to the Mayor of Blacktown, Mr Bali, and had spoken to him for about an hour;

    he showed Mr Bali the VTF brochure and asked him what he thought;

    Mr Bali gave a favourable response and said that, once Mr Nestorovic had some fencing panels in New South Wales, he would help him meet the Council’s procurement officer who made decisions regarding the temporary fencing panels which the Council hired. The Mayor had also told him that a new airport was coming soon to a location around Blacktown; and

    that he had told Mr Schirripa of his discussions with the Mayor of Blacktown and had given him a copy of the Mayor’s business card.

398    Mr Nestorovic denied telling Mr Schirripa:

    that a contract would conclude soon;

    that he had actually met the Council’s procurement officer;

    details of any possible job; and

    that he would show people the fencing panels when they were being unloaded, as that would be unsuitable.

399    Mr Nestorovic said that he had said, apparently to the Mayor of Blacktown, that people would be able to view the fences once VTF had set up an office in Sydney.

400    Mr Nestorovic went on to say that he had suggested to Mr Schirripa that he (Mr Schirripa) send an email to the Mayor of Blacktown. He said that he had been told by the Mayor of Blacktown subsequently that Mr Schirripa had not done so.

401    Again, I accept Mr Schirripa’s account. It is consistent with my findings about Mr Nestorovic’s general manner of operation. The effect of what Mr Nestorovic conveyed was that a potentially significant contract with the Blacktown City Council was imminent. Mr Nestorovic’s discussions with the Mayor of the Blacktown Council did not provide a reasonable basis upon which to make those representations. Mr Nestorovic’s statement had concerned a future matter but was made without such a reasonable basis and was, accordingly, misleading or deceptive.

Summary of findings concerning misrepresentations

402    In summary, I have found that the Applicants have established that each of the first (in part), second to fourth, seventh to eighth, 10th, 11th and 13th to 17th representations was made and that each was misleading or deceptive. I have rejected the Applicants’ claims with respect to the first (in part), sixth and 12th representations. As noted earlier, the Applicants did not pursue their claims with respect to pleaded fifth and ninth representations.

In trade or commerce

403    In his final submissions, counsel for the Applicants drew attention, quite properly, to a possible issue of whether the representations had been made “in trade or commerce”. This question can arise only in relation to those of the representations to which I have found s 18(1) of the ACL to apply.

404    In my view, there is no difficulty in finding that the pleaded representations were made in trade or commerce in the sense discussed in Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594 at 601-5. As the Applicants noted, Status was in the business of buying and selling products. Each of the representations had a relationship with an actual or contemplated sale by Status of VTF panels and ancillary equipment to the State Companies. Each was also made, directly or indirectly, in relation to the investment by the Applicants of funds which would be used for the purchase of VTF panels and ancillary equipment.

405    In short, I am satisfied that this element of the s 18(1) cause of action is established.

The losses

406    The affidavit of Mr Miller, one of the joint and several liquidators of the State Companies, VTF Aust and Status, indicates that the prospects of the Applicants recovering a dividend from the liquidation of those companies is, with one exception, remote. Mr Miller deposed to the steps taken to sell the stock of the various companies. I accept that evidence and conclude that reasonable and diligent steps have been taken. To date, the liquidators have not been able to achieve sales of all the stock. Mr Miller expressed the opinion that, based on the net proceeds received to date and the fees incurred by the liquidators, the only State Company likely to pay a dividend is VTF (SA). He noted that in February 2018, the liquidators held funds of $50,532 for VTF (SA) with the potential of receiving further funds from the sale of the remaining 84 (1.2 m) VTF panels. The amounts held in respect of the other Companies are small and it seems improbable that, even in the event of their remaining stock being sold, an amount will be realised by way of distribution of dividends.

407    The Applicants submitted that the Court should proceed on the basis that the only prospect of recovery is from VTF (SA) and that, for purposes of the assessment of damages, it should be assumed that an amount of $50,000 may be obtained. The Respondents did not make any submission to the contrary. Although this manner of assessment is not exact, I accept that, in the particular circumstances of this case, it is appropriate.

408    Accordingly, I will proceed on the basis that the Applicants’ investments in each of the State Companies has been wholly lost, other than in the case of VTF (SA), in which case it has been wholly lost save for the sum of $50,000.

Reliance and causation

409    Section 1041I(1) of the Corporations Act provides that a person who suffers loss or damage “by” conduct of another person that was engaged (relevantly) in contravention of s 1041H may recover the amount of the loss or damage by action against the contravenor.

410    Section 236(1) of the ACL provides that a person who suffers loss or damage “because of” the conduct of another in contravention of a provision in Ch 2 or 3 (which includes s 18) may recover the amount of the loss or damage by action against the contravenor.

411    The High Court discussed s 82(1) of the Trade Practices Act 1974 (Cth), the counterpart of s 1041I, in Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525:

The statutory cause of action arises when the plaintiff suffers loss or damage “by” contravening conduct of another person. “By” is a curious word to use. One might have expected “by means of”, “by reason of”, “in consequence of” or “as a result of”. But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s.82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v. Stramare (E. & M.H.) Pty. Ltd., except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act. Had Parliament intended to say something else, it would have been natural and easy to have said so.

(Footnotes omitted)

412    Section 236(1) of the ACL uses the term “because of” and not the term “by”. It was not suggested in this case that that difference in terminology involves any practical difference. In each case, the Court must be satisfied that there is a causal connection between the contravening conduct, on the one hand, and the loss and damage alleged, on the other: Campbell v Backoffice Investments at [102].

413    It is not necessary that the misleading or deceptive conduct be the sole, or even the primary cause of the loss: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [110]-[111] (McHugh J), [163] (Hayne J). Nevertheless, common sense and practical experience may indicate that there is an insufficient connection between the contravening conduct and the loss as, for example, when a respondent’s conduct merely sets the scene, or provides the opportunity for the loss to be incurred, rather than being a cause of that loss in a meaningful sense: Stone v Chappel [2017] SASCFC 72; (2017) 128 SASR 165 at [354].

414    In some circumstances, it is helpful to consider the causal connection in two stages: first, whether the applicant relied on the misleading or deceptive conduct, and secondly, the sufficiency of the connection between the loss or damage claimed and the applicant’s reliance on the misleading conduct: Stone v Chappel at [353].

The decision-makers

415    Mr Falzon did not himself invest funds in RRG. He did, however, encourage at least one family member (his daughter) and his friends to do so. Mr Stephens encouraged his neighbour, Mr Dimech, to invest. Mr Dimech, who contributed $60,000, relied on what he had been told by Mr Stephens and by Mr Nestorovic.

416    With the exception of the investments of FSN and the contribution of funds to VTF (Vic) and VTF (NSW), Mr Schirripa and his wife Jacqueline made the decisions for investment by members of the Schirripa family. However, it is apparent that Mrs Schirripa relied on what she had been told by her husband who conveyed to her matters about the prospects of the VTF business represented to him by Mr Nestorovic. Likewise, Mr Frank Schirripa relied on what he had been told by his son in making the investment decision for FSN. Their decisions were not made independently of the Respondents’ misrepresentations. Their reliance may have been indirect, but was nevertheless real and is sufficient to establish the necessary causal link: Chowder Bay Pty Ltd v Paganin [2018] FCAFC 25 at [61].

417    It is apparent that each of the representations had a continuing and cumulative effect. This makes it unnecessary to identify particular contributions of funds caused by each individual misrepresentation which I have found established.

The Applicants’ conduct

418    The Respondents emphasised that the persons behind the Applicants had had experience in business, that they were well aware that the VTF business was a “start-up” business; that they had known there were risks; and that they had had the means of conducting their own research or a form of “due diligence”.

419    I accept that those matters are so. But that does not have the consequence, as the Respondents appeared to submit, that their misleading or deceptive conduct should not be regarded as a relevant cause of the losses. Even experienced business people may be misled by misrepresentations. That is particularly so in relation to a “start-up” business in respect of which it is the representor who claims to have knowledge of the market and the demand for the product, and the representee does not. As counsel for the Applicants noted, there is no requirement that an applicant’s reliance upon a respondent’s misleading or deceptive conduct be reasonable. In Henville v Walker, Gleeson CJ said at [13]:

It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim of a contravention is not a bar to an action … unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage.

420    There may be cases in which an applicant is so negligent in protecting its own interests that the causal link between the misrepresentation and the damage will be severed: Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 138. However, the present case cannot reasonably be regarded as involving a circumstance of that kind. This submission of the Respondents is rejected.

The 17th representation - the Manufacturing Representation

421    In the present case, I have already accepted, in relation to the 17th representation (the Manufacturing Representation), Mr Schirripa’s evidence that he did rely on the Respondents’ representation to him that Status was the manufacturer of the VTF panels. The truth of that representation was a material matter to Mr Schirripa’s decision-making, for the reasons which he gave. Its materiality is also underlined by the acknowledgement by each of the Respondents that they had wanted the Applicants to believe that Status was the manufacturer.

422    I am satisfied that Mr Schirripa, and through him, his wife, Schnik and FSN, did rely upon the truth of the representation that Status was the manufacturer and that that had a direct bearing on their respective decisions to invest. In the case of Schnik, Mr Schirripa and his wife were the relevant decision-makers but, as indicated, Jacqueline Schirripa relied on what she had been told by her husband. In the case of FSN, Mr Frank Schirripa relied on what he had been told by his son. That reliance establishes the necessary causal relationship between the misleading or deceptive conduct of the Respondents and the loss of Schnik and FSN.

423    The Applicants do not allege that the Manufacturing Representation had been made to Messrs Falzon, Stephens or Dimech, and there is in any event no basis in the evidence upon which the Court could find that the Manufacturing Representation had played any part in the decision of RRG to invest monies in the VTF business before the Schirripa family became involved.

The 16th representation - the Matching Representation

424    The Matching Representation was relied on by RRG before the Schirripas became involved. It was also relied on by Mr Schirripa and, through him, by his wife and father. It was a material cause of all the investments. There is no difficulty in making that finding, as it is plain that Messrs Schirripa, Falzon and Dimech were induced to invest by their belief, that the Respondents, through VTF Aust, were making an equal contribution. They were not, but instead were causing Status to charge a sufficiently large amount to the Applicants that their contributions paid for all the VTF panels acquired by the State Companies.

The first representation - price and income projections

425    In relation to the first representation, I have found only that Mr Nestorovic’s representation that the panels could be rented for $15 per panel per week was misleading or deceptive. Plainly, that was a material representation. It is also plain that Mr Schirripa did not rely on the literal truth of the representation, as he considered what the position would be if the panels were rented for only half that sum and achieved only half the projected income. He thought that even on that basis, investment in the panels would produce “a decent return”. Accordingly, the representation that the panels could be rented at the rate of $15 per panel per week had some continuing effect and I find was a cause of the loss suffered by RRG after the first investment by the Schirripas, and of all the losses of Schnik and FSN. However, the first representation was not a cause of the loss of the initial investment by RRG ($210,750) because, on my findings, the preparation of the spreadsheets was the result of the collaboration of Messrs Falzon, Stephens and Nestorovic.

The second representation - extensive market research

426    Mr Schirripa did not refer explicitly to the representation concerning extensive market research in explaining his decision in March and early April 2014 to invest in the VTF business. He said:

I believed what I had been told about the product, the Brisbane Airport job and the Coober Pedy job, and trusted Michael [Nestorovic]’s judgment that the panels could be rented for $15 per week (or something close to it). I also believed that Michael and Anna [Pinneri] were financially committed to the business and would match any outside investment with an equivalent contribution in kind. If I had not believed those things, I would not have made any investment in the VTF business, through Schnik, RRG or otherwise.

427    Mr Falzon said:

We believed what we had been told by Michael about the prices that could be achieved and the jobs that were coming up. This is why I decided to become involved and try and get people to invest in VTF.

428    It is also evident that Mr Dimech relied upon what he had been told by Mr Nestorovic about the Brisbane job and the “extensive market research” he claimed to have undertaken.

429    I accept the evidence of these witnesses.

430    In these circumstances, I am satisfied that Mr Nestorovic’s claims about the extensive market research he had undertaken were a cause of the investments of all the Applicants, including those of RRG made before the Schirripas became involved.

The third representation - Brisbane Airport

431    The position with respect to this representation is even more straightforward. It is plain that it was the projected returns from the Brisbane Airport job which attracted the attention of Messrs Schirripa, Falzon and Dimech. The Applicants have established both stages of the reliance and causation enquiry.

The fourth representation - Coober Pedy Council

432    Mr Schirripa identified the representation concerning the Coober Pedy Council job as a particular matter on which he had relied in making the decision to invest. I accept that evidence.

433    However, I am not prepared to find that Mr Nestorovic’s representations concerning the Coober Pedy job were a cause of the initial investment by RRG of $210,750. Mr Falzon said only that Mr Nestorovic had told him about that job and had said that he was “in discussions” with the Coober Pedy Council about it. Mr Dimech did not mention representations concerning the Coober Pedy job at all.

434    Accordingly, I find that the Applicants have established the relevant causal link between the fourth representation and the loss of the investments made commencing with the first involvement of the Schirripas but not with respect to the earlier investments.

The seventh representation - Transfield

435    Mr Schirripa deposed to having met with Mr Stephens as Directors of RRG on 13 February 2015. At that meeting, they resolved to contribute a further $572,880 for the purpose of purchasing additional VTF panels for VTF (SA) and VTF (NT). Mr Murray, one of the RRG unit holders, contributed $150,000 of this sum and Mr Schirripa the balance. Mr Schirripa said that, in making his decision, he had accepted the truth of what Mr Nestorovic had told him about the Coober Pedy and Alice Springs jobs and had thought that, on the basis of what he had been told by Mr Nestorovic, that VTF “was going to sign major contracts with Rio Tinto, Transfield and VicRoads”. Of these jobs he said that he thought that the main ones at that time were those with Rio Tinto and at the RAAF Base. Mr Schirripa also explained his investment decisions in mid-2015 by saying:

… I also knew that Michael had spent plenty of time on the ground in Victoria. In any event, I was comfortable that with the Rio Tinto and RAAF jobs in South Australia, and with business looking good in the Northern Territory, I was happy to invest in New South Wales and Victoria. I felt I had some security from the jobs in the other States.

436    I accept that evidence.

437    I also accept that what Mr Schirripa was told about Transfield may have served to reinforce the generally positive view about the prospects of the VTF business which Mr Nestorovic’s statements had created.

438    Accordingly, I accept that the Applicants have established the necessary reliance and causal link between the representations concerning the Transfield job at the RAAF Base and their losses.

The eighth representation - the Melbourne Grand Prix

439    Mr Schirripa did not claim that the representations concerning the Melbourne Grand Prix had operated in his mind so as to cause him to decide on further investments. On the contrary, he deposed that he had been aware, at the time of the decision to invest in VTF (Vic), that VTF had not obtained the Grand Prix job.

The 10th representation - VicRoads

440    In my assessment, the representation concerning the VicRoads contract was a minor matter. I am not satisfied that it played a material part in Mr Schirripa’s decisions concerning investment. The necessary causal relationship is not established.

The 11th representation - the Alice Springs Airport Road

441    Mr Schirripa said, and I accept, that at his meeting with the Respondents in early February 2015 after Mr Nestorovic’s return from his trip to Alice Springs, they had agreed that a significant amount of fencing would be required for the Airport road job. He said “based on the Highway Job, the Coober Pedy Job, and other leads, we agreed that RRG and VTF Aust would put in more capital to buy additional fencing for these regional areas, including Coober Pedy, Alice Springs, Ceduna, Port Lincoln and Millicent”. Mr Schirripa made a contemporaneous note of this discussion which records the particular numbers of tall and short panels which would be required for each area. After that meeting, on 6 February 2015, Ms Pinneri issued invoices from Status to VTF (SA) for $394,240 and to VTF (NT) for $178,640. The total was $572,880. As already noted, Mr Schirripa then called a meeting of the RRG directors at which he and Mr Stephens agreed that RRG would contribute that sum. Mr Murray, one of RRG’s unit holders, contributed $150,000 towards that sum and Mr Schirripa or the companies associated with him, contributed the balance.

442    I accept that evidence. There is accordingly no difficulty in finding that the necessary causal relationship is established with respect to the 11th representation.

The 13th to 15th representations - Parliament House, Liverpool Council and Blacktown Council

443    There is no difficulty in finding the causal relationship established in relation to these representations. I am satisfied that they were an operative cause of Mr Schirripa’s decision to invest in VTF (Vic) and VTF (NSW). Mr Schirripa said, and I accept, that he had made the decision to invest in VTF (NSW) on the basis of what Mr Nestorovic had told him about the Parliament House job, the Liverpool Council job and the Blacktown Council job. He had believed that VTF needed VTF panels in New South Wales to meet the demand created by these jobs.

444    In relation to Victoria, Mr Schirripa acknowledged that he was not aware of any actual job other than the VicRoads job but had known that Mr Nestorovic had spent “plenty of time on the ground” in Victoria and was comfortable with the direction which the business appeared to be travelling.

Summary of findings of causation and reliance

445    The effect is that I am satisfied that one or more of the representations which I have found to have been made and to be misleading or deceptive was a cause of each of the investments by the Applicants making up the whole of the loss alleged. Subject to the matter to be addressed next, the Applicants are entitled to judgment for that amount.

An independent cause of loss?

446    The Respondents submitted that it was Mr Schirripa himself who was responsible for the failure of the VTF business. Mr Schirripa had resigned his directorship of each of the State Companies in October 2015 and ceased at that time any active participation in the VTF business. The Respondents submitted that, in this circumstance, the burden of attempting to conduct a business had fallen onto them, and they had not been able to cope. These were the circumstances which had led them to resolve on the appointment of administrators to the State Companies in July 2017. The submissions seemed to be that this was an independent form of loss.

447    I do not accept that submission. By October 2015, Mr Schirripa had come to realise that he had been induced to make substantial investments in the VTF business by the misleading or deceptive conduct of the Respondents. He wished to cease his association with them. In my view, that decision cannot be described as unreasonable.

448    Further, and in any event, the Respondents led no evidence, other than their own, establishing the causes of the failure of the VTF Companies. Nor did they lead evidence to the effect that, had Mr Schirripa continued his involvement, any contracts of significance or substance are likely to have been obtained, let alone contracts of sufficient size and substance as may have avoided the need for the appointment of administrators. This ground of defence fails.

The Misrepresentation Act claim

449    Sections 7(1) and (2) of the Misrepresentation Act 1972 (SA) provides as follows:

(1)    Where a contracting party is induced to enter into a contract by a misrepresentation made—

   (a)    by another party to the contract; or

(b)    by a person acting for, or on behalf of, another party to the contract; or

(c)    by a person who receives any direct or indirect consideration or material advantage as a result of the formation of the contract,

and any person (whether or not he or she is the person by whom the misrepresentation was made) would, if the misrepresentation had been made fraudulently, be liable for damages in tort to the contracting party subjected to the misrepresentation in respect of loss suffered by him or her as a result of the formation of the contract, that person is, subject to subsection (2), so liable to that contracting party, in all respects as if the misrepresentation had been made fraudulently and were actionable in tort.

(2)    It is a defence to an action under subsection (1)—

(a)    that the person by whom the representation was made had reasonable grounds to believe, and did believe, that the representation was true; or

(b)    that the defendant was not the person by whom the representation was made and did not know, and could not reasonably be expected to have known, that the representation had been made, or that it was untrue.

450    The effect of s 7(1) is that, when a misrepresentation induces a party to enter into a contract, the representor is liable for damages in tort as if the representation had been made fraudulently.

451    To constitute a representation, the statement must be a representation of fact. The essence of a misrepresentation is that it led the representee into error. This is to be tested objectively – by enquiring whether a reasonable person in the position of the representee would have been led into error by the statement: Mitchell v Valherie [2005] SASC 350; (2005) 93 SASR 76 at [71] and see the references cited therein.

452    The Applicants claim that each of the pleaded representations was a misrepresentation to which s 7(1) applies. The Respondents did not make any separate submissions concerning the application of the Misrepresentation Act.

453    I consider it appropriate to proceed on the basis that each of the representations which I have found to be misleading or deceptive constituted a misrepresentation of a factual matter. In so far as the representations related to opinion, they were representations of the fact that Mr Nestorovic held the opinions and, further, that he had a reasonable basis for those opinions.

454    Accordingly, had it been necessary, I would have found that the Applicants were entitled to the same damages under the Misrepresentation Act.

The claim in deceit

455    For the claim in deceit, the Applicants relied only on the fourth, sixth, seventh and 16th representations. As I have found that the Applicants have not established the sixth representation, it need not be considered in the present context. Accordingly, the Applicants’ claim of deceit turned on the representations concerning the Coober Pedy Council job, the Transfield job and the Matching Representation.

456    The tort of deceit is established when an applicant proves five matters:

(i)    the respondent made a false representation;

(ii)    the respondent made the representation with the knowledge that it was false or was reckless or careless as to whether the representation was false or not;

(iii)    the respondent made the representation with the intention that it be relied upon by the applicant;

(iv)    the applicant acted in reliance on the false representation; and

(v)    the applicant suffered damage which was caused by reliance on the false representation.

See Magill v Magill [2006] HCA 51; (2006) 226 CLR 551 at [114].

457    In respect of the second of these elements, Gummow, Hayne and Heydon JJ noted in Banditt v The Queen [2005] HCA 80; (2005) 224 CLR 262 at [2] that fraud is proved when it is shown “that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false”. The plurality went on to note that the third of these cases is an instance of the second, at [2].

458    The Applicants carry the onus of establishing each of the above matters. In relation to the third element, Wilson J noted in Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215 at 236 that, if a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract, there arises a fair inference of fact that the person was induced to do so by the representation.

459    The Applicants rely upon the same matters in relation to the fourth, seventh and 16th representations as they relied upon in their case of misleading or deceptive conduct.

460    On the basis of the findings made earlier, I am satisfied that the Applicants have established the tort of deceit with respect to those representations. Plainly, the Respondents did intend the Applicants to rely upon the representations and to contribute further funds. As previously noted, the Respondents were to a significant extent reliant upon the contributions of the Applicants for the operations of Status generally.

461    In summary, had it been necessary to do so, I would have found that the Applicants are entitled to judgment with respect to the tort of deceit in respect of the fourth, seventh and 16th representations. Given my earlier findings, it is not necessary to identify separately the losses resulting from these deceits.

Conclusion

462    For the reasons givens above, I am satisfied that the Respondents contravened s 1041H of the CC Act by making the first (in part), second, third, eighth, 10th and 13th to 17th representations.

463    I am also satisfied that the Respondents breached s 18 of the ACL by making the fourth, seventh and 11th representations.

464    The Applicants are entitled to recover damages as follows:

(a)    RRG: $1,599,811.80 (being the total of its investment less the sum of $50,000 which may be recovered from the liquidation of VTF (SA));

(b)    Schnik: $1,244,105.50; and

(c)    FSN: $253,275 (as FSN did not pursue the claim for $4,500).

465    It was not suggested that any distinction should be made between the Respondents with respect to the liability of these amounts.

466    I will hear from the parties as to the form of the declarations and other orders, and with respect to interest and costs.

Associate:

Dated:    17 May 2019

SCHEDULE OF PARTIES