Fendley v Owen[2022] QDC 249

DISTRICT COURT OF QUEENSLAND

Introduction

1. [1]
   The plaintiffs Mr Ian Fendley and his partner Angela Sparrow are keen sailors. In 2015 they entered into a contract with Marine Engineering Consultant Pty Ltd (MEC) to build a 15 metre catamaran. The defendant, Mr Murry John Owen was the sole director, secretary and shareholder of MEC at this time and he conducted the negotiations with the plaintiffs for the supply of this vessel. The designer of this vessel was Mr Andrew McDonald-Smith.  This deal went swimmingly well – the plaintiffs were very happy with their new catamaran and as a result of their dealings with MEC they developed a trust in and a friendship with the defendant.
2. [2]
   Towards the end of 2019 the plaintiffs decided they wanted a larger catamaran, so they contacted the defendant with a view to engaging MEC to build them such a vessel.^[1] After fairly brief negotiations with the defendant, on 6 January 2020, the plaintiffs entered into a written Contract with MEC for the construction of an 18 metre catamaran, designated MECY26, to be delivered by 30 November 2020, at a cost of $2.485M. The plaintiffs subsequently paid the first two instalment Payments (totalling $559,124) due under the Contract.^[2] But things did not go so well this time. The construction of the catamaran never got off the ground and despite agreements for MEC to delay construction for six months and then later for MEC to refund the Payments (less out of pocket expenses) to the plaintiffs, the catamaran was not built and the plaintiffs did not recover any of the monies they paid to MEC.  Instead, MEC was placed into liquidation on 27 November 2020.  The uncontroverted evidence is that MEC was insolvent since 1 November 2017.^[3]
3. [3]
   On 8 March 2022, the plaintiffs commenced these proceedings claiming the sum of $579,124^[4] from the defendant for misleading and deceptive conduct by him in breach of the Australian Consumer Law (Qld) or alternatively the Australian Consumer Law (Cth) (ACL) based upon certain representations said to have been made by the defendant. These representations include that MEC had the capacity and ability to build the catamaran (Capability Representations) and was solvent in the period leading up to the execution of the Contract (Solvency Representations). 

No Appearance by Defendant at Trial

4. [4]
   The defendant did not appear at the trial.  I was satisfied that he was served with both the notice of the trial and the various trial directions that were made leading up to the trial date and so the trial proceeded before me pursuant to rule 476(1) of the Uniform Civil Procedure Rules 1999 (Qld).^[5] This requires the plaintiffs to call sufficient evidence to establish an entitlement to judgment. This task was undertaken in a combination of ways in this case including through the admission of affidavit and other documentary evidence; and a number of witnesses (including both plaintiffs), giving oral evidence before me in person and by telephone. 
5. [5]
   I have approached the determination of this matter on the basis that the plaintiffs are required to establish matters upon which the burden of proof falls upon them as alleged in the statement of claim. Despite his non-appearance, I have also considered the issues with reference to the defendant’s pleading.^[6]
6. [6]
   The real issues in dispute between the parties are usefully defined and in this case somewhat confined by their pleadings. For example, apart from the issue of solvency at the relevant time there is little dispute about how the Contract came to be formed. Although the meaning and effect of certain documents and ultimately the plaintiffs reliance on any such representations when entering into the Contract (and in making the Payments) is in dispute. 
7. [7]
   Before turning to an analysis of the pleadings and the facts in this case it is instructive to outline some of the relevant legal principles.

Relevant Legal Principles

8. [8]
   A corporation or an individual contravenes s 18 of the ACL, if, in trade or commerce, it engages in conduct that is misleading or deceptive or is likely to mislead or deceive.
9. [9]
   It is admitted on the pleadings that the relevant conduct of MEC (and the defendant) is conduct in trade or commerce. The real issue in this case is whether in his dealings with the plaintiffs, the defendant engaged in or was involved in misleading and deceptive conduct. In determining this issue the ultimate question is whether his conduct led or was likely to lead the plaintiffs into error.^[7]
10. [10]
    The assessment as to whether particular conduct has led a plaintiff into error is a question of mixed fact and law. It involves a determination of what a reasonable person in the position of the representee, taking into account what they knew, would make of the representor’s conduct.^[8] 
11. [11]
    There is no mental element for misleading and deceptive conduct.  The plaintiffs are not required to prove that the representations were intentionally misleading.  It is only necessary to prove that they were in fact misleading or deceptive.^[9]  Nevertheless, where there is an intention to mislead it may more readily be inferred that there has been misleading and deceptive conduct.^[10]
12. [12]
    Whether conduct is misleading or deceptive depends on the context in which the conduct took place.^[11]
13. [13]
    The alleged representations were made by the defendant in his capacity as the sole director and shareholder of MEC.  The company was obviously not sued because it was placed into liquidation on 27 November 2020. The plaintiffs’ case is that the defendant is liable as the principal for having made the representations or alternatively that the defendant was directly or indirectly knowingly concerned in the misleading or deceptive conduct or conduct likely to mislead and deceive undertaken by MEC.^[12]
14. [14]
    Three well established principles emerge from the authorities dealing with accessorial liability as follows:^[13]

    1. (a)
       First, actual knowledge of the essential elements of the contravention by the company is required;
    2. (b)
       Secondly, where the contravening conduct involves misrepresentation, whether as to a future matter or not, this principle requires actual knowledge which must be alleged and proved; and
    3. (c)
       Thirdly, the onus lies with the applicant [plaintiffs in this case] to show the respondent [defendant in this case] had actual knowledge that: the representation was made; and it was misleading or the corporation had no reasonable grounds for making it.

15. [15]
    The Capability Representations are representations as to present capacity, but are also representations as to the future capability and ability of MEC to build the catamaran;  being in the nature of a promise, forecast, prediction or other like statement about something that will transpire in the future.^[14]
16. [16]
    Section 4 of the ACL deals with the nature of the evidence relevant to misleading representations with respect to future matters as follows:

3. “4
   Misleading representations with respect to future matters

3. (1)
   If:

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

2. (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.

3. (2)
   For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:

1. (a)
   a party to the proceeding; or

1. (b)
   any other person;

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

3. (3)
   To avoid doubt, subsection (2) does not:

1. (a)
   have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or

1. (b)
   have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.

3. (4)
   Subsection (1) does not limit by implication the meaning of a reference in this Schedule to:

1. (a)
   a misleading representation; or

1. (b)
   a representation that is misleading in a material particular; or

1. (c)
   conduct that is misleading or is likely or liable to mislead;

1. and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.”

[Emphasis Added]

17. [17]
    Where there is no evidence that there were any reasonable grounds for the representations, the representations as to future matters are taken to be misleading or deceptive.^[15]
18. [18]
    The ACL provides that a person who suffers loss or damage because of the conduct of another and the conduct contravened s 18, may recover the amount of the loss against the other person. The expression “by” (in the previous legislation) and the expression “because” in the ACL have been accepted as invoking the common law practical or common-sense concept of causation having regard to the terms and objects of the ACL.^[16]
19. [19]
    If a material representation is made which is calculated to induce the representee to enter a contract (or perform some other act or not to act) and that person in fact does enter the contract (or perform some other act or does not act) there arises a fair inference of fact that the person was induced to do so by the representation.^[17]
20. [20]
    It is not necessary that the contravention be the sole cause of the loss or damage. It is sufficient if it is a cause of the loss or damage.^[18]
21. [21]
    With these principles in mind, it is now convenient to set out the relevant factual matrix as elicited from the admissions on the pleadings and the unchallenged evidence of the plaintiffs - both of whom presented as savvy and intelligent business people who gave frank and honest evidence before me.  As will emerge, I have generally accepted most of their evidence whilst taking into account that parts were presented through a reconstructed lens slightly distorted by (perhaps) “overmuch discussion of it with others”.^[19]

Relevant factual background  

22. [22]
    The plaintiffs knew both the defendant and Mr McDonald-Smith from their successful collaboration with these men in 2015. Mr Fendley explained that he monitored the construction of the first vessel and he was generally aware of the steps involved in building a catamaran including the setting up of keels in a big shed, the bracing, welding and the material to be used (which in this case was aluminium).
23. [23]
    Sometime in 2019, the plaintiffs decided that they wanted a longer and roomier vessel. The plaintiffs were reasonably familiar with MEC’s business, which was located at Waterway Drive, Coomera as they visited the company office at the front of the Marina and the factories where vessels were constructed on a number of occasions.  Mr Fendley was able to identify the factory areas that he had been to with the defendant and where he had observed MEC employees manufacturing boats, from a map of the Marina.^[20]  For example, he identified that the plaintiffs’ first vessel was built in shed D26.  He also explained that he observed the defendant working out of another shed (H60) which he described as a “super yacht shed”.  Mr Fendley observed that MEC had two boats under construction in sheds H60 and H61 in early 2020.  He specifically recalled viewing these vessels and seeing “employees with their shirts and everything on working on them”.^[21] He also recalled going into Shed D29 in February 2020 “to so see if we had any aluminium there, and he was constructing another boat in there.”^[22]
24. [24]
    In November 2019, MEC advertised a half-finished 17 metre catamaran for sale which Mr Fendley inspected in Shed H60. But the plaintiffs wanted a bigger vessel with some additions that their current catamaran did not have. 
25. [25]
    Around this time the plaintiffs commenced serious discussions with the defendant about MEC building them a new vessel.  What transpired was several emails about possible vessels, and designs were exchanged between the parties. Mr Fendley’s evidence was that he and Ms Sparrow discussed the construction of the new vessel together and with the defendant by identifying changes to their current catamaran. These changes were then passed on to Mr McDonald-Smith.
26. [26]
    On 18 December 2019, the plaintiffs met with the defendant to discuss MEC  building them an “18m Andrew McDonald-Smith Design catamaran.”^[23]  This meeting took place at a fabrication place for “yachts and repairs and everything”^[24] called “The Yard”  located at Hemmant in Brisbane. The plaintiffs, the defendant, his daughter and Mr McDonald-Smith were in attendance at this meeting.
27. [27]
    At this first meeting, the defendant represented to the plaintiffs that a contract to build the catamaran would need to be locked in quickly as he had another boat that he needed to commence in April 2020 and he would need to get certain things done on the new catamaran before that contract started (First Representation).^[25]
28. [28]
    Right from the first meeting in December 2019, Mr Fendley recalled discussing with both the defendant and Mr McDonald-Smith whether the design of the boat would be completed in time for a build to start in January 2020. Timing was important to the plaintiffs as they wanted it started early in the year so that it could be completed by the end of the year.  
29. [29]
    On 19 December 2019, the defendant sent a “letter of offer” to Mr Fendley for the plaintiffs for MEC to build the catamaran. This letter of offer included that:^[26]

    1. (a)
       the cost of the build was $2,588,000 with a QSMII 715 mhp or $2,527,000 with a QSC8.3 @ 600 mhp;
    2. (b)
       the design cost from Andrew McDonald-Smith of $50,000 was included in the cost;
    3. (c)
       an 11-12 months build time was allowed;
    4. (d)
       delivery prior to Christmas 2020 was guaranteed;
    5. (e)
       the build time slot would be 6 January 2020; and
    6. (f)
       MEC had a large build commencing early April 2020 and would like to have a majority of fabrication and welding for a catamaran well underway by that stage.

(Second Representation)

30. [30]
    Mr Fendley said he was satisfied with the contents of this offer and particularly happy with the build slot and the commencement dates for building and fabrication welding together with the 12 months’ guaranteed delivery prior to Christmas 2020.  This date was important because it would enable the plaintiffs enough lead time to get ready for an extended and planned sail on their new catamaran (in May 2021) and to miss the cyclone season.
31. [31]
    Mr Fendley subsequently recalled receiving other correspondence about the boat including from Mr McDonald-Smith.  Emails exchanged between Mr Fendley and the defendant on 20 December 2019 also refer to dimensions being added and the need to tweak and add cabinets and benches to the plans.
32. [32]
    On 23 December 2019 the plaintiffs received an email from the defendant which attached an updated letter of offer from MEC and some specification sheets. This email relevantly stated as follows:^[27]

“I have heard you have been told we have been having some financial issues, partly true only from a cashflow point of view due to the 17m that contract fell over,  I have a new contract which was due to settle a couple months ago and would have left surplus of nearly $700k back into our cashflow so that has hurt, I’m told this will still happen as it is involved in an investment fund that is buying Lady Musgrave cruises out of 1770 so not as straight forward as we would have liked.

Unfortunately there is an ex-employee that seems hell bent on us failing and is always trying to dig a dagger in and always spreading rumors [sic] and trying to coax our staff, that was Matt Bruce we caught him out running out during day taking his daughter to swimming and lots of other things and then he wanted a large pay rise which I refused and questioned him, so he resigned but then turned on me.  Michael Hardie just decided to manage an offshore racing team who he knows owner well and has always been into boat and ski racing so it didn’t surprise me, Kerry well he just decided the pressure was too much doing Matt’s job and needed a break, I believe he will come back on project basis and lead a crew but only as supervisor not Manager.

Happy to go through any of this in further detail but I can assure you I’m not going anywhere and with our JV in Brisbane only strengthens our business especially for refits up there, we also as I have said have a 24m x 11.5m luxury sailing cat which is worth around $7.4m which is in design phase and due to start fabrication early April.

Thanks and look forward to discussing further soon.”

[Emphasis added]

33. [33]
    About a half an hour later, Mr Fendley responded to the defendant’s 23 December  email by stating relevantly as follows:

“I can assure you that I’ve never heard anything but positive from Michael and have never spoken to Matt. But I appreciate you putting this on the table as I have heard some rumours….

I’d love to know that Kerry was working on our boat”

34. [34]
    The plaintiffs pleaded case is that by the 23 December email, the defendant represented that:^[28]

    1. (a)
       it was partly true that they, meaning MEC, had some financial issues;
    2. (b)
       the financial issues only arose from a cashflow point of view;
    3. (c)
       he, meaning MEC, had a $17 million contract that fell over a few months previously;^[29]

4. (d)
   he, meaning MEC, was not going anywhere;

5. (e)
   the joint venture he, meaning MEC, had in Brisbane strengthened their business;

6. (f)
   he, meaning MEC, had a 24m x 11.5m luxury sailing catamaran which was worth around $7.4 million which was in the design phase and due to start fabrication early April.

(Third Representation)

35. [35]
    The plaintiffs contend that the Solvency Representations arise from the 23 December email - that is, by this email, the defendant represented to the plaintiffs that MEC:^[30]

    1. (a)
       was not insolvent;
    2. (b)
       was not under any significant financial strain;
    3. (c)
       was able to pay its debt as and when due;
    4. (d)
       was able to pay its debt as and when due on the invoice date;
    5. (e)
       was able to pay its debt as and when due and not extending the period when it paid its debt;
    6. (f)
       was not required by its creditors to pay cash on order or cash on delivery of goods or services;
    7. (g)
       would be able to pay its creditors as and when due; and
    8. (h)
       would not be required to pay its creditors in cash on order or delivery of goods or services.
36. [36]
    I am not satisfied that the Solvency Representations arise on an objective and ordinary reading of the 23 December 2022 email. Such a reading of  the email is to the contrary –  it raises more questions than assurances about solvency.  This finding is consistent with Mr Fendley’s oral evidence (which I accept) given in the following exchange with Senior Counsel for the plaintiffs during Mr Fendley’s evidence in chief: ^[31]

What about solvency of the financial position of MEC; was that important to you?‑‑‑Well, yeah.  Yes.  Yep.  But I didn’t – I didn’t know how they were travelling, to be honest.

And what had you been – what information did you have about how they were travelling?‑‑‑I had enough information to convince me I’m satisfied that they were capable of doing everything that I asked?

And did – the email that we went through before, did that have a part to play in that, the one sent in December?‑‑‑No, I wasn’t – I wasn’t put off by it.  I was just – I would – I would say I was – I was going to be wary, if – if anything.

Did it provide any assurance to you?‑‑‑Well, not really, but he had plenty of work on at the time that we could see.

[emphasis added]

37. [37]
    On about 3 January 2020, the defendant represented to Mr Fendley for the plaintiffs that:^[32]

    1. (a)
       he needed the plaintiffs to get the Contract signed or he would not be able to start the catamaran because after April 2020 he had other build commitments and needed to have the hull completed before then;
    2. (b)
       MEC would need to start building in January 2020.

(Fourth Representation)

38. [38]
    On 3 January 2020, the defendant emailed a quotation to the plaintiffs which provided as follows:^[33]

    1. (a)
       quoted a cost of $2,485,000 for MEC to build the catamaran;
    2. (b)
       stated the design cost for the designer of $48,000 was included in the cost of $2,485,000;
    3. (c)
       stated the delivery of the catamaran would be early December 2020;
    4. (d)
       stated that the build slot start would be 6 January 2020;
    5. (e)
       stated that MEC had a large build commencing early April 2020; and
    6. (f)
       stated that MEC would like to have the majority of fabrication and welding of the catamaran well underway by early April 2020.

(Fifth Representation)

39. [39]
    On 4 January 2020, the plaintiffs emailed the defendant asking about the delivery date of the aluminium cut parts; explaining that this could significantly delay the start date of the catamaran if they had back orders.^[34]
40. [40]
    On 5 January 2020, the plaintiffs emailed the defendant enquiring when Mr McDonald-Smith would have the final plans of the catamaran complete so the defendant could place the aluminium order.^[35]
41. [41]
    On 6 January 2020, the defendant emailed the plaintiffs stating as follows:^[36]

    1. (a)
       the designer could start immediately and would need one week to complete drawings;             
    2. (b)
       Bluescope could start cutting on 17 January 2020 and would be complete to deliver by 22 to 24 January 2020; and
    3. (c)
       Capral could cut as soon as files are available and would take five days and deliver by 20 to 22 January 2020.

(Fifth Representation)

42. [42]
    On 6 January 2020, the plaintiffs entered into the Contract.^[37] By clause 3.1 of the Contract, the plaintiffs were to pay the contract price by instalments as set out in schedule 2.^[38] Although the schedule referred to stages, and Mr Fendley associated the stages with particular work having been completed,^[39] the Contract^[40] provided the payments were to be paid on the indicative (monthly) dates starting on 6 January 2020.  By clause 8.3 of the Contract, the first stage payment was due and payable by the plaintiffs on signing the Contract. By schedule 2, the stage one payment, in the amount of $279,000, was payable at an indicative date of 3 February 2020.^[41]  A stage payment two was payable in the same amount at an indicative date of 2 March 2020.^[42]
43. [43]
    Under the Contract, the delivery date was 30 November 2020.^[43]  The Contract  also incorporated the quote.^[44]   By the quote, the build slot start was to be 6 January 2020 as MEC had “a large build commencing early April 2020 and would like to have the majority of the Fabrication and Welding well under way by that stage”.

44. [44]
    During his evidence in chief, Mr Fendley was asked what led him to signing the Contract. His evidence (which I accept) was as follows:^[45]

“Oh, both Angela and I have talked it over and we were happy with everything that we saw and – and he’d - he’d made the changes we needed to have, and I was happy with it, and so was Angela.”

45. [45]
    The following exchange then took place between Senior Counsel for the plaintiff and Mr Fendley: 

When you say you were happy with everything you saw, what were the things that influenced you – influencing your mind in signing the contract?  Was time important to you?‑‑‑Yeah.  Yep.

And what was important to you about time?‑‑‑Well, just to have the boat finished before the end of the year.  Yeah.

And what about the start date?‑‑‑And the start date, yeah.  If it doesn’t get started in January or February, I’d get caught up with another boat that he’s supposedly building as well, so ‑ ‑ ‑

And it won’t get finished?‑‑‑Well, it’d be slow, getting finished, yeah.

46. [46]
    Ms Sparrow explained that the date and timing was of significance to her and that she  needed to know that the aluminium was going to be available to start the job as the defendant had promised, in the timeframe that he was going to build the boat and that this was something they needed to know before the Contract was signed.
47. [47]
    On 6 January 2020, MEC invoiced the plaintiffs for the deposit and on 8 January 2020 the plaintiffs paid the amount of $275,562 to MEC. On 29 January 2020, MEC invoiced the plaintiffs for the stage one payment in the amount of $279,562.00  and on 30 January 2020 the plaintiffs made payment of that sum to MEC. On 21 February 2020, MEC invoiced the plaintiffs for stage the two payment in the sum of $279,562. But the plaintiffs did not pay this or any further amounts under the Contract as it became abundantly clear that the construction was not getting off the ground as promised. For example, on 20 February 2020 Mr Fendley visited shed D29 at the Marina (where he understood his catamaran was being constructed) to view the aluminium he was told was due to arrive that day - only to discover no aluminium and a large pilot vessel was in this shed.    
48. [48]
    Subsequently, the defendant made all sorts of unfilled promises about the aluminium being ordered and delivered and the project getting underway. But as of 26 March 2020, whilst the design had commenced, the aluminium cuts had not been delivered and there was no shed secured to commence construction.
49. [49]
    Eventually, on 26 March 2020, Mr Fendley spoke to the defendant about the lack of development. The defendant accepted that no work had been done and that the aluminium had not been delivered, and agreed it was a good idea to put things on hold.^[46]
50. [50]
    Consistent with this conversation, the plaintiffs sent the following email to the defendant (which the defendant on forwarded to Mr McDonald-Smith) that day:^[47] 

“Hi Murray,

Just thought I’d put in writing to confirm our phone conversation this morning about delaying the building of our Boat (MECY26) given the recent events, impact and potential impact of the Corona virus (COVID19). 

We are happy to delay the commencement of the build to a later date but not exceeding 6 months, when we can have another discussion about moving forward on this project.

Payments already made by us to Marine Engineering Consultants Pty Ltd (MEC) for the build can continue to be held in trust by MEC, until such time as the build commences or other.”

51. [51]
    On 15 May 2020, the plaintiffs sent an email to the defendant querying amongst other things why the invoice for stage one was sent and why Mr McDonald-Smith and the aluminium fabricator had outstanding unpaid invoices. The email also referred to the fact that the plaintiffs had paid a total of $559,129 in two instalments and required a reconciliation of the payments from this amount, the balance remaining and confirmation that the Payments had been placed in trust pursuant to the email dated 26 March 2020. ^[48] The 15 May email also relevantly stated as follows: 

“We entered into agreement in good faith.  We advised you when in initial discussions with you about building another boat, that we had heard that you had some financial issues, and you assured us that this was not the case.  In fact, you told us that we would have heard that from Luke, which you explained was a disgruntled ex-employee and in fact your Nephew(?) you advised.  We accepted your word.  You advised us you had a big build starting April 2020 besides current and other projects pending.

Of great concern for ourselves, we now find that our initial concerns about your financial security, and capability to fulfil the obligations of the Contract to build our Boat, may in fact have been warranted.”

52. [52]
    The defendant responded on 20 May 2020 as follows:^[49]

“Yes I agree you entered into an agreement in good faith as did MEC, it was Matt Bruce I mentioned who is married to my niece.

At that stage when we entered into the agreement we had a 24m luxury sailing cat to start in April with a holding deposit, unfortunately now due to COVID this project has been put on hold indefinitely as the client has a current vessel in St Thomas which was under contract and I believe to be delivered to Spain which can now not take place for the foreseeable future.

We also did have shed space allocated which was in D29, unfortunately the Pilot Vessel under construction was delayed now launched.

As I mentioned I am entering into a merger for our Brisbane works, this will ultimately offer more financial security to the business, yes we have cashflow restrictions at present due to the number of projects that have been put on hold and cancelled due to COVID but are well on track to sorting this one with more refit works in Brisbane, I plan on reducing Gold Coast to one factory only and around 15 staff only to keep our outgoings and overheads down.

We are entitled to the Job Keeper program however this is in arrears but does help.

I can assure you we have no issue in completing your vessel and welcome a meeting with you, I have meetings on projects in Brisbane today and tomorrow morning for a large refit tender, can meet any time after lunch tomorrow if that works for you.”

53. [53]
    On 21 May 2020, the plaintiffs told the defendant that they were stopping the build of the catamaran, explaining that it was because nothing had been done.^[50] Mr Fendley’s evidence was that the defendant nodded his head in response.  Ms Sparrow said that Mr Owen’s response was that he understood and says that he shook hands with Mr Fendley.^[51] Mr Fendley’s evidence (which I accept) was that the defendant agreed that MEC would refund the plaintiffs payments, less out-of-pocket expenses.^[52] This evidence is consistent with the following email sent by Mr Fendley to the defendant on 22 May 2020:^[53]

“Thanks for your time yesterday.

As discussed and agreed, forthwith please find my Bank Account details for refund of payments made to date, given the Contractual Schedule has not been met, and now agreed mutual decision not to proceed with build.

Account name:  Ian Fendley

BSB:  734604

Acct. no:  559887

To substantiate amounts claimed for reasonable out of pocket expenses please provide copies of all original Invoices & Receipts for payments claimed.

Can you please advise the anticipated date that you will be refunding payments made to my Bank Account.

This has been a difficult decision for us, but given the recent history with the build and uncertainties etal, it was pleasing and understandable also to hear you say that you understand where were coming from and this outcome.”

54. [54]
    No such refund was ever made to the plaintiffs and MEC was wound up on 27 November 2020.
55. [55]
    By his defence, the defendant alleged that MEC was solvent at all times and that it was able to pay its debts as and when due, and that MEC did not have to pay cash on delivery.^[54]  I do not accept that either of these allegations are true for the following reasons:

    1. (a)
       First, the unchallenged evidence from the liquidator of MEC Mr Williams, is that MEC was insolvent from 1 November 2017 and very likely for some time prior to that date; both on the balance sheet test and on the cash flow test;^[55] and
    2. (b)
       Secondly, the evidence at trial (which I accept) is that neither BlueScope, Capral nor Apple Aluminium provided goods unless they were paid by way of cash on delivery.^[56] 
56. [56]
    The relevant facts as regard the financial circumstances of MEC as of 23 December 2019 (that I accept) are as follows:

    1. (a)
       it had not paid any amounts due on its monthly BAS since 21 April 2019 leaving it with an accumulated debt of $1,051,244 as of 27 November 2020;
    2. (b)
       it had not paid amounts due under the superannuation guarantee levy since 28 April 2019;
    3. (c)
       it had not paid its weekly payroll tax since 20 September 2019;
    4. (d)
       there was a significant excess over the overdraft limit of (presumably of $250,000^[57]) in the bank;
    5. (e)
       the business NAB visa card was at or over its limit of $20,000; and
    6. (f)
       it had not paid rent on its premises to Riverside Marine since June 2019.
57. [57]
    The evidence also establishes (and I accept) that MEC had long term and significant underlying financial issues as supported by the  financial statements which reveal as follows:

    1. (a)
       even in 2017:

       1. (i)
          current assets of:

       1. (A)
          one cent in cash;

       1. (B)
          an asserted $1.35 million in work in progress;

       1. (ii)
          non-current assets of $361,000 being merely loans from related entities;

       1. (iii)
          unsecured creditors of $1.6 million; with nearly $80,000 being for credit card debt;

       1. (iv)
          unsecured liabilities to related parties of nearly $250,000;
    2. (b)
       in 2018:

       1. (i)
          an operating loss of $453,957.09;

       1. (ii)
          the liabilities of MEC exceeded its assets;

       1. (iii)
          a significant increase in non-current assets of $495,483.12 being merely loans from related entities;

       1. (iv)
          a significant increase in the unsecured creditors of $2,487,298;

       1. (v)
          a significant increase in the tax liabilities of $225,408;

       1. (vi)
          a significant liability to a related party of $490,000;
    3. (c)
       in 2019:

       1. (i)
          current assets including:

       1. (A)
          “bank guarantee” of $300,000;

       1. (B)
          asserted work in progress of $2,069,963.50;

       1. (C)
          asserted raw materials of $318,181.82;

       1. (ii)
          non-current assets of $573,102.25 consisting of expected receivables from repayment of loans to related entities including Mr Owen himself;

       1. (iii)
          a $1,667,915.65 debt to trade creditors;

       1. (iv)
          over $80,000 on credit card debt;

       1. (v)
          an increased debt of $38,399.77 for payroll tax;

       1. (vi)
          tax liabilities of $603,272.85;

       1. (vii)
          provision for payments relating to superannuation of over $150,000;

       1. (viii)
          an unsecured debt to a related party of $490,000.

Issues for Determination

58. [58]
    Against this background, the following four issues arise for my determination: 

    1. (a)
       First, whether by the conduct referred to in the First, Second, Third, Fourth and Fifth Representations [together the Capability Representations], the defendant represented to the plaintiffs that MEC had the capacity and ability to commence construction of the catamaran in January 2020 and deliver the catamaran by December 2020?
    2. (b)
       Secondly, did the defendant have a reasonable basis for making the Capability Representations?
    3. (c)
       Thirdly, did the plaintiffs execute the Contract because they were induced by the Capability Representations?  
    4. (d)
       Fourthly, is the making of the Payments causally linked to the Capability Representations if they are found to be misleading and deceptive conduct engaged in by the defendant? 
59. [59]
    It is convenient to address the first two issues together under the heading “Misleading and Deceptive Conduct” and the second two together under the heading “Loss and Damage.” 

Misleading and Deceptive Conduct 

60. [60]
    The overwhelming evidence (which I accept) is that by making the Capability Representations, the defendant represented to the plaintiffs that MEC could start building in January 2020 and deliver the plaintiffs their catamaran by December 2020. This finding is supported by the following matters:

    1. (a)
       First, the obvious effect of the conversation on 18 December 2019 was that the vessel could be built in 2020 if the Contract was locked in quickly;
    2. (b)
       Secondly, the letter of offer sent 19 December 2019, the quotation sent on 3 January 2020, and the Contract itself represented that the built slot would be 6 January 2020 and would be completed by end of November 2020.^[58] The conversation on 3 January 2020 was to a similar effect; and
    3. (c)
       Thirdly, the inference from the admitted conversation on 18 December 2019, the email of 3 January 2020, the email of 4 January 2020 and the email of 6 January 2020 is that the majority of the fabrication and welding would be under way by early April 2020. 
61. [61]
    At the time the Capability Representations were made by the defendant, the evidence (which I accept) is that:

    1. (a)
       MEC had very little cash;
    2. (b)
       MEC was in significant debt;
    3. (c)
       MEC was not paying its debts as and when due;
    4. (d)
       Capral Limited, Bluescope and Apple would only supply aluminium by cash sale; and
    5. (e)
       Mr McDonald-Smith was very busy and did not know whether he would be in a position to design the boat.
62. [62]
    The effect of the representations made at the meeting on 18 December 2019, the offer sent on 19 December 2019, the quotation sent on 3 January 2020, and the Contract  itself, is that there was space for MEC to construct the catamaran. 
63. [63]
    But at that time, the shed where the catamaran was to be built (factory D29) was occupied by a pilot vessel under construction and the defendant knew that the construction of that pilot vessel was delayed significantly.
64. [64]
    The evidence established that in fact (leaving aside some design) nothing happened towards the construction of the catamaran in January, February or March 2020.  At most, some aluminium had been ordered from Apple Aluminium (but not delivered). 
65. [65]
    The mere fact that a representation as to future events did not come true does not of itself prove that the representation was misleading or deceptive^[59], but the inference from the facts is compelling and I am satisfied that the Capability Representations were misleading and deceptive or likely to mislead or deceive within the meaning of the ACL.  No evidence has been adduced by the defendant to show that he had reasonable grounds for the representations. They are therefore misleading.^[60]
66. [66]
    I am also satisfied that the Capability Representations were false because: MEC was obviously not in a position to commence construction in January 2020 given its cashflow position at the time; its suppliers required cash before delivery, and it was hopelessly insolvent for some two years before that time.
67. [67]
    The defendant was the only spokesperson for MEC and the only person acting on its behalf at the time. He is obviously its agent and I am satisfied he had actual knowledge of the actions of MEC through him as its agent. The defendant was clearly in charge of MEC and was aware of its financial and operational circumstances.  There is a compelling inference from the financial statements (that I draw) that the defendant was aware of (or ought to have been aware of) the dire financial circumstances of the company (that it was insolvent). This finding is consistent with the fact that the defendant knew that the aluminium suppliers demanded cash on delivery and, even on his own admission, he knew that MEC had cash flow issues.  The only obvious inference (which I draw) is that the defendant knew that what he was telling the plaintiffs about MEC’s capacity and ability to build the second vessel plainly wrong.
68. [68]
    I am satisfied in the first instance that the defendant is liable as the principal for having made the Capability Representations.
69. [69]
    I am also satisfied that the defendant as the maker of the Capability Representations had actual knowledge of the essential elements of the contravention namely: he had actual knowledge of the Capability Representations and their content and that the content of these representations was false, incorrect or wrong; albeit not necessarily that they bore the legal character of being misleading.^[61]
70. [70]
    I therefore find that by making the Capability Representations the defendant engaged in misleading and deceptive conduct. 

Loss and Damage 

71. [71]
    The task of the court is to look at the evidence as a whole to determine whether the conduct in contravention of s 18 of the ACL induced the plaintiffs to enter into the Contract under which they made the Payments. The contravening conduct needs to make a material contribution to the loss or damage but need not be the sole cause.^[62] The loss must flow directly from the inducement.^[63] The cause of the loss is a question of fact which must be determined by applying common sense.^[64] As stated earlier, it does not need to be the only material cause, but a mere possibility of inducement is not sufficient.^[65] Caution needs to be exercised in accepting any self-serving assertions of reliance made in hindsight by a plaintiff.^[66]
72. [72]
    In undertaking this task I have carried out an objective assessment of the evidence including the nature of the Capability Representations and what happened after they were made.
73. [73]
    The real question in this case in terms of that assessment is whether the plaintiffs were relying on their own assessment of the situation rather than on any contravening conduct engaged in on behalf of MEC.
74. [74]
    Regardless of my earlier findings (that the defendant’s 23 December email did not represent that MEC was solvent at the time), I am otherwise not satisfied that the plaintiffs placed any reliance on the 23 December 2019 email. The following three pieces of evidence do not support any such finding:

    1. (a)
       First, Mr Fendley was asked by senior counsel for the applicants what about the effect the statements in this email had on his state of mind as regards the financial position of the company. Mr Fendley’s response as follows is most instructive:

“Well, at the time I thought that he was in good shape because there were boats in his shed getting built.  There was one just getting finished and, you know, I dealt with him before.  I had no issues with him before.  I trusted him.  You know, they – you know, I went with my gut feeling, so to speak.”^[67]

2. (b)
   Mr Fendley was then asked again about the effect the email had on that to which he answered as follows:

“It just made me a little aware that may be something is going wrong, but I trust my own judgment and I felt that, you know, we’re in good hands.”^[68]

3. (c)
   Senior counsel for the plaintiff asked Mr Fendley what made him feel he was in good hands. Again, Mr Fendley’s response is instructive.  He said, “just my previous dealings with him”.^[69]
4. (d)
   Mr Fendley was taken to the statement in the email where the defendant said, “I assure you I’m not going anywhere”.  He responded as follows:

“Well, he’s just reassuring what – he’s come up front and said – said that. You know, I take a man for his word. That he’s not going anywhere.”^[70]

75. [75]
    But this finding is not the end of the matter.
76. [76]
    In the present case, the Capability Representations relied upon were all pre-contractual and it was only following their making that the plaintiffs entered the Contract. It is clear from both the manner in which the promises were made as to the build slot and the delivery date and the supply of the aluminium, that the defendant was trying to persuade the plaintiffs to enter into the Contract for the construction of the catamaran.
77. [77]
    I accept that care must be taken in accepting after the event that a person relied upon a representation or statement before taking action, but in this case, there is every reason to accept (as I do) that the multiple representations made by the defendant about the built slot, the delivery date, the designer and the supply of the aluminium were important to the plaintiffs.  Emails sent at the time show that Mr Fendley was anxious about the aluminium. The plaintiffs were both very concerned to have the catamaran delivered by December 2020 as had been offered and promised.
78. [78]
    The evidence (which I accept) is that the start and finish dates for the construction of the new boat in 2020 were important to the plaintiffs and that the misleading and deceptive Capacity Representations lead them to sign the Contract.
79. [79]
    This finding is consistent with what subsequently transpired: when it became apparent that nothing was happening with the construction of the catamaran, the plaintiffs entered an agreement to delay payment of the third invoice and ultimately terminated the Contract.
80. [80]
    The overwhelming inference to be drawn from all of the evidence (which I make) is that the plaintiffs entered into the Contract because of the defendant’s constant reassurances and representations that MEC could build the catamaran in 2020.
81. [81]
    The relevant question as to damages is whether or not there is a sufficient connection between the contravening conduct and the loss or damage suffered, such that the latter can be regarded as being “because of” the former.^[71]
82. [82]
    I am satisfied that causation has been established on the present facts.  The Payments were made under the terms of the Contract - a Contract the plaintiffs were induced to enter because of the misleading and deceptive conduct by the defendant about MEC’s capacity and ability to build the catamaran.  The fact that the plaintiffs subsequently tried to (unsuccessfully) mitigate this loss by deferring the build and entering into a repayment arrangements with MEC to refund these monies does not in my view break the chain of causation.  
83. [83]
    I am satisfied that they suffered a loss in the amounts of the Payments.

Orders

84. [84]
    I therefore find that the plaintiffs are entitled to judgment against the defendant for the sum of $559,124 together with interest on the Payments from the dates they were made (in the amount calculated in accordance with Practice Direction 6 of 2013) plus costs.^[72]
85. [85]
    The plaintiffs are directed to bring in a Final Order consistent with these findings.