SUPREME COURT OF QUEENSLAND
CITATION: | Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc & Ors [2009] QSC 58 |
PARTIES: | AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION |
FILE NO/S: | BS 2655 of 2007 |
DIVISION: | Trial Division |
PROCEEDING: | Trial |
ORIGINATING COURT: | Supreme Court of Queensland |
DELIVERED ON: | 24 March 2009 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 18, 19, 20, 27 August 2008 |
JUDGE: | Martin J |
ORDER: | The Applicant is to bring in appropriate minutes of order. |
CATCHWORDS: | CORPORATIONS LAW – PROCEDURAL REQUIREMENTS - SHARES – ORDER TO PURCHASE – where respondents invited applications for shares and distributed share application forms – where shares were subsequently issued to applicants - where a no disclosure document was lodged with ASIC– whether the offering breached the 20/12 rule (‘small scale offering’) in s 708 Corporations Act – onus of proof - whether a disclosure document should have been lodged. CORPORATIONS LAW – CONTRAVENTIONS – where respondents prepared and distributed a business plan – where respondents prepared and distributed a company newsletter promoting their business – where respondents created and displayed a web site promoting their business – where respondents made statements regarding the issue and sale of shares in their business – where respondents issued shares in their business - where respondents accused of conducting a ‘financial services business’ without a licence – where the issuing of shares was not the respondents’ primary business activity – where respondents claimed to be merely ‘raising capital’ - where issue was of a ‘one-off’ nature – meaning of ‘carrying on’ and ‘business’ – whether the respondents breached s 911A of the Corporations Act. CORPORATIONS LAW – MISLEADING & DECEPTIVE CONDUCT – REPRESENTATIONS – where respondents hoped to develop a machine powered entirely by magnets – where a prototype was made - where respondents stated an attempt to run machine was ‘successful’ - where respondents warned of risks and uncertainties - where respondents alleged to have represented that their invention/prototype worked – where no one in particular was alleged to have been misled – whether a hypothetical person of the relevant class would likely have been mislead or deceived by the respondents’ representations – discussion of principles – whether respondents breached s 1041H of the Corporations Act. CORPORATIONS LAW – MISLEADING & DECEPTIVE CONDUCT – REPRESENTATIONS – future matter - where respondents stated they had a ‘Patent Program’ – where respondents stated they expect to obtain patents for their invention - where no patents were obtained or applied for - where respondents made qualifying statements as to risks and uncertainties - whether the respondents had a reasonable basis for making the representations - whether a hypothetical person of the relevant class would likely have been mislead or deceived by the representations – discussion of principles – whether respondents breached s 1041H of the Corporations Act. CORPORATIONS LAW – MISLEADING & DECEPTIVE CONDUCT – REPRESENTATIONS – future matter - where respondents made statements regarding future expenditure – where actual expenditure did not reflect projections - where respondents made qualifying statements – where respondents alleged to have made misleading representations - whether the respondents had a reasonable basis for making the representations – onus of proof – discussion of principles - whether a hypothetical person of the relevant class would likely have been mislead or deceived by the respondents’ representations – whether respondents breached s 1041H of the Corporations Act. Australian Securities and Investments Commission Act 2001, ss 12BAB, 12BB, 12DA and 12DB Corporations Act 2001, ss 9, 18, 583, 700, 706, 708, 727, 761A, 764A, 766B, 766C, 796C, 911A, 911D, 1041H, 1101B and 1324 Fair Trading Act 1999 (Vic.), s 9 Revised Explanatory Memorandum, Financial Services Reform Bill 2001 Trade Practices Act 1974 (Cth), s 51AF, s 52, s 55A Australian Patent Office’s Patent Manual of Practice and Procedures, 2.11.3.11 ASIC v Arafura Equities Pty Ltd [2005] QSC 376 ASIC v Edwards [2004] QSC 344 ASIC v FUELbanc Australia Ltd (2007) 162 FCR 174 ASIC v McDougall & Anor (2006) 57 ACSR 175 ASIC v Mapstone (2006) 59 ACSR 214 ASIC v Mauer-Swisse Securities Pty Ltd (2002) 42 ACSR 605 ASIC v Narain (2008) 169 FCR 211 ASIC v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 ASIC v Sweeney [2001] NSWSC 114 ASIC v Varsity Lodge Pty Ltd [2007] QSC 376 Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242 Bowler v Hilda Pty Ltd (1998) 80 FCR 191 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 Chugg v Pacific Dunlop Ltd (1990) 170 CLR 249 Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 Domain Names Australia Pty Ltd v .Au Domain Administration Ltd (2004) 139 FCR 215 Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 Fubilan Catering Services Pty Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Hearn v O'Rourke (2003) 129 FCR 64 Hope v Bathurst City Council (1980) 144 CLR 1 Houghton v Arms (2006) 225 CLR 553 McGrath and Anor v Australian Natural Care Products Pty Ltd (2008) 165 FCR 230 Medical Benefits Fund v Cassidy [2003] 135 FCR 1 NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 National Exchange Pty Ltd v ASIC (2004) 49 ACSR 369 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199 Purkess v Crittenden (1965) 114 CLR 164 at 167-168 R v Jarvis (1756) 1 East 643, 102 ER 249 Re AIRC; ex parte ATOF (1990) 171 CLR 216 Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160 Sykes v Reserve Bank of Australia (1998) 88 FCR 511 Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 Telstra Corporation Ltd v Optus Communications Pty Ltd (1997) ATPR §41-541 Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 Wright v Wheeler Grace & Pierucci Pty Ltd [1989] ATPR 40-940 “Statutory Injunction – Call for amendments to s 1324 of the Corporations Act” (2006) 24 C&SLJ 41 |
COUNSEL: | Mr S J Keim SC with Ms E Longbottom for the applicant Mr J B Rolls for the first and second respondents Mr A J H Morris QC with Mr L Jurth for the third and fourth respondents |
SOLICITORS: | Applicant on own behalf Garland Waddington Solicitors for the first and second respondents DLA Phillips Fox for the third and fourth respondents |
Introduction
The claims and the relief sought
(a)During the period 16 March 2005 to 31 July 2006 (‘the fundraising period’) each respondent offered securities without a current disclosure document, contrary to s 727 of the Act;
(a)Pursuant to s 583(c)(ii) of the Act, that the first respondent (‘CME’) be wound up on the just and equitable ground and that liquidators be appointed;
(b)A declaration that each of the respondents has made offers and distributed application forms for the offer of securities in CME in contravention of s 727 of the Act;
(c)A declaration that each of the respondents has carried on a financial services business in contravention of s 911A of the Act;
(d)A declaration that each of the second, third and fourth respondents, in respect of disseminating documents referred to in the material, has engaged in conduct that is misleading or deceptive or likely to mislead or deceive, in contravention of the provisions of s 1041H of the Act and s 12DA and s 2DB of the ASIC Act;
(e)An order, pursuant to s 1101B(1) and s 1324(1) of the Act that each of the respondents be permanently restrained from carrying on any form of financial services business in this jurisdiction without holding an appropriate licence;
The parties
Background
Offering Securities Without a Current Disclosure Document
in contravention of s 727 of the Act.
“(a) the First Respondent made offers of securities, as that term is used in s 761A of the Corporations Act, being shares or the legal or equitable right or interest in shares in the First Respondent, for issue, within the meaning of subsection 700(2) of the Corporations Act, by inviting applications for the issue of such shares in the First Respondent (‘the Offers’);
Particulars
(i) the Offers were made by means of a form under the banner of the First Respondent inviting applications for an issue of shares in the First Respondent as a "seed capital provider";
(ii) the Offers were made to persons located in this jurisdiction in that they were made to persons who were shareholders or who were members of the public from whom investments being the purchase of shares in the First Respondent were being sought;
(iii) such persons, referred to in the preceding paragraph, are located predominantly in the Gold Coast, Lismore, Wagga and Geelong;
(iv)the First Respondent was the person who had the capacity to issue the shares if the Offers were accepted.
(b)each of the Second to Fourth Respondents, on their own behalf; and as agents for the First Respondent, distributed application forms for the Offers.”
“An offer of securities for issue needs disclosure to investors under this Part unless section 708 or 708AA says otherwise.”
“(a)offering securities for issue includes inviting applications for the issue of the securities; and
(b)offering securities for sale includes inviting offers to purchase the securities.”
“Small scale offerings (20 issues or sales in 12 months)
(1) Personal offers of a body's securities by a person do not need disclosure to investors under this Part if:
(a)none of the offers results in a breach of the 20 investors ceiling (see subsections (3) and (4)); and
(b)none of the offers results in a breach of the $2 million ceiling (see subsections (3) and (4)).
This subsection does not apply to an offer for sale to which subsection 707(3) (sale amounting to indirect issue) or (5) (sale amounting to indirect sale by controller) applies.
(2) For the purposes of subsection (1), a personal offer is one that:
(a) may only be accepted by the person to whom it is made; and
(b) is made to a person who is likely to be interested in the offer, having regard to:
(i) previous contact between the person making the offer and that person; or
(ii)some professional or other connection between the person making the offer and that person; or
(iii) statements or actions by that person that indicate that they are interested in offers of that kind.
(3) An offer by a body to issue securities:
(a) results in a breach of the 20 investors ceiling if it results in the number of people to whom securities of the body have been issued exceeding 20 in any 12 month period; and
(b) results in a breach of the $2 million ceiling if it results in the amount raised by the body by issuing securities exceeding $2 million in any 12 month period.
(4) An offer by a person to transfer a body's securities:
(a) results in a breach of the 20 investors ceiling if it results in the number of people to whom the person sells securities of the body exceeding 20 in any 12 month period; and
(b) results in a breach of the $2 million ceiling if it results in the amount raised by the person from selling the body's securities exceeding $2 million in any 12 month period.
(5)In counting issues and sales of the body’s securities, and the amount raised from issues and sales, for the purposes of subsection (1), disregard issues and sales that result from offers that:
(a)do not need a disclosure document because of any other subsection of this section; or
(b)are not received in Australia; or
(c)are made under a disclosure document.
…
(7)In working out the amount of money raised by the body by issuing securities, include the following:
(a)the amount payable for the securities at the time when they are issued;
(b)if the securities are shares issued partly‑paid—any amount payable at a future time if a call is made;
(c)if the security is an option—any amount payable on the exercise of the option;
(d)if the securities carry a right to convert the securities into other securities—any amount payable on the exercise of that right.”
“Issue or transfer not to breach s 708 ceiling
(4) If a person relies on subsection 708(1) to make offers of securities without disclosure to investors under Part 6D.2, the person must not issue or transfer securities without disclosure to investors under that Part if the issue or transfer would result in a breach of the 20 investors ceiling or the $2 million ceiling (see subsections 708(3), (4), (5), (6) and (7)).”
How does the “small scale offering” exemption operate?
“(1)personal offers … do not need disclosure … if
Who bears the onus of proving the operation or not of the exemption?
“For the purpose of assigning the onus of proof, a distinction is made between a requirement which forms part of the statement of a general rule and a statement of some matter of answer, whether by way of exception, exemption, excuse, qualification, exculpation or otherwise (called an ‘exception’), which serves to take a person outside the operation of a general rule. See Vines v Djordjevitch … . The distinction does not depend on the rules of formal logic: Dowling v Bowie … . Rather, the categorization of a provision as part of the statement of a general rule or as a statement of exception reflects its meaning as ascertained by the process of statutory construction. Where some matter is said to be an exception to an offence, the question is whether there is to be discerned a legislative intention ‘to impose upon the accused the ultimate burden of bringing himself within it’: Director of Public Prosecutions v United Telecasters Sydney Ltd … . The intention may be discerned from express words or by implication. See Reg v Edwards … and Reg v Hunt … .
…
Although the form of language may provide assistance, ultimately the question whether some particular matter is a matter of exception is to be determined ‘upon considerations of substance and not of form’: Dowling v Bowie … .
…
One indication that a matter may be a matter of exception rather than part of the statement of a general rule is that it sets up some new or different matter from the subject matter of the rule. See Darling Island Stevedoring & Lighterage Co Ltd v Jacobsen … , per Dixon J. Such is ordinarily the case where, in the terms used in Reg v Edwards … , there is a prohibition on the doing of an act ‘save in specified circumstances or by persons of specified classes or with specified qualifications or with the licence or permission of specified authorities’. See Reg v Hunt … , where Lord Griffiths considered the statement from Reg v Edwards … ‘an excellent guide to construction’. If the new matter is a matter peculiarly within the knowledge of the defendant, then that may provide a strong indication that it is a matter of exception upon which the defendant bears the onus of proof.” (emphasis added)
Was s 727 contravened?
“(1)A person must not make an offer of securities, or distribute an application form for an offer of securities, that needs disclosure to investors under Part 6D.2 unless a disclosure document for the offer has been lodged with ASIC.”
“An offer by a body to issue securities:
In other words, it was submitted that ASIC had to show that the offer made led to shares in excess of 20 being issued.
Carrying on a “Financial Services Business” without the Appropriate Licence
“(1)Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services.
Note 1: Also, a person must not provide a financial service contrary to a banning order or disqualification order under Division 8.
Note 2: Failure to comply with this subsection is an offence (see subsection 1311(1)).”
“(1)For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:
(a) provide financial product advice (see s 766B); or
(b) deal in a financial product (see s 766C); or
(c) make a market for a financial product (see s 766D); or
(d) operate a registered scheme; or
(e) provide a custodial or depository service (see s 766E); or
(f) engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.”
“Meaning of 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.
…
(2)There are 2 types of financial product advice: personal advice and general advice.
(3)For the purposes of this Chapter, personal advice is financial product advice that is given or directed to a person (including by electronic means) in circumstances where:
(a)the provider of the advice has considered one or more of the person's objectives, financial situation and needs (otherwise than for the purposes of compliance with the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 or with regulations, or AML/CTF Rules, under that Act); or
(b) a reasonable person might expect the provider to have considered one or more of those matters.
(4)For the purposes of this Chapter, general advice is financial product advice that is not personal advice.”
“(a) applying for or acquiring a financial product;
(b) issuing a financial product;
…
(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.”
“General definition of financial product
(1) For the purposes of this Chapter, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:
(a) makes a financial investment (see section 763B);
(b) manages financial risk (see section 763C);
(c) makes non-cash payments (see section 763D).”
“When a financial services business is taken to be carried on in this jurisdiction
(1)For the purposes of this Chapter, a financial services business is taken to be carried on in this jurisdiction by a person if, in the course of the person carrying on the business, the person engages in conduct that is:
(a)intended to induce people in this jurisdiction to use the financial services the person provides; or
(b)is likely to have that effect;
whether or not the conduct is intended, or likely, to have that effect in other places as well.
(2)This section does not limit the circumstances in which a financial services business is carried on in this jurisdiction for the purposes of this Chapter.”
“18Carrying on business: otherwise than for profit
A reference to a person carrying on business, carrying on a business, or carrying on a business of a particular kind, includes a reference to the person carrying on business, carrying on a business, or carrying on a business of that kind, as the case may be:
(a)in any case – otherwise than for profit; or
(b)in the case of a body corporate – otherwise than for the profit of the members or corporators of the body.
19Businesses of a particular kind
A reference to a business of a particular kind includes a reference to a business of that kind that is part of, or is carried on in conjunction with, any other business.
20Carrying on a business: alone or together with others
A reference in this Act to a person carrying on a business, or a business of a particular kind, is a reference to the person carrying on a business, or a business of that kind, whether alone or together with any other person or persons.”
“[61]In its case however, it is not so clear that its conduct did involve the carrying on of a business. In each of the cases of Carsworthy Limited and Edwardian Associates Limited, the company carried on business by the operation of a managed investment scheme. By operating that scheme to the extent that it did within Australia, it carried on business here. In the case of Coppertone Investments Limited, the moneys paid were by way of subscription for shares in the company itself. It is not immediately clear then that the offering of its shares is itself the carrying on of any business. Ordinarily, there is a distinction between the raising of capital by a company, by offering and issuing its shares, and the application of that capital in the conduct of its business.”
[62]The question of whether the company’s conduct within Australia involved the carrying on of a business is a question of fact: Luckins at 186. Because it is a factual question, its answer is the result of all of the circumstances of the particular case. The factual question is addressed not only by reference to the context of the particular statute … but also with an understanding of the particular nature of the enterprise which constituted the company’s business. In Town Investments Ltd v Department of the Environment [1978] AC 359, Lord Diplock said at 383:
“The word ‘business’ is an etymological chameleon; it suits its meaning to the context in which it is found. It is not a term of legal art and its dictionary meanings, as Lindley LJ pointed out in Rolls v Miller (1884) 27 Ch D 71, 88 embraced ‘almost anything which is an occupation, as distinguished from a pleasure – anything which is an occupation or duty which requires attention is a business’”.
In Hope v Bathurst City Council (1980) 144 CLR 1 at 8, Mason J said that the word “business” denoted “activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis”.
[63]The particular terms in which shares in Coppertone were offered and subscribed for make this an unusual case and have led me to the conclusion that the company did carry on business in Australia. …
…
[65]The result of this is that the business of Coppertone Investments Limited involved the investment of specific sums deposited with it for the benefit of the depositor, so that profits less a management fee were credited against a depositor’s capital account. This was notwithstanding that the depositor received, at the same time, an issue of shares. Moreover the investment had an agreed duration of 12 months, the parties having agreed that the shareholders’ agreement would not be terminated within that time. I do not suggest that the overall structure of this investment is internally consistent. But the nature of Coppertone’s enterprise, or at least as it was represented to be, was somewhat different from a company which was simply raising capital by issuing shares for the conduct of its own business. Under this regime, a shareholder’s funds were treated as some discrete sum which was distinctly managed by the ‘Provider’ on the shareholder’s behalf.” (emphasis added)
“Although it has been common ground that ‘business’ is used in its ordinary meaning in s 118 (1), the courts below have refrained from saying what that meaning is. This is perhaps understandable because, as a glance at the Shorter Oxford Dictionary will show, the word has many meanings. Ironically it is the last meaning given by the Shorter Oxford Dictionary, ‘19. A commercial enterprise as a going concern’, that comes closest to the popular meaning which the courts appear to have acted on in the present case. In truth it is the popular meaning of the word as used in the expression ‘carrying on a business’, rather than the popular meaning of the word itself, that is enshrined in the statutory definition. It is the words ‘carrying on’ which imply the repetition of acts … and activities which possess something of a permanent character. This conclusion serves to emphasize that it is necessary to engage in a process of construction in order to arrive at the meaning of the word in s 118 (1).” [24] (emphasis added)
This is, not surprisingly, consistent with the authorities referred to above.
Misleading and Deceptive Conduct
“Misleading or deceptive conduct (civil liability only)
(1)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.
Note 1:Failure to comply with this subsection is not an offence.
Note 2:Failure to comply with this subsection may lead to civil liability under section 1041I. For limits on, and relief from, liability under that section, see Division 4.
(2)The reference in subsection (1) to engaging in conduct in relation to a financial product includes (but is not limited to) any of the following:
(a)dealing in a financial product;
(b)without limiting paragraph (a):
(i)issuing a financial product;
(ii)publishing a notice in relation to a financial product;
…”
“Representations about future matters taken to be misleading if made without reasonable grounds
(1)For the purposes of this Chapter, or of a proceeding under this Chapter, if:
(a)a person makes a representation with respect to any future matter (including the doing of, or refusing to do, any act); and
(b)the person does not have reasonable grounds for making the representation;
the representation is taken to be misleading.
(2)Subsection (1) does not limit the circumstances in which a representation may be misleading.
(3)In this section:
proceeding under this Chapter has the same meaning as it has in section 769B.”
“12DAMisleading or deceptive conduct
(1)A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
(1A)Conduct:
(a)that contravenes:
(i)section 670A of the Corporations Act (misleading or deceptive takeover document); or
(ii)section 728 of the Corporations Act (misleading or deceptive fundraising document); or
(b)in relation to a disclosure document or statement within the meaning of section 953A of the Corporations Act; or
(c)in relation to a disclosure document or statement within the meaning of section 1022A of the Corporations Act;
does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence.
(2)Nothing in sections 12DB to 12DN limits by implication the generality of subsection (1).
12DBFalse or misleading representations
(1)A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services:
(a)falsely represent that services are of a particular standard, quality, value or grade; or
(b)falsely represent that a particular person has agreed to acquire services; or
(c)represent that services have sponsorship, approval, performance characteristics, uses or benefits they do not have; or
(d)represent that the person has a sponsorship, approval or affiliation it does not have; or
(e)make a false or misleading representation with respect to the price of services; or
(f)make a false or misleading representation concerning the need for any services; or
(g)make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.
Note:Failure to comply with this subsection is an offence (see section 12GB).
(2)Conduct:
(a)that contravenes:
(i)section 670A of the Corporations Act (misleading or deceptive takeover document); or
(ii)section 728 of the Corporations Act (misleading or deceptive fundraising document); or
(b)in relation to a disclosure document or statement within the meaning of section 953A of the Corporations Act; or
(c)in relation to a disclosure document or statement within the meaning of section 1022A of the Corporations Act;
does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence.
(3)An offence under subsection 12GB(1) relating to subsection (1) of this section is an offence of strict liability.
Note:For strict liability, see section 6.1 of the Criminal Code.”
“Misleading representations
(1)For the purposes of Subdivision D (sections 12DA to 12DN), if a person makes a representation about a future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation is taken to be misleading.
(2)For the purpose of applying subsection (1) to a proceeding concerning a representation made by a person about a future matter, the person is taken not to have had reasonable grounds for making the representation unless it adduces evidence to the contrary.
(3)Subsection (1) does not limit by implication the meaning of a reference in this Division to:
(a)a misleading representation; or
(b)a representation that is misleading in a material particular; or
(c)conduct that is misleading or is likely or liable to mislead.”
“• Conduct will only be misleading or deceptive, or likely to mislead or deceive, if there is a nexus between such conduct and any actual or anticipated misconception or deception.
• In identifying such nexus regard must be had to the circumstances of the particular case, including the remedies sought. Section 52 of the TP Act does not confer any entitlement to a remedy for breach or anticipated breach. One must look elsewhere in the TP Act for such entitlement and construe the act as a whole.
• In some cases, a representation may be made to identified individuals; in other cases the representation may be to the public at large or to a section thereof. In the former case the process of deciding whether or not the representation is misleading or deceptive or likely to be so may be ‘direct and uncomplicated’. In the latter case ‘the issue with respect to the sufficiency of the nexus between the conduct or the apprehended conduct and the misleading or deception or likely misleading or deception of prospective purchasers is to be approached at a level of abstraction not present where the case is one involving an express untrue representation allegedly made only to identified individuals’. (I infer that the word ‘representation’ in [100] of Nike should be ‘misrepresentation’, relying upon the relevant passage in Taco Bell to which the High Court was referring.)
• When the representation is made to the public or to a section thereof, one must consider its effectupon an ordinary or reasonable member of the class in question. Although such class may include a wide range of persons, the ordinary or reasonable member will objectively be identified as having certain characteristics. In particular he or she can be expected to take reasonable care for his or her own interests and otherwise to behave reasonably.
• It is necessary to inquire as to how a particular or anticipated misconception has arisen or may arise. In so doing, the Court will consider ‘the effect of the relevant conduct on reasonable members of the class’.
•Conduct will only be misleading or deceptive or likely to mislead or deceive if the representee ‘labours under some erroneous assumption’ or may be expected so to labour. Such an assumption or anticipated assumption may be obvious, predictable or fanciful.
•In assessing the reactions or likely reactions of the ordinary or reasonable member of the class, the court may decline to treat as reasonable, assumptions which are extreme or fanciful. The initial question which must be determined is whether the misconception or deception, alleged or anticipated, is properly attributable to an ordinary or reasonable member of the class.
•The ‘question whether particular conduct causes confusion or wonderment cannot be substituted for the question whether the conduct answers the statutory description contained in s 52.’”[39] (emphasis added)
“•Was there a false representation?
• What was the intention underlying the conduct in question? (His Honour identified correctly that intention to mislead was not essential but nonetheless was relevant to the inquiry.)
• Was the conduct such as to lead to an erroneous assumption on the part of representees?
• Did the conduct mislead or deceive or was it likely to do so, having regard to the behaviour of a reasonable representative of the whole class of representees?”
“Section 52 does not expressly state what persons or class of persons should be considered as the possible victims for the purpose of deciding whether conduct is misleading or deceptive or likely to mislead or deceive. It seems clear enough that consideration must be given to the class of consumers likely to be affected by the conduct. Although it is true, as has often been said, that ordinarily a class of consumers may include the inexperienced as well as the experienced, and the gullible as well as the astute, the section must in my opinion by regarded as contemplating the effect of the conduct on reasonable members of the class. The heavy burdens which the section creates cannot have been intended to be imposed for the benefit of persons who fail to take reasonable care of their own interests. What is reasonable will of course depend on all the circumstances.” (emphasis added)
“[17]It has long been established that:
[18]The likelihood of recipients of a representation being misled or deceived is not a matter to be proved by evidence (testimony, documents or things), or by judicial notice or its statutory equivalent (these are alternative methods of proof; Mathieson, DL, Cross on Evidence (7th ed, 2004) discusses judicial notice in Chapter Two which is entitled ‘Facts which need not be proved by evidence’). The existence or otherwise of such a likelihood is a jury question for the trier of fact: Australian Competition and Consumer Commission v Telstra Corp Ltd (2004) 208 ALR 459 per Gyles J.
…
[22]Consideration of these difficulties shows the practical wisdom of the firm rule that the likelihood of conduct being misleading or deceptive is a question for the tribunal of fact and not for any witness to decide: General Electric Co (USA) v General Electric Co Ltd [1972] 1 WLR 729 at 738 per Lord Diplock, applied in a s 52 context by Gummow J, with whom Black CJ and Lockhart J agreed, in Interlego AG v Croner Trading Pty Ltd (1992) 39 FCR 348 at 387.
[23]Lord Diplock points out in General Electric that a different rule applies in the case of sales not to the general public but in specialised markets concerning persons engaged in a particular trade. In the present case the relevant market is that in which the consumers are business users of domain names. Such users constitute large sections of the public and are not participants in a specialised market in the sense discussed by Lord Diplock.
(2) Reference to a hypothetical individual
[24]His Honour (at [16]) summarised the text [sic] formulated by the High Court in Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 in these terms:
‘First, where the persons allegedly misled are not identified individuals but are members of a class it is necessary to isolate ‘a representative member’ of the class and enquire whether this hypothetical individual is likely to be deceived. Second, when considering the likely effect of the misrepresentation on this hypothetical person he (or she) should be judged as an ‘ordinary’ or ‘reasonable’ member of the class. In this way, reactions to the representation that are ‘extreme’ or ‘fanciful’ will be disregarded.’ (emphasis added)
Having identified the test his Honour then said (at [21]):
‘How then is one to identify and give characteristics to Campomar Sociedad's hypothetical individual? Logic demands that if one is dealing with a diverse group then, for the purpose of determining whether particular conduct has the capacity to mislead, it is necessary to select a hypothetical individual from that section of the group which is most likely to be misled. If the court is satisfied that this hypothetical individual is likely to have been misled by that conduct, that would be sufficient.’
[25]The appellants’ complaint appears to be that his Honour should have considered the effect of the notices on the ‘ordinary or reasonable’ recipient.
[26]However in our view his Honour accurately summarised the Campomar test. There is no inconsistency between testing the effect of the representation by reference to ordinary or reasonable members of the class and by reference to the hypothetical individual. The attribution of characteristics to the ordinary and reasonable members of the class must be objective in order to allow for the wide range of persons who would in fact not [sic] make up the class: National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369 per Jacobson and Bennett JJ. Within a large class there may be a number of subclasses of ordinary and reasonable people. Thus in the present case there may be ordinary and reasonable persons who were well informed about the internet and the domain name registration system and other persons, equally ordinary and reasonable, who were not.” (emphasis added)
“[102] It is in these cases of representations to the public, of which the first appeal is one, that there enter the ‘ordinary’ … or ‘reasonable’ … members of the class of prospective purchasers. Although a class of consumers may be expected to include a wide range of persons, in isolating the ‘ordinary’ or ‘reasonable’ members of that class, there is an objective attribution of certain characteristics. Thus, in Puxu … , Gibbs CJ determined that the legislation did not impose burdens which operated for the benefit of persons ‘who fail[ed] to take reasonable care of their own interests’. In the same case, Mason J concluded that, whilst it was unlikely that an ordinary purchaser would notice the very slight differences in the appearance of the two items of furniture in question, nevertheless such a prospective purchaser reasonably could be expected to attempt to ascertain the brand name of the particular type of furniture on offer … .
[103] Where the persons in question are not identified individuals to whom a particular misrepresentation has been made or from whom a relevant fact, circumstance or proposal was withheld, but are members of a class to which the conduct in question was directed in a general sense, it is necessary to isolate by some criterion a representative member of that class. The inquiry thus is to be made with respect to this hypothetical individual why the misconception complained has arisen or is likely to arise if no injunctive relief be granted. In formulating this inquiry, the courts have had regard to what appears to be the outer limits of the purpose and scope of the statutory norm of conduct fixed by s 52 … . Thus, in Puxu, Gibbs CJ observed that conduct not intended to mislead or deceive and which was engaged in ‘honestly and reasonably’ might nevertheless contravene s 52 … Having regard to these ‘heavy burdens’ which the statute created, his Honour concluded that, where the effect of conduct on a class of persons, such as consumers, was in issue, the section must be ‘regarded as contemplating the effect of the conduct on reasonable members of the class’ … .”[45] (emphasis added)
“ … Lockhart J. is correct in stating that here "the relevant class of persons likely to be exposed to the alleged misleading or deceptive conduct would be anyone interested in purchasing lounge suites or chairs in the higher price range". As his Honour noted, the class protected by s. 52 must vary according to the facts of each case. In furniture of this price range in the order of $1,500 for a three piece lounge suite one would in the ordinary course expect persons within the admittedly wide range of potential purchasers to exercise somewhat more vigilance than may be the case with the purchase of items of less financial significance having less impact on the appearance of the home (cf. Jafferjee v. Scarlett(1936) 57 CLR 115, at p. 124).”[46] (emphasis added)
The Invention and Prototype Representations
What is the “invention / prototype”?
“Practically all of the research and development work carried out in the race to create a power source utilizing the attraction and repulsion of magnets has been derived from linear motion. Cycclone magnetic engines combine cyclic motion with the use of spinning metals that clone the magnetic pole, hence the name cyc-clone.”
“Q.Right. So just explain to me how that engine works?
A..... The magnetic engine works wholly and solely with the attraction repulsion of permanent magnets. The objective of it is to produce an engine that doesn't require external input, either electrical or fuel. It's so that the engine runs purely on the attraction and repulsion of permanent magnets. In its geometric configuration that does not try to challenge perpetual motion but to use mechanical advantage.
Q.So it doesn't require any input or any source from an external battery system –
A.That’s correct.
Q.-- or any back up electricity or anything like that. It's just a self propelling engine run on magnets; is that right?
A.That's correct.
Q.And are the magnets - just so I can get my head around - are the magnets housed inside the actual engine, are they?
...
Yes. It is permanent magnets inside the housing.
Q.How many magnets would there be inside a housing?
A.There's 48 – .... There's 48 magnets in the current configuration that is shown in the public sense. The current engine that is shown in the public sense.
Q. Micheal can I ask you a question about the input energy. I've seen a piece of footage from your web site which actually shows, it looks like a car battery hooked up to your magnetic engine and it appears as though the power is actually generated from that battery in order for the magnets to then start operating and for the engine to run. So can you explain that for me? That's from the Cycclone Magnetic Engines web site?
A.Yes. .... The two batteries are only used to turn the fly wheel. Once - the video does not show the battery cables being disconnected and the engine running by itself. Other people have seen that where we drop the cables off. The two batteries are purely there to start.
Q. To start the fly wheel off?
A.That’s correct.
Q.And then once that kicks over, the magnets take - well, they'd be going at the same time, would they, and then once the magnets have started rotating, you turn the fly wheel off, is that right, or you turn the batteries off?
A..... Yes. We the batteries are disconnected.
Q. Can you just clarify the question that you gave previously then to Miss Gibson in relation to the input energy then, so there is some input energy from an external source in order to start the engine running or was that only a situation which isn't normal?. You don't normally have a battery hooked up to it to actually get the engine started?
A.No. .... We use batteries to set it in motion and then we disconnect the batteries.
Q.So there is some input energy into the engine to actually get it started? You can't get it started without that battery?
A..... We could hand rotate it but with the configuration that we're using there we use batteries for simplistic reasons.
Q. Just so it's clear in my mind, is there input energy or no input energy whatsoever?
A. .... Input energy at start up.
Q. Is it similar to starting off a big Easter [sic] generator. You know how some of those big old generators start with a hand cranking shaft and you initially kick it over with a hand cranking, you know, handle and then once it's kicked off it just propels by itself but the magnets keep it propelled. Is that how it works?
A. .... Yes.
Q. How do you stop the engine? How do you stop it from running?
A..... You increase the air gap between magnets.
Q. How do you do that?
A.If you have a look I’m operating a hand throttle.”
“12.4This author has viewed and investigated the magnetic motor proposed by Cycclone Magnetic Engines Ltd and has carried out a literature search and a theoretical analysis based upon the dimensions of relevant parameters. As it stands, the author is of the opinion that it is possible to design and position current carrying coils that will sustain very high short term current flow during braking and deceleration and that it is possible to design energy storage and reclamation systems that are within grasp of current technology.
…
12.6Opportunities for invention and patenting lie, in this author’s opinion, in the manner in which magnetic and electric fields can be deployed in a vehicle and how energy can be recovered during braking and deceleration stored and reused during acceleration.
12.7Since carrying out the analysis and literature search, this author is of the opinion that discoveries made to date are significant in aligning the company towards useful invention. The quality of manufacture of components in this author’s opinion is of high standard and there has developed within the company significant knowledge about magnets, their commercial availability and method of manufacture.
…
12.9If the inventors extend their attention to the storage of recovered energy and its reuse on demand, it is this author’s opinion that patents and products will flow in abundance from the ingenuity.”
“On 29 October 2003, Cycclone Magnetic Engines announced the successful running of the C3X model. A Channel 9 news crew was there to record this momentous achievement.”
“The C3X was delivered disassembled, as it had been disassembled by its’ owner prior it being delivered to ASIC.”
This was not disputed. As well as being disassembled, there were several important parts missing. Dr Walker noted:
“It is immediately apparent that one key item that is missing is the central rotating shaft along with the means of attaching the other rotating items to this central shaft. On viewing images of the assembled motor on the web site and in video footage, other items which have not been supplied are the fly wheel, and any mechanism which along with the visible knob in the video apparently allows the control of power. Without these items, it is impossible to reassemble the motor into any meaningful or useful state, so no attempt was made to reassemble the motor.”
“Cycclone Magnetic Engines is dedicated to developing a commercially viable, environmentally friendly engine based on the use of permanent magnets to supply mechanical power on demand, without the need of external field input.”
“6.3The hope of making an engine that will operate purely on magnets is forlorn. That is irrelevant to the potential success of the company and examples can be found readily of successful firms based upon futile flagship inventions.
6.4The faith in an engine operated purely by magnets has been founded on quasi scientific reports that give an illusion of being erudite but never quite close the loop on being comprehensible.”
I am confident that Dr Walker would agree with the gist of those expressions. They adequately summarise my understanding of the effect of all the scientific evidence.
Were the Representations made?
Can the alleged representations be drawn from the written representations which are particularised?
“It would be wrong to select some words or act, which, alone, would be likely to mislead if those words or acts, when viewed in their context were not capable of misleading. It is obvious that where the conduct complained of consists of words it would not be right to select some words only and ignore others which provided the context and gave meaning to the particular words.” (emphasis added)
“[38]… It is not right to characterise the problem as one of analysing the effect of its ‘conduct’ divorced from ‘disclaimers’ about that ‘conduct’ and divorced from other circumstances which might qualify its character. Everything relevant the agent did up to the time when the purchasers contracted to buy the Rednal land must be taken into account. …”
“[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.” (emphasis added)
“[49]It is well established that an offer which is literally true may nonetheless be misleading. It will be misleading or deceptive if it carries with it a false representation: see Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 227–8 ; per Stephen J. However, Mr Karkar submitted that this principle cannot apply where the statement is factually true.
[50]In our opinion, no such distinction can be drawn. A document which, when read as a whole, is factually true and accurate may still be capable of being misleading if it contains a potentially misleading primary statement which is corrected elsewhere in the document but without the reader’s attention being adequately drawn to the correction.
[51]The principle which applies to those cases is that the qualifying material must be sufficiently prominent or conspicuous to prevent the primary statement from being misleading: see Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289; … at [35]–[38] (per Stone J with whom Mansfield J agreed); see also J D Heydon, Trade Practices Law, Law Book Co, Sydney, 1989, at [11.730].
[52]As Mason J said in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 210–11 (Puxu):
‘There may be situations where to exploit mistaken views of the public would contravene s 52 and would not be corrected by an inconspicuous accurate representation made in, for example, a concealed label or the “fine print” of a contract.’
[53]The relevant document in the present case is Annex “B” [not reproduced in this report] to the judgment of Dowsett J. The striking feature of the document when read as a whole is the disparity between the impression created by the primary statement, namely that the offer is for payment in full on acceptance, and the true position stated in the qualification under which payment is to be made over 15 years. The primary statement is made in bold so as to emphasise it to the reader and it is repeated and reinforced in the comparative table.
[54]The representation made in the table is that the shareholders will receive in cash in full on acceptance a premium of 7c over the closing price. The true position is that accepting shareholders make an interest-free loan of the purchase price to the appellant over a period of 15 years. To describe it as a cheeky offer would be to understate the full import of the document.
[55]Where the disparity between the primary statement and the true position is great it is necessary for the maker of the statement to draw the attention of the reader to the true position in the clearest possible way.” (emphasis added)
●“CME is the concept of using permanent magnets in a configuration that supplies mechanical power on demand.”
●“To offer an alternative to the ubiquitous internal combustion engine that is commercially viable, the technology must imitate the manner and principles that the internal combustion engines operate under. CME believes that it is able to meet this criteria [sic] by concentrating development on the control and configuration of the applied magnets.”
●“CME believes now is the time to forge forward and consolidate its technology into commercial reality.”
●“The last six months has seen CME engaged in [sic] corporate structure in the activity and now considers that it is positioned to move forward both in a corporate sense and in a technical development sense. CME is looking forward to the assembly and testing of the next engine model with the view to a physical test via a vehicle to be driven on a long distance test.”
●“As you are aware, Cycclone Magnetic Engines has been in the shadow of the parent company for the last two years and is now able to carry out business in its own right. This has been an important chapter in the project developing a permanent magnetic engine with support coming from the parent company in the early days.”
●“Now that Cycclone is able to operate by itself, focus has turned to obtaining direct investment and to complete the development program laid out during the course of last year, that is, to finalise the purpose built engine and fit the engine to the company’s test vehicle.”
●“Our objective is to take magnetic engines to the next level … On todays (sic) terms, the technology being poured into magnet research is higher than any other area and we are part of this revolutionary era.”
●“This year will see Cycclone Magnetic Engines increase development work on the engine and aim for the release of the next model, the C3X2, and fitment to a vehicle as soon as possible.”
“Cycclone Magnetic Engines may be subject to a number of risks, some of which are specific to similar technology developments.
●‘The commercial success of the technology is highly dependent on the successful outcome of its Research and Development programs.’
●‘Further, when developing new products, development schedules may be altered as a result of the discovery of design flaws, performance problems or changes to the product specification in response to customer requirements or market developments.’
●‘Technology development is inherently high risk and the above risks should not be taken as exhaustive. Other risks may become evident with further development of the technology and commercial relationships. Cycclone Magnetic Engines and its Principles can give no assurance that all of the objectives can be satisfactorily achieved.’” (emphasis added)
“Q.When you've spoken to investors what have you told them?
A.I've got to recall that.
Q.Do your best?
A.Well, basically what I - … What I said earlier was with the project, it's - we have an engine that Michael has worked out how to harness the energy out of permanent magnets. It doesn't need pistons, water pumps, spark plugs, any of that sort of stuff and he's worked out how to harness the energy and transfer it to a drive shaft. Yes, I guess they ask questions and it all leads on from there but I really struggle to recall everything.”[80]
“Q. Have you told people, either current shareholders or people wanting to invest, that the engine works?
A.… I've told them that I believe -
Micheal Nugent has told me this engine works and
I believe him.
Q.So that's what you've told people investing in
the company?
A.U-huh. I let them know that I have not seen it.
It's very high risk. And you know, Michael Nugent has told me this engine he's developed this engine and I have no reason to disbelieve him.”[81]
“Q. Micheal, can I ask you a question about the input energy? I've seen a piece of footage from your web site which actually shows, it looks like a car battery hooked up to your magnetic engine and it appears as though the power is actually generated from that battery in order for the magnets to then start operating and for the engine to run. So, can you explain that for me? That's from the Cycclone Magnetic Engines web site?
A.Yes. .... The two batteries are only used to turn the fly wheel. Once - the video does not show the battery cables being disconnected and the engine running by itself. Other people have seen that, where we drop the cables off. The two batteries are purely there to start.
Q. To start the fly wheel off?
A.That’s correct.
Q.And then once that kicks over, the magnets take - well, they'd be going at the same time, would they, and then once the magnets have started rotating, you turn the fly wheel off, is that right, or you turn the batteries off?
A..... Yes. We the batteries are disconnected.
Q. Can you just clarify the question that you gave previously then to Miss Gibson in relation to the input energy then? So, there is some input energy from an external source in order to start the engine running or was that only a situation which isn't normal?. You don't normally have a battery hooked up to it to actually get the engine started?
A.No. .... We use batteries to set it in motion and then we disconnect the batteries.”
“Based upon this video, I thought the CME engine worked, namely, that it produced power.”[82]
“The video showing the CME engine operating had a big influence on my decision to invest in CME.”[83]
“The respondent was the managing director of Citrofresh International Ltd (CTF). The respondent was involved in the writing of an ‘ASX Release’ which claimed that CTF's products could reduce the spread of four major viruses including HIV/AIDS. The respondent instructed CTF's secretary to send the statement to the Australian Stock Exchange (ASX), who published it. The statement affected the price of CTF shares.
The appellant submitted that the respondent had breached s 1041H of the Corporations Act 2001 Cth (the Act), which stated that a person should not engage in conduct ‘in relation to’ a financial product that was misleading or deceptive.
The judge at first instance held that the ASX Release did not contain representations ‘in relation to’ CTF's shares pursuant to s 1041H of the Act because the statement did not refer to shares on the face of it, or deal with the shares directly.”
“[9]As regards the first issue in the appeal (whether the representations were ‘in relation to’ CTF shares), it is of course true, as the judge said, that the words ‘in relation to’ require a relationship or connection between two subject matters. In the context of Pt 7.10 generally, and s 1041H in particular, the expression ought to receive broad construction. One important object of the Part is to ensure that participants in the market for financial products and financial services act with integrity and honesty and that consumers are adequately protected. To further this object I do not think the connection between misleading statements on the one hand and shares in a company on the other must necessarily be immediate or direct. I particularly do not accept as a necessary condition for conduct to be ‘in relation to a financial product’ that the conduct must ‘on its face’ refer to or, as the judge would have it, ‘deal with’ the financial product. With great respect to those who hold the opposite view, that approach gives s 1041H an unnecessarily narrow construction; a construction that will not promote its objects.” (emphasis added)
“[75]Misleading and deceptive conduct takes many forms. The degree of the relationship between the financial product and the proscribed conduct is informed by the examples set out in s 1041H(2). They range from issuing a financial product (s 1041(2)(b)(i)) to carrying on negotiations or making arrangements or doing any other act preparatory to "or in any way related to" an activity referred to in the nine earlier examples listed in that subsection: see s 1041H(2)(b)(x).
…
[80]The breadth of the relationship between the conduct proscribed by s 1041H(1) and the financial product is not confined in this way because the concept of misleading and deceptive conduct is one which embraces all of the circumstances in which the conduct takes place. This is illustrated not only by the terms of s 1041H(2) but by what the High Court has said about the amplitude of the "conduct" which must be considered in analysing the question of whether it is misleading: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 605.”
“The phrase ‘in trade or commerce’ in s 52 has a restrictive operation. It qualifies the prohibition against engaging in conduct of the specified kind. As a matter of language, a prohibition against engaging in conduct ‘in trade or commerce’ can be construed as encompassing conduct in the course of the myriad of activities which are not, of their nature, of a trading or commercial character but which are undertaken in the course of, or as incidental to, the carrying on of an overall trading or commercial business. If the words ‘in trade or commerce’ in s 52 are construed in that sense, the provisions of the section would extend, for example, to a case where the misleading or deceptive conduct was a failure by a driver to give the correct hand signal when driving a truck in the course of a corporation's haulage business. It would also extend to a case, such as the present, where the alleged misleading or deceptive conduct consisted of the giving of inaccurate information by one employee to another in the course of carrying on the building activities of a commercial builder. Alternatively, the reference to conduct ‘in trade or commerce’ in s 52 can be construed as referring only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character. So construed, to borrow and adapt words used by Dixon J in a different context in Bank of NSW v The Commonwealth … , the words ‘in trade or commerce’ refer to ‘the central conception’ of trade or commerce and not to the ‘immense field of activities’ in which corporations may engage in the course of, or for the purposes of, carrying on some overall trading or commercial business.” (emphasis added)
“[28] …
•The section is concerned with the conduct of a corporation towards persons with whom it has, or may have dealings in the course of its trading activities or transactions which dealings, of their nature, bear a trading or commercial character.
•The dividing line between conduct which is in trade or commerce and conduct which is not may be unclear, in which case it may be necessary to identify the features which import a trading or commercial character to an activity which would not, without more, have that character.
•To engage in conduct which is divorced from any relevant actual or potential trading or commercial relationship or dealing will not, of itself, constitute conduct ‘in trade or commerce’ for the purposes of the section.”
“A person who buys, or subscribes for, shares in a company, relying upon misleading or deceptive information from the company, or misled as to the company's worth by its failure to make disclosures required by law, may have a claim for damages against the company. That claim may be framed in the tort of deceit but, more probably than not, will now be framed as a claim under consumer protection provisions of the Trade Practices Act 1974 Cth (ss 52, 82) or investor protection provisions of the Corporations Act 2001 Cth (eg, ss 1041H, 1041I and 1325) (the 2001 Act) or the Australian Securities and Investments Commission Act 2001 Cth (eg, ss 12DA, 12GF and 12GM) (the ASIC Act).” (emphasis added)
Patent Representation
“The Patent Program
CME expects to achieve a range of patents associated with the technology from the shape and configuration of the magnets through to the mechanical application in general. As with all patents, they have a limited life span and CME expects to be able to increase and alter the number of patents as the technology is continually refined.”
“Forward Looking Statements
This Memorandum contains forward-looking statements, which involve risks and uncertainties. These forward-looking statements, which are usually accompanied by words such as “may”, “might”, “will”, “should”, “could”, “intends”, “estimates”, “predicts”, “potential”, “continue”, “believes”, “anticipates”, “plans”, “expects” and similar expressions, relate to, without limitation, statements about our market opportunities, our strategy, our competition, our projected revenue and expense levels and the adequacy of our available cash resources. These statements are only predictions. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Memorandum. Our actual results could differ materially from those expressed or implied from these forward-looking statements as a result of various factors, including the risk factors described above and included in this Memorandum. We do not guarantee future results, levels of activity, performance or achievements. … ” (emphasis added)
“A positive unqualified prediction by a corporation may be misleading conduct in trade or commerce if relevant circumstances show the need for some qualification to be attached to that statement or the possibility of its non-fulfilment to be disclosed as a requirement of fair trading. The fact that the corporation believed or had reasonable grounds for belief that the prediction would be fulfilled, would not answer the question as to whether the conduct was misleading or deceptive conduct in trade or commerce. The misleading or deceptive conduct may be found in the failure to qualify the statement or disclose the risk of non-fulfilment and the event of non-fulfilment of a prediction or promise may be evidence that raises an inference that such a risk of non-performance existed or that qualification of the positive statement, prediction or promise was required.”
“… exclusionary and disclaimer clauses cannot override the statutory prohibition against misleading and deceptive conduct or prevent the grant of appropriate statutory relief where loss or damage is, as a matter of fact, caused by a contravention of the statute.”
No claim of loss or damage was made by ASIC or by any shareholder.
“[83]It has been recognised, however, that disclaimers can be effective ‘if the clause actually has the effect of erasing whatever is misleading in the conduct’; … in other words, if the effect of the disclaimer is to make clear something that, if allowed to remain vague or ambiguous, could have led a person into error. Disclaimers had this effect in Butcher [v Lachlan Elder Realty Pty Ltd] where it was held that the effect of reading an entire brochure, including the disclaimers, was to make it clear that the survey report included in the brochure had not been prepared by the producer of the brochure but was simply being passed on without any representations being made as to its truth or falsity. It is apparent that if a disclaimer is to function in this way it must be worded unambiguously, feature prominently and it must be communicated to the reader that the disclaimer is relevant to the information it is seeking to qualify. … As Jacobson and Bennett JJ noted in National Exchange [v ASIC]:
‘Where the disparity between the primary statement and the true position is great it is necessary for the maker of the statement to draw the attention of the reader to the true position in the clearest possible way.’”
“The qualifying material must be sufficiently prominent to prevent the primary statement being misleading and deceptive or likely to mislead or deceive.”
The Expenditure Representations
“CME is seeking Seed Capital in first round funding, in the form of convertible preference stock. The intended reinvestment and use of these proceeds is as follows;
| Use of Proceeds | |
|---|---|
| CAPITAL EXPENDITURES | |
| Tooling | $ 50,000 |
| Debt Retirement (Purchase Agreement) | $ 140,000 |
| Total proceeds for capital expenditures | $ 190,000 |
| WORKING CAPITAL | |
| Salaries and wages | $ 100,000 |
| Lease Commitments | $ 25,000 |
| Professional services | $ 50,000 |
| Research & development expenses | $ 300,000 |
| Reserve | $ 235,000 |
| Total Proceeds for working capitaland reserve | $ 710,000 |
| Total uses | $ 900,000 |
| Apparently Valid Business Expenses $ | Inconclusive Business Expenses $ | Outgoings Not Related to Business $ | Total Actual Expenditure $ | Proposed Business Plan Expenses $ |
CAPITAL EXPENDITURES |
|
|
|
|
|
Tooling | 7,665 | - | - | 7,665 | 50,000 |
Debt Retirement (Purchase Agreement) | 40,087 | - | - | 40,087 | 140,000 |
TOTAL PROCEEDS FOR CAPITAL EXPENDITURES |
47,752 |
- |
- |
47,752 |
190,000 |
WORKING CAPITAL |
|
|
|
|
|
Salaries and Wages | 376,515 | 25,200 | - | 401,715 | 100,000 |
Lease Commitments | 35,824 | - | - | 35,824 | 25,000 |
Professional Services | - | 230,562 | - | 230,562 | 50,000 |
Research & Development | - | - | - |
| 300,000 |
Reserve | - | - | - |
| 235,000 |
Leasehold Improvements | 2,452 | - | - | 2,452 | - |
Other Business Outgoings | 130,327 | 54,204 | - | 184,531 | - |
TOTAL PROCEEDS FOR WORKING CAPITAL AND RESERVE |
545,118 |
309,966 |
- |
855,084 |
710,000 |
TOTAL USES | 592,870 | 309,966 | - | 902,836 | 900,000 |
|
- |
- |
275,665 |
|
|
Unrelated Non-Business Expenditure |
275,665 |
- | |||
TOTAL EXPENDITURE | 592,870 | 309,966 | 275,665 | 1,178,501 | 900,000 |
“ … when a representor does adduce evidence attesting to reasonable grounds, it will be a matter for the court to determine if that evidence does establish reasonable grounds, and so there will be no automatic deeming as there would be if a representor did not adduce any evidence at all.”
“[191]… That understanding, which Keane JA said reflected commonsense, and which reflects my understanding of the operation of the section, was that the provision required evidence ‘to the contrary’ to be adduced, that is evidence that tended to establish, or that admitted of the inference that there were, reasonable grounds for making the representation, before the deeming provision ceased to operate. It seems to me that that is what Emmett J was saying. His Honour was not referring to any evidence relevant to that topic, but evidence ‘to the contrary’.
[192]If evidence is adduced by the representor that is said to be evidence to the contrary, it will be for the Court to determine whether it is to the contrary in the sense just discussed. If it is, the deeming provision will cease to operate. That was the view of Emmett J, as understood by Keane JA. That is my view. That was not, however, an expression of the view that the legal or persuasive onus has been changed by s 51A(2), as some of the judgments in the ‘trend of established authority’ referred to by Keane JA have stated. For instance, if evidence ‘to the contrary’ is adduced by the representor, and if the representee itself adduces evidence tending to the lack of reasonable grounds, the matter might be equally poised. In such a case, there has been evidence ‘to the contrary’ adduced by the representee, thereby eliminating the operation of the deeming provision, and, on the totality of the evidence, the proof of the reasonableness (or lack thereof) of the grounds is evenly balanced. Section 51A(2) does not, in my view, mean that in those circumstances the representor has not met an onus. The section does not cast the legal or persuasive onus, in such a case, on the representor. Its terms do not say so. The enactment history makes clear that the terms were deliberately chosen not to say so. Keane JA, despite his reference to the ‘trend of established [first instance] authority’, does not say so.” (emphasis added)
“[Section 51A] does not reverse the onus of proof when it applies. It merely requires the alleged representor to ‘adduce evidence to the contrary’. There may be a question whether a representor can discharge the evidential burden by pointing to evidence which forms part of the applicant's case. In my opinion a respondent may rely upon evidence called by an applicant which answers the description ‘evidence to the contrary’.” (emphasis added)
“[129]For the sake of completeness, it should also be noted that, even if the [representor’s] submission as to the reversal of the onus in s 51A where a representor tenders evidence is correct, there are two further reasons why the [representor’s] challenge to this aspect of his Honour's decision should fail. First, the evidence of the [representor’s] preliminary forecasts relating to the project was tendered by the [representees]. For that reason, the [representees] contend, correctly in my view, that even on the view of the onus provisions of s 51A for which the [representee] contends, the onus remained on the [representee] to establish a reasonable basis for making the representations in question.”
“[190] It is unnecessary to deal with all that is contained in [129] of his Honour's reasons, in particular with the proposition that the representor must be the party to tender the material for s 51A(2) to be engaged, or whether the better approach is to be found in the last two sentences of the extract from the reasons of French J [above].”
What was represented?
“CME expects to acquire certain plant and equipment in its tooling-up process required for the assembly of its fully functioning prototype.”
“The principal types of expenses within this category are general administrative expenses, components, raw materials, tooling (other than capital equipment), insurances and promotional costs.”
“The directors, officers and other employees of the Company, some of whom will be shareholders, will receive fees, compensation and salary for services rendered to the Company, which fees, compensation and salary may not necessarily be dependent upon the success of the Company’s business. Accordingly, subscribers understands [sic] and acknowledges that upon payment to the company of the subscription price for the Shares, the value of the Subscribers’ Shares in the Company will be immediately diluted inasmuch as each Share of stock issued in the Company participates pro rata in net value of the Company based upon the total number of Shares then outstanding in the Company.”
“The projection has been prepared using generally accepted accounting principles that CME expects to use when preparing its historical financial statement.”
“The projections herein are the responsibility of the officers and founders of Cycclone Magnetic Engines as identified in the business plan, and, to the best of management’s knowledge and belief, are in conformity with generally accepted accounting principles. CME believes all of the assumptions underlying the projections are reasonable and appropriate. Management further represent that these projections were not compiled or examined by a [sic] an independent public accountant and should not be viewed as if so compiled or examined.”
“…
(b)the actual expenditure by the first respondent evidences:
(i)a lack of expenditure on research and development and tooling; and instead
(ii)the bulk of the expenditure upon
(A)remuneration for each of the second to fourth respondents; and
(B)administrative expenses, attributable to the purpose of obtaining further investment in the first respondent;
(c)the second respondent, in particular, it may be inferred, had no intention, at any relevant time, to cause any substantial expenditure to take place on research and development or tooling.”
“ … All representations, projections, estimates, or statements (either written, stated, or implied) or revenues, costs, specific performance, or other items listed in this business plan or during any discussions with Cycclone Magnetic Engines, Inc. owners, managers or employees are only good faith projections. Cycclone Magnetic Engines, Inc. makes no warranties to [sic] the success of this endeavour, either express or implied.”
“ … because the Expenditure Representations were made in good faith in reliance upon figures calculated by Jon McArthur, a former director and registered chartered accountant.”[116]
“The Court is ignorant of what role, if any, Mr McArthur played in assisting Mr Nugent in the drafting of this document.”[117]
Liability of the natural respondents – as principals
“A person must not …”
Those words, of course, are in contrast to those used in s 52 of the TPA which refer to a corporation and which (subject to the extended application available under s 6) do not capture employees of corporations. Under the sections relied upon by ASIC, employees are caught and can be made liable for misleading and deceptive conduct. A similar situation was considered in Houghton v Arms.[126]In that case, it was argued that s 9 of the Fair Trading Act 1999 (Vic.) (which provided that: “A person must not, in trade or commerce …”) did not apply to employees as the conduct was that of the employer not the employee and that the “trade and commerce” must be that of the employer. This was unanimously rejected by the High Court, which held that the employees were liable notwithstanding that they had been engaged in the trade or commerce of their corporate employer and not of themselves.
Relief
Winding up
“Subject to this Part, a Part 5.7 body may be wound up under this Chapter and this Chapter applies accordingly to a Part 5.7 body with such adaptations as are necessary, including the following adaptations:
…
…
(ii)if the Court is of opinion that it is just and equitable that the Part 5.7 body should be wound up;”
Declaration of contravention
“Declaratory orders are not made as of course when remedies are granted under the Trade Practices Act, and in my opinion they should not be… A declaratory order is a form of relief, and should not be added to other relief granted to a party unless it has some real effect as relief. A declaratory order is not made only to give other remedies an air of completeness or of symmetry.” [131]
“[w]here the possibility of prosecution is open, it would, in my judgment, be contrary to the ordinary practice for the authority of this Court to be given to a declaration which, in substance, amounted to a declaration that a defendant had committed a crime. One should not make a declaration which might be falsified by a subsequent acquittal in proceedings between the same parties”
“The English and Australian authorities that warn of the dangers of a civil court becoming involved in criminal conduct continue to apply in an appropriate company case. The general rule in a company case is that a civil court will usually be the appropriate court to deal with a contravention of the Corporations Act. But the court should be wary of granting relief, including the grant of a declaration or an injunction, if the case is likely to end up before a criminal court. Ordinarily, a civil court should not intervene in those circumstances unless its failure to do so will result in irreparable injury. That strict rule need not be applied if the case involves undisputed facts and the issue raised gives rise to a question of pure law. Then a declaration can be a very useful remedy. As Barwick CJ said in Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 at 305 that is the kind of case “which contributes enormously to the utility of the jurisdiction.”
“[51]While courts are still reluctant to grant declaratory relief on issues which are theoretical or hypothetical (see Zamir and Woolf, op cit, 117 et seq), the Intertax argument against the grant of declaratory relief is based on a hypothetical fact, indeed a hypothesis upon a hypothesis — that there will be a prosecution and that such prosecution will result in an acquittal.
[52]There is high authority against the supposed limitation on the exercise of the discretionary power to grant declaratory relief. In Sankey v Whitlam (1978) 142 CLR 1 the High Court, in respect of then current committal proceedings (ie actual, not hypothetical, criminal proceedings), made declarations that (i) certain documents were privileged from production and that (ii) the information laid against Mr Whitlam was bad in law. Gibbs ACJ said (at 20-21):
‘It is well established that the power of the court to make a declaration, under a provision such as s 75 of the Supreme Court Act 1970 (N.S.W.), as amended, or O. 26, r. 19 of the Rules of this Court, is a very wide one: Forster v. Jododex Aust. Pty. Ltd. (1972) 127 CLR 421, at pp 435-436. It is clear enough that the power of the court is not excluded because the matter as to which a declaration is sought may fall for decision in criminal proceedings. Indeed in Dyson v. Attorney- General [1911] 1 KB 410, which is one of the foundations of the law on this subject, it was held that the court had power to make a declaration that the plaintiff was not under any obligation to comply with the requisitions contained in a notice sent to him by the Commissioners of Inland Revenue, notwithstanding that neglect to comply with the notice was an offence… Since that time there have been many cases in which the courts have made declarations in relation to questions which could have fallen for decision in criminal proceedings.’
…
[55]In Intertax [2006] QSC 276 at [8] Fryberg J distinguished Australian Softwood 148 CLR 121 on the ground that the High Court’s approval
‘… was to the proposition that a declaration could be granted notwithstanding that an injunction would not be granted.’
If by this his Honour meant that the High Court only granted a declaration because, with the consent of the parties, they did not grant an injunction, then I do not agree. Gibbs CJ said (at 125):
‘With all respect, Hutley JA was not correct in saying that declarations “are little more than prefatory averments to the grant of an injunction”. In my opinion it was proper to grant a declaration in the present case although it is now agreed that an injunction is not an appropriate remedy.’
…
[60]…[T]he consistent practice [of making such declarations] is a matter of considerable weight.[136]
[61]I conclude that I should not follow Intertax [2006] QSC 276. It is appropriate to make the declarations sought. It is sometimes said that a declaration is an appropriate way of marking the Court’s disapproval of the contravening conduct…
…
In the present case the legislation contravened protects public rights by regulating the conduct of those who seek investment from the public. Declarations as to the contraventions provide a formal vindication of the law’s operation.”[137] (emphasis added)
“[55]Since Australian Softwood Forest Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121…esp at CLR 125…, the courts have recognised that the grant of declaratory relief on the application of a statutory body such as ASIC may serve important law enforcement purposes: see Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596 at 603…; Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 at [30]–[31]; and Pegasus at 571. ASIC is charged with the administration and enforcement of the Act, and there will be many cases where it is in the public interest for the courts to make a declaration on ASIC’s application that the Act has been contravened in specified respects. The making of such a declaration does not simply record the outcome of enforcement proceedings; it may also be an appropriate way of marking the court’s disapproval of the contravening conduct: see Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 97–9 and 106, 110.” (emphasis added)
“Having regard to the reasons given to me for the utility of the declaration it seems to me that there might be two problems which could arise from the making of declaratory orders in the present case. The first is that, in the event that the proceedings which the evidence suggests are quite a serious possibility are in fact started, there will be a declaration on the record of a superior court of record foreclosing the outcome of those proceedings. In the event of an acquittal, there will be inconsistent curial outcomes. Even without that result, there is the serious possibility of embarrassment in the course of the proceedings.
Second, I was informed by Mr Derrington that both of the offences created by the two sections are indictable offences and that they would be tried by jury. That, it seems to me, creates a substantial factor operating in a way which conflicts with what ASIC proposes to do with the declarations, that is to say to publicise them.
It is, I think, elementary that it is generally undesirable for a jury to be made aware of declarations of this sort.
Those, then, are powerful factors, in my judgment, which would tend against the granting of the declarations sought.
I emphasise that I am not now talking about speculative hypothesis, but about matters which, on the evidence, are real possibilities. The same was true in Intertax.” (emphasis added)
Injunction
“Power of Court to make certain orders
Court's power to make orders in relation to certain contraventions
(1)The Court may make such order, or orders, as it thinks fit if:
(a)on the application of ASIC, it appears to the Court that a person:
(i)has contravened a provision of this Chapter, or any other law relating to dealing in financial products or providing financial services; or
(ii)has contravened a condition of an Australian market licence, Australian CS facility licence or Australian financial services licence; or
(iii)has contravened a provision of the operating rules, or the compensation rules (if any), of a licensed market or of the operating rules of a licensed CS facility; or
(v)has contravened a condition on an exemption from the requirement to hold an Australian market licence or an Australian CS facility licence; or
(vi)is about to do an act with respect to dealing in financial products or providing a financial service that, if done, would be such a contravention; or
…
However, the Court can only make such an order if the Court is satisfied that the order would not unfairly prejudice any person.
Note:For examples of orders the Court could make, see subsection (4).
…
Examples of orders the Court may make
(4)Without limiting subsection (1), some examples of orders the Court may make under subsection (1) include:
(a)an order restraining a person from carrying on a business, or doing an act or classes of acts, in relation to financial products or financial services, if the person has persistently contravened, or is continuing to contravene:
(i)a provision or provisions of this Chapter; or
(ii)a provision or provisions of any other law relating to dealing in financial products or providing financial services; or
(iii)a condition on an Australian market licence, Australian CS facility licence or Australian financial services licence; or
(v)a condition of an exemption from a requirement to hold an Australian market licence or Australian CS facility licence; or
(vi)a provision of the operating rules, or the compensation rules (if any), of a licensed market or of the operating rules of a licensed CS facility; or
…”
“(1)Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:
(a) a contravention of this Act; or
(b) attempting to contravene this Act; or
(c) aiding, abetting, counselling or procuring a person to contravene this Act; or
(d)inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or
(e)being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or
(f)conspiring with others to contravene this Act;
the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first‑mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.
…
(6)[Where court may restrain action] The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised:
(a)whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind; and
(b)whether or not the person has previously engaged in conduct of that kind; and
(c)whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind.”
“[34] According to s 1(2) of the Australian Securities and Investments Commission Act 1989 (Cth), in performing its functions and exercising its powers, the plaintiff must strive to achieve various objectives, including:
[35] These provisions imply that it is appropriate for the commission to take civil proceedings for declaratory and injunctive relief in respect of past events, even if there is no risk of repetition, where the outcome may establish that the conduct complained of was wrongful (and thereby mark the court’s and the community’s disapproval of it) and may deter other wrongdoers. It is appropriate for the court to take these matters into account in the exercise of its discretion to grant or refuse such relief.
[36]Thus, the Court has jurisdiction to grant relief of the kinds sought by the plaintiff in these proceedings. The granting of that relief will depend on the exercise of the Court's discretion.” (emphasis added)
“[109] However, although the court has a wide discretion and is relieved by s 1324(6) and (7) from the shackles which would otherwise be imposed by the well understood principles of equity, nevertheless, the court should not grant an injunction simply because it has been requested to do so. An injunction should not be granted unless the order is directed to and appropriate to achieve an end such as enforcing and giving effect to the statute.” (emphasis added)
“[36] At the risk of some repetition, I summarise the principles which I draw from the presently applicable authorities:
[1] “Oh, ye seekers after perpetual motion, how many vain chimeras have you pursued? Go and take your place with the alchemists.” Leonardo da Vinci.
[2] The number of applications seeking patent protection for these devices became so great that the United States Patent and Trademark Office Manual of Patent Examining Practice was amended to include: “With the exception of cases involving perpetual motion, a model is not ordinarily required by the Office to demonstrate the operability of a device.” Similarly, Section 4.05 of the United Kingdom Patent Office Manual of Patent Practice states: “Processes or articles alleged to operate in a manner which is clearly contrary to well-established physical laws, such as perpetual motion machines, are regarded as not having industrial application.” In the Australian Patent Office’s Patent Manual of Practice and Procedures the following appears:
2.11.3.11 In many countries there is a statutory prohibition of inventions which contravene well-known laws of nature - e.g. perpetual motion machines. Under the Australian Patents Act, however, there is no such prohibition. The fact that an invention is apparently contrary to the laws of nature is likely to be manifested in a lack of utility of the invention or lack of full description. Inutility is not a ground of objection which is open to examiners to take prior to acceptance. If the applicant makes relevant assertions about the manner in which their invention works, the examiner may raise an objection that the specification does not fully describe the invention, since having regard to the known laws of nature the invention is not capable of performing in the manner described.
[3] “De Magnete, Magneticisque Corporibus, et de Magno Magnete Tellure” William Gilbert and Christopher Clews.
[4] The first Secretary of The Royal Society.
[5] Published 1648.
[6] See s 9 of the Act.
[7] Admitted by CME in Final Submissions. See s 21 of the Act.
[8] Ex SPW 25, p 2.
[9] See Trial Transcript, Day 2, page 16.55.
[10] See Williamson’s first affidavit Exhibit SPW-36 at page 1064 and SPW-37 at page 1066.
[11] See s 700 and s 761A of the Act.
[12] Section 700.
[13] T 4.2-4.
[14] See above.
[15] (1756) 1 East 643, 102 ER 249.
[16] (1990) 170 CLR 249.
[17] See the first Cole affidavit at [4]-[18] and exhibit MC9, the 6th Williamson affidavit at exhibit SPW 17 (share certificates).
[18] T2.20-24.
[19] The affidavits of Luff, Brown, Robertson and Purnell-Webb.
[20] [2004] QSC 344.
[21] Re AIRC; ex parte ATOF (1990) 171 CLR 216 at 226.
[22] NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 at [66].
[23] (1980) 144 CLR 1.
[24] At 8-9.
[25] FASOC at [18(a)].
[26] FASOC at [18(b)].
[27] FASOC at [18(c)].
[28] FASOC at [18A].
[29] FASOC at [20].
[30] FASOC at [21(b)(ii)(A)].
[31] FASOC at [21(b)(ii)(B)].
[32] FASOC at [21(b)(ii)(C)].
[33] FASOC at [28(b)(i)].
[34] FASOC at [28(b)(ii)].
[35] FASOC at [28(b)(iii)].
[36] The absence of a TPA claim in the alternative means that relief is not available should ASIC prove misleading and deceptive conduct but not prove that it occurred in relation to financial services.
[37] (2000) 202 CLR 45.
[38] National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369 at [18].
[39] At [18].
[40] National Exchange Pty Ltd at [35] Finkelstein J had identified these steps as constituting the inquiry proposed in Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177.
[41] National Exchange Pty Ltd at [66].
[42] (1981) 149 CLR 191 at 199.
[43] (2004) 139 FCR 215.
[44] (1982) 149 CLR 191 at 199.
[45] (2000) 202 CLR 45.
[46] Puxu at 209.
[47] FASOC at [18(a)].
[48] FASOC at [18A].
[49] FASOC at [22].
[50] FASOC at [23].
[51] FASOC at [24].
[52] FASOC at [20].
[53] s 764A, the Act.
[54] s 761A, the Act.
[55] FASOC [21].
[56] Ex SPW 27.
[57] Ex SPW 25.
[58] www.cycclone.us.
[59] Ex SPW 15.
[60] Ex WDRP 1, p 3.
[61] Ex WDRP 1, p 12.
[62] Ex WDRP 1, p 9.
[63] This is the “prototype” in the Prototype Representation.
[64] Ex SPW 25.
[65] www.cyclone.us-TheCarterStory.wmv.
[66] Ex SPW 25, p 2.
[67] Thermodynamics is a subject which has received considerable attention at both the most esoteric and most mundane levels, from: “The second law of thermodynamics is, without a doubt, one of the most perfect laws in physics. Any reproducible violation of it, however small, would bring the discoverer great riches as well as a trip to Stockholm. The world’s energy problems would be solved at one stroke. It is not possible to find any other law (except, perhaps, for super selection rules such as charge conservation) for which a proposed violation would bring more skepticism than this one. Not even Maxwell’s laws of electricity or Newton’s law of gravitation are so sacrosanct, for each has measurable corrections coming from quantum effects or general relativity. The law has caught the attention of poets and philosophers and has been called the greatest scientific achievement of the nineteenth century. Engels disliked it, for it supported opposition to Dialectical Materialism, while Pope Pius XII regarded it as proving the existence of a higher being.” Barazov, P.I., Thermodynamics (MacMillan, New York) 1964; to “Lisa! Get in here. In this house, we obey the laws of thermodynamics!” Homer Simpson, The Simpsons, Season 6 Episode 21.
[68] Ex WRDP 3 at p 11.
[69] Ex WDRP 4.
[70] Above.
[71] (1982) 149 CLR 191 at 199. See also Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 at 4, Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 199 and Telstra Corporation Ltd v Optus Communications Pty Ltd (1997) ATPR §41-541 at 43,514 as authorities for the proposition that in assessing whether conduct is misleading or deceptive, one must take care not to select and assess aspects of conduct out of context.
[72] (2004) 218 CLR 592.
[73] (2004) 49 ACSR 369.
[74] Affidavit of Raouzeos, para. 6.
[75] Ex SPW 15.
[76] First Affidavit of Robertson; Ex SPW 17 (examination of Foster).
[77] Ex SPW 17.
[78] Considered below.
[79] Ex SPW 16.
[80] Ex SPW 16 at pp 52-53.
[81] Ex SPW 16 at p 58.
[82] Affidavit of Robertson, para. 7.
[83] Ibid at para. 8.
[84] (2008) 169 FCR 211 (Special leave to appeal refused - [2008] HCATrans 408).
[85] Ex SPW 40.
[86] (1990) 169 CLR 594, per Mason CJ, Deane, Dawson and Gaudron JJ at 602-604.
[87] (2003) 129 FCR 64.
[88] (2007) 231 CLR 160.
[89] FASOC at [18(b)(ii)(B)(I) and (II)].
[90] At p. 9.
[91] At p. 2.
[92] At p. 5.
[93] At p. 11.
[94] Pp 10 and 11.
[95] [1989] ATPR 40-940 at 50, 251, approved in Bowler v Hilda Pty Ltd (1998) 80 FCR 191.
[96] Bowler v Hilda Pty Ltd (1998) 80 FCR 191 at 207.
[97] [2005] QCA 199.
[98] Medical Benefits Fund v Cassidy [2003] 135 FCR 1 at 17.
[99] [2005] QCA 199.
[100] At [126].
[101] At [127].
[102] Ting v Blanche (1993) 118 ALR 543; Blacker v National Australia Bank Ltd [2000] FCA; ACCC v Kaye [2004] FCA 1363; ACCC v Emerald Ocean Distributors Pty Ltd [2005] FCA 1703.
[103] (2008) 165 FCR 230 at [162] to [174].
[104] At [177] to [195]. Emmett J agreed. Stone J said that the question of the meaning of s 51A(2) should be left to a court which had the benefit of full argument on the point.
[105] [2002] FCA 1276.
[106] None of the respondents called any witnesses or tendered any documents relevant to this topic. Mr Rolls called Mr Potts on the Invention/Prototype and Patents Representations and Mr Morris QC tendered a document unrelated to any of the representations.
[107] [2007] FCA 1205 at [545]. This decision was affirmed on appeal, but this point was not a subject of the appeal: [2008] FCAFC 53.
[108] As above.
[109] As above.
[110] The Macquarie Dictionary.
[111] Section 73, Evidence Act 1977.
[112] AASB138.
[113] T 3 p 57, l 10-20.
[114] T 3 p 56-57.
[115] Sykes v Reserve Bank of Australia (1998) 88 FCR 511.
[116] Amended Defence, para. 21(d).
[117] At [143].
[118] Ex SPW 15, p. 68, line 18 – p. 70 line 1.
[119] ASIC submits that this can be inferred from the newsletter itself and Ex SPW 15, p. 88 to 93.
[120] Ex SPW 15 at p. 68, lines 7 – 12, p. 93, lines 1 – 13.
[121] Ex SPW 16 p. 62, lines 11 – 15.
[122] Ex SPW 16, p. 52, lines 22 – 24 and p. 58, lines 7 - 9.
[123] Ex SPW 17 at p. 55, lines 8 – 11.
[124] Ex SPW 17 at p. 39, lines 16 – 27.
[125] T2 p.42.
[126] (2006) 225 CLR 553.
[127] Ex SPW 15, p 68.
[128] T2 p.63/10.
[129] ASIC written submissions [85].
[130] “408C Fraud
(1)A person who dishonestly—
(a)applies to his or her own use or to the use of any person—
(i)property belonging to another; or
(ii)property belonging to the person, or which is in the person’s possession, either solely or jointly with another person, subject to a trust, direction or condition or on account of any other person; or
(b)obtains property from any person; or
(c)induces any person to deliver property to any person; or
(d)gains a benefit or advantage, pecuniary or otherwise, for any person; or
(e)causes a detriment, pecuniary or otherwise, to any person; or
(f)induces any person to do any act which the person is lawfully entitled to abstain from doing; or
(g)induces any person to abstain from doing any act which that person is lawfully entitled to do; or
(h)makes off, knowing that payment on the spot is required or expected for any property lawfully supplied or returned or for any service lawfully provided, without having paid and with intent to avoid payment;
commits the crime of fraud.
(2)An offender guilty of the crime of fraud is liable to imprisonment for 5 years save in any of the following cases when the offender is liable to imprisonment for 12 years, that is to say—
(a)if the offender is a director or member of the governing body of a corporation, and the victim is the corporation;
(b)if the offender is an employee of another person, and the victim is the other person;
(c)if any property in relation to which the offence is committed came into the possession or control of the offender subject to a trust, direction or condition that it should be applied to any purpose or be paid to any person specified in the terms of trust, direction or condition or came into the offender’s possession on account of any other person;
(d)if the property, or the yield to the offender from the dishonesty, or the detriment caused, is of a value of$30000 or more.
…”;
[131] [1999] NSWSC 853 at [56], [57].
[132] [2006] QSC 276.
[133] [2006] QSC 276 at [13].
[134] (2007) 164 FCR 487 at [58].
[135] (2007) 162 FCR 174 at p 181-186.
[136] The cases are: Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd [2006] QCA 540 (Queensland Court of Appeal); Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553 (Hargrave J, Supreme Court of Victoria); McDougall 229 ALR 158 (Young J, Federal Court); Australian Securities and Investments Commission v Preston [2005] FCA 1805 (Finkelstein J, Federal Court); Australian Securities and Investments Commission v Drury Management Pty Ltd [2004] QSC 068 (Jones J, Supreme Court of Queensland); Australian Securities and Investments Commission v Young (2003) 173 FLR 441 (Muir J, Supreme Court of Queensland); Pegasus 41 ACSR 561 (Davies AJ, Supreme Court of New South Wales); Australian Securities and Investments Commission v Hutchings (2001) 38 ACSR 387 (Windeyer J, Supreme Court of New South Wales); Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 (Austin J, Supreme Court of New South Wales).
[137] At p.181 to 186.
[138] (2006) 57 ACSR 175.
[139] [2007] QSC 376.
[140] [2001] NSWSC 114.
[141] (2006) 24 C&SLJ 41.
[142] (2002) 41 ACSR 561.
[143] (2002) 42 ACSR 605.
[144] ASIC v Arafura Equities Pty Ltd [2005] QSC 376; ASIC v Mapstone (2006) 59 ACSR 214.
[145] ASIC’s written submissions [92(a)].
