Re Robert James Ledgerwood; Carole Ann Ledgerwood and Monyash Pty Ltd v Ronald Geoffrey Reside and Dignum Pty Ltd [1990] FCA 37 (16 February 1990)

FEDERAL COURT OF AUSTRALIA

Re: ROBERT JAMES LEDGERWOOD; CAROLE ANN LEDGERWOOD and
MONYASH PTY. LTD.
And: RONALD GEOFFREY RESIDE and DIGNUM PTY. LTD.
No. WA G168 of 1988
FED No. 50
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
O'Loughlin J.(1)

CATCHWORDS

Trade Practices - misleading or deceptive conduct - proposed investment in company operating high speed ferry - "package" comprising purchase of shares, injection of capital into company and assumption of personal guarantee - representations by director as to financial position of company and effect of $100,000 injection of capital - ferry subsequently repossessed - extent to which losses proved.

Trade Practices Act ss. 51A, 52, 75B, 84

HEARING

PERTH
16:2:1990

Counsel for the Applicant: Mr. R.H. Pringle

Solicitors for the Applicant: Freehill, Hollingdale & Page

Counsel for the Respondents: Mr. P.A. Kyle

Solicitors for the Respondents: Kyle & Co.

DECISION

With the advent of the America's Cup in Perth in February, 1986, a boat builder, Mr. Don Dunbar, decided, as a speculative enterprise, to build a high speed passenger ferry. He was a business associate of the first respondent, Ronald Geoffrey Reside, a finance broker, who expended much time and energy helping Dunbar in matters relating to the planning, administration and marketing of the vessel. In the events that transpired, the vessel was not ready for the America's Cup, but it was eventually launched as the "Sundancer" and had its sea-trials three months later in May 1986.

2. Dunbar found it necessary to change his plans. He came to an arrangement with two Queenslanders, Glen Clark and George York; they were keen to take the "Sundancer" to Cairns to operate it as a tourist vessel up and down the Queensland coast between Cairns, Port Douglas and Cooktown. At about this time, in recompense for the work performed by him, Dunbar "gave" Reside a quarter interest in "Sundancer". However as Reside explained in his evidence at p 177:-
"For Dunbar to be able to receive the money that he

actually put into the boat the 2 new directors plus
myself plus Dunbar borrowed $1,000,000 from Natwest
through their office in Cairns."

3. In reality, the second respondent, Dignum Pty. Ltd. acquired title to the vessel, the four men each acquired one fully paid ordinary share and each of them was appointed a director. The company was the prime borrower of the $1m and the four directors jointly and severally guaranteed its repayment. The first respondent, Reside was also appointed the company's secretary.

4. The plan to use the vessel out of Cairns in the tourist trade was greeted by all parties with enthusiasm. Reside described it as "a unique opportunity to start a new venture in an area which was not being served at the time. And it also appeared that the boat was ideal for its purpose."

5. "Sundancer" set off from Perth for Cairns in late May 1986 on a trip that should have taken about ten days; but it took over two months - the trip was a series of disasters. Within a hundred kilometres of Perth, dirty fuel filters stopped the engines; later, one of the Deutz MWM engines completely broke down; its jets malfunctioned - its hull cracked - it caught fire. Ultimately, it was ingloriously towed from the top of the Gulf of Carpenteria to Cairns, arriving there in early August.

6. Under the management of Clark and York, the vessel commenced its operations in the tourist industry in late August. York was a qualified skipper and he was in charge of "Sundancer". It was intended that Clark would be the general manager, taking responsibility for all clerical functions as well. At that stage neither Dunbar nor Reside had any involvement in the day-to-day management of the company or of the boat. But the vessel continued to be plagued with problems. Between late August and December 1986, the hull cracked at least five times. Not only did these occurrences reduce the vessel's operational time and its income from passengers, it also meant that travel agents were losing confidence in its capabilities.

7. In November 1986 Clark came to Perth from Cairns; he advised Reside and Dunbar that the company was in need of further funds; he explained that the continual breaking down of the boat had not allowed the company to establish the expected (and required) cash flow. Reside was concerned; he was not prepared to commit himself to investing unless he and his wife, Corinne, first visited Cairns and made their own investigations. They did so, returning satisfied but, as events transpired, only Reside and York put further moneys into the company. Reside's evidence was that he put in $25,000 and that he did not "expect to see it again" until the company "started making a profit". (p183)

8. By agreement between counsel, a bundle of documents was tendered as exhibit "A". They were Items Nos. 1-32 inclusive and Nos. B1-B7 inclusive and any reference to a numbered document, prefixed by the word "Item" is a reference to the document of that number, being portion of Exhibit A. Reside recognised Item 3 as a report on the "Sundancer" dated 20 December 1986, prepared by a firm of Chartered Accountants in Cairns, Messrs Lennon Wright & Associates, on instructions from Clark. In particular, Reside said that paragraph 15 of that report reflected, accurately, the position of the company in December 1986:-

"15. The current financial position has been caused by a
number of factors including:
. inconsistency in operations causing lower than
expected passenger numbers
. mechanical problems causing higher than
expected maintenance and repair costs
. initial problems with berthing facilities at
Port Douglas and Cooktown incurring higher
than expected establishment costs
. delays in recovery of monies owing on warranty
and insurance claims."

9. The report, Item 3, stated that it "had been prepared for the directors of Dignum Pty. Ltd. to assist in discussions with prospective shareholders", and in paragraph 10 it set out:-

"10. It is proposed that another party be offered 20% of
the equity in the company for an injection of funds
or securities of $300,000."

10. The report, which also made it clear that "information, financial projections and marketing projections used for the purpose of its compilation had been supplied by the directors", listed the following items of interesting information:- the vessel's capacity was 150 passengers and the company's projected net income for the 1987 calendar year was in excess of $1.1m, based on passengers averaging 106 per day.

11. Reside's evidence was that he approached a business associate, Doug Gordon (who had a professional boating background) with the report (Item 3), and that Gordon not only became a fifth "partner", he paid into the company $300,000, moved with his family to Cairns in March 1987, and took over, (by agreement with York) as skipper of "Sundancer". (Because of the size of Gordon's investment in the company, he was not asked to, and did not, become a co-guarantor for the original $1m debt.) As to Clark, the evidence of Reside and Dunbar was that he "was never seen again" (p186) and "was never available" (p317).

12. Gordon's entry into the company also signalled a change in Reside's involvement. Gordon was, according to Reside "getting things under control in Cairns" (p186) and he (Reside) "agreed to do the book-work". In April 1987, Reside prepared a budget of income and expenditure for the operation of "Sundancer" for the months of April to December 1987 inclusive. (This document included an entry of $80,000 described as "opening balance" and it also allowed for the payment of creditors of about $78,000 which were outstanding at the beginning of April). He forwarded a copy of his budget (Item 9) to Gordon in Cairns under cover of his letter of 14 April 1987 (Item 10), commenting that some of his figures may be open to criticism but adding: "However in the main, if we can stick to the projections we will achieve a reasonable profit margin". The budget forecast was modest when compared with the 106 passengers per day in Item 3; it was based on an average number of passengers of 50 per day in April and May and 80 per day for the balance of the year. The projection, based upon current payments to trade creditors, showed a credit cash-flow balance of about $200,000 at the end of December. Reside explained that, in his preparation of the budget, he had relied on information given to him by an employee of the company (whom he regarded as experienced) with respect to the likely passenger numbers and that he and Gordon had relied on historical data in calculating likely expenses. (I infer that he regarded the figure of 106 passengers per day in the accountant's report (Item 3) as far too optimistic).

13. Unfortunately however, the expectations in Item 9 failed, from the first month of April, to eventuate. Item 32 was a passenger bar graph maintained daily by Reside on information phoned through to him in Perth from Cairns. It shows that the vessel had broken down for 10 days in late April - early May with predictably disastrous consequences. Sailing days were limited to 15 out of 30 in April and 24 out of 31 in May. Average passengers per day (restricted to the days when the vessel was actually in use) were only 37.5 and 33 - well below the forecast of 50 for every day in Item 9 and well below the 35 required on every day in the month to reach what Reside regarded as a "break-even" point.

14. There was an improvement in passenger numbers in June; the boat only operated 20 days but the average number of passengers had grown to 47.5 per operational day. Days were lost in June because one of the boat's engines "blew up". At Gordon's urgent request, Reside was able to organise MWM in Perth, the original supplier of the engines, to fly a replacement engine to Cairns at their expense.

15. It was about this time that the parties to these proceedings, who are described as "the first applicant", Robert James Ledgerwood and his wife Carol Ann Ledgerwood, were informed by Reside that Dunbar was considering building another boat as a back-up for "Sundancer". Carol Ledgerwood and Corinne Reside are sisters. The men, Bob Ledgerwood and Ron Reside, not only knew each other well because of them having married sisters, they were also friends in their own right. Indeed, all evidence pointed to the existence of an exceptionally strong family bond encompassing the four of them and the other direct members of the sisters' immediate family. Hence, it was common ground that the Ledgerwoods had known about "Sundancer" and Ron Reside's involvement since its inception. They had both gone on the sea trials as guests of their brother-in-law and they both agreed that they had been fully informed about the misadventures of "Sundancer" since it set off for Cairns.

16. Discussions between the Ledgerwoods and the Resides about a second boat took place, it was agreed, at a Chinese restaurant in Perth in late June or early July 1987. It would also seem to be common ground that only passing reference was made to the subject. Ledgerwood's evidence was that he thought that he had suggested that he might be interested in taking a shareholding in a second boat (p43) whilst Reside's version was that he had lightheartedly said to Ledgerwood: "It might be a chance for you to get in on this one, Bob". (p193)

17. In any event two things are certain; first, on the occasion of the dinner at the Chinese restaurant the subject of the Ledgerwoods taking some interest in a second boat was briefly discussed; secondly, the subject matter of the second boat was raised because it was well known to Reside, as I find, that Ledgerwood had displayed ongoing and continuous interest in "Sundancer" since he first sailed on her in her sea trials.

18. Ledgerwood was not certain how matters progressed thereafter. However the probabilities are, as conceded by him in his cross-examination (p75), that he asked Ron Reside to provide him with more information so that he could consider the question of investing in the business. Reside was more assertive in his evidence on this subject. He said that he received a phone call from Ledgerwood who asked him "what sort of money would be involved as far as getting a share of the venture" (p197). According to Reside, he answered by saying that he felt a figure in the vicinity of $350,000 would be needed because Gordon had injected $300,000 much earlier in the year and much work had been done (presumably on the boat) since then. Reside said that he also explained that he was not suggesting that Ledgerwood would have to have cash of $350,000 but his evidence was that he made it clear to Ledgerwood "... that the company would not entertain anything less than $100,000 as far as cash was concerned because we required it".

19. This would appear to be the first of several occasions when this figure of $100,000 was mentioned by Reside. What he said to Ledgerwood on the subject of the $100,000 is one of the most critical issues in this trial. In any event, it is common ground that at a barbecue at the home of the Ledgerwoods on Sunday 19 July 1987, Reside brought with him, at Ledgerwood's invitation, some documentary information about the boat and the business. This included a tourist brochure and some maps, drawings of the second boat, the specifications of "Sundancer" and the cash flow budget: (Item 9).

20. Reside also claimed that, at the barbecue, he showed Ledgerwood a hand written list of the company's creditors as at 30 June 1987 and his passenger bar graph: (Item 32) The passenger bar graph showed, on graph paper, horizontally, the days in each month, commencing April 1987. Vertically, it was scaled from zero to 150 and daily or thereabouts the numbers of passengers transported for a particular day were entered. Sadly, this document also shows the numerous occasions when various periods of time were totally without passengers with the simple legend: "Breakdown". Ledgerwood admitted to seeing the bar graph on a later occasion in Reside's office but he denied seeing it or a list of creditors on the Sunday of the barbecue. In my opinion little, if anything turns on this issue because whilst the other documents (excluding a survey report of the vessel) were left with Mr & Mrs. Ledgerwood for their perusal, they would not have had much opportunity to consider and digest the information in the bar chart and the list of creditors on that occasion, for Reside conceded that he took those two documents with him.

21. Ledgerwood had become most enthusiastic by this stage; but his wife was less so. Furthermore, discussions had switched from the possibility of a second boat to the question of the Ledgerwoods investing in "Sundancer". Ledgerwood said that he visited Reside at Reside's office four or five times after the barbecue. According to Ledgerwood (and Reside substantially agreed) a plan was formulated upon the basis that either Clark or York would be pushed out of the company by the Ledgerwoods purchasing the outgoing party's share. If this could be achieved - and Reside thought York might be the easier to convince - the way would be open for Ledgerwood to become a "partner" in the venture. Hence the plan was that the Ledgerwoods would buy York's share for (say) $25,000 to $50,000, become co-guarantors in place of York and place $100,000 on loan with the company. Reside said that he was aware that that would mean that the Ledgerwoods assumed a joint and several liability for $1m dollars - just as he (Reside) Clark and Dunbar would have a like liability - but the inference that I drew from his evidence was that he nevertheless looked upon each of the four as being at risk only to the extent of $250,000.

22. Ledgerwood maintained that the figure of $100,000 and its significance was mentioned on the occasions of Ledgerwood's visit to Reside's office; he also said that during those visits they discussed the problems that were being experienced with the Castoldi jets, the supply of parts and the problems with the MWM motors. During this period, Reside also told him that arrears in monthly payments to the company's financier, Natwest Australia Bank Ltd. were about $60,000; (the debt was repayable, at that stage, at the rate of $15,833.33 per calendar month). When questioned in his evidence in chief on the subject of the $100,000 and how it would be used, Ledgerwood first said:-

"Ron had said that the boat - the debt that the boat had
incurred before he started to take over they had never
been able to catch up on and that he was looking for
around about $100,000 investment if we were coming in
which would repay Nat West the $60,000; there would be
money there for payment of fuel accounts and there
would be some cash left over for cash-flow situation."
(p47)

23. Thereafter his evidence continued:-

"Was anything said about when the debts that he was
talking about had been incurred apart from Natwest? you
said Natwest was a couple of months in arrears as far
as you could - and you were made to understand. Did he
say over that period the debts for fuel had
accumulated?... No, only that there was debts.
Do you in fact know how much?... No, I did not.
Did he give you any information at the time you were
making those calls at his offices in Leederville as to
exactly how much was owing?... To my recollection the
only figure that was discussed was the $60,000 that was
owed to Natwest. It was my understanding that the
$100,000 would pay off debt and have money left over.
Well, how did you come to that understanding?... From
Ron?
Can you remember what he said?... No, nothing specific
other than what I have already said. It was $100,000
would be sufficient to, as I said, pay off Natwest, pay
accounts that were in arrears - I understood it was
fuel - and still have cash flow money left."

24. At a lunch with Mr. & Mrs. Ledgerwood in late July or early August, Reside told them of the company's forthcoming Annual General Meeting and of an extraordinary General Meeting that had been convened by George York: (these were to be held at Cairns on 19 and 17 August 1987 respectively). Reside said that he advised the Ledgerwoods that:- "... they should not even consider doing anything until they went to Cairns and analyse (d) the situation for themselves."

25. Reside said that he was "extremely uncomfortable"; he explained that:-

"I was talking to family. I was aware that the boat had
a history of continual breakdowns and if in fact they
were going to invest in the business it had to be on
the basis that they had made their own inquiries and
that they were comfortable with their investments and
had not relied on me." (p211)

26. Mrs. Reside in her evidence, claimed that she was "scared stiff" and that she and her husband had insisted that the Ledgerwoods make their own enquiries - "it was their decision" (p331).

27. The Ledgerwoods agreed to go to Cairns, and on 7 August Ledgerwood gave Reside a cheque for $1,000. Ledgerwood said that he volunteered that payment based on his accountant's advice that such a payment made in good faith - presumably, as he said, "on the prospect of us becoming involved with the 'Sundancer'" (p49) - should be sufficient to claim his and his wife's travelling expenses as an income tax deduction. Reside confirmed receipt of the cheque, stating that he told Ledgerwood that he would hold it until Ledgerwood made his decision about going into the venture.

28. At this stage, even though Mr. & Mrs. Ledgerwood were yet to go to Cairns to see and test "Sundancer" and the business for themselves, they were, as I find, particularly interested and most enthusiastic - although Mrs. Ledgerwood was, I must concede, more pragmatic in her approach to the venture than her husband. In any event, the Ledgerwoods flew from Perth to Cairns on 14 August 1987. On the following day they took the return "Sundancer" cruise from Port Douglas to Cooktown and on subsequent days they took other boat trips so that they could make comparisons.

29. When the Resides arrived some two or three days later, the four met and discussed the venture. Some indication of Ledgerwood's enthusiasm can be gleaned from this passage in his evidence at p 50:

"We could see that much potential there it was just -
there was so much potential it was just oozing of it,
it was quite a friendly discussion, very open, and we
were just glad to be there sort of thing, you know."

30. This can be compared with the more cautious character of Mrs. Ledgerwood:-

"The actual running of the boat was fine. The staff, I
observed, worked very, very good - very efficient - but
I noticed there was a great deal of lack of marketing
material."

31. It is agreed that the Ledgerwoods ultimately decided that they wanted to be part of the "Sundancer" venture. But curiously, the timing of their decision was bitterly contested and it will be necessary for me to return to that subject. In the meantime I will continue with the undisputed chronology. At the extraordinary General Meeting Clark was dismissed as a director of Dignum; no reasons were offered in evidence but I infer from the brief snippets of evidence from Reside and Dunbar to which I have already referred that they considered that Clark was not pulling his weight. Two days later the Annual General Meeting was held, attended by Reside, York, Dunbar and Gordon. Whether Reside was acting as an undisclosed agent for the Ledgerwoods (as Reside claimed) or whether he was acting on his own behalf, but upon the understanding that the Ledgerwoods could, if they wished, subsequently decide that they wanted to join the company (as Ledgerwood claimed), it is a fact that, either during or immediately after the conclusion of the Annual General Meeting, Reside and York came to an arrangement for the sale of York's interest in the company. It is also agreed that Reside thereupon gave York his personal cheque for $25,000, the agreed price of York's share, and that York gave Reside a receipt dated 19 August 1987 of which item 18 was a true copy:-

"I George York agree to sell my 20% holding in Dignum
P/L for the sum of $25,000 (Twenty Five Thousand
Dollars) on the provision that Natwest Finance Co
releases my personal gaurantees (sic) on the vessel
Sundancer loan. This offer will be valid for one month
from this date".

32. Reside's interpretation of the arrangement with York and the involvement of Ledgerwood appears at pp 217-218 of his evidence in chief:-

"When you paid him the cheque for $25,000, did you say
anything about it?... Well, yes. I said 'Here's a
cheque on the basis that you hang onto it until we've
had a chance to talk to Natwest', which he agreed to do.
Had you discussed with Mr. Ledgerwood prior to that,
the question of payment for the share?... Yes.
What had been said?... I was directed to spend anything
up to $50,000 to secure that share from George York."

33. Earlier Reside had said that on the preceding (Tuesday) night there had been a discussion between he and Ledgerwood in the latter's hotel room:-

"... I asked Bob, 'What do you think? Tomorrow is the
AGM' and he responded, 'Mate, I'm in'." (p215)

34. Whilst Ledgerwood agreed that Reside had told him of the arrangement with York and that it was subject to Natwest approval and that it was not intended that York should cash the cheque until that approval was forthcoming, he denied in his evidence in chief that he had committed himself to any involvement in the company prior to the Annual General Meeting. However my assessment of his evidence was that he shifted ground during cross-examination.The question was whether Reside went to the meeting intending to commit his brother-in-law (as an undisclosed party) to the purchase of York's share or whether he went there intending to bid for the share for himself but with an understanding that Ledgerwood could have it should that subsequently be his decision. On this particular subject, Reside was clear in his evidence; he was bidding for Ledgerwood because Ledgerwood had committed himself during the preceding evening. Ledgerwood however maintained that he did not commit himself to the venture until 22 August - three days after the meeting and after the four of them had taken a further trip on the "Sundancer" and stayed overnight in Cooktown. Ledgerwood's claim was that:-

"Ron had always said that if we did not want the shares,
he would keep them." (p104)

35. I reject that proposition and I do so for the following reason; Dignum was in need of cash: Reside paying York $25,000 for his share was of no use to Dignum. The only reason for buying out York was to give a purchaser with additional cash an entry into the company. Reside was already a shareholder and he did not need to pay anything to York. In fact, if he did have $25,000 to spare, it would have been better used as an advance to Dignum. In my opinion, Reside only bid for York's share as part of a larger package of getting $100,000 cash invested into the company. In my assessment, he was acting deliberately for a third party - and that was either Ledgerwood or his wife or his trustee company or a combination of two or all of them. I have come to this conclusion even though Reside conceded that his wife, Corinne, had said to Ledgerwood words to the effect:

"'Look, you know, Bob, if you want out - you don't have
to go ahead with this if you don't really want to'."

36. My rejection of the version of events advanced by Ledgerwood has tended to colour other parts of his evidence; it has led me to the conclusion that, with respect to certain areas of his evidence that I will, in due course, identify, he engaged in exercises of self-justification and reconstruction. Even so, on the versions of both men, the same conclusion was reached - the Ledgerwoods decided that they wanted to be involved in the "Sundancer"; I find that Ledgerwood knew that there were three distinct aspects to the involvement : the purchase of York's share for $25,000, the deposit with or loan to Dignum of $100,000 and Natwest's approval of Ledgerwood and his wife as co-guarantors in place of York.

37. Events thereafter, although highly dramatic and highly important are hardly contentious and can be summarily stated. In the belief that Natwest's approval to the arrangement would be forthcoming, and being totally trusting of his brother-in-law, Reside, using his personal overdraft facilities, advanced Dignum $36,000 on 24 August. Dignum used the funds to pay some moneys to Natwest and some to its fuel supplier. Three days later, Ledgerwood gave Reside a cheque for $10,000 being the limit of finances then available to Ledgerwood. This was banked by Reside personally to offset the two cheques for $25,000 and $36,000 that he had drawn on his personal account. (Contrary to the arrangements that had been made, York had banked Reside's cheque for $25,000). About this time Reside also deposited to the credit of Dignum's account the cheque for $1,000 that Ledgerwood had given him prior to going to Cairns.

38. Early in September, Reside received word from Natwest that it would approve the arrangement; he told Ledgerwood who shortly thereafter gave him a cheque for a further $70,000. At that stage Ledgerwood had advanced $81,000 - the first $1,000 had been deposited in Dignum's account but the second and third payments had gone to Reside's personal account - no doubt because of the large payments of $25,000 and $36,000 that he had made. Nevertheless as a consequence of banking Ledgerwood's cheque for $70,000, Reside had then received a total of $80,000 but had only paid out $61,000; he was in credit to the extent of $19,000. This was reduced to $10,000 when Reside paid over a further $9,000 to Dignum on 8 September. Ledgerwood concluded his commitments by giving Reside a cheque for $44,000 on 30 September. That cheque was drawn in favour of and deposited to the credit of Dignum and represented the balance of Ledgerwood's commitments totalling $125,000. I find that Ledgerwood believed, and rightly so, that he had supplied, to or through Reside, the funds necessary to acquire York's share in the company and the loan funds that he had agreed to advance. I also find that he was then, as were Reside, York and the others, awaiting formal approval from Natwest.

39. During the month of September the documents that were needed to release York and accept Mr. & Mrs. Ledgerwood as guarantors were prepared on instructions from Natwest, forwarded to Reside in Perth and signed by Mr. & Mrs. Reside and Mr. & Mrs. Ledgerwood. Reside did not return the papers immediately, claiming that he had some unease because:-

"... we were not getting the numbers on the boat that
maybe we should have been getting at that particular
time of the year and I was still very worried about
them being involved, particularly as far as the
guarantee was concerned." (p228).

But after further discussing the matter with Ledgerwood (on the latter's return from a short overseas trip) Reside said he then sent the papers to Natwest.

40. Reside said that in early October he received a phone call from Natwest informing him that "George York had signed his set of the papers but they were still hunting around for Mr. Clark". He continued that about a week later, he received a further phone call from Natwest and that he was then informed that Clark and his wife had refused to sign the documents. In the meantime Reside had deposited another $6,000 in Dignum's account. This occurred on or about 9 October 1988 and it was not suggested that it was anything other than Ledgerwood's money, being part of the balance of $10,000 still held to his account by Reside.

41. The final and most dramatic event to record at this stage of these reasons was the unexpected repossession of "Sundancer" by Natwest. Why the finance company took this action was not satisfactorily explained. Dignum was in arrears with its monthly payments and that undoubtedly justified the repossession but that was not a new situation. Ledgerwood and separately his wife, in passages of hearsay evidence, told of a rumour of an attempt by a disgruntled party to plant a bomb in the boat - perhaps that was the explanation. In any event no-one from Natwest was called to give evidence. Reside said, as I accept, that he was "horrified" and "shattered" at the news. But curiously, his immediate response was to look for a purchaser of the boat to avoid a forced sale by Natwest rather than seeking to raise funds to induce Natwest to change its mind and return "Sundancer" to the company; in this regard he was first successful in introducing a Mr. David Bleach (who purchased the boat from Natwest) and further, he was also instrumental in assisting Mr. Bleach to on-sell the boat at a profit.

42. Reside said that Bleach had offered to share his profit with him and that he (Reside) had told Ledgerwood of that, adding that Ledgerwood could have whatever Reside received from Bleach. Ledgerwood agreed that he had been told of Bleach's offer but, according to him, Reside's offer was that he and Ledgerwood would share whatever Bleach gave to Reside. According to Reside, he eventually received a cheque for $20,000 from Bleach sometime in September 1988 but, coincidentally, on the same day he received a letter from the Ledgerwoods' solicitors threatening legal action against him. He claimed that he tried to dissuade Ledgerwood from instituting proceedings but when he learned that he could not get him to change his mind he returned the cheque to Bleach; he said in evidence:-

"As far as I was concerned, any previous agreement we
had was effectively killed by that and I returned the
cheque to Bleach."(p232)

43. Why he should return the cheque to Bleach was not satisfactorily explained; I find Reside's conduct incomprehensible.

44. It is necessary however to return to the events surrounding the repossession of "Sundancer". At that time, the evidence clearly established that Ledgerwood's entry into the company had not been completed. Reside conceded that the acquisition of the share from York and the injection of $100,000 cash by way of loan to Dignum "was all in the same package". (p216). I also find that Natwest's approval to the change in guarantors and the due execution of appropriate documentation was also part of the same "package". Therefore, when Reside learnt of the repossession of the boat, he knew - or ought to have known - that he was then holding to the credit of Ledgerwood $4,000 the balance of the moneys paid to him by Ledgerwood. But despite this very clear proposition, he proceeded to spend, in the name of Dignum, $3,000 in legal fees challenging Natwest's seizure of the boat, arguing that such was a lawful disposition of the moneys advanced by Ledgerwood. At trial, he conceded that there was still a further $1,000 in his personal account, representing the last of the moneys paid to him by Reside, but through his counsel, he maintained, to my surprise, that Ledgerwood had no claim to that money against him.

45. Mr. Kyle, counsel for Reside, relying on the decision of the Court of Appeal in Ellis v Goulton (1893) 1 QB 350, argued that when Reside received the various sums of money from Ledgerwood he (Reside) was (save for the first $25,000 which was earmarked to recoup his outlay to York) acting as agent for the company. If that be correct then, said Mr. Kyle, not only was Reside entitled to expend the $3,000 in legal fees on behalf of the company, he was also under a positive duty to account to his principal, Dignum Pty. Ltd. for the remaining $1,000. I reject that submission for the following reasons; first the facts in Ellis v Goulton were materially different. A vendor had arranged to sell certain premises by auction. The plaintiff, who was the successful bidder, paid his deposit, according to the terms of the contract, to the defendant who was the vendor's solicitor. The sale went off through the default of the vendor and the plaintiff unsuccessfully sued the solicitor for the return of the deposit. Unlike the present case, the deposit had been paid to the third party pursuant to the express terms of the relevant contract, and, perhaps of more importance, there was a contractual requirement that payment be made in that manner. Here the contract was still in its conditional stages: there was no contractual obligation on Ledgerwood to pay any money to any person because Natwest's approval had not yet been obtained. Furthermore the role of Reside in receiving money from Ledgerwood was entirely different from that of the solicitor in Ellis v Goulton who was unequivocally the agent of the vendor. In the instant case, having regard to the pre-existing family and personal relationship subsisting between the two men and having regard to the fact that Ledgerwood was under no contractual commitment to Dignum (as Reside well knew) to advance any moneys, such moneys as were received by Reside from Ledgerwood and banked in his own account should not have been passed on to Dignum until the fulfilment of all conditions or, at least, without the approval of Ledgerwood. Hence in receiving those moneys from Ledgerwood, Reside was acting if not as Ledgerwood's agent, then at least as a stakeholder. In either case Reside would have been accountable to Ledgerwood. c.f. A.N.Z. Banking Group Ltd. v Westpac Banking Corporation [1988] HCA 17; (1987-88) 164 CLR 662.

46. This then is the story that has led to this litigation. The applicants are Mr. & Mrs. Ledgerwood and Monyash Pty. Ltd, the corporate trustee of their family trust. Although its existence predated the first negotiations, it was only in the latter stages that the Ledgerwoods decided that their ultimate involvement in "Sundancer" and Dignum would be via the trust. On my assessment of the whole of the evidence, and notwithstanding my continual references to the Ledgerwoods (and, in particular, Mr. Ledgerwood), it is clear that Monyash Pty. Ltd. is the party properly entitled to the role of applicant in these proceedings.

47. There is no doubt that the Ledgerwood family has "lost" $125,000; on that, all parties were agreed. The question to be determined is whether their loss (or any part of it) is recoverable against the respondents or either of them.

48. Any suggestion that Reside was a personal borrower of the $125,000 (or any part of it) can be summarily dismissed. I accept his evidence, supported as it was by Dunbar, that he, as a director of the company, had the authority of the company to seek for and find funds for investment in and use by the company. I am quite satisfied therefore that at all material times in his discussions with Ledgerwood, Reside was acting with the authority of the company; and, by virtue of the provisions of sub.s 84(2) of the Trade Practices Act ("the Act") his conduct is deemed to be the conduct of Dignum. Furthermore, if it is found that the company engaged in misleading or deceptive conduct, that finding would lead to the further finding that Reside was a "person involved in the contravention" and hence, was also liable for the loss or damage suffered by Monyash (s.75B of the Act).

49. Having regard to the manner in which the trial progressed, Monyash's case can be projected in this manner; first, it sought relief against Dignum pursuant to s.52 of the Trade Practices Act 1974, alleging that certain of Reside's statements during July and August 1987 constituted misleading and deceptive conduct on Dignum's part in trade or commerce. Secondly, and alternatively, it claimed that immediately before Dignum incurred debts totalling $100,000, there were reasonable grounds to expect that Dignum would not be able to pay all its debts as and when they became due and that the first respondent, Reside, was thereby liable personally for the repayment of the $100,000: (s.556: Companies (Western Australia) Code 1981). Finally, and as to the $25,000, Monyash added further alternative claims against Reside based on a failure of consideration and negligence. However, in view of the decision that I have reached it is unnecessary to consider any of the alternative heads of relief.

50. I turn first to a consideration of the allegations of misleading and deceptive conduct and to the claim against both respondents for damages under s.82 of the Trade Practices Act. Although some of the applicants' complaints were abandoned at trial or can otherwise be disposed of quickly, it was nevertheless a matter of interest to note the way in which both Mr. & Mrs. Ledgerwood reacted against their former close friend. Admittedly their loss was huge and it was made dramatic because of the suddenness with which it occurred. Nevertheless, they both adopted a complete and total fault - syndrome against Ron Reside. They have, as I find, taken the statements that he made in the July - August period and, wherever possible, tailored them and, on occasions exaggerated them, for the purpose of emphasising his guilt and their innocence. They could not allow themselves to think (especially Mr. Ledgerwood) that his enthusiasm to become involved in "Sundancer" caused them to look at the venture through rose-tinted glasses. For reasons which I will in due course explain, I have concluded that Reside must take the blame for some of the losses that the Ledgerwoods have suffered; and, subject to further submissions from counsel, those losses will quantify, subject always to questions of interest and costs, at $100,000. It is my finding that Dignum (through Reside) did engage in misleading conduct and that the Ledgerwoods (and hence, Monyash) relied on that conduct to their loss. But the extent of the misleading conduct was far, far less than that alleged and much time in the trial was taken up in dealing with many inflated claims.

51. For example, both Mr. & Mrs. Ledgerwood were adamant that Reside had assured them that the new Mirage Hotel at Port Douglas had guaranteed him 30-40 passengers per day for "Sundancer". Of that allegation I have this to say: neither Mr. nor Mrs. Ledgerwood were unintelligent; although there was no cause to examine their financial affairs during the course of the trial, it would seem that both were reasonably successful small business persons. Even if Reside used the word "guarantee" - and I do not believe that he did - both Ledgerwood and his wife would have sufficient intelligence to understand that it was a mere manner of speech intended to be no more than an advice that the Mirage Hotel was very confident of the numbers of their guests who would want to take a trip on "Sundancer".

52. Then it was alleged (by reference to the bar-chart - Item 32) that Reside had said that the vessel was averaging 75-80 passengers a day and that 45 passengers per day was the "break-even" point. These two allegations were plainly wrong but it did not stop the Ledgerwoods making them and pursuing them. A quick examination of Item 32 would have shown that the vessel was not averaging anything like that number and there is a clear endorsment on Item 32 showing that the "break-even" was 35. Mr. Ledgerwood saw Item 32 - if not on the Sunday barbecue, then in Reside's office. Obviously his memory let him down, but as I have complained, that did not stop him and his wife pursuing this alleged misrepresentation.

53. Furthermore, an alternative claim that the applicant had lent Reside personally sums totalling $100,000, when the indisputable facts show that all times Dignum - and Dignum alone - was the intended debtor, causes one to look long and hard at the other complaints that were made by the Ledgerwoods.

54. Next it was alleged that Reside had falsely stated that he had acquired York's 20% share in Dignum. But Ledgerwood conceded in his evidence that Reside had told him that his arrangement with York was subject to Natwest's approval and that York was not to bank the cheque until that consent was forthcoming.

55. It remains to be considered what Reside said to the Ledgerwoods, at any time prior to them paying over any money, about Dignum's cash flow problems and the manner in which the $100,000 would be used. It was pleaded that Reside falsely stated that Dignum's cash flow problems had been overcome and (in para 5(e) of the statement of claim):-

"(e) that a loan of $100,000 was sufficient to clear and
if advanced would be used to clear the second
respondent's instalments due to Natwest Finance and
provide working capital and that the second
respondent would be a viable company."

56. Taking those allegations in turn, it was agreed that Dignum's cash flow problems had not been overcome at any time when Reside and Ledgerwood were discussing Ledgerwood's entry into the company; if Reside made a statement in those terms or to that effect it would have been grossly misleading and if the Ledgerwoods relied on those statements, then they would be entitled to damages to the extent of their proved losses. It would have been equally misleading to state that $100,000 would have been sufficient to clear Dignum's debts including or excluding the arrears owing to Natwest.

57. The resolution of this last issue, depends primarily on an assessment of the two main actors, Bob Ledgerwood and Ron Reside. However, before I turn to their evidence, I will briefly mention what it was that the other witnesses were able to say on the subject of $100,000 and the financial position of the company. First, Mrs. Ledgerwood: she confessed that it was now difficult to remember what she heard from Reside and distinguish it from what she heard from her husband when he recounted what Reside had told him (p121). She thought that her knowledge of the use or value to Dignum of $100,000 came from her husband (p135). Mrs. Reside's evidence is difficult to comprehend and is best catalogued by quoting the relevant questions and answers: (Jim Williams was Dignum's major fuel supplier):-

"Can you recall, what, if anything, your husband said
about the $100,000?... What it was going to pay?
Yes, or anything about it?... I can recall that Natwest
and Jim Williams were getting to the point where we had
to pay them something. The money to be invested - the
money to be invested would have to pay half of Jim
Williams or whatever he needed and what he could with
Natwest. It was not to pay all of Natwest. Then the
rest would be used for working capital, to pay whatever
creditors at the company's discretion." (p 330)

58. Although he was not present at any of the conversations between Reside and Ledgerwood, Dunbar, as a director of the company, expressed his opinion that $100,000 would have been sufficient to "alleviate" all cash flow problems. As he pointed out at p 319:- "We had two new engines", "The jets were going to be replaced", "With the new jets and all the engines operational, the company would have been a very, very profitable business".

59. I turn then to consider the evidence of Ledgerwood and Reside on the subject of the $100,000. I have already voiced my criticism about many aspects of Ledgerwood's evidence and those criticisms have made this task the more difficult. However I am compelled to say that, on the subject of $100,000 and the company's cash-flow problems, Reside's evidence was confusing and unsatisfactory. I reject the proposition that Reside told Ledgerwood that Dignum's cash flow problems had been overcome. This was contradicted by Ledgerwood himself when he volunteered that Reside had told him that the company had never been able to "catch up" and that $60,000 was owing to Natwest. If to that, one couples the recent breakdowns of the boat and the consequential loss of income to the company it would have been ludicrous for Reside to make such a blatantly false statement. Reside might have been desperate to get money to keep "Sundancer" alive, he might have been earnestly optimistic, but neither Mr. nor Mrs. Ledgerwood was prepared to suggest that Reside acted deliberately, well knowing that he was making a false statement. I agree; I reject any suggestion that Reside ever told Ledgerwood that the cash-flow problems had been overcome.

60. I have earlier quoted Ledgerwood's allegations about the statements that he attributed to Reside on the subjects of the use and value of the $100,000; asked what he would have done if he had been told that trade creditors and arrears to Natwest were between $200,000 and $300,000, he said, understandably in my opinion, that he would not have advanced the money. Under cross-examination, Ledgerwood maintained that it was his belief that the $100,000 was more than sufficient for the company's needs. In this area of his evidence, I find myself able to state that he was far more impressive and credible than Reside.

61. I turn then to Reside's evidence on the subject of $100,000. At first, he claimed that he "did not specify what that was going to be used for" (p205-206) and he repeated that in his cross-examination at p245. But, on the other hand, at p209 there appears the following question and answer:

"It is said that you represented to them that as far as
cash flow was concerned, Dignum required a loan of
$100,000 to clear debts consisting of arrears in
instalments due to Natwest Finance and running costs,
past and future?... I would have said something to that
effect."

62. And finally there is a most confusing piece of evidence during Reside's cross-examination at p242:-

"Very well. Anyway, is it right that what you said was
that Dignum needed $100,000 which would be enough to
clear all its debts - that obviously excludes the
million dollars owing to Natwest - leaving some money
over to meet your future liabilities?... Did I say that
100,000 was required to clear all its debts?
It would be sufficient to clear all its debts and leave
something over?... No, I did not say that.
What did you say?... I would think that the $100,000
would assist in clearing debts that we had.
But do you remember what you said?... Just before
lunch?
No. I am sorry. You seem to be...? ... I am sort of
confused.
... casting your mind back to the event rather than to
what you said before lunch?... Yes.
Now, I am content that you should deal with it on the
basis of what you have actually said in July or
thereabouts...? ... Okay.
... of 1987?... Right.
Do you remember what you said to the Ledgerwoods in
July of 1987 on that subject?... Not specifically.
No, I do not."

63. Despite my earlier criticisms of Ledgerwood on this subject - that is the subject of what Reside said about the $100,000 and how it would be used and what it would achieve - I prefer the evidence of Ledgerwood. I consider that Reside was aware of the significance of this evidence and sought to avoid the issue by claiming confusion.

64. In fairness to Reside, it should be made clear that he did not deliberately pass false information to Ledgerwood. But as Gibbs C.J. pointed out in Parkdale Custom Built Furniture Pty. Ltd. v Puxu Pty. Ltd. [1982] HCA 44; (1982) 149 CLR 191 at 197, liability under s.52 is "quite unrelated to fault". Even a representation which was perfectly innocent might amount to misleading conduct within the meaning of s.52 of the Act: Greco v Bendigo Machinery Pty. Ltd. (1985) ATPR 40-521. Although Reside's intentions are not relevant for the purpose of determining liability: Hornsby Building Information Centre Pty. Ltd. v Sydney Building Information Centre Pty. Ltd. [1978] HCA 11; (1978) 140 CLR 216 at 228, nevertheless, it is a matter of interest to evaluate the evidence about what it is claimed that he said and did - and did not do - for the purposes of determining questions of credibility; this exercise will often be aided by giving consideration to the intentions of the actors. In fact, I have found it useful in this case. Although not pleaded as particulars of misleading conduct, there were three facets of Reside's conduct which I find significant. The first relates to his budget, Item 9, which he claimed was shown to Ledgerwood as early as the Sunday barbecue on 19 July 1987. According to that budget there would have been a cash flow surplus of $20,459 by the end of June. But nowhere in the evidence is it suggested that Reside made any attempt to explain to Ledgerwood how actual results for the three months, April to June, compared with the budget. Insofar as the budget contemplated that payments to Natwest would be up to date by July and insofar as it was common ground that Reside had told Ledgerwood in July that Natwest's payments were not up to date, then it is clear that Ledgerwood would have known in July that the budget forecasts had not been achieved; but in my opinion that was not enough. The production by Reside of a budget that was already three months old, at a point of time when it was known - or at least ought to have been known - that its forecasts had not been achieved to a material degree, was positively dangerous - unless the production was accompanied by a suitable disclaimer or appropriate advice about actual figures. I am prepared to infer, based on the evidence relating to the number and duration of the breakdowns and the numbers of passengers actually carried on the days when the boat was operating (and comparing that information with the predictions in the budget), that the budget forecasts had not been achieved to a material degree and that Reside could have and should have explained that to Ledgerwood but did not do so.

65. The conclusion that I have just stated becomes apparent when the bankings of Dignum for the period April to June 1987 are compared with the projections in the budget. Assuming that all bankings represent income generated by "Sundancer" the position was as follows:-

Month Bankings Budget
April $ 8,621 $ 76,700
May $ 42,792 $ 76,700
June $ 50,345 $122,730
$101,758 $276,130

66. In July 1987, when Reside was talking to Ledgerwood about the possibility of Ledgerwood investing in the company, he showed Ledgerwood the budget but he did not tell Ledgerwood the extent of the budget's inaccuracy. And there was more] Bankings for July were only $72,542 against a budget of $127,440. But there was no evidence to suggest that Reside ever explained this to Ledgerwood.

67. The second matter related to Reside's alleged failure to give Ledgerwood a copy of the company's 1987 annual accounts or, at the least, to advise Ledgerwood of their contents. Those accounts painted a dark picture for anyone contemplating investment in the company. There was a deficiency in shareholders' funds of $848,304 and a trading loss for the year of $815,079. Outstanding trade creditors were $216,332. Reside at first claimed that he gave Ledgerwood a copy of the accounts before the Ledgerwoods left Perth for Cairns: this was denied by Ledgerwood. Later Reside agreed that he did not give Ledgerwood a copy of the accounts until after an agreement had been reached between them (p241); on his own case, that agreement was made in Cairns. I find that Reside could have but failed to give Ledgerwood a copy of the 1987 annual accounts of Dignum before Ledgerwood committed himself to the venture. Reside said that he first obtained a copy of the accounts on the Friday before he and his wife left for Cairns. As he was the particular officer of the company responsible for having them prepared, and as they were prepared by a Western Australian accountant, the probabilities are that he had ample opportunity to give them to Ledgerwood before the night preceding the Annual General Meeting when, according to Reside, Ledgerwood said "Mate, I'm in". This is not to say that Ledgerwood would have changed his mind if he had seen the accounts or if Reside had told him that the budget had not been met: nor does it necessarily mean that these two omissions (or either of them) were misleading conduct. What it does mean however is that they have caused me to think most carefully about Reside's conduct in the months of July and August and about his explanations for his conduct.

68. Finally there was the third matter. Reside said that he had told Ledgerwood that the purchase of York's share was conditional on Natwest's approval; but he conceded that he did not tell Ledgerwood that York's offer was expressed to be open for only a month - that is, until 19 September. Yet 11 days later, on 30 September, he took Ledgerwood's cheque in favour of Dignum for $44,000 and banked it in Dignum's account.

69. Reside claimed in his evidence that because of friendship and family ties, he was most concerned that Ledgerwood make his own enquiries and satisfy himself. His counsel claimed that the most that could be said was that Reside had reasonably predicted that the company's cash flow problems would be overcome by a combination of Ledgerwood's $100,000 and the income generated by improved trading results. He further claimed that nothing that Reside had said had induced the Ledgerwoods to advance the separate sums of money: on the contrary, it was Ledgerwood's enthusiasm for the boat and what he saw in Cairns that induced him to make his financial commitments. I cannot accept these claims; the conclusion that I have reached is that Reside knew that the company was in serious financial difficulties and that it desperately needed cash to pay pressing creditors. He hoped that mechanical problems which had plagued the boat were under control (and the recent installation of two new engines justified that hope). No cracks had appeared in the hull for some time and if the company could hang on until the new jets were installed later in the year, then there would be every reason to believe that their mechanical problems would be over. He had sought other investors unsuccessfully and Ledgerwood's appearance as a willing investor was an unexpected but welcome surprise. I find that although it never occurred to Reside that Ledgerwood would suffer any loss, he also never intended that Ledgerwood would learn the full picture for fear that his enthusiasm might wane. It never occurred to him that the venture would fail and that they would all lose their money. In my opinion he had rationalised to himself that it was not necessary for his friend to know all the dismal news. Finding, as I have, that Reside behaved in this manner, means that I have found that Reside conducted himself, in his dealings with Ledgerwood, in a reckless manner. I reject that section of Reside's evidence where he claimed that the Ledgerwoods had gone into the venture only because of their own enquiries. I also find that his general enthusiasm as well as his specific remarks about the $100,000 were an inducement to the Ledgerwoods and Reside well knew that they were relying on what he said. In this area I accept what Ledgerwood said at page 47 of his evidence.

70. My assessment of Reside's evidence is very much clouded by this finding of recklessness. He should have told his friend about the deficiencies in the budget but he did not; he should have shown him the company's annual accounts but he did not; he should have protected his friend's $44,000 but he did not; he should have received the cheque for that amount and withheld it from Dignum until the settlement of the "package" was attended to. This conduct on Reside's part materially assists me in determining what was Reside's behaviour a short time earlier when he spoke to his friend about investing in "Sundancer". I am satisfied that he did not tell Ledgerwood a deliberate lie; but I am equally satisfied that working in a self-induced fog of optimism, he exuded confidence and reassurance about the boat, its performance and the future, and certainty about the company's present financial needs. Viewed subjectively, Reside may have thought that he was acting in good faith, but viewed objectively, he acted rashly to the point of recklessness. I am forced to conclude that I cannot believe him when he claimed that because he was dealing with "family" he insisted on the Ledgerwood's making their own enquiries so that they placed no reliance on him.

71. The unshaken assertion of Ledgerwood when tested against the confusion and uncertainty surrounding Reside's evidence leads me to conclude that I am satisfied to the requisite degree that Reside, in a mood of extravagance and optimism, told Ledgerwood that the injection of $100,000 would have such an effect that the financial viability of the company would be protected - in the short term at least. I have been assisted in coming to this decision by having regard to what Reside wrote in the Minutes of the Annual General Meeting of 19 August 1987; the Minutes state:-

"Reside then advised the meeting that he sought the
approval of Directors present to onsell 20% of his
Shareholding to a Mr R Ledgerwood of Carine, Western
Australia who was prepared to inject new Capital into
the business, which would alleviate all Cash Flow
problems and ensure the Company's future viability."

72. When cross-examined about this rather alarming statement, all Reside could say was:- "It was one of too much enthusiasm..." (p 220).

73. I find myself compelled to say that Reside's conduct in speaking to Ledgerwood in the manner in which he did was more than enthusiasm; it was rash to such a material degree that it was misleading and deceptive conduct. I am satisfied that the Ledgerwoods would have and in fact did, rely on his conduct. Even if I treat Reside as no more than an enthusiast whose judgment and objectivity became clouded, the prohibition against misleading and deceptive conduct will still apply in this case: Wright v Wheeler Grace & Pierucci Pty. Ltd. [1988] FCA 129; (1988) ATPR 40-865.

74. Although the circumstances surrounding the seizure of the vessel, including rumours of bomb threats, are shrouded in mystery, the fact remains that if Dignum was up to date with its financial commitments to Natwest in late October, (and that would have been the case if the statement that I have attributed to Reside was correct) then Natwest would not have been able to issue the default notice which was the basis of the seizure of "Sundancer".

75. As I said earlier, Mr. Kyle argued that Reside merely made a reasonable prediction about the likely future of the company. I cannot agree. In saying that the $100,000 would be sufficient to "pay-off" Natwest and to pay accounts that were in arrears, that was a representation as to existing facts, and it was false. To the extent to which he added, either by express statement or by implication, that the money would be so used upon its receipt, and thereby expressed an expectation or a belief as to the future, that prediction or expectation or belief was without foundation: (c.f. Sutton v A.J. Thompson Pty. Ltd. (1987) 73 ALR 233 at 238).

76. It can never be said of a prediction, at the time when it is made, that it is true or false: R v Sunair Holdings Ltd. (1973) 1 WLR 1105 at 1109 - 1110; and the non-fulfilment of the prediction, without more, proves nothing; Global Sportsman v Mirror Newspapers [1984] FCA 180; (1984) 55 ALR 25 at 31. Hence, as McHugh J.A. (as he then was) pointed out, s.51A of the Trade Practices Act was enacted to overcome this difficulty: (Wright v T.N.T. (1989) 75 ALR 442 at 451). Sub-section (1) of that section provides:-

"51A.(1) For the purposes of this Division, where a
corporation makes a representation with respect to any
future matter (including the doing of, or the refusing
to do, any act) and the corporation does not have
reasonable grounds for making the representation, the
representation shall be taken to be misleading."

77. In my opinion Reside did not, and through him, Dignum did not have "any reasonable grounds" for making the representation. Reside has failed to demonstrate that he was behaving reasonably when he discussed with Ledgerwood the value that the $100,000 would have to the company.

78. It remains then to consider the question of inducement. In Sutton v A.J. Thompson Pty. Ltd. (1987) 73 ALR 233 at 240 the Full Court stated:-

"However, in a case such as the present, where the
allegedly misleading conduct consists in
representations directed specifically towards a
particular person or group of people, with a view to
making a single specific sale, it is more helpful to
recall the principles of law restated by Wilson J. in
Gould v Vaggelas (1985) HCA 85; (1984) 56 ALR 31 at 46. Although
these related to the common law action of deceit, they
are, in our view, equally applicable to breaches of
s.52 of the Act. The principles are:
'(i) Notwithstanding that a representation is both
false and fraudulent, if the representee does not rely
upon it he has no case.
'(ii) If a material representation is made which
is calculated to induce the representee to enter into a
contract and that person in fact enters into the
contract there arises a fair inference of fact that he
was induced to do so by the representation.
'(iii) The inference may be rebutted, for example,
by showing that the representee, before he entered into
the contract, either was possessed of actual knowledge
of the true facts and knew them to be true or
alternatively made it plain that whether he knew the
true facts or not he did not rely on the representation.
'(iv) The representation need not be the sole
inducement. It is sufficient so long as it plays some
part, even if only a minor part, in contributing to the
formation of the contract.'
In this formulation, the possibility that a foolish
person might be misled by some representation which no
normal person would take seriously, is covered by the
exclusion of representations which are not 'calculated
to induce' entry into the contract - the test is
objective, but must take into account the respective
positions of the parties, including such matters as
their knowledge of each other through previous dealings
and their respective familiarity with the
subject-matter of the contract."

79. Hence it is clear that if Ledgerwood was so determined to involve himself in the "Sundancer" that he was not in truth influenced by any misleading statement, then Monyash has no case. But on the other hand, an applicant is not to be deprived on its remedy because of a failure to check the accuracy of the statements that were made to it: (see Sutton's case at 241). This is where the last section of the quoted passage in the judgment in Sutton's case assumes critical importance in this case.

80. Even though the test is objective, when assessing whether Ledgerwood was misled as a result of the representation, regard should be had to the relationship that then existed between these two men. They regarded themselves as "family"; they were friends in their own right. Reside had been involved with the boat from the start and very closely involved with the accounts of the company in the last few months since Gordon moved to Cairns. It is understandable then that a person in Ledgerwood's position would be more susceptible to accepting - at face value and without question - any comments that Reside may have made about the boat or the business.

81. Even though Ledgerwood may have been strongly influenced by his personal desire to become involved with the boat, I remain satisfied that he was reliant on Reside, that Reside knew this and that Reside knew that Ledgerwood would take note of what Reside said and would be strongly influenced by it. What Reside said to Ledgerwood about the use and results of the $100,000 was a real inducement to Ledgerwood to invest Monyash's money and there is a direct causal link between this inducement and Monyash's losses.

82. I turn then to the question of the proven losses. The moneys advanced by or on behalf of Monyash as a result of the misleading statements were two cheques of $10,000 and $70,000 that were paid to Reside and the third cheque of $44,000 that was handed to Reside but banked in Dignum's bank account. There was also the earliest cheque of $1,000 which, although handed to Reside reasonably early in the period of the negotiations, was not banked in Dignum's account until the parties had returned to Perth from Cairns. The accounts for Dignum show that the prospects of Monyash receiving anything from Dignum by way of a dividend are non-existent. A total of $96,000 found its way into Dignum's account; I find that that sum and the $3,000 that was spent in legal fees on Dignum's behalf are irretreviably lost. I find that those losses were caused by Dignum's misleading conduct in circumstances that make Dignum liable to Monyash in the sum of $99,000. Furthermore Reside was, (within the terms of s.75B), a person involved in the contravention of the provisions of s.52 and accordingly Monyash would also be entitled, for that reason, to judgment against Reside in that sum of $99,000. I have earlier explained why it is that Reside, but not Dignum is also indebted to Monyash in the further sum of $1,000. Reside well knew, at the time of Natwests' seizure of "Sundancer", that Monyash's attempt to gain entry into the venture was at an end. Any money then held by him could only be regarded as Monyash's money.

83. But the $25,000 that was paid to York is an altogether different matter. Whilst I am prepared to find that this sum, like the $100,000, was paid over by the Ledgerwood group as a result of Dignum's misleading and deceptive conduct, it is clear that this sum of $25,000 is traceable to York. No evidence was led that would suggest that the money or any part of it is irrecoverable from York. Indeed, no real attempt has been made by either Ledgerwood or Reside to institute appropriate proceedings against York to recover that money. Although York has not had the opportunity to speak in his defence, the contents of Item 18, at least superficially suggest that York would be accountable for that sum of $25,000 at the suit of Monyash.

84. The question of interest remains to be determined before formal entry of judgment. Counsel jointly requested that I limit my decisions to issues of liability and primary losses, leaving them with the opportunity of presenting argument on the question of interest and any other ancillary matters. I therefore publish these reasons but refrain from entering judgment at this stage. Counsel have 28 days from this date within which to make further written submissions on any unresolved matter. I give general liberty to apply.