McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd (includes corrigendum dated 31 January 2008) [2008] FCAFC 2 (24 January 2008)

Last Updated: 15 June 2009

FEDERAL COURT OF AUSTRALIA

McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2

CORRIGENDUM

ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS JOINT LIQUIDATORS OF PAN PHARMACEUTICALS LTD v AUSTRALIAN NATURALCARE PRODUCTS PTY LIMITED
NSD 2506 OF 2006

ALLSOP J
24 JANUARY 2008 (Corrigendum 31 January 2008)
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2506 OF 2006

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS JOINT LIQUIDATORS OF PAN PHARMACEUTICALS LTD Appellant
AND:	AUSTRALIAN NATURALCARE PRODUCTS PTY LIMITED Respondent

JUDGE:	ALLSOP J
DATE:	24 JANUARY 2008 (Corrigendum 31 January 2008)
PLACE:	SYDNEY

CORRIGENDUM

1 On page 15, paragraph 116 of the judgment of Allsop J, delete "[38(c)]" and insert "[114(c)]".

2 On page 16, paragraph 120 of the judgment of Allsop J, delete "[27]" and insert "[104]".

3 On page 44, paragraph 181 of the judgment of Allsop J, delete "[90]-[98]" and insert "[166]-[174]".

4 On page 53, paragraph 203 of the judgment of Allsop J, delete "[76]" and insert "[152(b)]" and delete "[42]" and insert "[152(a)]".

5 On page 53, paragraph 206 of the judgment of Allsop J, delete "[9]" and insert "[128]".

6 On page 56, paragraph 227 of the judgment of Allsop J, delete "[41]" and insert "[118]".

7 On page 61, paragraph 238 of the judgment of Allsop J, delete "[120]" and insert "[196]".

I certify that the preceding seven (7) numbered paragraphs are a true copy of the corrigendum to the Reasons for Judgment of the Honourable Justice Allsop.

Associate:
Dated: 31 January 2008

FEDERAL COURT OF AUSTRALIA

McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2

TRADE PRACTICES – misleading and deceptive conduct – whether conduct capable of amounting to representation – whether representations continuous or made as to future matters – onus of proof in establishing ‘reasonable grounds’ for making representation.

TORT – whether a duty of care to avoid economic loss owed.

DAMAGES – method of calculation in claims under Trade Practices Act 1974 – no error in primary judge’s approach.


Fair Trading Act 1987 (SA) s 54(2)
Fair Trading Act 1990 (Tas) s 11(2)
Fair Trading Act 1992 (ACT) s 11(2)
Therapeutic Goods Act 1989 (Cth) ss 36, 38, 40, 41
Trade Practices Act 1974 (Cth) ss 51, 51A, 52, 79, 82
Trade Practices Revision Act 1986 (Cth)

Accounting Systems 2000 (Developments) Pty Limited v CCH Australia Ltd (1993) 42 FCR 470 cited
Adelaide Petroleum NL v Poseidon Limited (1988) ATPR 40-901 cited
Australian Competition and Consumer Commission v Danoz Direct Pty Limited [2003] FCA 881 discussed
Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Limited [2005] FCA 1703 referred to
Australian Competition and Consumer Commission v Henry Kaye [2004] FCA 1363 discussed
Australian Competition and Consumer Commission v IMB Group Pty Limited (1999) ATPR 41-704 cited
Australian Competition and Consumer Commission v Oceana Commercial Pty Limited [2003] FCA 1516 referred to
Australian Competition and Consumer Commission v Universal Sports Challenge Limited [2002] FCA 1276 discussed
Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 cited
Blacker v National Australia Bank [2000] FCA 681 discussed
Branir Pty Limited v Owston Nominees (No 2) Pty Limited [2001] FCA 1833; (2001) 117 FCR 424 cited
Braverus Maritime Inc v Port Kembla Coal Terminal Ltd [2005] FCAFC 256; (2005) 148 FCR 68 cited
Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 referred to
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 cited
City of Botany Bay Council v Jazabas Pty Limited [2001] NSWCA 94 discussed
Concrete Constructions Group v Litevale Pty Ltd (2002) ATPR (Digest) 46-224 referred to
Downey v Carlson Hotels Asia Pacific Pty Limited [2005] QCA 199 discussed
Effem Foods Pty Limited (t/as Uncle Ben’s of Australia) v Lake Cumbeline Pty Limited [1999] HCA 15; (1999) 161 ALR 599 cited
Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 236 ALR 209 cited
Fubilan Catering Services Limited v Compass Group (Australia) Pty Limited [2007] FCA 1205 discussed
Futuretronics International Pty Limited v Gadzhis [1992] 2 VR 217 cited
Lewarne v Momentum Productions Pty Limited [2007] FCA 1136 discussed
Miba Pty Limited v Nescore Industries Group Pty Limited (1996) 141 ALR 525 cited
Murphy v Overton Investments Pty Limited [2004] HCA 3; (2004) 216 CLR 388 referred to
Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85 cited
Network Ten Pty Ltd v TCN Channel Nine Pty Limited [2004] HCA 14; (2004) 218 CLR 273 cited
Phoenix Court Pty Limited v Melbourne Central Pty Limited, [1997] FCA 1101 cited
R v Secretary of State for the Environment, Transport and the Regions, Ex parte Spath Holme Ltd [2000] UKHL 61; [2001] 2 AC 349 approved
Sykes v Reserve Bank of Australia (1998) 88 FCR 511 cited
Thompson v Mastertouch TV Services (1977) 29 FLR 270 referred to
Ting v Blanche [1993] FCA 524; (1993) 118 ALR 543 cited
Wheeler Grace & Pierucci Pty Limited v Wright (1989) ATPR 40-940 cited
Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 cited
Wright v TNT Management Pty Limited (1985) 15 NSWLR 679 cited


Parliamentary Debates, House of Representatives, Vol H of R 147
Parliamentary Debates Vol H of R 148
Parliamentary Debates Vol S 114











ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS JOINT LIQUIDATORS OF PAN PHARMACEUTICALS LTD v AUSTRALIAN NATURALCARE PRODUCTS PTY LIMITED
NSD 2506 OF 2006

EMMETT, STONE AND ALLSOP JJ
24 JANUARY 2008
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2506 OF 2006

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS JOINT LIQUIDATORS OF PAN PHARMACEUTICALS LTD Appellant
AND:	AUSTRALIAN NATURALCARE PRODUCTS PTY LIMITED Respondent

JUDGES:	EMMETT, STONE AND ALLSOP JJ
DATE OF ORDER:	24 JANUARY 2008
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.	The appeal be dismissed.
2.	On or before 15 February 2008, the parties file submissions on costs, including draft orders for which they contend.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2506 OF 2006

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS JOINT LIQUIDATORS OF PAN PHARMACEUTICALS LTD Appellant
AND:	AUSTRALIAN NATURALCARE PRODUCTS PTY LIMITEDRespondent

JUDGES:	EMMETT, STONE AND ALLSOP JJ
DATE:	24 JANUARY 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

EMMETT J

INTRODUCTION

1	Australian Naturalcare Products Pty Limited (Naturalcare) sells complementary medicines by mail order. Until April 2003, Pan Pharmaceuticals Limited (Pan) was a substantial contract manufacturer of complementary medicines and Naturalcare purchased a substantial part of its stock from Pan for many years. On 28 April 2003, Pan’s licence under the Therapeutic Goods Act 1989 (Cth) (the TG Act) to manufacture therapeutic goods was suspended. As a result of that suspension, Pan ceased to manufacture and sell therapeutic goods and was no longer able to supply products to Naturalcare.
2	Subsequently, Pan became insolvent and was ordered to be wound up. Naturalcare lodged a proof of debt in the winding up claiming, inter alia, compensation for loss of profits as a consequence of being unable to obtain products from Pan. The appellants, the joint liquidators of Pan (the Liquidators), rejected Naturalcare’s proof of debt in so far as it claimed loss of profits from its inability to continue to obtain products from Pan. By Originating Process under the Federal Court (Corporations) Rules 2000 (Cth), Naturalcare appealed to the Court against the rejection of its proof of debt by the Liquidators.
3	The basis of Naturalcare’s claim to be entitled to compensation from Pan was that, in one way or another, Pan was under a duty or an obligation owed to Naturalcare to continue to comply with the conditions of its licence in relation to the conduct of its business of manufacturing therapeutic goods. Naturalcare put its claims on several bases, including breach of contract, breach of a common law duty of care, estoppel and contravention of s 52 of the Trade Practices Act 1974 (Cth) (the Trade Practices Act).
4	A judge of the Court rejected Naturalcare’s claims in so far as they were based on breach of contract, breach of duty of care and estoppel. However, his Honour concluded that there had been contraventions of s 52 of the Trade Practices Act and that Naturalcare was entitled to damages pursuant to s 82 of the Trade Practices Act. On 27 November 2006, his Honour ordered that the Liquidators’ decision to reject Naturalcare’s proof of debt be set aside and directed that, in lieu thereof, the Liquidators admit Naturalcare as a creditor of Pan for the sum of $2,242,191.67, being an increase of $471,922.97 plus interest thereon of $305,143.57.
5	The Liquidators have appealed from his Honour’s orders on grounds that his Honour erred in concluding that there were contraventions of the Trade Practices Act and in concluding that Naturalcare suffered loss or damage by reason of its reliance on conduct of Pan that was alleged to have contravened the Trade Practices Act. They also say that the primary judge erred in the assessment of the damages that his Honour found resulted from the alleged contraventions. Naturalcare has filed a notice of contention seeking to uphold his Honour’s orders on the alternative basis that Pan had acted in breach of a duty of care said to be owed by it to Naturalcare.
6	I have read in draft form the reasons of Allsop J for concluding that the appeal should be dismissed. Although I have reached a different conclusion on one question, it is unnecessary for me to decide all of the questions addressed by Allsop J. However, save for that one question, I would be disposed to agree with Allsop J’s conclusions and the reasons for them. In particular, I agree that his Honour’s observations concerning the operation of s 51A of the Trade Practices Act.
7	The question on which I have reached a different conclusion is whether a particular representation alleged to have been made by Pan to Naturalcare in April 2002 was misleading or deceptive. Because of the different conclusion I have reached on that question, it is necessary for me to deal with Naturalcare’s contention based on contravention of the Trade Practices Act. That requires, first, a brief outline of the relevant provisions of the TG Act.

THE THERAPEUTIC GOODS ACT

8	The objects of the TG Act are, relevantly, to provide for the establishment and maintenance of a national system of controls relating to the quality, safety, efficacy and timely availability of therapeutic goods that are used in Australia or exported from Australia. The Therapeutic Goods Administration (TGA) is a unit of the Australian Government Department of Health and Ageing and is responsible for administering the provisions of the TG Act.
9	Part 3-3 of the TG Act, which consists of ss 33A to 41A, deals with the manufacturing of therapeutic goods. The complementary medicines manufactured by Pan and sold by Naturalcare are therapeutic goods within the meaning of that term when used in the TG Act. For the purposes of the TG Act, sponsor, in relation to therapeutic goods, relevantly means a person who, in Australia, manufactures the goods, or arranges for another person to manufacture the goods, for supply, whether in Australia or elsewhere, but does not include a person who manufactures the goods on behalf of another person who, at the time of the manufacture, is a resident of, or is carrying on business in, Australia. Thus, Naturalcare was a sponsor in relation to the therapeutic goods manufactured on its behalf by Pan.
10	Under s 35(1) of the TG Act, a person must not, at premises in Australia, carry out a step in the manufacture of therapeutic goods for supply for use in humans unless the person is the holder of a licence that is in force that authorises the carrying out of that step in relation to the goods at those premises. Section 36 authorises the Minister to determine written principles to be observed in the manufacture of therapeutic goods for use in humans. The manufacturing principles may relate to the standards to be maintained and the equipment to be used at premises used for manufacturing of therapeutic goods or the procedures for quality assurance and quality control to be employed in the manufacture of therapeutic goods.
11	Pursuant to s 36 of the TG Act, manufacturing principles have been determined. Under clause 3 of the Determination, therapeutic goods must be manufactured in compliance with, inter alia, the Australian Code of Good Manufacturing Practice for Therapeutic Goods – Medicinal Products, published by the Commonwealth Department of Community Services and Health in August 1990 (the Code). According to its introduction, the Code was developed as an Industry-Government document reflecting agreed standards and practices for the manufacture of therapeutic goods. Conformity to the Code was to be the basis for the assessment of eligibility for initial and continued licensing under the TG Act. The introduction states that almost all clauses of the Code are written using the term "should", which was to indicate requirements that are expected to apply unless shown to be inapplicable or replaced by an alternative demonstrated to provide at least an equivalent level of quality assurance.
12	Part 1 of the Code, which contains general provisions for medicinal products, covers the following subjects:
•	buildings and grounds;
•	equipment;
•	personnel and training;
•	factory sanitation and personal hygiene;
•	documentation;
•	manufacturing procedures;
•	quality management.
13	The section dealing with manufacturing procedures contains a subsection dealing with contract manufacture, being the manufacture in part or whole of a product by one manufacturer (referred to as the Contract Acceptor) for another party (referred to as the Contract Giver). In the present case, Naturalcare was the Contract Giver and Pan was the Contract Acceptor.
14	Clause 698 of the Code provides that the Contract Giver must ascertain that, where a licence is required, the Contract Acceptor is appropriately licensed and should also be satisfied that the Contract Acceptor has the ability to do the work and that the operations can be carried out in the agreed manner. The Code requires that initial and periodic audits of the Contract Acceptor should be carried out and documented, presumably by the Contract Giver. Where necessary, such audits may be carried out by an agreed third party quality representative.
15	Clause 699 of the Code provides that, to ensure that the responsibilities of sponsor and manufacturer are clearly understood and recorded, the arrangements and responsibilities for every aspect of manufacture and quality control that is relevant to good manufacturing practice, for each product made under contract, must be unambiguously specified in writing in a document signed by a representative of both parties. Clause 699 includes a note recommending that commercial arrangements be the subject of a separate agreement or contract.
16	Under s 37(1) of the TG Act, an application for a licence under the TG Act must identify the therapeutic goods or classes of therapeutic goods that the applicant proposes to manufacture, the manufacturing premises that will be used in the manufacture of those goods and the steps in the manufacture of those goods that the applicant proposes to carry out under the licence. Under s 38, where certain prerequisites have been satisfied, the Secretary to the Department must grant the person a licence to carry out the relevant steps at the relevant premises unless the Secretary is satisfied that the person will be unable to comply with the manufacturing principles or the premises are not satisfactory for the manufacture of the goods. Under s 39, a licence commences on the day specified in the licence and remains in force until it is revoked or suspended.
17	Section 41 authorises the Secretary to revoke a licence or suspend a licence for a period if, relevantly, the holder of the licence has failed to observe the manufacturing principles. Where the Secretary proposes to revoke or suspend a licence, unless the Secretary considers that failure to revoke or suspend the licence immediately would create an imminent risk of death, serious illness or serious injury, the Secretary must inform the holder of the licence of the action that the Secretary proposes to take and the reasons for that proposed action and give the holder an opportunity to make submissions to the Secretary in relation to the proposed action.

THE RELATIONSHIP BETWEEN PAN AND NATURALCARE

18	Mr Barry Schadel started the business of Naturalcare in 1989. He did so with encouragement from Mr Jim Selim. At all relevant times Mr Selim was the Chief Executive Officer of Pan and Mr Schadel was the Managing Director of Naturalcare. Naturalcare started with only one product, which was supplied by Pan but initially sourced from overseas, as Pan did not have the technology to manufacture the product at that time. The business relationship between Pan and Naturalcare was fostered by a close, professional and personal relationship between Messrs Selim and Schadel, who worked together on the development of Naturalcare’s business, particularly in the early years of their dealings.
19	Messrs Selim and Schadel worked closely and collaboratively to develop Naturalcare’s business and had regular meetings until April 2003, when the business of Pan came to an end. At the meetings, Mr Selim would propose new products that might be added to Naturalcare’s range and would discuss their formulas and benefits. If Mr Schadel was interested in the products, he would ask Mr Selim to send him a quote and, if Mr Schadel found it satisfactory, he would send Pan a purchase order.
20	In 1990, Pan and Naturalcare first entered into a contract manufacturing agreement as contemplated by clause 699 of the Code. Further contract manufacturing agreements were entered into between Pan and Naturalcare in February 1995 and August 1998 and April 2002. In February 1995, August 1998 and March 2002, Naturalcare and Pan also signed confidentiality agreements, the terms of which are not presently relevant.
21	The form of contract manufacturing agreement that was operative from 1 March 2002 was signed on behalf of Pan on 3 April 2002 and on behalf of Naturalcare on 8 April 2002 (the Manufacturing Agreement). It stated that its objective was to specify the Code responsibilities relating to manufacture for Naturalcare by Pan of the products listed in Appendix 1. Appendix 1 contains some 53 products of Naturalcare. The Manufacturing Agreement was to continue in operation for three years and was to be deemed automatically renewed for a further three years at the end of each three year period. If either party intended to terminate, six months notice in writing to the other was required. The Manufacturing Agreement did not cover any other commercial arrangements.
22	The schedule to the manufacturing agreement consisted of four columns headed as follows:

GMP Clause Code of Good Manufacturing Pan Naturalcare
Practices Responsibilities

23	In column 1 clause numbers of the Code dealing with particular responsibilities were specified. In Column 2 a brief description of the responsibility was specified. In the third and fourth columns an "x" was inserted opposite that description of the responsibility to signify either Pan or Naturalcare or both as having responsibility. The majority of the items displayed an "x" under Pan, four items had an "x" under Naturalcare only and four items had an "x" under both. Thus, by the Manufacturing Agreement, Pan and Naturalcare agreed that, in relation to any accepted order for the supply of goods, the party specified against a particular clause of the Code in the Schedule to the Manufacturing Agreement would accept the responsibility to perform the task specified in that clause of the Code in connection with the supply of those goods.
24	The Manufacturing Agreement did not constitute an agreement for the manufacture or supply of products by Pan. Rather, it was an arrangement to the effect that, if and when Pan and Naturalcare entered into an agreement whereby Pan would manufacture and supply products to Naturalcare, the responsibilities for various aspects of manufacture and quality control specified in the Code would be allocated between Pan and Naturalcare as stated in the schedule to the Manufacturing Agreement.
25	By the end of 1992, Naturalcare was offering its customers approximately 26 separate complementary products, all of which had been suggested by Mr Selim, who encouraged Naturalcare to purchase all of its products from Pan. Mr Selim also encouraged Naturalcare to look into selling its products into international markets and promised to help Naturalcare with the supporting documentation required to register products overseas. At all times, Mr Schadel reposed considerable trust and confidence in Mr Selim personally and from a business point of view.
26	By March 1994, Naturalcare could not go on without an injection of equity funding. During that year, Mr Schadel negotiated the sale of a majority of Naturalcare’s issued capital to a new shareholder, although Mr Schadel retained his position as managing director. Mr Terry Davis, the Executive Director of the new shareholder, told Mr Schadel that he would like to investigate alternative suppliers for Naturalcare’s product as he was concerned about Naturalcare’s reliance on Pan. In 1995 and 1996, Mr Davis and Mr Schadel had meetings with Mr Selim where Mr Davis voiced his concerns to Mr Selim.
27	At one of those meetings, Mr Selim told Messrs Schadel and Davis that they had nothing to worry about and that Naturalcare could continue to buy all of its products from Pan without a worry. Mr Selim told them that Pan was the largest manufacturer of health care products in Australia and that Pan complied with all of the TGA’s requirements, so there was no risk in Pan not being able to supply Naturalcare. After those meetings, Naturalcare nevertheless began placing more of its orders for generic products with Lipa Pharmaceutical Pty Ltd (Lipa), where Lipa could offer a better price than Pan. In December 1997, Naturalcare and Lipa entered into a manufacturing agreement, as contemplated by the Code.
28	In mid-1998, the majority shareholder of Naturalcare sold its shares to a manufacturer of therapeutic goods based in the United States of America. Mr David Robinson, a director of the purchaser, became a director of Naturalcare. In 1999, Messrs Robinson and Schadel had a meeting with Mr Selim concerning the relationship between Naturalcare and Pan. Mr Robinson told Mr Selim that if Pan was not able to supply Naturalcare, even temporarily, that would have a serious negative effect on Naturalcare’s business. Mr Selim replied that Naturalcare did not need to worry about that. He said that Pan was the largest supplier of nutritional supplements in Australia and there was no possibility that Pan would not be able to supply Naturalcare with the products that Naturalcare ordered. He also said that, as Pan is the largest supplier in Australia, Pan worked closely with the TGA and met or exceeded all necessary standards the TGA set for the manufacture of nutritional supplements.
29	The business relationship between Messrs Schadel and Selim continued to function. In late 2002, Mr Selim offered to introduce Mr Schadel to a possible buyer of Naturalcare when Mr Schadel expressed a desire to sell. In February 2003, Mr Selim told Mr Schadel that he thought that there was an opening in the market for a pharmacy only brand that Naturalcare could fill by selling its existing range under another label. Mr Selim also told Mr Schadel that he should relaunch his business in the French market and that Pan would given him extended credit terms and free products to help him with the venture.
30	In early 2003, there were reports of adverse reactions after individuals took one of Pan’s products called Travacalm. As a result, the TGA conducted a special audit of Pan on 30 and 31 January 2003. The audit revealed a number of significant deficiencies, including three items classified as critical. The audit also revealed compelling evidence of deliberate and systematic manipulation of laboratory analysis results so as to represent out of specification batches as complying with specification.
31	The TGA carried out a further audit of Pan’s operations on 24 and 25 February 2003 and on 7 to 11 and 14 April 2003. That audit revealed that the issues identified during the 30-31 January 2003 audit concerning Travacalm were not restricted to that product. The audit also revealed a number of nonconformities with respect to manufacturing principles and the conditions of Pan’s licence to manufacture therapeutic goods. On 28 April 2003, the TGA sent a letter to Pan as well as notices under the TG Act, suspending Pan’s licence.

TRADE PRACTICES CLAIM

32	The essence of the allegations of contravention of the Trade Practices Act made in Naturalcare’s statement of claim are as follows:

(1) Naturalcare was wholly reliant and dependent on Pan for the supply of the soft gel goods sold by Naturalcare and was substantially reliant and dependent on Pan for the supply of all other goods sold by Naturalcare and, consequently, Naturalcare’s entire business was wholly or alternatively substantially reliant and dependent upon Pan continuing to supply Naturalcare with those goods customarily purchased by Naturalcare from Pan in the quantities customarily acquired by Naturalcare.

(2) After Mr Schadel expressed concern to Mr Selim over Naturalcare’s reliance and dependence on Pan, Mr Selim acknowledged that any failure of supply by Pan would have significant adverse consequences for Naturalcare’s business.

(3) In 1995 and 1996, Mr Selim confidently assured Mr Schadel that Pan was the largest manufacturer of health care products in Australia and was compliant with the requirements of the TGA and, accordingly, that the risk associated with Naturalcare’s reliance and dependence was negligible or immaterial: this allegation refers to the meeting described at paragraph [27] above.

(4) In 1999, Mr Selim indicated to Mr Schadel that Pan was ready, willing and able to continue to supply Naturalcare with all goods Naturalcare customarily acquired from Pan in the quantities Naturalcare customarily obtained such goods from Pan: this allegation refers to the meeting described at paragraph [28] above.

(5) In April 2002, Naturalcare and Pan entered into the Manufacturing Agreement: this allegation refers to the agreement that was effective from 1 March 2002, which is referred to in paragraphs [21] to [24].

(6) The terms of the Manufacturing Agreement included a promise by Pan to manufacture certain goods for Naturalcare, during the term (including any renewed term) of the Manufacturing Agreement, to the standard set out in the Code.

(7) The Manufacturing Agreement conveyed to Naturalcare a representation that Pan would so conduct its manufacturing processes as to comply with the Code (the Quality Assurance Representation).

(8) By the conduct referred to in (3) and (4) above Pan represented to Naturalcare that Pan would continue to supply all or most of Naturalcare’s requirements as to therapeutic goods, or, alternatively, all of Naturalcare’s requirements as to soft gel goods and all or most of Naturalcare’s requirements as to other therapeutic goods sold by Naturalcare (the Supply Representation).

(9) In reliance upon the Quality Assurance Representation and/or, alternatively, in reliance upon the Supply Representation:

(10) Naturalcare continued the course of dealings with Pan knowing such courses or dealing rendered Naturalcare’s business particularly reliant and dependent on Pan’s continued supply of goods to Naturalcare.

(11) Naturalcare did not seek out alternate suppliers so as to reduce materially its reliance and dependence on Pan.

(12) Between at least 1 May 2002 and 29 April 2003 Pan did not comply with the Code in relation to the manufacture and supply of therapeutic goods by it to Naturalcare.

(13) On 28 April 2003 Pan’s manufacturing licence was suspended by the TGA under s 41 of the TG Act in consequence of the TGA forming the view that Pan had not complied with the Code since 30 April 2002 and the non-compliance was so serious that the ongoing availability of products manufactured by Pan represented a very serious risk to the community.

(14) On and from 28 April 2003 Pan ceased to manufacture, or supply to Naturalcare, therapeutic goods.

(15) By reason of the matters referred to in paragraphs (10), (11) and (12), the conduct on the part of Pan in making the Quality Assurance Representation and/or in the alternative in making the Supply Representation was misleading or deceptive or likely to mislead or deceive.

(16) The conduct referred to in paragraph (13) was engaged in by Pan in contravention of s 52 of the Trade Practices Act.

(17) Naturalcare has suffered loss or damage as a result of, or because of, the conduct referred to in (13).

33	The allegations referred to in (3) and (4) were disputed by Pan. However, the primary judge accepted that those assertions were made out in the terms indicated above. The allegations referred to in (10), (11) and (12) were not in dispute in so far as Pan made the following admissions:
•	Pan did not comply with the Code in relation to the therapeutic goods manufactured and supplied by Pan to Naturalcare between 1 May 2002 and 28 April 2003.
•	Pan did not comply with the Code in relation to the therapeutic goods manufactured and supplied by it to other customers between 1 May 2002 and 28 April 2003.
•	Pan’s manufacturing licence was suspended by the TGA as a result of Pan’s failure to comply with the Code.
34	Naturalcare contended to the primary judge that each of the Quality Assurance Representation and the Supply Representation was with respect to a future matter: in the one case, future conduct of the manufacturing process and, in the other case, the future ability to supply therapeutic goods. Each was broadly concerned with the continuing supply of therapeutic goods. His Honour said that Naturalcare contended that Pan had not established reasonable grounds for making either representation, with the result that the making of each of them was misleading and deceptive or likely to mislead and deceive, by the operation of s 51A of the Trade Practices Act.
35	His Honour noted Pan’s contention, apart from denying that the representations were made, that the assurances received by Mr Schadel from Mr Selim were in the present tense, such that the representations were about the then present capacity to manufacture and supply rather than being about a future matter. Pan contended that, even if the assurances were with respect to a future matter, no continuing representation was pleaded or proved. Accordingly, even if there were a breach of s 52 at the time of the making of the representation, there was no causal relationship between those breaches and the damage alleged to have been suffered. Finally, his Honour said that Pan contended that, in any event, there was a reasonable basis for making any representations that were made.
36	The primary judge found that the terms of the Manufacturing Agreement conveyed the Quality Assurance Representation, in a general fashion, for the term of the Manufacturing Agreement and not restricted to goods actually ordered. His Honour was also satisfied that the explicit assurances by Mr Selim, in the conversations with Mr Schadel, were implicitly carried forward by the course of dealings between Pan and Naturalcare and between Mr Selim and Mr Schadel. His Honour was satisfied, therefore, that Pan, at all times, represented itself to Naturalcare as a safe and reliable supplier, which was, and would remain ready, willing and able to comply with the Code. While that representation is not the Supply Representation as pleaded, his Honour nevertheless found that the Supply Representation was also made. It was therefore necessary for his Honour to consider whether it was misleading or deceptive, or likely to mislead or deceive, to make either or both of the representations pleaded.
37	Pan admitted that it did not comply with the Code between 1 May 2002 and 28 April 2003, when its licence was suspended. It made no admission about any time prior to 1 May 2003. On the other hand, the Manufacturing Agreement was entered into in April and was said to be operative from 1 March 2002. His Honour considered that that timing difference was of little merit. His Honour observed that there was no evidence of any relevant change of circumstances between 1 March 2002 and 1 May 2002. His Honour considered that the audits by the TGA on 30-31 January 2003, 24-25 February 2003 and 7, 11 and 14 April 2003 and the reports given under the TG Act in 2003 were cogent evidence of the failure by Pan to comply with the Code by reason of serious systemic deficiencies. Further, his Honour said, Pan called no evidence to establish compliance with the Code during 2002 and 2003 and did not call evidence to explain or rebut the effect of the investigations by the TGA in 2003 and the conclusions that could be drawn from the investigations. His Honour was therefore satisfied that Pan was in serious breach of the Code during 2002 and 2003. His Honour was not specific as to the time in 2002 that was relevant. His Honour considered that the position in earlier years was not so clear.
38	Audit reports of Pan by the TGA showed significant deficiencies in earlier years but Pan continued to be licensed. While Pan did not call evidence to prove compliance with the Code or to prove that there was a proper basis for representations of compliance in earlier years, Mr Selim was not cross-examined on that matter. His Honour said that the gist of Naturalcare’s case was not based upon the earlier representations being a breach of s 52 when made. Rather, his Honour said, the gist of the case is that the representations continued to be part of the basis upon which business was done in 2002 and 2003.
39	His Honour found that, if the Quality Assurance Representation carried with it a representation as to future conduct, no reasonable grounds were established for making such a representation. However, his Honour also concluded that the Quality Assurance Representation was misleading, if viewed as a statement of existing circumstances at the commencement of and during the term of the Manufacturing Agreement. That observation is at odds with the pleading and is at odds with Naturalcare’s contention, as noted by his Honour, that each of the Quality Assurance Representation and the Supply Representation was with respect to a future matter.
40	His Honour accepted that Pan was ready and willing to supply and indeed continued to supply up until the suspension of its licence. However, Pan was ultimately unable to supply because of its failure to comply with the Code, leading to the suspension of its licence. His Honour considered that the true situation for all of 2002 and the relevant part of 2003 was that the failure to comply with the Code rendered Pan liable to suspension and cancellation of its licence at all times. His Honour was therefore satisfied that the Supply Representation was objectively misleading and deceptive for the whole of the relevant period, presumably 2002 and 2003. Once again, that appears to be at odds with the pleading as well as being at odds with his Honour’s characterisation of Naturalcare’s case, that both representations were with respect to future matters. However, his Honour was also satisfied that, to the extent that the Supply Representation related to the future, no reasonable grounds were established for making it.
41	His Honour also found that Naturalcare, through Mr Schadel, relied upon the Quality Assurance Representation and the Supply Representation in so far as Naturalcare continued to acquire most of its goods from Pan and was lulled into what was a false sense of security by the those representations. His Honour found that, if Mr Schadel had thought that there was any real danger of Pan losing its licence because of non-compliance with the Code, he would have taken steps to reorganise Naturalcare’s business to minimise dependence upon Pan for supply. His Honour found, in essence, that Mr Schadel was induced not to reorganise the business to reduce dependence upon Pan as a supplier.
42	Much of the argument on the appeal was concerned with the extent to which the conclusions reached by the primary judge were within with the case pleaded and conducted by Naturalcare. The argument was available because of the somewhat convoluted pleading in the final version of the Statement of Claim. I have set out above my analysis of the essence of the allegations made by Naturalcare in the final version of its statement of claim. The essence of those allegations is that:
•	by entering into the Manufacturing Agreement, Pan made the Quality Assurance Representation;
•	by the assurances given by Mr Selim to Mr Schadel in 1995 and 1996 and in 1999, Pan made the Supply Representation.
43	Thus, there is no allegation that the Quality Assurance Representation was made at any time other than when the Manufacturing Agreement was entered into. There is no allegation that the Supply Representation was made at any time other than when the assurances were given by Mr Selim to Mr Schadel. Further, both representations are, in the terms in which they are pleaded, representations with respect to future matters. The Quality Assurance Representation was that Pan would conduct its manufacturing processes in a particular way. The Supply Representation was that Pan would continue to supply certain of Naturalcare’s requirements.
44	Under s 51A(1) of the Trade Practices Act, a representation is to be taken to be misleading if it is a representation with respect to any future matter and the maker of the representation does not have reasonable grounds for making the representation. Under s 51A(2), the maker of the representation with respect to any future matter is to be deemed not to have had reasonable grounds for making the representation unless it adduces evidence to the contrary. However, if evidence is adduced by a representor to the effect that the representor had reasonable grounds for making the representation, the deeming provision will not operate. Where the representor adduces such evidence, it is then a matter for the Court to determine, on the balance of probabilities in the ordinary way, whether or not the representor had reasonable grounds for making the representation.
45	In the present context, the question of whether Pan had reasonable grounds for making the relevant representations requires an examination of the position as at 1995, 1996 and 1999, on the one hand, and as at April 2002, on the other hand.
46	As to the periods in 1995, 1996 and 1999, there was evidence that Pan was carrying on its business manufacturing goods pursuant to its licence under the TG Act. His Honour did not find that at any of those times there were no reasonable grounds for making the statements and giving the assurances attributed to Mr Selim. Further, Pan adduced evidence concerning audits of its operations conducted by the TGA at various times after 1995 up to April 2002. Following those audits, Pan’s licence remained on foot. There is no reason to conclude, on the balance of probabilities, that as at 1995, 1996 or 1999, Pan was not complying with the TG Act in the conduct of its business. Indeed, Pan continued to supply the relevant parts of Naturalcare’s requirements right up to the cancellation of its licence in April 2003. On the balance of probabilities, therefore, Pan had reasonable grounds for making the Supply Representation when it was made in 1995, 1996 and 1999. There was no allegation that the Supply Representation was made at any later time. There was no basis for concluding that the Supply Representation was misleading or deceptive or likely to mislead or deceive when it was made in 1995, 1996 or 1999.
47	The primary judge found that the Quality Assurance Representation was made by Pan, by Pan’s entering into the Manufacturing Agreement. There was no allegation that the Quality Assurance Representation was made at any later time. The question, therefore, is whether, as at 8 April 2002 at the latest, when Naturalcare signed the Manufacturing Agreement, Pan had reasonable grounds for representing that it would so conduct its manufacturing processes as to comply with the Code.
48	While Pan admitted that it did not comply with the Code between 1 May 2002 and 28 April 2003, it did not admit that it was not complying with the Code before that time. Naturalcare does not appear to have sought from Pan any particulars of the extent to which Pan admitted that it failed to comply with the Code from 1 May 2002. As at 8 April 2002, Pan was the holder of a licence under the TG Act, which had been granted on 24 January 2002. Pan had been the holder of such a licence for many years. On 30 April 2002, Pan was audited by the TGA and on 28 June 2002, a further licence under the Act was issued to Pan. Thus, an inference is clearly available that the audit conducted by the TGA on 30 April 2002 disclosed no failure to comply with the Code. Pan adduced evidence as to those matters, which go to the question of whether there was a reasonable ground for representing that Pan would so conduct its manufacturing processes as to comply with the Code. Accordingly, there was no presumption in favour of Naturalcare under s 51A and Naturalcare therefore had the onus of establishing, on the balance of probabilities, that there were no reasonable grounds for making the representation.
49	The reasoning of the primary judge was based on the fact that there was no evidence of any relevant change of circumstances between 1 March 2002 and 1 May 2002 and the fact that audits conducted by the TGA in 2003 were cogent evidence of the failure by Pan to comply with the Code by reason of serious systemic deficiency. His Honour was certainly justified in finding that Pan was in serious breach of the Code during 2003. However, it does not follow that Pan was in serious breach of the Code throughout the whole of 2002. While Pan admitted that from 1 May 2002 it failed to comply, there is no evidence of the extent of the non-compliance as from 1 May 2002. There is no basis for extrapolating backwards from that date, to 8 April 2002, to conclude that there was any serious breach of the Code before 1 May 2002. I do not consider that the evidence supports a finding, on the balance of probabilities, that there was no reasonable ground for representing, as at 8 April 2002, that Pan would so conduct its manufacturing processes as to comply with the Code.
50	It follows, in my opinion, that his Honour erred in concluding that, by making the Quality Assurance Representation and by making the Supply Representation, Pan engaged in misleading or deceptive conduct or conduct that was likely to mislead or deceive, in the manner pleaded by Naturalcare. At the time when the relevant representations are alleged to have been made, Pan had reasonable grounds for making the representations. It follows that his Honour erred in concluding that Pan contravened s 52 of the Trade Practices Act by making the Quality Assurance Representation and by making the Supply Representation.
51	Accordingly, it is unnecessary to deal with the questions of whether the representations were in fact made and whether there was reliance, in the relevant sense, by Mr Schadel on behalf of Naturalcare, on the representations. It is also unnecessary to consider the issues concerning quantum of damages. On the other hand, in the light of the conclusion I have reached, it is necessary to consider the question raised by Naturalcare in its notice of contention.

BREACH OF DUTY CLAIM

52	Naturalcare claims that, as at 1 May 2002 at the latest, Pan came under a duty of care to Naturalcare to take reasonable care to ensure that Pan’s manufacturing processes complied with all applicable codes and regulatory requirements. Naturalcare says that, in breach of that duty, Pan failed, on and after 30 January 2003 at the latest, to take reasonable care to ensure that its manufacturing processes complied with all applicable codes and regulatory requirements. No particulars of any failure prior to 30 January 2003 were provided in Naturalcare’s statement of claim.
53	In its notice of contention, Naturalcare complains that the primary judge erred in failing to find that Pan was under a duty to Naturalcare to take reasonable care to ensure that Pan’s manufacturing processes complied with all applicable codes and regulatory requirements. Naturalcare says that the relationship between it and Pan exhibited features that, in combination, constituted a sufficiently close or special relationship to give rise to a duty on the part of Pan to take care to prevent economic loss to Naturalcare. Naturalcare points to five factors.
54	First, Mr Selim made the statements referred to in paragraphs [27] and [28] above, in circumstances where he knew or ought reasonably to have known that the statements would be relied on. Naturalcare says that Pan thereby assumed responsibility to take reasonable care to prevent economic loss to Naturalcare.
55	Secondly, Pan was in control of its own manufacturing processes and Naturalcare had no way of knowing or assessing the risk that Pan’s processes were non-compliant with the applicable codes and regulatory requirements. Accordingly, Naturalcare was in Pan’s hands and was vulnerable, in the sense that it was unable to protect its own interests. To the extent that Naturalcare might have taken steps to protect its own interests, it was induced by Mr Selim’s statements not to take such steps.
56	Thirdly, Mr Selim was aware that any failure by Pan to comply with the applicable codes and regulatory requirements would have adverse consequences for Naturalcare. Pan therefore had actual foresight of the likelihood that Naturalcare could suffer harm in the event that Pan manufactured and supplied product otherwise than conformably with the applicable codes and regulatory requirements. Accordingly, Pan should have had the interests of Naturalcare in contemplation when manufacturing product for, and supplying products to, Naturalcare.
57	Fourthly, Pan assumed particular responsibilities under the TG Act and the Code in circumstances where the statutory regime gave, and was intended to give, comfort to sponsors in the position of Naturalcare.
58	Fifthly, imposing a duty in the terms alleged by Naturalcare would not impose an unreasonable burden on Pan because Naturalcare was within a class that would be primarily affected by Pan’s failure to discharge the alleged duty to take care.
59	It is one thing to say that Pan was under a duty to Naturalcare to take reasonable care to ensure that, in manufacturing goods and supplying the goods to Naturalcare, Pan complied with all applicable codes and regulatory requirements in relation to that manufacture and supply: there would be no real difficulty in finding a contractual duty to do so. Indeed, the Liquidators admitted Naturalcare’s proof of debt in so far as it claimed compensation for Pan’s failure to do so.
60	However, it would ordinarily be of no concern to Naturalcare as to whether Pan ensured that, in relation to goods manufactured and supplied to third parties, Pan complied with all applicable codes and regulatory requirements. Indeed, that is not Naturalcare’s complaint. It makes no complaint, and could hardly be heard to make a complaint, about Pan’s failure to comply with all applicable codes and regulatory requirements in relation to its manufacture and supply of goods to parties unrelated to Naturalcare.
61	Rather, Naturalcare’s complaint is that Pan failed to ensure that it continued to be licensed to manufacture and supply goods to Naturalcare. It is the fact that the TGA suspended Pan’s licence to do so that is alleged to have given rise to loss on the part of Naturalcare. Naturalcare does not say that it suffered loss because Pan manufactured and supplied goods to third parties otherwise than in compliance with all applicable codes and regulatory requirements. Thus, Naturalcare would need to establish Pan was under a duty to ensure that it did not conduct its manufacturing processes in a way that would result in the suspension of its licence under the TG Act. In effect, that is a duty to continue carrying on its business.
62	The relationship between Naturalcare and Pan in relation to goods actually supplied by Pan to Naturalcare was that of buyer and seller. That relationship was governed by the contractual obligations and rights that arose following the acceptance by Pan of an order for therapeutic goods placed by Naturalcare. The obligations and rights included those identified in the Manufacturing Agreement. The Manufacturing Agreement, of course, imposed no obligations on either party, except in an inchoate sense. As I have said, by the Manufacturing Agreement, Pan and Naturalcare agreed that, in relation to any accepted order for the supply of goods, the party specified against a particular clause of the Code in the Schedule to the Manufacturing Agreement would accept the responsibility to perform the task specified in that clause of the Code in connection with the supply of those goods.
63	Where an order from Naturalcare was accepted by Pan, Pan came under a contractual obligation to manufacture and supply the relevant goods compliantly with the applicable codes and regulatory requirements. The primary judge found, and there is no question raised as to the correctness of that finding, that Pan was not under any contractual obligation to Naturalcare to manufacture and supply to Naturalcare for the term of the Manufacturing Agreement the goods customarily acquired by Naturalcare from Pan in the quantities customarily obtained by Naturalcare from Pan. Clearly, it would have been open to Naturalcare to stipulate for such a promise by Pan. It did not do so. Naturalcare claims, nevertheless, that, notwithstanding the absence of such a contractual obligation, Pan was under a common law duty to do so, so as to avoid economic loss that might be suffered by Naturalcare by Pan’s failure to do so. That is a somewhat startling proposition.
64	Naturalcare makes no claim that the statements made by Mr Selim were false, misleading or deceptive at the time when they were made. Nor does Naturalcare make any claim that, in circumstances where it continued to rely on those statements to continue its dealings with Pan, that Pan came under a duty to inform Naturalcare that the statements, if they were repeated after 30 April 2002 would be false, misleading or deceptive. Rather, the allegation is that Pan was under a duty to Naturalcare to continue to conduct its business in a way that would ensure that the statements, if repeated, would not be false, misleading or deceptive.
65	Even if it be the fact that the statements made by Mr Selim induced Naturalcare not to take steps that it might otherwise have taken to avoid the risk, it is clear from the fact that Naturalcare sought assurances from Pan, that Naturalcare understood that there was a risk. Thus, Naturalcare was not vulnerable in the sense that it could not have known of the risk, and could not protect itself from that risk. It made the choice to rely on non-contractual assurances rather than to stipulate for a contractually binding promise by Pan.
66	There is no reason for the law to impose a duty on one of two contracting parties to act in the interests of the other party in relation to a matter that the parties have not by express conduct or necessary implication included into the terms of their contractual relationship. While vulnerability is an important requirement in cases where a duty of care to avoid economic loss arises, vulnerability in that context is not to be understood as meaning only that the claimant was likely to suffer damage if reasonable care was not taken. Rather, vulnerability is to be understood as a reference to the claimant’s inability to protect itself from the consequences of a wrongdoer’s want of reasonable care, either entirely or at least in a way that would cast consequences of loss on the wrongdoer (Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at [22] and [23]).
67	As the primary judge observed, the risk of a supplier of goods not being able to maintain supply is an everyday incident of commercial life. Many regulatory requirements regulate manufacturers and suppliers of goods and there is always a risk that, if the applicable codes and regulatory requirements are not complied with, the supply of goods may be prohibited or suspended. Various strategies to minimise risks of that kind and their impact are available to an intending purchaser. All of those strategies were open to Naturalcare. It elected not to adopt the obvious one of stipulating in its contract with Pan for compliance with the applicable codes and regulatory requirements to ensure that it continued to be the holder of a licence under the TG Act that enabled it to manufacture therapeutic goods.
68	No claim in tort is based upon the making of the statements as such. Naturalcare’s complaint is that, by reason of the statements made by Mr Selim, it did not adopt appropriate strategies available to it to avoid a risk of which it was aware. That, of itself, is not sufficient to impose upon Pan a duty to take care to ensure that the risk does not materialise. The complaint in tort must fail, essentially for the reasons given by the primary judge.

CONCLUSION

69	The appeal should be upheld. The orders made by the primary judge should be set aside. In lieu of those orders, there should be orders dismissing Naturalcare’s Originating Process with costs. Naturalcare should pay the Liquidators’ costs of the appeal.

I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:
Dated: 24 January 2008

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2506 OF 2006

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS JOINT LIQUIDATORS OF PAN PHARMACEUTICALS LTD Appellant
AND:	AUSTRALIAN NATURALCARE PRODUCTS PTY LIMITEDRespondent

JUDGES:	EMMETT, STONE AND ALLSOP JJ
DATE:	24 JANUARY 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

STONE J

70	I have had the advantage of reading in draft, the reasons of Allsop J. I respectfully agree with his Honour’s reasons, except in so far as is indicated below in relation to s 51A of the Trade Practices Act 1974 (Cth). I note however, that my reservations on this point do not affect my agreement with his Honour’s conclusion that the appeal should be dismissed.
71	The interpretation of s 51A throws up many problems. The section provides that a representation as to the future is deemed to be misleading if the representor did not have reasonable grounds for making it; s 51A(1). The provision clearly identifies what must be established, namely the absence of reasonable grounds. The Court’s task of evaluating the actual representation is narrowed so that its enquiry is focused on the reasonability of the grounds for making the representation.
72	Section 51A(2) further narrows the task in some circumstances. At least one aspect of the effect of the s 51A(2) appears to be uncontroversial, namely that a representor who adduces no evidence to support a defence of reasonable grounds is deemed to have made a misleading representation. Despite any other differences of interpretation, this much is clear from the authorities referred to by Allsop J at [177].
73	There is, however, disagreement as to the effect of the section where the representor adduces some (relevant) evidence that there were reasonable grounds for making the representation. This raises the question of what is evidence "to the contrary". Among the issues thrown up by this question is whether it is evidence which, taken by itself, is sufficient to establish reasonable grounds or merely to raise the question. In characterising the evidence, does the whole of the evidence adduced by both parties have to be considered? If evidence adduced by the representor in support of a claim to have had reasonable grounds is rebutted by the representee’s evidence, does that show that the representor’s evidence was in fact not "evidence to the contrary"?
74	The background to the introduction to the section outlined by Allsop J shows that when the section was introduced there were different views as to the desirability of imposing the persuasive rather than the evidentiary burden of proof on the representor. Although as a result of that debate, the terms of the present s 51A(2) were accepted by the Government of the day, I am not entirely persuaded that a clear intention of the legislature can be discerned. As Lord Nicholls of Birkenhead, speaking on statutory interpretation, commented in R v Secretary of State for the Environment, Transport and the Regions, Ex parte Spath Holme Ltd [2000] UKHL 61; [2001] 2 AC 349 at 396, a search for the "intention of Parliament" may be helpful so long as one remembers that it "is an objective concept, not subjective".
75	As Allsop J’s analysis of the evidence shows, in the circumstances of this case it is not necessary to resolve these questions. In relation to the Supply Representation, on any view of s 51A(2), the appellants adduced evidence sufficient to rebut the statutory presumption. In relation to the Quality Assurance Representation, as his Honour has remarked at [243], even on the view most favourable to the appellants, the primary judge’s conclusion that the Quality Assurance Representation was misleading is shown to be correct.
76	The correct interpretation of s 51A(2) was not the subject of full argument in this appeal or, it would seem, in few if any of the decisions concerning the section. In the circumstances, I do not think that the interpretation of the section is best addressed by interpreting what other courts have said about it. In my view the resolution of the questions to which I have referred in [73] above would be better left to a court that has had the benefit of full argument in a matter where the outcome depends on the view taken of the section.
77	I agree with the orders proposed by Allsop J.

I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

Associate:

Dated: 24 January 2008

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2506 OF 2006

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS JOINT LIQUIDATORS OF PAN PHARMACEUTICALS LTD Appellant
AND:	AUSTRALIAN NATURALCARE PRODUCTS PTY LIMITEDRespondent

JUDGES:	EMMETT, STONE AND ALLSOP JJ
DATE:	24 JANUARY 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

ALLSOP J

Background and the pleaded claims

78	The Third Further Amended Statement of Claim (the "Statement of Claim") and the Second Further Amended Originating Process (the "Originating Process") contained the respondent’s/plaintiff’s (to which I will refer as "ANP") claim by way of an appeal from the appellants’/defendants’ (to whom I will refer as the "Liquidators") decision to reject ANP’s proof of debt dated 17 February 2004 lodged in the liquidation of Pan Pharmaceuticals Limited ("Pan"). Some claims of ANP against Pan were admitted to proof. The claims said to have been wrongly rejected were the subject of the pleading in the Statement of Claim and a nine day hearing before the primary judge.
79	The claims were categorised in the Statement of Claim as:
(a)	a "contractual damages claim"

(see [7]-[50] of the Statement of Claim)

(b)	a "misleading or deceptive conduct" claim

(see [51]-[60] of the Statement of Claim)

(c)	a "tortious count"

(see [61]-[66] of the Statement of Claim)

(d)	an estoppel claim

(see [66A]-[66J] of the Statement of Claim)

80	The primary judge dismissed the claims in contract, tort and estoppel, but found in ANP’s favour on the trade practices claim, directing that ANP be admitted to proof by an increased sum of $471,922.97, plus $305,143.57 interest (totalling $777,066.54), consequent upon a finding of an entitlement to an award of damages under s 82 of the Trade Practices Act 1974 (Cth) (the "TP Act").
81	The Liquidators appeal against the orders based on the misleading or deceptive conduct count. ANP complains about the primary judge’s rejection of the claim in tort. ANP does not seek any variation of the orders. Its complaint is therefore formulated in a notice of contention, rather than a cross-appeal.
82	Pan was a contract manufacturer of complementary medicines. It was licensed under the Therapeutic Goods Act 1989 (Cth) (the TG Act) until 28 April 2003, when the Therapeutic Goods Administration (TGA) suspended its licence.
83	Mr Jim Selim was the Chief Executive Officer of the corporate predecessors to Pan, and of Pan after it was listed on the Australian Stock Exchange.
84	ANP was a customer of Pan (or its corporate predecessors) in the period 1989 to 28 April 2003. At all times, Mr Barry Schadel was the managing director of ANP.
85	As part of the regulatory scheme in relation to complementary medicines, ANP was registered by the TGA as the ‘sponsor’ of certain complementary medicines. Pan was nominated as one of the manufacturers in relation to some of those products. At all relevant times until 28 April 2003, Pan held a licence under the TG Act to manufacture relevant products of the kind that it sold to ANP and to others.
86	In 1990, as required by cl 699 of the Australian Code of Good Manufacturing Practice for Therapeutic Goods – Medicinal Products (the Code), Pan and ANP entered into a Good Manufacturing Practice Agreement. (I will refer to these agreements in the plural and in the singular to the 2002 agreement as "Manufacturing Agreements" and the "Manufacturing Agreement", respectively. From time to time I will use, as the documents sometimes used, the initials "GMP". These stand for "Good Manufacturing Practice" under the Code.) Clause 699 of the Code provided:

To ensure that the responsibilities of both parties are clearly understood and recorded, the arrangements and responsibilities for every aspect of manufacture and quality control that is relevant to Good Manufacturing Practice, for each product made under contract, must be unambiguously specified in writing in a ‘Specification of GMP Responsibilities’, or equivalent document, signed by a representative of both parties.

Clause 699 also includes a note:

It is recommended that commercial arrangements be the subject of a separate agreement or contract.

87

Manufacturing Agreements were executed between ANP and Pan in 1990, February 1995, August 1998 and April 2002, allocating responsibilities as required by the Code. The April 2002 Manufacturing Agreement executed by Pan on 3 April 2002 (which I will take to be the date that it entered into the agreement), effective from March 2002, like previous agreements, was for a period of three years and provided:

If either party intend to terminate the agreement, (6) months notice in writing to the other party is required.

88	On 28 April 2003, the TGA suspended Pan’s licence and recalled goods manufactured by Pan on or after 1 May 2002. On 22 May 2003, the Liquidators were appointed as administrators of Pan and on 23 September 2003, as liquidators.
89	In response to the recall of Pan’s products, ANP "terminated" an alleged Supply Contract: [48] of the Statement of Claim. On 13 February 2004, ANP submitted a proof of debt for loss of profit of $15,674,619 based on breach of contract that was later adjusted on 8 September 2004 to a claim for $6,463,226. The Liquidators allowed a total of $1,465,125.13 for product on hand, recall costs, loss of profit for stock on hand and a loss of profit on confirmed but undelivered orders.
90	On 10 September 2004, the claim for future loss of profits based on an ongoing contract was rejected by the Liquidators. ANP commenced the proceeding heard by the primary judge to set aside the rejection of its proof of debt by the Liquidators for loss of profits.

The misleading or deceptive conduct claim

91	Considerable debate took place on appeal as to whether the approach of the primary judge and the arguments of ANP on appeal went beyond the case as pleaded and conducted at the hearing. Thus, it is necessary to examine with some care the pleadings, the evidence and what was otherwise said at the hearing in order to appreciate and deal with the submissions of the parties on appeal.
92	The misleading or deceptive conduct claim commenced (in [51] of the Statement of Claim) with a repetition of [18] of the Statement of Claim, which was as follows:

At various times between 1995 and 2002 (inclusive), ANP made it known to Pan, or in the alternative by course of dealings Pan knew full well, that:

(a) ANP was wholly reliant and dependant [sic] on Pan for the supply of the soft gel goods sold by ANP and substantially reliant and dependant [sic] on Pan for the supply of all other goods sold by ANP; and

(b) ANP’s entire business was wholly or alternatively substantially reliant and dependant [sic] upon Pan continuing to supply ANP with those goods customarily purchased by ANP from Pan at the quantities customarily required by ANP.

Particulars

Various discussions between Mr Schadel and Mr Selim during which:

a) Mr Schadel expressed to Mr Selim concern over ANP’s reliance and dependence on Pan.

b) Mr Selim acknowledged that any failure to supply by Pan would have significant adverse consequences for ANP’s business.

c) Mr Selim confidently assured Mr Schadel that Pan was the largest manufacturer of healthcare products in Australia and was compliant with the requirements of the Therapeutic Goods Administration and, accordingly, that the risk associated with ANP’s reliance and dependence was negligible or immaterial.

d) Mr Selim indicated to Mr Schadel that Pan was ready, willing and able to continue to supply ANP with all goods ANP customarily acquired from Pan at those quantities ANP customarily obtained from Pan.

e) On the basis of Mr Selim’s assurances, Mr Schadel indicated that:

a.	ANP would continue to acquire all of its soft gel goods exclusively from Pan; and
b.	ANP would continue to acquire the bulk of all its other goods from Pan.

93	The particulars to [18] of the Statement of the Claim were defined as the "Conduct": see [52] of the Statement of Claim.
94	ANP asserted that it relied upon the Conduct in the following ways (see the particulars to [53] of the Statement of Claim):

(a) ANP continued the course of dealing with Pan knowing such course of dealing rendered ANP’s business particularly reliant and dependant [sic] on Pan’s continued supply of goods to ANP.

(b) ANP did not seek out alternate suppliers so as to materially reduce its reliance and dependence on Pan.

95	In [55] and [55A] of the Statement of Claim, two representations were extracted from the Conduct: the so-called Quality Assurance Representation (the "QAR") and the so-called Supply Representation (the "SR"). The QAR was pleaded in [55] of the Statement of Claim, as follows:

In the premises, the Manufacturing Agreement conveyed to ANP a representation, namely, that Pan would so conduct its manufacturing processes as to comply with the Code for Good Manufacturing Practice for Therapeutic Goods, August 1990.

96

Thus, the QAR was said to have arisen out of the Manufacturing Agreement that Pan entered into on 3 April 2002, in the context (that is "in the premises") of what was pleaded and particularised in and under [18] of the Statement of Claim. In debate on the appeal, counsel for ANP said that the QAR should be understood not only as a representation as to a future matter for the purposes of ss 51A and 52 of the TP Act, but also as a representation of present fact: that Pan was conducting its manufacturing processes as to comply with the Code. That is not what the words of [55] of the Statement of Claim say, but there is some force in the proposition that the two ways of putting the representation are inextricably intertwined. Both, however, are representations made on or about 3 April 2002, and both arise from the Manufacturing Agreement in the context of the matters pleaded and particularised in and under [18] of the Statement of Claim.

97

The SR was pleaded in [55A] of the Statement of Claim, as follows:

Further, or in the alternative, by making the statements pleaded at sub-paragraphs 18(c) and (d) Pan represented to ANP that Pan would continue to supply all or most of ANP’s requirements as to therapeutic goods, or, alternatively, all of ANP’s requirements as to soft gel goods and all or most of ANP’s requirements as to other therapeutic goods sold by ANP.

98

It can be seen that this representation was pleaded as a representation as to a future matter arising from two groups of conversations set out in (c) and (d) of the particulars to [18] of the Statement of Claim. It is also to be noticed that (c) and (d) under [18] refer to conversations that dealt with compliance with the requirements of the Code as a related question to that of supply, that is, one related to ability or capacity, not just commercial willingness, to supply. The evidence revealed that these two groups of conversations occurred in 1995/1996 and between 1998 and 2000. The argument on appeal proceeded on the basis that the dates were 1995/1996 and 1999. The primary judge dealt with this evidence at [28]-[47] of his reasons, in particular at [30]-[31] where he dealt with the 1995/1996 conversations, and at [43]-[44] where he dealt with the later conversation. Mr Schadel was the managing director of ANP, Mr Davis was a part-owner of ANP in 1995/1996 and Mr Robinson was a director of ANP between 1998 and 2000. The 1995/1996 conversation was dealt with at [30]-[31] of his Honour’s reasons, as follows:

[30] Schadel, Davis and Selim had two meetings in 1995/1996 where Davis voiced his concerns to Selim. Davis said that at one of the meetings a conversation took place to the following effect:

‘Me [Davis]: "How can I be certain you can supply all our product at the right quality and competitive prices as you want all our business? Given your current and past issues with the Therapeutic Goods people where do you stand with a clean bill of health and who could we turn to if you were not able to supply?"

Mr Schadel: "Jim, you have to give Terry confidence that all the commitments you have made to me that you can deliver on them, particularly in respect of new products, pricing and continuous supply."

Mr Selim: "You have nothing to worry about. [Naturalcare] can continue to buy all of its products from Pan without a worry. Pan is the largest manufacturer of health care products in Australia. Pan complies with all of the TGA’s requirements so there is no risk in Pan not being able to supply [Naturalcare]. There is no problem in Pan continuing to supply [Naturalcare]." ’

Schadel said that the conversations included words to the following effect:

‘Mr Davis: "Jim, I am extremely concerned that [Naturalcare’s] business is totally reliant on Pan for the majority of its best-selling products. I have asked Barry to continue to try to source products from other manufacturers."

Me [Schadel]: "Jim, I have told Terry many times about our long term relationship and the fact that I believe Pan is still the major manufacturer in Australia but we are both concerned that [Naturalcare] has become totally reliant on Pan."

Mr Selim: "You have nothing to worry about. [Naturalcare] can continue to buy all of its products from Pan without a worry. Pan is the largest manufacturer of health care products in Australia. Pan complies with all of the TGA’s requirements so there is no risk in Pan not being able to supply [Naturalcare]. There is no problem in Pan continuing to supply [Naturalcare]."

Mr Davis: "For example, what would happen if government intervention closed your plant?"

Mr Selim: (laughing) "That would never happen. Pan is Australia’s number one manufacturer and is TGA compliant." ’

Selim said that the conversation was to the following effect:

‘Mr Davis: "[Naturalcare] is looking to diversify its suppliers of generic products, and I am encouraging Barry to source product from other suppliers."

Me [Selim]: "What about our relationship, Barry? What about our history? We have together formulated [Naturalcare’s] top sellers. Pan has helped to build your business."

Mr Schadel: "Can Pan cope with supplying all of [Naturalcare’s] products? Does Pan have the production capacity?"

Me [Selim]: "Yes, Pan has the production capacity to manufacture all of [Naturalcare’s] products. [Naturalcare] should get 100% of its products from Pan and we should continue to work together to develop new products. Other sponsors which are much larger than [Naturalcare], such as Bullivants, get all of their products from Pan with no problem."

Mr Schadel: "Pan needs to be competitive on price."

Me [Selim]: "Yes, Pan will stay competitive on price, but it is not a charity." ’

[31] Selim denied that the TGA was mentioned in the conversation, or that he said the phrase ‘nothing to worry about’ and asserted that the focus of the discussion was the capacity of Pan to supply a number of big customers as well as Naturalcare at the same time. I accept the evidence of Davis. He was not cross examined. He is now independent of the parties and had no reason to give false evidence. His evidence is broadly consistent with and corroborates that of Schadel. I find that Schadel and Davis relied upon and continued to rely upon the assurances given by Selim.

99	The later conversation was dealt with at [42]-[44] of his Honour’s reasons, as follows:

[42] In mid 1998, Cellarmasters sold its shares in Naturalcare to Amrion Inc, a manufacturer of therapeutic goods based in the Unites States of America. Amrion came to own 90 per cent of Naturalcare’s issued shares although Schadel retained his position as Managing Director. Mr David Robinson, a director of Amrion, became a director of Naturalcare in about July 1998 and retained this position until about November 2000. He gave evidence that he travelled to Australia on two occasions to have meetings with Schadel to evaluate Amrion’s ownership of Naturalcare and analyse the company’s business opportunities and weaknesses. At one of these meetings Robinson claims he had a conversation with Schadel with words to the following effect:

‘Me [Robinson]: "[Naturalcare] appears to be very dependent on Pan Laboratories for the supply of the majority of your products. I am concerned about what happens to [Naturalcare] if that supply is cut off or interrupted?"

Mr Schadel: "Pan Labs is the largest manufacturer of nutritional supplements in Australia. Almost every company in our industry is buying from Pan. They have a great reputation for quality. I don’t think there is any chance they would not be able to supply [Naturalcare]." ’

[43] Robinson, Schadel and Selim had a meeting as to the substance of which all three men gave evidence. Robinson said the relevant conversation was to the following effect:

‘Me [Robinson]: "[Naturalcare] buys a significant amount of product from Pan Labs. If you were not able to supply [Naturalcare], even temporarily, it would have a seriously negative affect on our business."

Mr Selim: "You do not need to worry about that. Pan is the largest supplier of nutritional supplements in Australia. There is no possibility that Pan won’t be able to supply [Naturalcare] with the products they order. Further, as Pan is the largest supplier in Australia, we work closely with the TGA and we meet, or exceed, all necessary standards the TGA sets for the manufacture of nutritional supplements." ’

Schadel said Robinson said words to the following effect:

‘[Naturalcare] is overly reliant on Pan. I think that we will be seeking to diversify its suppliers.’

Schadel said Selim’s reply was to the following effect:

‘There is no risk of Pan ceasing supply. Pan has helped build [Naturalcare]. Our relationship extends beyond simply supplying goods – it extends into other areas including constant product development. We have built the business together and we should stay together.’

Selim said the conversation included words to the following effect:

‘Mr Robinson: "I’m telling Barry he should source products from other suppliers."

Me [Selim]: "There is no problem in Pan continuing to supply [Naturalcare]. Pan has the capacity to meet all of [Naturalcare’s] production needs. Pan has not let you down. For products you have ordered, Pan has supplied."

Mr Robinson: "Yes, Pan has looked after [Naturalcare]." ’

[44] I accept the evidence of Robinson. He was not cross-examined and there is no reason to doubt his reliability. His evidence is broadly consistent with and corroborates that of Schadel. I find that Robinson and Schadel relied and continued to rely upon Selim’s assurances.

100	To return to the pleading, in [56] of the Statement of Claim and the particulars thereunder, ANP asserted that it relied upon the QAR and the SR in the same way as it relied on the Conduct, with one additional assertion, being that it entered into the Supply Contract in reliance thereon (which can be ignored given the primary judge’s findings that this contract did not come into existence).
101	In [57] of the Statement of Claim, ANP asserted that the Conduct and/or the QAR and/or the SR was or were misleading or deceptive or likely to mislead or deceive. At this point, before examining the particulars of that assertion, it is necessary to say something about the co-extensiveness of the Conduct with the QAR and the SR. The Conduct was defined as the conduct in the particulars to [18] of the Statement of Claim. The only conduct of Pan in those particulars is what is found in (b), (c) and (d). The conduct in (b) is incapable of being misleading or deceptive in the context of this case; it is something ANP asserted that Mr Selim was aware of. Thus, the Conduct is really found in the same activity (the statements of Mr Selim in (c) and (d) under [18]) that were said to found the SR.
102	The asserted misleading or deceptive nature of the Conduct, the QAR and the SR was particularised under [57] of the Statement of Claim, as follows:

a. On 28 April 2003 Pan’s manufacturing licence was suspended by the Therapeutic Goods Administration under section 41 of the Therapeutic Goods Act, 1989 (Cth) in consequence of the TGA forming the view that:

(a) Pan had not complied with the Australian Code of Good Manufacturing Practice since 30 April 2002 and

(b) The non-compliance was so serious that the ongoing availability of products manufactured by Pan represented a very serious risk to the community.

b. On and from 28 April 2003 Pan ceased to manufacture, or supply to ANP, therapeutic goods.

c. Between at least 1 May 2002 and 29 April 2003 Pan did not comply with the Code for Good Manufacturing practice for Therapeutic Goods, August 1990 in relation to the manufacture and supply of therapeutic goods by it to ANP.

103

It is to be noted immediately that these so-called particulars (as to a. and b.) are assertions of uncontroversial fact and (as to c.) comprise an assertion which was substantially admitted by the Liquidators in [33] of the relevant Further Amended Defence (the "Defence"). They do not amount to assertions (assisted by s 51A as mentioned in [55B] of the Statement of Claim) that Pan had no reasonable grounds upon which to make the two representations at the times they were made (dealing with them as future representations), or that as at 3 April 2002 the QAR was falsified by the existing non-compliance with the Code (if the QAR can be seen as a representation of present fact, notwithstanding its tolerably clear phrasing as a representation as to a future matter).

The primary judge’s approach to the misleading or deceptive conduct claim

104

The primary judge, correctly, for the reasons expressed above, dealt with the claim as based on the two representations, the QAR and the SR. In [84] of his reasons, the primary judge noted the submission of ANP that each was a representation as to a future matter and set out ANP’s assertions as to its case:

...It is contended that Pan has not established reasonable grounds for making either representation, with the result that the making of each of them was misleading and deceptive, or likely to mislead and deceive. It is further contended that Naturalcare relied upon the misleading conduct by continuing to conduct business on the basis that the bulk of the products it was to sell would be acquired from Pan and did not reorganise its business. This left it vulnerable to the sudden cessation of supply which occurred upon suspension of Pan’s licence, leading to losses due to the disruption to its business.

105	This summary of the issues correctly reflected the representations as pleaded, that is, as representations as to future matters. It also recorded the attack on those representations as misleading or deceptive or likely to mislead or deceive because of an asserted lack of reasonable grounds for making them.
106	The primary judge then, at [85] of his reasons, noted the submissions of the Liquidators, as follows:

Pan disputes each link in that chain. It denies the making of the representations. Pan then submits that the evidence of Schadel was that the assurances he received from Selim were in the present tense so, even if his evidence is accepted, the representations were about the then present capacity to manufacture and supply rather than being about a future matter. On that basis Pan contends that the representations are not shown to have been misleading. Even if the assurances were in respect of a future matter, Pan submits that no continuing representation was pleaded or proved. It would follow, so it was said, that even if Pan failed to carry the onus provided by s 51A, all that would be established was a breach of s 52 at the time of the making of the representations and there was no causal relationship between those breaches and the damage alleged to have been suffered. It was submitted that, in any event, there was a reasonable basis for any representations that were made.

107	In [87] of his reasons, the primary judge dealt with the evidence of Mr Schadel and in accepting it, said the following:

I also accept the substance of the evidence of Schadel that he continued to have regular discussions with Selim up to the time of the licence suspension, the content of which is only explicable upon the basis of the continuance of the arrangements between them and their respective companies based, amongst other things, upon the assurances received at the meetings with Davis and Robinson. Schadel’s principal affidavit was broadly chronological in structure. After taking the narrative through to the sale of the Amrion interests in about May 2001, he dealt with the Healthy Joints dispute occurring around September 2001 and then with what was described as ‘Other Business Collaboration’ between Naturalcare and Pan involving discussions between Schadel and Selim. He then said:

‘Following the discussions with Mr Selim deposed to above, I believed that Pan would remain the sole supplier of [Naturalcare’s] soft gel goods and principal supplier of tablets for at least the balance of the 2002 Manufacturing Agreement, including any renewal of that agreement, and indeed I expected that the relationship between Pan and [Naturalcare] would continue indefinitely.

I did not cause [Naturalcare] to seek a broad range of alternative manufacturers or suppliers, so that if one failed or ceased to exist [Naturalcare’s] business would not be overly affected. I did cause [Naturalcare] to obtain quotes for tablets or generic products from other suppliers. However this was largely a "check" to make sure that Pan was competitive on price. [Naturalcare] did diversify to an extent by having more tablets supplied by other manufacturers, but did not do so with its soft gels. I allowed [Naturalcare] to remain to a great extent reliant on Pan as its major supplier of tablets and virtually sole supplier of soft gel capsules, ... This was because I had faith in Mr Selim’s assurances to me and Mr Davis and Mr Robinson about Pan and I felt as though I owed to Mr Selim a degree of the loyalty he expected.

If Mr Selim had not made the statements deposed to above and [Naturalcare] had not relied on Pan, [Naturalcare] would have developed a different business – it would have had more generic products, rather than continuing to develop new complex slurry mix soft gels with Pan that were unable to be produced easily by other manufacturers. Pan was one of two Australian manufacturers producing soft gel capsules and it was the only one that could produce enteric coated soft gels. ...

... While some soft gels could have been obtained by [Naturalcare] overseas, I did not feel this was necessary due to Mr Selim’s assurances about Pan continuing to supply [Naturalcare]. In addition, [Naturalcare] wanted to deal with Australian manufacturers and it did so until it was forced to look to overseas for products following the Pan recall. Pan had other advantages from [Naturalcare’s] perspective which included the good service it provided, particularly through Mr Selim’s personal collaboration with me, good price on the complex soft gel formulas and the ability to manufacture the quantities of product sought by [Naturalcare] quickly (e.g. within 3 months compared to R P Scherer’s 6 months).’

Schadel’s evidence as to the continuing faith he had in the assurances given by Selim to Davis, Robinson and himself was not directly challenged in cross-examination. That may not be of any great moment in itself. No Browne v Dunn point is taken. The parties are clearly at issue on matters such as that. I accept the substance of this evidence of Schadel, notwithstanding some exaggeration on his part.

[emphasis added]

108

It is important to appreciate that [87] of his Honour’s reasons is dealing with the continued reliance upon, and thus the continued operative effect of, the pleaded representations, in particular the SR that had been made in 1995/1996 and in about 1999. It does not contain a finding of the making or renewing of further representations as to supply or compliance with the Code, other than, of course, the QAR arising from the Manufacturing Agreement.

109

At [88] of his reasons, the primary judge then turned to the Manufacturing Agreements, of which there had been several, saying the following:

The successive Manufacturing Agreements are also to be considered. Pan is correct in submitting that those agreements only bite contractually as and when particular goods are ordered. Further, each such agreement includes an express term that it does not cover any other commercial arrangement. On the other hand, Pan is committed by the Agreement to stand ready for a period of at least three years (subject to termination on six months’ notice) to comply with the nominated Code responsibilities in relation to all or any of the specified products. It is necessarily implicit that Pan was and would remain ready, willing and able to comply with the Code for the period of the Agreement. Compliance with the Code was fundamental to Pan’s ability to manufacture therapeutic goods.

[emphasis added]

110	The last two sentences in that paragraph direct attention to compliance with the TGA Code generally, and not merely in relation to sufficient compliance with the Code to provide goods or product as and when ordered that comply with the Code.
111	The primary judge posed the following question at [89] of his reasons:

The question is whether entering into the Manufacturing Agreement in 2002 in the light of the previous dealings amounted to a representation or representations as pleaded and not whether a contractual promise was made.

112

After referring to various cases, the primary judge concluded at [90] of his reasons that the QAR was made by the Manufacturing Agreement in the context of the previous course of dealing. It is important to examine what was said in [90] of the primary judge’s reasons. The whole of [90] was as follows:

I am satisfied that entering into the Manufacturing Agreement in 2002 did constitute conduct within the meaning of s 52 of the Trade Practices Act (read in the light of s 4) which was capable of being and was misleading and deceptive, particularly when considered in the context of the previous course of dealings between Pan and Naturalcare and between Selim and Schadel. The terms of the Manufacturing Agreement convey the Quality Assurance representation in a general fashion for the term of the agreement, not restricted to goods actually ordered. I am also satisfied that the explicit assurances by Selim, in the conversations with Schadel, Davis and Robinson, were implicitly carried forward by the same course of dealing. I am satisfied that Pan, at all times, represented itself to Naturalcare as a safe and reliable supplier, which was, and would remain ready, willing and able to comply with the Code. I thus find that the Supply representation was also made.

113	The first sentence should be read, it seems to me, as containing a finding that the entry into the Manufacturing Agreement was conduct (in effect, was capable of amounting to a representation), rather than as containing a finding that the Manufacturing Agreement was conduct that was misleading and deceptive. The primary judge dealt with contravention later. The second sentence deals with the QAR being conveyed by the terms of the Manufacturing Agreement. The third and fourth sentences amount to findings that there was conduct in the form of a continuing representation that was made at all relevant times to the effect that Pan was a safe and reliable supplier which was compliant, and would remain ready, willing and able to comply, with the Code.
114	Thus, the primary judge found that:
(a)	the SR was made in 1995/1996 and in about 1999;
(b)	the QAR was made by the entry into the Manufacturing Agreement on 10 April 2002 and by the terms of the Manufacturing Agreement; and
(c)	Pan represented to ANP at all times from 1995 that it was a safe and reliable supplier and was compliant, and would remain ready, willing and able to comply with the Code.
115	The last sentence of [90] indicates that the primary judge was of the view that the representation in (c) above was the equivalent of making the SR. The representation in (c), however, was not the SR as pleaded, unless it was legitimate to understand the discussions between Mr Schadel and Mr Selim referred to in paragraphs (c) and (d) of the particulars to [18] of the Statement of Claim as not merely the discussions in the presence of Messrs Davis and Robinson, but also other discussions. In this context, the following, which tend to indicate that the discussions referred to in (c) and (d) under [18] are only the discussions in the presence of Messrs Davis and Robinson, should be noted:
(a)	In the first sentence of [87] of his reasons, the primary judge referred to regular discussions between Schadel and Selim, the content of which was only explicable upon the basis of the continuance of arrangements, based on the assurances received at the meetings with Davis and Robinson. This appears to be a finding of the continuing operative effect of these assurances.
(b)	In the last section of [87] of his reasons, the primary judge referred to the continuing operative effect of the assurances given by Selim in the conversations with Davis and Robinson.
(c)	In [88] of his reasons, the primary judge referred to what he saw as "necessarily implicit" in each of the successive Manufacturing Agreements.
116	The question whether the pleading of the SR or the QAR was wide enough to encompass the standing or continuing representation referred to at [38(c)] above and found by the primary judge in the third and fourth sentences of [90] was the subject of significant debate on appeal, to which I will come.
117	At this point, it is important to note one case that was not pleaded (and which was accepted on appeal as not having been pleaded or run at the hearing). No case was pleaded that in the context of the whole of the conduct of Pan, being the assurances by Selim, the continuing regular discussions with Selim, the close business relationship between the companies and the successive Manufacturing Agreements, at some point the conduct of Pan was misleading or deceptive or likely to mislead or deceive by the failure of Pan to inform ANP that it (Pan) no longer was or would be able to comply with the Code. There was no failure to speak or warn case, either as a species of contravention of s 52 (never being pleaded) or as a tort claim ([64] of the Statement of Claim being abandoned).
118	The primary judge then, in [91] of his reasons turned to the question of contravention. It is first necessary to appreciate the terms of the admissions made by the Liquidators in [33] of the Defence which were as follows:

(a) admit that Pan did not comply with GMP in relation to the therapeutic goods manufactured and supplied by Pan to ANP between 1 May 2002 and 28 April 2003;

(b) admit that Pan did not comply with GMP in relation to the therapeutic goods manufactured and supplied by it to other customers between 1 May 2002 and 28 April 2003;

(c) admit that Pan’s manufacturing licence was suspended by the Therapeutic Goods Administration as a result of its failure to comply with Good Manufacturing Processes; and

...

119	The primary judge rejected the submission of the Liquidators that there was insufficient evidence of the position of Pan’s breach of the Code prior to 1 May 2002 (being the earliest date covered by the admissions). The primary judge said the following at [91] of his reasons:

...Pan takes the point that the admission is as from 1 May 2002 but the Agreement was entered into in April and was said to be operative from 1 March 2002. That distinction is of little merit. There is no evidence of any relevant change of circumstances between 1 March 2002 and 1 May 2002. The audits by the TGA on 30–31 January 2003, 24–25 February 2003 and 7–11 and 14 April 2003 and the reports upon them, together with the report of the TGA Expert Advisory Group of 23 April 2003, and the various notices pursuant to ss 30, 40 and 41 of the TGA Act given in 2003 are cogent evidence of the failure by Pan to comply with the Code by reason of serious systemic deficiencies. Pan did not call evidence to establish compliance with the Code during 2002 and 2003 or at any time. It did not call evidence to explain or rebut the effect of the TGA investigation and the conclusions that can be drawn from it. I am quite satisfied that Pan was in serious breach of the Code during 2002 and 2003.

120

In [92] of his reasons, the primary judge dealt with the question of the earlier years. There he stated (without explaining how this was conformable with what he had said in [84] of his reasons, see [27] above) that the gist of the case was not based upon the earlier representations being a contravention of s 52 of the TP Act when made. Rather, he said: "[The gist of the case] is that they continued to be part of the basis upon which business was done in 2002 and 2003." This approach was strongly criticised on appeal. The gist of the case was, the appellants submitted, the legitimacy of the QAR and SR when made (as the primary judge had recounted in [84] of his reasons), because, it was said, that was the pleaded case.

121

In [93] of his reasons, the primary judge turned to the QAR, dealing with it both as a representation of present fact and as a representation as to a future matter. The conclusions reached by the primary judge in [91] as to non-compliance with the Code in 2002 led to his conclusions as to contravention of the QAR, on either basis. The primary judge said at [93]:

The consequence is that the Quality Assurance representation was misleading if viewed as a statement of existing circumstances at the commencement of and during the term of the 2002 Manufacturing Agreement. That contract continued in force until the recall. Breach of s 52 does not have to be intentional or negligent. If the Quality Assurance representation carried with it a representation as to future conduct, no reasonable grounds are established for making such a representation.

122	In [94] of his reasons, the primary judge turned to the SR, dealing with the SR as a standing or continuing representation. Based on his findings in [91] as to lack of compliance with the Code in 2002 and 2003, his Honour concluded as follows:

...What is more, the true situation for all of 2002 and the relevant part of 2003 was that the failure to comply with the Code rendered Pan liable to suspension and cancellation of licence at all times. I am satisfied that the Supply representation was objectively misleading and deceptive for the whole of the relevant period. I am also satisfied that, to the extent that it related to the future, no reasonable grounds are established for making it.

123

Finally, the primary judge dealt with reliance at [95] and [96] of his reasons. The primary judge said that he was satisfied that Mr Schadel did rely on the QAR and the SR. In relation to the SR, one can read this as reliance upon the SR when made, which continued to have operative affect, and as reliance upon a standing or continuing representation that his Honour had found. At [96] of his reasons, the primary judge said the following:

...In the present case, Schadel’s evidence accords with commercial reality. Naturalcare continued to acquire most of its goods from Pan and was lulled into what was a false sense of security by the assurances over the years and entry into the Manufacturing Agreements. It is obvious that if Schadel had thought that there was any real danger of Pan losing its licence because of non-compliance with the Code, he would have taken steps to reorganise the business to minimise dependence upon Pan for supplies. In essence, Schadel was induced not to reorganise the Naturalcare business to reduce dependence upon Pan as a supplier. ...

[emphasis added]

The arguments of the parties and the resolution of this aspect of the appeal

Was the QAR made?

124	The primary attack on the primary judge’s conclusions about the QAR was directed to his finding at [88] of his reasons that it was necessarily implicit in the Manufacturing Agreement that Pan was, and would remain, ready, willing and able to comply with the Code for the period of the Agreement, not merely in relation to goods ordered.
125	The submission was put that this was based on, or equivalent to, the implication of an implied term in the contract represented by the Manufacturing Agreement. The argument was that if no such contractual term could be implied, no representation could arise. Considerable energy was devoted to the argument that such a term would not be implied into the contracts represented by the Manufacturing Agreements. That is understandable, since the pleader in [54] and [55] of the Statement of Claim asserted, and the primary judge in the second sentence in [90] of his reasons found, that the QAR was conveyed by the terms of the Manufacturing Agreement. I am prepared to accept that there was no implied term in the Manufacturing Agreement equivalent to the QAR. The Statement of Claim (and in particular [22] thereof) does not plead such a term. That being so, it is hard to see how the terms of the Manufacturing Agreement of themselves could convey a representation any wider than flows from the express words used. Those words do not support the QAR. However, the primary judge also concluded that the QAR arose from Pan’s entry into the Manufacturing Agreement. That was within the legitimate scope of [55] of the Statement of Claim. Looking at the matter in this way, the real issue was whether, in the whole context and in the light of all that had passed up to April 2002, the entry into the Manufacturing Agreement by Pan gave rise to a representation by Pan in the form of the QAR. This was one approach of the primary judge to the issue. In my view, it was a legitimate approach on the pleadings.
126	One important piece of context was the Code which contained the "manufacturing principles" under the TG Act, s 36. Clause 3 of those principles stated that therapeutic goods must be manufactured in accordance with the Code. The grant of a licence to a person (such as Pan) for the manufacture of therapeutic goods was dealt with in the TG Act, s 38. Section 38(1) is in the following terms:

(1) Where:

(a) a person has made an application to carry out steps in the manufacture of therapeutic goods at particular manufacturing premises; and

(b) the prescribed application fee has been paid; and

(c) any applicable prescribed inspection fees have been paid; and

(d) the applicant has complied with any requirements made by the Secretary under subsection 37(2) in relation to the application;

the Secretary must grant the applicant a licence to carry out those steps at those premises unless the Secretary is satisfied that:

(e) the applicant will be unable to comply with the manufacturing principles; or

(f) the premises are not satisfactory for the manufacture of the goods; or

(g) the applicant is not a fit and proper person to hold a licence; or

(h) a person who is participating in, or is likely to participate in, managing the applicant's affairs is not a fit and proper person to participate in the management of the affairs of a holder of a licence; or

(i) a person who has, or is likely to have, effective control over the applicant is not a fit and proper person to have effective control over a holder of a licence.

...

[emphasis added]

Conditions of licences are provided for by s 40, as follows:

(1) A licence may be granted subject to such conditions relating to the manufacture of the goods as the Secretary thinks appropriate.

(2) The Secretary may, by notice in writing given to the holder of a licence, impose new conditions on the licence or vary or remove existing conditions.

...

(4) In addition to any conditions imposed under subsection (1) or (2), each licence is, except as otherwise specified in the licence, subject to the conditions that the holder of the licence will:

(a) ensure that:

(i) the goods conform to any standard applicable to the goods; and

(ii) the holder of the licence observes the manufacturing principles in carrying out any steps in the manufacture of the goods under the licence; and

[emphasis added]

...

Revocation and suspension of licences were provided for by s 41. Section 41(1) is in the following terms:

(1) Subject to subsection (2), the Secretary may, by notice in writing given to the holder of a licence, revoke the licence, or suspend the licence for a period specified in the notice, if:

(a) the holder has been convicted of an offence against this Act; or

(aa) the holder has been ordered to pay a pecuniary penalty for the contravention of a civil penalty provision; or

(ab) the holder controls another person (whether directly, or indirectly through one or more interposed entities) and that other person:

(i) has been convicted of an offence against this Act or a law of a State or Territory relating to therapeutic goods; or

(ii) has been ordered to pay a pecuniary penalty for the contravention of a civil penalty provision; or

(ac) the holder controlled another person (whether directly, or indirectly through one or more interposed entities) when that other person:

(i) committed an offence against this Act or a law of a State or Territory relating to therapeutic goods, being an offence for which the person was convicted; or

(ii) contravened a civil penalty provision, being a contravention for which the person was ordered to pay a pecuniary penalty; or

(ad) the holder is controlled by another person (whether directly, or indirectly through one or more interposed entities) when that other person:

(i) has been convicted of an offence against this Act or a law of a State or Territory relating to therapeutic goods; or

(ii) has been ordered to pay a pecuniary penalty for the contravention of a civil penalty provision; or

(b) the holder has breached a condition of the licence; or

(c) the holder is controlled by another person (whether directly, or indirectly through one or more interposed entities) and that other person has breached a condition of a licence; or

(ca) the holder controls another person (whether directly, or indirectly through one or more interposed entities) and that other person has, while controlled by the holder, breached a condition of a licence; or

(cb) the holder is not a fit and proper person to hold a licence; or

(cc) a person who is participating in managing the holder's affairs is not a fit and proper person to participate in the management of the affairs of a holder of a licence; or

(cd) a person who has effective control over the holder is not a fit and proper person to have effective control over a holder of a licence; or

(d) the holder requests in writing that the licence be revoked or suspended, as the case may be; or

(e) the holder ceases to carry on the business of manufacturing the goods to which the licence relates; or

(f) the annual licensing charge, or any applicable prescribed inspection fees, have not been paid within 28 days after they become payable; or

(g) the goods are exempt under section 18A and the holder has breached a condition of the exemption in relation to those goods.

...

[emphasis added]

127	The Code dealt with medicinal (non-sterile) products in 9 sections of general provisions, as follows: (1) buildings and grounds; (2) equipment; (3) personnel and training; (4) factory sanitation and personal hygiene; (5) documentation; (6) and (7) manufacturing procedures; (8) quality management; and (9) use of computers.
128	The following appeared in the introduction to the Code:

The Australian Code of Good Manufacturing Practice was developed in 1969 as an industry-Government document reflecting agreed standards and practices for the manufacture of therapeutic goods. Commonwealth and State Health Ministers agreed that the Code should constitute the criteria to be used by inspectors for evaluating pharmaceutical manufacturing establishments and that this evaluation should be the basis for the granting of licences by State authorities under the guidance of the Commonwealth GMP Audit and Licensing Section. The Code has in fact been used in this way up to the present, with revisions to accommodate new technology and new concepts of control and with necessary changes in emphasis to minimise the risk of error.

...

The Code, whilst being an agreed reference point for licensing, is also a distillation of national and international experience regarding the principles, requirements and precautions necessary to safeguard product quality. Conformity provides a high degree of assurance that history will not repeat itself and recognized manufacturing problems recur. The sensitive nature of therapeutic products requires this assurance. The text therefore goes into some detail, although it is acknowledged that there can be alternatives to many of the detailed provisions that may conform to the same basic principles, achieve the same end and prove acceptable.

Further, almost all clauses are written using the term "should", which indicates requirements that are expected to apply unless shown to be inapplicable or replaced by an alternative demonstrated to provide at least an equivalent level of quality assurance. However, it is not intended that the Code should place any restraint upon the development or introduction of new concepts or new technologies. Nor is it assumed that the Code covers every aspect of manufacture, control and quality assurance: the manufacturer bears the ultimate responsibility for the products made and distributed.

...

[emphasis added]

129	The Manufacturing Agreement was one which allocated responsibility between ANP and Pan in respect of product ordered by ANP and delivered by Pan in terms of provisions of the Code. The parties had entered into the same or relevantly similar agreements in 1990, 1995, 1998 and 2000.
130	The Manufacturing Agreement contained a stated objective as "[specifying] the Code... responsibilities relating to the manufacture of the products listed in [the appendix to] this Contract..". The agreement then listed various (though not all) clauses of the Code, assigning responsibility to Pan or ANP or both. The subjects for which ANP was responsible were as follows (the asterisks denote subject matters for which ANP was responsible with Pan also being responsible):
•	specification of packaging materials *
•	specification of labels
•	supply of labels
•	supply of the formulation *
•	retention of records *
•	retention of samples *
•	supply of instructions for master packaging and labelling instructions
•	authorisation for master packaging and labelling instructions
•	stability tests
•	specification of expiry date and storage conditions
•	complaint procedure *
•	keeping a complaint file *
•	investigating complaints *
•	replying to complaints
•	keeping of product traceability records *
•	recall procedures
•	keeping a copy of the Manufacturing Agreement *
131	The Manufacturing Agreement did not allocate any responsibility between Pan and ANP in relation to sections 1, 2, 3, 4 and 9 of the Code. These sections contained provisions, breach of which might endanger any licence held by a manufacturer such as Pan. Examples were as follows: cl 101, design and standard of buildings; cl 105, clear marking of pipelines; cll 106 and 107, production areas; cl 114, air control; cll 134ff, the suitability of storage areas; cll 201ff, equipment, its suitability, cleanliness, location and installation to prevent contamination and the like; cll 301ff, appropriate and skilled staff and training; cll 401ff, sanitation and hygiene standards, including pest control. These were all matters which might or might not affect any particular batch of product for ANP, but contravention of which might impair Pan’s licence and its capacity to supply its customers, including ANP.
132	Whilst the Manufacturing Agreement allocated responsibility between Pan and ANP in relation to sections 5, 6, 7 and 8, some provisions in those sections were not mentioned in the Manufacturing Agreement. Such provisions included clauses which touched on important aspects of the manufacturing process, eg cl 501 requiring specifications for materials used and products made, master documents from which batch records were derived and standard operating instructions for recurrent tasks; and cll 502-509 dealing with documentation concerned with the production process.
133	In this regulatory regime for the licensing of Pan, Pan clearly had the responsibility to comply with relevant manufacturing principles and to have satisfactory premises for so doing. Thus, as a matter of common sense, it must have been understood (as the 1995/1996 conversations reveal by their terms) that if Pan was not generally substantially compliant with the Code, it would or may not be able to supply ANP because its licence would or might be under threat.
134	The context also included the findings of the primary judge that in 1995/1996 and 1999, there had been clear and unequivocal assurances by Mr Selim of Pan’s compliance with all TGA requirements. These assurances had been given in a context of ANP expressing concern as to its vulnerability in being dependent upon Pan for supply, and, in 1995/1996, in the context of questions being raised over "current and past issues with the Therapeutic Goods people" (generally, and not limited to product supplied to ANP).
135	In the above context, the willingness of Pan to enter, and the entry by Pan, into the Manufacturing Agreement on 3 April 2002 may be seen (as the primary judge found) to comprise a representation by Pan that it was in a position to fulfil its obligations under the agreement to supply ANP for the term of the agreement, though bounded by 6 months’ notice. Though the contractual obligations in the Manufacturing Agreement related to specific product to be ordered and supplied, in circumstances where the 1995/1996 and 1999 assurances had been given and in an industry in which substantial non-compliance with the Code could lead to the withdrawal of a licence to manufacture, it is not a large step to conclude that the willingness to enter, and the entry, into the Manufacturing Agreement carried with them the representation that Pan did, and would while the agreement was on foot, substantially comply with the Code in a way that enabled, and would enable, it to perform its obligations to supply ANP under the Manufacturing Agreement. It is important that this representation not be understood or interpreted unrealistically narrowly. As the evidence of the regular audits carried out by the TGA (to which I will come) revealed, perfect compliance with every aspect of the Code did not occur and, in the real world, may have been impossible. What was not impossible and what, in my view, was represented, at least impliedly, by the entry into the Manufacturing Agreement, was that Pan did and would substantially comply with the Code in a manner to entitle it to a licence to manufacture under the TG Act. This was the essence of the QAR. This was the essence of the primary judge’s approach in the last two sentences of [88] of his Honour’s reasons.
136	The argument by the Liquidators that any implied representation from the entry into the Manufacturing Agreement was limited to compliance with the Code in relation to any product in respect of which an order had been submitted and accepted so as to give ANP the benefit of the contract (being no more that something equivalent to a representation as to merchantable quality) is, in my view, too narrow. This approach sought to limit the implication to the quality of the goods supplied. The benefit of the contract would be denied to ANP, however, if Pan could not supply ANP, because it had lost its licence through substantial non-compliance with the Code in respects that may not have directly affected ANP-ordered products. This notion of more general substantive compliance was the kind of occurrence or possibility to which express assurances in 1995/1996 had been directed. By entering the Manufacturing Agreement in this context, Pan can be seen as representing (a) that it was in a position to perform the agreement by sufficiently complying with the Code to be entitled to its licence, and (b) that for as long as was necessary to perform obligations under the contract, it would sufficiently comply with the Code to be entitled to maintain its licence. The latter representation can be seen as equivalent to the QAR as pleaded. The former and the latter were what the primary judge was directing himself to in the last two sentences of [88] of his judgment.
137	I do not see this representation as arising out of the precise formulation of an express or implied term of the Manufacturing Agreement. Rather, I see it as arising out of all the circumstances of the case and the legitimate expectations of honest commercial people in all the circumstances and upon the entry by Pan into the Manufacturing Agreement on 3 April 2002.
138	I do not think that the comments of the majority of the High Court in Effem Foods Pty Limited (t/as Uncle Ben’s of Australia) v Lake Cumbeline Pty Limited [1999] HCA 15; (1999) 161 ALR 599 at 606 [34] or of Tamberlin J at first instance assist. The representation there asserted, arising from the entry into the contract, was quite different. Nothing said in Futuretronics International Pty Limited v Gadzhis [1992] 2 VR 217 at 233-241; Wright v TNT Management Pty Limited (1985) 15 NSWLR 679; Wheeler Grace & Pierucci Pty Limited v Wright (1989) ATPR 40-940; or Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901 requires any different conclusion. Without setting any artificial constraints on the operation of s 51A and s 52 and the balance of Division 1 of Part V, it is appropriate to say that the divining of representations from the making of contractual promises and the entry into contracts is a task to be approached with caution and with an eye to all the facts and not by reference to implying representations mechanistically from equivalent promises: see Concrete Constructions Group v Litevale Pty Ltd (2002) ATPR (Digest) 46-224 at [156]-[168] per Mason P. That said, I agree with the primary judge that in all the circumstances here, the entry into the Manufacturing Agreement represented to ANP the matters in the QAR.
139	I therefore conclude that the QAR as pleaded was made on 3 April 2002.
140	ANP goes further in its submissions and says that the QAR was also a continuing representation being renewed every time an order was placed by ANP and accepted by Pan. This flowed, it was submitted, from the repetition in [54] of the Statement of Claim of [22] of the Statement of Claim. That latter paragraph was part of the pleading of the (rejected) contract claim. It concerned an assertion about the contractual content of the Manufacturing Agreement and was in the following terms:

The express or, alternatively, implied terms of the Manufacturing Agreement included a promise by Pan to manufacture for ANP the goods listed in Appendix 1 to the Manufacturing Agreement, or any further therapeutic goods during the term (including any renewed term) of the Manufacturing Agreement, to a particular standard, namely, to the standard set out in the Code for Good Manufacturing Practice for Therapeutic Goods, August 1990.

141

The term there pleaded can be accepted. It does not, however, assist in the drawing out of a wider representation unconnected with the goods supplied. As I have said, the QAR arose not from the terms of the Manufacturing Agreement, but from the whole context in which the Manufacturing Agreement was entered into. Nor does the term pleaded in [22] of the Statement of Claim assist in making the QAR a standing, continuous or repeated representation. It was a future representation made by the entry into the Manufacturing Agreement by Pan on 3 April 2002. Nor do I see each individual acceptance by Pan of an order by ANP as a renewed representation in terms of the QAR. Pan was merely complying with its contractual obligations.

142

I will return to the question as to whether, in the light of the way the case was conducted, the QAR can be seen to have been asserted as a continuing representation after 3 April 2002. That issue should be examined in the light of the same question in relation to the SR. I will therefore turn to the question as to whether the SR was made.

Was the SR made?

143

The Liquidators drew attention to the terms of [55A] of the Statement of Claim and complained that the primary judge’s findings in [92] of his Honour’s reasons about the gist of the case being that there was a continuing representation, and in [90] of his Honour’s reasons that the explicit assurances by Mr Selim in his conversation with Messrs Schadel, Davis and Robinson were implicitly carried forward by the course of dealing between the parties, were wrong and went beyond the pleadings.

144

The Liquidators also argued that the conversations, as found by the primary judge to have taken place in the presence of Messrs Davis and Robinson in 1995/1996 and 1999, respectively, did not support the SR, even as pleaded as a future representation. In particular, they relied on the primary judge’s finding at [64] that "there are insuperable difficulties in the path of establishing the identity of the goods covered by the alleged Supply Contract." The Liquidators said that the same imprecision prevented the SR, as pleaded, being found to have been made. I do not agree. In the context of the conversations containing concerns about the dependency of ANP on Pan, the relevant essence of the conversations in 1995/1996 and 1999 was sufficiently phrased in [55A] of the Statement of Claim as a future representation made on those dates.

Whether the SR was a continuing representation – the pleadings and the course of the trial

145	I have already expressed the view that the pleading of the SR was clearly of a future matter. The parties were at issue as to whether the hearing was conducted outside the pleadings in respect of the nature of the SR.
146	Before examining the competing submissions and the parts of the hearing to which they were directed, it is appropriate to consider the importance of this issue for the conduct of the trial. If a representation as to a future matter is to be falsified (with the assistance of s 51A), attention will be directed to the time of its making and whether, at that time, the corporation had reasonable grounds to make the representation: see s 51A. Questions of reliance may arise in any period after the representation was made, but a claim for contravention of s 52 on such a pleaded case would require attendance of the respondent to directing evidence to the point of time of the making of the representation.
147	A so-called continuous representation may take a number of forms, recalling, of course, that though s 51A requires the consideration of a representation, s 52 is concerned with conduct. If a representation is made and it becomes evident to the maker that what has been represented, though accurate when made, has become false, there may well be a duty to speak. In such circumstances, the conduct, including the failure to correct the position, may be taken to be misleading or deceptive. It is common ground that no such case was pleaded here.
148	Another form that a so-called continuous representation might take is that in all the circumstances it can be taken as being repeatedly or even continuously made, that is remade. It is unproductive to seek to categorise or label such circumstances. It is enough to say that the infinite possibilities of human conduct might give rise to it. The representation so repeatedly or continuously made could be one as to a present state of affairs or, conceivably, as to a future matter. In the former case, such a representation would be falsified by proof of the state of facts at any point along the relevant time continuum. In the latter case, such a representation would be falsified by proof of the lack of reasonable grounds at any point along the relevant time continuum.
149	The important difference between such continuous representations (especially as to a future matter) and conduct rendered misleading by the failure to speak is that in the former, all that would need to be proven along the relevant time continuum is that the representation was false or, if as to a future matter, that there were no reasonable grounds for making it, whereas in the latter, knowledge of the falsity may well be required.
150	The above is not intended as an exhaustive (or even non-exhaustive) taxonomy of the ways representations can arise in conduct for the purposes of s 52 of the TP Act: cf Accounting Systems 2000 (Developments) Pty Limited v CCH Australia Ltd (1993) 42 FCR 470 at 503-506. Rather, these comments illustrate the importance of accurately identifying what conduct is said to be misleading or deceptive, and the respects in which such conduct is said to be misleading or deceptive.
151	Here, the pleading was clear – two representations as to future matters, the QAR and the SR, said to have been made by different acts: the Manufacturing Agreement (as to the QAR) and by Mr Selim making the statements referred to in paragraphs (c) and (d) of [18] of the Statement of Claim (as to the SR). Without some clear basis to depart from the pleading, based on the conduct of the trial, the parties would ordinarily be entitled to expect that the controversy would be determined on the basis of the pleading.
152	The parties to the appeal pointed to various aspects of the conduct of the trial. The Liquidators pointed to the following:
(a)	In its written submissions to the primary judge, ANP framed the SR as a future representation on the basis of the conversations in the presence of Davis and Robinson.

In the submissions on the tort case (in section B of its written submissions in chief), ANP stated the following in [3] of those written submissions:

Between at least 1995 and 2002 Pan made a number of representations to ANCP to the effect that Pan was ready, willing and able to continue to supply ANCP with therapeutic goods; that any risk to ANCP arising out of ANCP’s reliance or dependence on Pan for the supply of product was negligible or immaterial; and that Pan was and would continue to be compliant with requirements of the Therapeutic Goods Administration (TGA).

These representations were then dealt with at length in the following paragraphs ([4]-[19] of the written submissions of ANP), exclusively by reference to the conversations involving Messrs Davis and Robinson. These submissions were in section B1 of those written submissions. The misleading or deceptive conduct case was addressed in section C of those submissions. In section C, dealing with the SR, the following appeared at [49] and [55]-[58]:

49. Pan represented to ANCP that Pan would continue to supply all or most of ANCP’s requirements as to therapeutic goods (FASC [55A]). ANCP refers to its submissions at B1 above.

...

The Supply Representation

55.	For the reasons set about above at B2 the supply representation was with regard to a future matter.

56.	Again Pan has failed to discharge its onus of showing that it had reasonable grounds for making the Supply Representation.

57.	Pan has not called any witness to prove that its manufacturing processes were compliant with the Code such that it had reasonable grounds for giving an assurance of future supply, and the Court should draw the inference that such evidence would not have assisted the respondents’ case.

58.	The only evidence on which Pan apparently relies in this regard is records relating to GMP audits apparently carried out by or on behalf of the TGA from time to time. However such evidence does not discharge the respondents’ onus:
a.	such evidence establishes no more than that certain audits were carried out;
b.	such documentary evidence, of itself, has no weight absent evidence as to the circumstances and procedures by which the audits were carried out including by whom, what was done, what processes were checked, and the extent to which Pan’s manufacturing procedures were analysed – and, in particular, absent any witness called on the critical question, namely whether Pan’s processes were in fact compliant; and
c.	most particularly, little or no weight could be given to such evidence in circumstances in which other evidence establishes that employees or officers of Pan sought in the period leading up to 28 April 2003 to mislead the TGA, including by manipulating raw data to misrepresent results, fabricating finished product testing results, and by improper substitution of product (TVB, vol 3, p 128).

[emphasis added]

(b)	In oral address in chief at the trial, counsel for ANP put the SR case in the same way. After referring to [3] of the written submissions in chief, he said the following (at T 443):

What we have done then is recite in paragraphs 4 and following the evidence on which we rely to make good those propositions.

This was repeated in oral address later at T 444-445, 472-473 and 508-509. By way of example, the passages at T 472-473 dealt with both the QAR and SR, but for convenience should be read together. (I will return to the QAR and whether it too can legitimately be described as a continuous representation.) At T 472-473 counsel for ANP said:

The other representation is the supply representation and that is a representation that ANCP [sic] would continue to supply all or most of ANCP’s requirements as to therapeutic goods and in that regard we simply refer to the factual matters in respect of the statements made by Mr Selim that are analysed earlier in the submissions. Then we come to establishing that the representations were misleading and deceptive. The Quality Assurance Representation as I’ve said was with respect to a future matter. We plead 51A in that phrase the evidentiary burden on the respondents and the quality assurance representation was made in the manufacturing agreement from 4 April 2002.

There is an admission in the pleading that there was a failure to comply with GMP from 1 May 2002. So we say that to satisfy its onus of showing that there were reasonable grounds for making the representations as at 4 April 2002 Pan would need to show that it had a reasonable basis as at that day to aver that its procedures conformed to the Code and there was no evidence supportive of that proposition.

...

Then the supply representation; now that raises more complex issues. Once again we advert back to the submissions before about the statements made by Mr Selim about continuing supply and it creates an issue of a similar kind but here the representations were made in 1995 and again in 1999. So a considerable period has elapsed between the making of representations and the ceasing to supply. So the task is to determine whether or not my friends can establish that Pan had reasonable grounds for making the representations that were made in 1995 and 1999.

Now what it would appear, I gather, from documents in the tender bundle that my friends rely on in that regard are some documents which deal with audits carried out and the issuing of licences to Pan between 1995 and 1999 and more particularly – as I understand it my friends say that because Pan had a licence and because audits were carried out which enabled it to continue to hold that licence it must have had reasonable grounds for making the representation that it made. However, if I could take your Honour to some of those documents and they are in exhibit 20A – that’s volume 1 – your Honour you will see at page 111 – this is just one of the documents and I suppose my friend will develop his submission in this regard in duce course but ---

(c)	During the course of the hearing, after the completion of Mr Selim’s evidence, the primary judge asked Mr Stoljar (counsel for ANP) how he proposed to "falsify the representations, the s 52 case and perhaps the tort case". To which enquiry the following answer was given:

What we say about the representations for the TPA case is that they were representations as to future matters. They were representations that the compliance would be ongoing, on into the future, and that when it is clear compliance with the TPA requirements ceased it is then for my friend to prove, if he can, that there was some basis for making the representations as to future matters.

Although, with the benefit of what has since been argued, there may conceivably be some ambiguity read into that passage, my view is that it was a statement that the representations were as to future matters and that it was up to the Liquidators to prove a reasonable basis for making them (that is, at the time they were made).

153	In answer to these submissions, ANP submitted on the appeal that the SR was ongoing and continuously made and that that was how the issue was pleaded and run below. It pointed to a number of matters as follows.

(a) It first referred to [18] of the Statement of Claim and submitted in its written submissions on the appeal as follows:

Paragraph 18 of the statement of claim alleges that Pan gave various assurances to ANCP at various times between 1995 "and 2002 (inclusive)". There is no suggestion in ANCP’s pleading that Pan’s representations in respect of supply were confined or limited to those made in the period 1995 to 1998;

This was an inaccurate distillation of [18] of the Statement of Claim, which stated that "at various times between 1995 and 2002 (inclusive), ANP made it known to Pan, or in the alternative by course of dealing Pan knew full well, that..." The particulars in paragraphs (c) and (d) were only ever directed to the conversations involving Messrs Davis and Robinson.

(b) ANP then referred to its written submissions at trial (set out at [152] above) as referring to "between at least 1995 and 2002". This, however, was dealt with in the paragraphs following in those very written submissions by reference only to the conversations involving Messrs Davis and Robinson.

(c) ANP then referred to its submissions in reply at the hearing. Before looking to those submissions, it is necessary to recognise that no allegation had been made about the SR being other than a representation as to a future matter either in the pleading or the submissions in chief. In this context, the Liquidators had said the following at [147] of their written submissions at the trial:

The respondents submit:

(a)	the Court should find on the balance of probabilities that:
i.	the representation alleged by Mr Schadel concerning the TGA requirements was not made; and
ii.	the alleged statements in relation to supply were made by Mr Selim in relation to Pan’s capacity to satisfy the applicant’s orders;
(b)	the alleged statements were not representations;
(c)	if the statements were representations they were not false or misleading or likely to mislead;
(d)	the statements were not representations about future matters (see para [6] of the applicant’s written submissions) but statements in the present tense in relation to the present capacity of Pan to supply product to the applicant in 1995 and 1998/1999;
(e)	alternatively, if they were representations about future matters:
i.	they were reasonably made; and
ii.	there is no allegation of a continuing representation.

[emphasis added]

In answer to these written submissions of the Liquidators, ANP said the following at [26] of its submissions in reply at trial:

The conversations with Mr Davis and Mr Robinson are key conversations to this effect and are those dealt with in detail in ANCP’s Final Written Submissions, as the parts of these relating to TGA compliance are contested by Mr Selim (see below). However, many other conversations occurred over time between Mr Schadel and Mr Selim, in which regard their evidence is consistent, to the effect that Pan would continue to supply ANP. These conversations are referred to in paragraph 3 of ANCP’s Final Written Submissions, where it is stated that between at least 1995 and 2002 Pan made a number of representation to ANCP to the effect, inter alia, that Pan was ready, willing and able to continue to supply ANCP with therapeutic goods.

[emphasis added]

These "other conversations" were then described in [29]-[34] of the written submissions in reply at the trial. ANP made reference to "other conversations which took place between at least 1995 and 2002" (at [29]-[33]) of these submissions in reply). In none of these conversations was there any express assurance as to supply. That is, to use the wording of [55A] of the Statement of Claim, no "statement", and to use the wording of paragraphs (c) and (d) of [18] of the Statement of Claim there was no "assurance", by Mr Selim as to supply. These "other conversations" were exchanges dealing with a continuing business relationship. Certainly, as the primary judge found at [87] of his reasons, there were regular discussions between Mr Schadel and Mr Selim, the content of which was only explicable upon the basis of a continuing business relationship. They were seller and supplier, and Messrs Schadel and Selim regularly talked about business. This does not mean that there was at all relevant times some on-going representation as to supply.

ANP also made reference (at [34] in these written submissions in reply) to evidence of Mr Schadel, without specificity as to time, that "Mr Selim gave me verbal undertakings that he would always supply our products...". Mr Schadel’s affidavit in chief, however, only referred to the conversations that involved Messrs Davis and Robinson by way of express assurances in the character of the SR.

(d) ANP then referred to its oral submissions at the hearing. These were submissions in reply at the end of oral addresses, after the Liquidators had made their point about the form of the pleadings. The assertion was made to the primary judge by counsel for ANP that the SR was a continuing representation, as follows:

We reply on our written submission in reply in respect of the continuing representations and the factual matters which are set out.

...

We say that the statement of claim pleads that Pan would continue to supply all or most of ANCP’s requirements and that both on the pleading and on the evidence further representations were made establishing that those representations were continuing representations and we have endeavoured to set out in more detail the evidence in that regard in paragraphs 28 and following.

It is to be noted that "paragraphs 28 and following" are the paragraphs discussed at (c) above.

(e) ANP also referred to the last exchange between the primary judge and senior counsel for the Liquidators. After Mr Stoljar, counsel for ANP, concluded his submissions, the following exchange took place between the primary judge and Mr Sullivan QC, senior counsel for the Liquidators:

His Honour: ... Mr Sullivan, anything that you are seriously embarrassed about?

Mr Sullivan: No, your Honour.

This should not be taken as Mr Sullivan accepting that the hearing could be taken to have been conducted otherwise than on the pleadings. He had made his point about the scope of ANP’s case and did not have to repeat himself.

154	In my view, taking into account all these submissions, the following is plain. The Statement of Claim contained no pleading of a so-called continuing representation. The SR in [55A] of the Statement of Claim was clearly a pleading of a representation as to a future matter based on the statements or assurances referred to in (c) and (d) of the particulars to [18] of the Statement of Claim. Those particulars, in the context of the word "statements" in [55A], plainly refer to express assurances to that effect. That is how the detailed affidavit of Mr Schadel dealt with the issue. That is how the detailed written submissions in chief by ANP dealt with the issue. The express assurances to that effect were said to have been made by Mr Selim in the conversations at which Messrs Davis and Robinson (separately) attended.
155	There was no case pleaded of a failure to warn. There was no case pleaded that by reason of a total body of conduct over the period 1995 to 2002 or 2003 Pan represented at all times, or continuously represented, or represented in a way that was renewed and remade from time to time, in terms of the SR.
156	Without seeking to lay down any rule, it is sufficient to say here that the Liquidators were entitled to marshal and present their case on the basis of the case as pleaded. No amendment was sought to be made after the Liquidators pointed out that ANP’s case on the SR was based on the conversations involving Messrs Davis and Robinson. The last exchange with the primary judge did not work a change to the case. Mr Sullivan had made his point about the case.
157	In my view, having looked carefully at all the material referred to by the parties on appeal, the primary judge erred to the extent that he decided the case beyond a pleading of the SR as a representation as to a future matter arising from the conversations in 1995 and 1999. The issue of contravention of the SR was the existence or not, at those times, of reasonable grounds for the making of the representation.

Whether the QAR was a continuing representation – the pleadings and the course of the trial

158	The pleading in [55] of the Statement of Claim was plainly of a representation as to a future matter.
159	Some of the above discussion deals with both the SR and the QAR.
160	Further, reference should be made to ANP’s written submissions in chief at the trial. In dealing with the making of the representations, ANP submitted the following to the primary judge in [43]-[44], [48], [50]-[54] of those written submissions in chief:
43.	Pan represented to ANCP that it would conduct its manufacturing processes so as to comply with the Code (FASC [55]) (the Quality assurance representation).

44.	The Quality Assurance representation was conveyed to ANCP by the Manufacturing Agreement... (and it predecessors entered into in 1995... and 1998...) by the terms of the Manufacturing Agreement and, more generally, the context in which the Manufacturing Agreement was entered into.

...

48.	By reason of the foregoing, the proposition that Pan was conducing its manufacturing processes conformably with the Code and would continue to do so is plainly implicit in the Manufacturing Agreement.

...

50. The Quality Assurance representation was with respect to a future matter: namely, the future, continuing supply of therapeutic product by Pan to ANCP.

51.

ANCP has pleaded and relies on section 51A of the TPA. The effect of section 51A is to throw the evidentiary burden on the respondents to establish that grounds for making representation existed; in the absence of such evidence section 51A has the consequence that the representations will be taken to be misleading... . Pan has failed to discharge this onus.

52.	The Quality Assurance representation was made by Pan on and from 4 April 2002 (TB vol 2/790).

53.	Pan admits in its defence that it failed to comply with GMP in relation to the therapeutic goods manufactured and supplied to ANCP or other customers between 1 May 2002 and 28 April 2003.

54.	Given that Pan was not complying with the requirements of the Code on and from 1 May 2002 there is no evidence whatsoever to suggest that it was compliant on 4 April 2002, about four weeks earlier.

[footnotes omitted]

Although the phrase "and from" in [52] might be the foundation for an argument about some continuous representation, the submissions in [54] about contravention make it clear that all of these submissions were directed to supporting a representation as to a future matter, made by the Manufacturing Agreement or by entry into the Manufacturing Agreement on 3 April 2002, the falsity of which (and thus the contravention of s 52) was to be assessed by reference to the existence, or not, of the reasonable grounds for making it at the time that it was made.

161

In my view, having looked carefully at all the material referred to by the parties on appeal, the primary judge erred to the extent to which he can be seen as having decided the case beyond a pleading of the QAR as a representation as to a future matter arising from the entry into the Manufacturing Agreement on or about 3 April 2002. The issue of the contravention of the QAR was the existence, or not, at that time, of reasonable grounds for the making of the representation.

Whether the QAR and SR were misleading or deceptive

The proper approach to the operation of s 51A

162	Given the relevance of s 51A by the nature of both the QAR and the SR, it is necessary first to deal with the content and effect of s 51A.
163	Section 51A is in the following terms:

(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.

(2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

(3) Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.

164	There has been discussion in the cases as to the content and effect of s 51A(2). Does it place the burden of proof upon the representor to prove, on the balance of probabilities, that there were reasonable grounds for making the representation? Does it merely require that the representor adduce some evidence "to the contrary" as a means of nullifying the statutory deeming provision? What is the proper operation of s 51A(2)?
165	In ascertaining the content and meaning of s 51A, and in particular s51A(2), the immediate enactment history of the provision is of assistance. This enactment history can be seen as part of the context (in the "widest sense") of the introduction of s 51A: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85 at 112; Network Ten Pty Ltd v TCN Channel Nine Pty Limited [2004] HCA 14; (2004) 218 CLR 273 at 280-281 [10]- [11] and the cases otherwise cited in Braverus Maritime Inc v Port Kembla Coal Terminal Ltd [2005] FCAFC 256; (2005) 148 FCR 68 at 81 [36].
166	Section 51A was introduced by the Trade Practices Revision Act 1986 (Cth), consequent upon the passing into law of the Trade Practices Revision Bill 1986 (the "Revision Bill"). In 1985, an earlier Bill had been introduced into Parliament, the Trade Practices Amendment Bill 1985 (the "Amendment Bill"). The Amendment Bill, cl 21 contained a proposed new s 51A, which was in the following terms:

Interpretation

"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.

(2)	The onus of establishing that a corporation had reasonable grounds for making a representation referred to in sub-section (1) is on the corporation.
(3)	Sub-section (1) shall not be taken to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead."

[emphasis added]

167

The Explanatory Memorandum to the Amendment Bill contained the following discussion of cl 21 and the proposed s 51A:

72.

Difficulties have occurred in relation to the ability of relevant provisions of Division 1 of Part V to deal with false or misleading statements, representations or predictions about future matters. The circumstances surrounding these representations are often matters within the knowledge of the person or corporation making the representation, and it has therefore been difficult to obtain conclusive proof of dishonesty or recklessness from the surrounding circumstances without an admission of guilt from the defendant.

73.	These problems were highlighted in Thompson v Mastertouch TV Services Pty. Ltd. (1977) 15 A.L.R. 487, in which Franki J. held that:

... ‘a prediction or statement as to the future is not false within the words of [s 59(1)] if it proves to be incorrect unless it is a false statement as to an existing or past fact which may include the state of mind of the person making the statement or of a person whose state of mind may be imputed to the person making the statement.’ (Page 495)

74.

Accordingly, a promoter’s promise or prediction as to the performance or profitability of a business opportunity is not presently caught unless it is based on existing or past facts. Another problem identified in that case was that a promoter’s promise or prediction is not caught by the Act unless it can be shown that the defendant ‘did not believe that the forecast or prediction would be satisfied or was recklessly indifferent concerning the forecast or prediction.’

(Ibid., page 495)

75. The new s. 51A deems a prediction made by a corporation in relation to matters specified therein to be misleading for the purposes of Division 1 of Part V (including s. 52) unless the corporation making the prediction has reasonable grounds for making the prediction. The onus is on the corporation to establish on the balance of probabilities that it had reasonable grounds for the belief.

[emphasis added]

168

When the Amendment Bill went to the Senate, it was examined by the Senate Standing Committee for the Scrutiny of Bills. The 17th Report of that Committee, dated 4 December 1985, commented on the proposed s 51A. The terms of reference of the Committee required it to report on the effect of proposed legislation which by express words or otherwise, amongst other things, "trespass unduly on personal rights and liberties". The concern of the Committee with the proposed s 51A(2) was in its effect on the operation of the TP Act in a criminal context. The proposed s 51A in the Amendment Bill was not confined (as it was not when passed) to (the non-criminal) s 52; rather, it applied and applies to the whole of Division 1 of Part V. In this context, the Committee said:

The Senate Standing Committee for Constitutional and Legal Affairs recommended in its Report, ‘The Burden of Proof in Criminal Proceedings’ (Parliamentary Paper No. 319/1982) that the burden of establishing a defence (the persuasive onus) should not be placed on defendants in criminal proceedings but rather that they should merely be required to bear an evidential onus, that is the onus of adducing evidence of the existence of a defence, the burden of negativing which will then be borne by the prosecution. Thus, in the present case, the corporation might be required to adduce evidence that it had reasonable grounds for making the representation in question, evidence which the prosecution would then be required to rebut to sustain its charge.

The Committee drew the clause to the attention of the Senate under principle 1(a)(i) in that by imposing the persuasive onus of proof on the defendant it might be considered to trespass unduly on personal rights.

169	The Committee then recorded the Attorney-General’s detailed response to the views of the Committee, which referred to the difficulties discussed in Thompson v Mastertouch TV Services (1977) 29 FLR 270 and other cases. The Committee recorded the Attorney-General’s conclusion as follows:

In my opinion, it is clear that, without reversing the persuasive onus of proof, the Act is ineffective to deal with predictions and forecasts. Therefore, consistent with the Commonwealth’s policy stated above, as the state of mind of the defendant when making the prediction is a matter peculiarly within the knowledge of the defendant, I consider the reversal of the persuasive onus of proof is permissible in this case.

170	The Committee was not persuaded, and expressed its conclusion as follows:

In most criminal proceedings the prosecution is required to prove the state of mind of the accused and it is difficult to see why belief as to the correctness of promises or predictions should be in any different position. The Committee suggest that in this case a reasonable balance would be struck by placing on the defendant an evidential burden, since the basis upon which it makes its predictions is peculiarly within its knowledge, but then requiring the prosecution to rebut the evidence so advanced.

The Committee therefore continues to draw the clause to the attention of the Senate under principle 1(a)(i) in that by imposing the persuasive onus of proof on the defendant it may be considered to trespass unduly on personal rights and liberties.

171

For reasons which it is unnecessary to canvass, the Revision Bill was introduced into Parliament in March 1986 and the Amendment Bill was withdrawn from the Senate shortly thereafter. (See Parliamentary Debates, House of Representatives, Vol H of R 147, 11 March – 11 April 1986 p 1624.) Clause 21 of the Revision Bill and the proposed s 51A were in precisely the same terms as the equivalent clause and proposed provision in the Amendment Bill. The part of the Explanatory Memorandum that accompanied cl 21 of the Revision Bill was also in identical terms to that which accompanied cl 21 of the Amendment Bill. Thus, at this stage, the Government refused to accommodate the views of the Senate Standing Committee on s 51A(2).

172

When the Revision Bill in that form went to the Senate, a new s 51A(2) was proposed by Senator Haines (a member of the Senate Standing Committee), in terms identical to the terms of the current s 51A(2). On 17 April 1986, Senator Haines expressed the reasons for this proposed change as follows (see Parliamentary Debates Vol S 114 8 April – 8 May 1986 p 1863):

I refer the Committee to the Scrutiny of Bills Committee report on the Trade Practices Amendment Bill. The Scrutiny of Bills Committee raised some considerable objections to the reversal of the onus of proof and argued that an absolute reversal of that kind was something that it found objectionable, while it was not as concerned if it referred only to the evidential burden. The substance of the amendment that we have put before the Committee today is to amend the legislation so that it fulfils the Scrutiny of Bills Committee recommendation with regard to the evidential onus of proof being as far as the change goes, rather than having an absolute reversal of that onus. It is something that the Scrutiny of Bills Committee raises on a regular basis when governments try to reverse the onus of proof in this manner. It is something that the Senate in the past has objected to. I hope that either the Opposition or the Government will see its way clear to support this amendment.

173	The Government in the Senate (through Senator Evans) expressed its acceptance of Senator Haines’ proposal for the reasons she expressed.
174	When the Revision Bill 1986 was returned to the House of Representatives with the amendments made by the Senate (including the substituted s 51A(2) in clause 21), the Attorney-General (the Hon Lionel Bowen) stated the following in Committee on 2 May 2006 concerning the Senate’s changes (Parliamentary Debates Vol H of R 148 14 April – 8 May 1986 p 2989):

Amendment No. 2 places an evidential burden on the defendant to adduce that it had reasonable grounds for making its prediction. This amendment arose as a result of the concern of the Senate Standing Committee for the Scrutiny of Bills. Whilst the Government would prefer that the proposed section be not altered, it considers that this amendment does not derogate significantly from the protection sought.

175	Thus, the enactment history of s 51A(2) reveals that the Senate perceived a difference between an "absolute reversal of the onus of proof" (which it found "objectionable") and the reversal of the "evidential onus of proof" (which it did not find objectionable and to which the provision was directed). It also reveals that the Senate’s concern was with the operation of Division 1 of Part V of the TP Act in the criminal law context. It also reveals that the Attorney-General did not consider the changes to derogate "significantly" from the protection provided for; though it is clear that he perceived a difference.
176	Of course, the relevant intention to be ascertained is not the personal intention of Senator Haines, or the members of the Senate Standing Committee, or Senator Evans, or the Attorney-General, but rather it is the intention of Parliament in the words used by it. This immediate enactment history, however, does temper any assumption that Parliament intended s 51A(2) simply to reverse the onus of proof, without regard for the specific words used by it for the effect of the provision on the onus of proof.
177	A number of cases have addressed the issue. In a number of decisions in this Court, and elsewhere, the view has been expressed that s 51A(2) effects a reversal of the onus of proof. Sometimes, this has been expressed by some qualification such as referring to it as the "practical" onus of proof, or that "in effect" the onus has been placed on the representor: see generally, Adelaide Petroleum NL v Poseidon Limited (1988) ATPR 40-901 at 49,700; Wheeler Grace & Pierucci Pty Limited v Wright (1989) ATPR 40-940 at 50,254; Ting v Blanche [1993] FCA 524; (1993) 118 ALR 543 at 552; Miba Pty Limited v Nescor Industries Group Pty Limited (1996) 141 ALR 525; Phoenix Court Pty Limited v Melbourne Central Pty Limited [1997] FCA 1101; Australian Competition and Consumer Commission v IMB Group Pty Limited (1999) ATPR 41-704 at [13]; Blacker v National Australia Bank [2000] FCA 681 at [83]; City of Botany Bay Council v Jazabas Pty Limited [2001] NSWCA 94 at [85] and [105]; Concrete Construction Group v Litevale Pty Limited (2002) ATPR (Digest) 46-224 at [156]; Australian Competition and Consumer Commission v Henry Kaye [2004] FCA 1363 at [133]; Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Limited [2005] FCA 1703; and Lewarne v Momentum Productions Pty Limited [2007] FCA 1136.
178	Some of these cases recognised it to be the evidential burden that was the subject of the work of s 51A(2): for example, Phoenix Court [1997] FCA 1101 at 7.
179	Some of these cases refer to s 51A(2) as reversing the persuasive onus: Australian Competition and Consumer Commission v IMB Group Pty Limited (1999) ATPR 41-704 at [13]; Blacker v National Australia Bank [2000] FCA 681 at [83]; Australian Competition and Consumer Commission v Henry Kaye [2004] FCA 1363 at [133]; Australian Competition and Consumer Commission v Emerald Ocean [2006] FCA 1703 and Lewarne [2007] FCA 1136.
180	On the other hand, in Australian Competition and Consumer Commission v Universal Sports Challenge Limited [2002] FCA 1276, Emmett J expressed the view that the words of s 51A(2) did not effect a reversal of the persuasive or legal onus of proof, saying at [46]:

Another question concerning the effect of s 51A(2) is whether the provision does no more than require a corporation to go into evidence. That is to say, it does not ultimately reverse the onus but simply provides that the deeming takes effect unless the corporation adduces some evidence to the contrary. Once such evidence is adduced, it is for the Court to make a judgment, on the balance of probabilities, having regard to all the evidence, as to whether the corporation had reasonable grounds for making the representation. If an applicant elects to adduce no evidence as to that question, then the only evidence before the Court would be that adduced by the corporation. Whether that is adequate to establish that the corporation had reasonable grounds for making the representations is a matter for the Court. However, once the corporation has adduced some evidence, there is no deeming arising from s 51A(2).

181	In Australian Competition and Consumer Commission v Danoz Direct Pty Limited [2003] FCA 881, Dowsett J commented on these views of Emmett J as follows at [172]-[173]:

The Explanatory Memorandum to which I have referred stated that the intention underlying the enactment of s 51A was to place the onus of establishing reasonable grounds upon the relevant representor.  It may be that the section did not achieve that result.  In Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 at [46], Emmett J observed:

Another question concerning the effect of s 51A(2) is whether the provision does no more than require a corporation to go into evidence.  That is to say, it does not ultimately reverse the onus but simply provides that the deeming takes effect unless the corporation adduces some evidence to the contrary.  Once such evidence is adduced, it is for the Court to make a judgment, on the balance of probabilities, having regard to all the evidence, as to whether the corporation had reasonable grounds for making the representation.  If an applicant elects to adduce no evidence as to that question, then the only evidence before the Court would be that adduced by the corporation.  Whether that is adequate to establish that the corporation had reasonable grounds for making the representations is a matter for the Court.  However, once the corporation has adduced some evidence, there is no deeming arising from s 51A(2).

That view seems to be inconsistent with the Explanatory Memorandum.  On the other hand, it accurately reflects the wording of s 51A.  His Honour did not find it necessary to resolve the question.  See also Kellcove Pty Ltd v Australian Motor Industries Ltd & Anor [1990] FCA 306 (Woodward J, unreported judgment, delivered 6 July 1990), Cummings v Lewis & Ors (1993) 41 FCR 559, Phoenix Court Pty Ltd & Ors v Melbourne Central Pty Ltd (1997) ATPR (Digest) 46-179, Blacker v National Australia Bank Ltd [2000] FCA 681, City of Botany Bay Council v Jazabas Pty Limited (2001) ATPR (Digest) 46-210, Ting & Anor v Blanche & Anor [1993] FCA 524; (1993) 118 ALR 543 and Australian Competition and Consumer Commission v IMB Group Pty Ltd (1999) ATPR 41-704.  Most of these authorities suggest that the effect of s 51A is to place the ultimate burden of proof of reasonable grounds upon the representor.  It may be that I, like Emmett J, will not have to decide the question.

It is to be noted that the Explanatory Memorandum to which Dowsett J referred concerned the unamended Revision Bill which in terms provided for a reversal of the onus of proof. (See [90]-[98] above.)

182

In Australian Competition and Consumer Commission v Oceana Commercial Pty Limited [2003] FCA 1516 at [240], Kiefel J noted these views of Dowsett J and Emmett J, but expressed no views of her own.

183

In ACCC v Henry Kaye [2004] FCA 1363 at [130]- [133], Kenny J specifically referred to Universal Sports Challenge [2002] FCA 1276 and said that Emmett J was wrong. Her Honour followed what she considered to be the effect of the authorities to which Dowsett J had referred in Danoz Direct [2003] FCA 881. Nicholson J took the same approach in Emerald Ocean [2005] FCA 1703 at [176], following "the weight of authority, at least until the issue is authoritatively decided otherwise". In Lewarne [2007] FCA 1136, Stone J also refused to accept Emmett J’s views in Universal Sports Challenge [2002] FCA 1276, stating at [82]:

With respect, I am not inclined to accept this interpretation of s 51A(2). I would read the phrase ‘evidence to the contrary’ as meaning evidence adduced by the person making the representation that, to the satisfaction of the Court, establishes that there were reasonable grounds for making the representation. In other words, I interpret the subsection as providing that the person making the representation can only avoid the deeming provision by establishing on the usual balance of probabilities that there were reasonable grounds for making the representation. The equivalent provision of the Fair Trading Act, s 41, addresses the question more directly. There is no statutory deeming, merely a clear statement in s 41(2) that the onus of establishing reasonable grounds is on the person making the representation.

184	In Fubilan Catering Services Limited v Compass Group (Australia) Pty Limited [2007] FCA 1205, French J approved of the views of Emmett J in Universal Sports Challenge [2002] FCA 1276 (though not referring to Stone J in Lewarne [2007] FCA 1136) when he said the following at [545]:

The way in which the section was pleaded was close to unintelligible. Paragraph 68 seemed to suggest that it was invoked as an element of the prohibition imposed by s 52. But s 51A "... does not of itself create a cause of action, nor ... define a norm of conduct": Ting v Blanche [1993] FCA 524; (1993) 118 ALR 543 at 552 (Hill J). It does not create a cause of action independent of that created by s 52 when read with s 82. There are authorities which say that it casts a burden of proof on the respondent: see Ting [1993] FCA 524; 118 ALR 543; Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) 46-179 at 54,432 (Goldberg J). It certainly casts the "evidential burden" on the respondent in the sense of an obligation to adduce evidence on the issue of whether there were reasonable grounds for making the representation. It does not impose on the representor the legal or persuasive burden to prove that it had reasonable grounds for making the representations alleged. As Emmett J said of s 51A in Australian Competition and Consumer Commission v Universal Sports Challenge [2002] FCA 1276, the section 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".

185

If the issue was one of deciding upon the proper content of s 51A(2) in the light of conflicting first instance decisions of this Court and other courts, the task for this Court as an intermediate court would be to declare the law assisted, but not bound in any way, by the first instance decisions. There are, however, two intermediate appellate decisions which need to be considered. The approach to these decisions in the interpretation of a national statute such as the TP Act is clear. The considered interpretation placed on uniform national legislation (co-operatively passed by the Commonwealth, State and Territory polities) and national Commonwealth statutes by an intermediate appellate court in the Federation should not be departed from unless the later court (including an appellate court) is "convinced that the other interpretation is plainly wrong": Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 492 and Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 236 ALR 209 at 253 [135] (the principle being in the latter case extended to the common law of Australia). The approach is especially important in the interpretation of one of the most important pieces of national commercial legislation, the regular subject of consideration by Commonwealth, State and Territory courts in the exercise of federal jurisdiction. Also, s 51A(2) is replicated in the terms of two State Acts and one Territory Act dealing with consumer protection: the Fair Trading Act 1987 (SA), s 54(2), the Fair Trading Act 1990 (Tas), s 11(2) and the Fair Trading Act 1992 (ACT), s 11(2). (Other State provisions take the form of the unamended proposed s 51A(2) in the Amendment Bill and the Revision Bill.)

186

In Jazabas [2001] NSWCA 94, Mason P (with whom Beazley JA agreed) after referring to the reasons of Heerey J in Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513, said the following at [85]:

The third proposition stated by his Honour is, I think, implicit in the provisions. Were it otherwise, the sections would throw the inquiry into the full realm of the law of negligence, calling for consideration of what the respresentor ought to have taken into account, an enquiry that would track back into investigating the scope of any duty of care. Rather, the sections effectively require the representor to identify the facts or circumstances (if any) actually relied upon before turning it over to the trier of fact to decide whether they were objectively reasonable and whether they support the representation made. This approach to s 51A(2) was recently adopted and applied by Katz J in Blacker at [86]ff".

187

The reference by Mason P to [86]ff in Blacker [2000] FCA 681 and the balance of [85] of Jazabas [2001] NSWCA 94 together make clear that Mason P was dealing with the time of the assessment of the existence of reasonable grounds and the universe of material to which one turns in making that assessment. Mason P was not dealing with the question of the extent to which s 51A(2) reverses the onus of proof, a question dealt with by Katz J at [83] in Blacker [2000] FCA 681 where Katz J had said the following:

It is accepted in the cases (see Ting v Blanche [1993] FCA 524; (1993) 118 ALR 543 at 552 (FCA: Hill J), followed in Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) |P 46-179 at 54,432 (FCA: Goldberg J) and in ACCC v IMB Group Pty Ltd (1999) ATPR |P 41-704 at 43,021, [13] (FCA: Drummond J)) that, in spite of its reference merely to the adducing of certain evidence by the corporation concerned, the effect of subs 51A(2) of the TPA is to impose on that corporation the burden of persuading the trier of fact that it had reasonable grounds for making the representation concerned, in default of which persuasion it will be held to have breached (relevantly) subs 52(1) of the TPA.  Certainly, the NAB did not argue in the present case for a different construction of subs 51A(2) of the TPA

It is to be noted that the views of Katz J following the cases to which he referred were not the subject of argument.

188

Thus, Jazabas [2001] NSWCA 94 stands as no authority for the content of the operation of s 51A(2) in respect of the operation or reversal of the onus of proof.

189

In Downey v Carlson Hotels Asia Pacific Pty Limited [2005] QCA 199, Keane JA (with whom Williams JA and Atkinson J agreed) discussed the operation of s 51A. After discussing the conclusion of the trial judge in that case that there was inadequate evidence to conclude that there had been reasonable grounds for the financial predictions that had been made in that case, Keane JA said the following at [126]-[129]:

[126] The alternative submission put forward by the appellant was that, even if it be accepted that the evidence before the learned primary judge did not disclose reasonable grounds for the making of the representations as to future matters, the fact that the appellant had led some evidence as to this issue at trial was sufficient to shift the evidentiary onus back to the respondents. In other words, once the appellant had put evidence forward it was up to the respondents to prove that reasonable grounds for making the representations did not exist at the time they were made. The appellant relies on the decision of Emmett J in Australian Competition and Consumer Commission v Universal Sports Challenge Ltd ...as authority for interpreting s 51A in this way. In that case, Emmett J said that:

" ... [s 51A] does not ultimately reverse the onus but simply provides that the deeming takes effect unless the corporation adduces some evidence to the contrary. Once such evidence is adduced, it is for the Court to make a judgment, on the balance of probabilities, having regard to all the evidence, as to whether the corporation had reasonable grounds for making the representation. If an applicant elects to adduce no evidence as to that question, then the only evidence before the Court would be that adduced by the corporation. Whether that is adequate to establish that the corporation had reasonable grounds for making the representations is a matter for the Court. However, once the corporation has adduced some evidence, there is no deeming arising from s51A(2)."...

[127] This submission should be rejected for two reasons. The first is that, as has been recognised elsewhere, it was unnecessary for Emmett J to express any concluded view on this issue, and the appellant's contention is against the trend of established authority. ... The second point is that it seems to me that, understood correctly, Emmett J is only advancing the common sense proposition that, 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. If this is all that was meant by his Honour's remarks then I would respectfully agree with them.

[128] It follows that I do not read the reasons of Emmett J to go so far as to suggest that the burden shifts back to a representee once evidence has been adduced by the representor. The wording of s 51A(2) means that if the evidence adduced by a representor is not actually "to the contrary", ie it does not tend to establish reasonable grounds for making the representation, then no evidence of the kind required by the section will have been adduced and there is no reason why the deeming provision contained in s 51(2) [sic: s 51A(2)] would not continue to operate. It would, of course, be a matter for the court to determine whether or not the evidence adduced was "to the contrary". The result is that the learned primary judge in this case was correct to decide this issue by looking to see if the appellant had adduced evidence capable of proving that it possessed reasonable grounds for the representations that it made. He concluded that such evidence had not been adduced. That view was correct in my respectful opinion. The appellant's submission on this point must be rejected.

[129] For the sake of completeness, it should also be noted that, even if the appellant'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 appellant's challenge to this aspect of his Honour's decision should fail. First, the evidence of the appellant's preliminary forecasts relating to the project was tendered by the respondents. For that reason, the respondents contend, correctly in my view, that even on the view of the onus provisions of s 51A for which the appellant contends, the onus remained on the appellant to establish a reasonable basis for making the representations in question.

[emphasis in the original]

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 s51A(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 in Fubilan , set out at [184] above.
191	It is important to understand that the submission of the appellant that Keane JA rejected was that once "evidence was put forward", the onus to prove a lack of reasonable grounds was on the representee. Keane JA did refer to "the trend of established authority", by reference to Danoz Direct [2003] FCA 881 and Henry Kaye [2004] FCA 1363. In the latter case, as I have said, Kenny J expressly rejected the views of Emmett J in Universal Sports Challenge [2002] FCA 1276. Importantly, however, Keane JA then, in [127] and [128], expressed his understanding of what Emmett J had said. That understanding, which Keane JA said reflected common sense, 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. In my respectful view, to the extent that decisions such as IMB Group (1999) ATPR 41-704; Blacker [2000] FCA 681; Henry Kaye [2004] FCA 1363; Lewarne [2007] FCA 1136 and Emerald Ocean [2005] FCA 1703 say, or may be taken as saying, that the legal or persuasive onus of proof is shifted to the representor by s 51A(2), they are wrong. None examined the enactment history of s 51A. If it be thought, contrary to my reading of Keane JA’s reasons, that his Honour’s reference to Henry Kaye [2004] FCA 1363 as "established authority" was a conclusion that s 51A(2) effected a reversal of the legal and persuasive onus of proof, I would be driven to the respectful view that his Honour was plainly wrong for the reasons that I have given.
193	To the extent that this interpretation of s 51A(2) may lead to an inconsistency between the Commonwealth, Australian Capital Territory, South Australian and Tasmanian provisions, on the one hand, and the simpler onus-shifting provisions elsewhere in Australia in terms similar or identical to the proposed s 51A(2) in cl 21 of the Amendment Bill or the Revision Bill, on the other hand, that is a result of clear Parliamentary choice (at least in respect of the Commonwealth Parliament), not any quirk or idiosyncrasy of judicial interpretation.
194	If, contrary to my view (and subject to the operating of the deeming provision) the legal or persuasive onus does rest on the representor because of s 51A(2), this will be so not only in civil actions under ss 52 and 82, but also in criminal prosecutions under provisions such as ss 53 and 79 of the Trade Practices Act. This would, in my view, be in the teeth of the intention of the Commonwealth Parliament reflected in the words of s 51A(2), as made manifest by an understanding of the provision’s enactment history.
195	I should add that, in submissions, the Court was assisted only by a reference by the parties to Universal Sports Challenge [2002] FCA 1276.
196	One further complexity arises in relation to s 51A(2), but it is best exposed and illuminated by reference to the evidence adduced by the Liquidators.
197	I turn to the evidence and the submissions of the parties as to whether the representations were misleading.

Whether the representations were misleading or deceptive

198

The time at which to assess whether there were reasonable grounds for the representation is the time at which the representation was made: Sykes v Reserve Bank 88 FCR at 513, and Jazabas [2001] NSWCA 94 at [83]. Thus, the relevant points of time here are 1995/1996 and 1999 (for the SR) and 3 April 2002 (for the QAR). The evidence that was relevant to the misleading or deceptive character (or not) of both the SR and QAR was essentially of the same kind: the records of audits by the TGA and the licensing and certifying of Pan by the TGA.

The SR

199	The pleading of contravention at [57] of the Statement of Claim did not assert any relevant fact as at 1995/1996 and 1999. But reliance was placed on s 51A ([55B] of the Statement of Claim).
200	There was no doubt that Pan was ready and willing to supply at all times until 2003. The judge so found: [94] of his reasons. His Honour, however, said the following at [91]-[94]:

[91] Was it misleading or deceptive, or likely to mislead or deceive, to make either or both of those representations? Pan admits that it did not comply with the Code in relation to the therapeutic goods manufactured and supplied by Pan to Naturalcare between 1 May 2002 and 28 April 2003 and makes a similar admission in relation to therapeutic goods manufactured and supplied by it to other customers between 1 May 2002 and 28 April 2003. It also admits that its manufacturing licence was suspended by the TGA as a result of its failure to comply with what is described as Good Manufacturing Processes. Pan takes the point that the admission is as from 1 May 2002 but the Agreement was entered into in April and was said to be operative from 1 March 2002. That distinction is of little merit. There is no evidence of any relevant change of circumstances between 1 March 2002 and 1 May 2002. The audits by the TGA on 30–31 January 2003, 24–25 February 2003 and 7–11 and 14 April 2003 and the reports upon them, together with the report of the TGA Expert Advisory Group of 23 April 2003, and the various notices pursuant to ss 30, 40 and 41 of the TGA Act given in 2003 are cogent evidence of the failure by Pan to comply with the Code by reason of serious systemic deficiencies. Pan did not call evidence to establish compliance with the Code during 2002 and 2003 or at any time. It did not call evidence to explain or rebut the effect of the TGA investigation and the conclusions that can be drawn from it. I am quite satisfied that Pan was in serious breach of the Code during 2002 and 2003.

[92] The position in earlier years is not so clear. The TGA audit reports show significant deficiencies, but Pan continued to be licensed. Pan did not call evidence to prove compliance with the Code or that there was a proper basis for representations of compliance. On the other hand, Selim was not cross-examined on that topic. The extent of his involvement in, and knowledge of, the manufacturing process is not clear. The gist of the case is not based upon the earlier representations being a breach of s 52 when made. It is that they continued to be part of the basis upon which business was done in 2002 and 2003. It also follows that the fact that different Pan entities were involved in manufacturing prior to Pan Pharmaceuticals Limited taking over in 2000 does not affect the cause of action against it.

[93] The consequence is that the Quality Assurance representation was misleading if viewed as a statement of existing circumstances at the commencement of and during the term of the 2002 Manufacturing Agreement. That contract continued in force until the recall. Breach of s 52 does not have to be intentional or negligent. If the Quality Assurance representation carried with it a representation as to future conduct, no reasonable grounds are established for making such a representation.

[94] The situation in relation to the Supply representation is somewhat different. Pan was ready and willing to supply. Indeed, it continued to supply up until the suspension and recall. However, Pan was ultimately unable to supply because of the failure to comply with the Code leading to the consequent suspension and loss of licence. What is more, the true situation for all of 2002 and the relevant part of 2003 was that the failure to comply with the Code rendered Pan liable to suspension and cancellation of licence at all times. I am satisfied that the Supply representation was objectively misleading and deceptive for the whole of the relevant period. I am also satisfied that, to the extent that it related to the future, no reasonable grounds are established for making it.

201	The finding in [94] that for all of 2002 Pan failed to comply with the Code will be dealt with when the asserted misleading quality of the QAR (made on 3 April 2002) is dealt with.
202	It is unclear whether the second-last and last sentences of [94] of the primary judge’s reasons extend before 2002. Much of [91], [93] and [94] would tend to the conclusion that his Honour was dealing only with 2002 and 2003 on the basis (impermissibly, for the reasons that I have given) that the SR was some form of continuing representation, whether of present fact or as to a future matter. The appeal was conducted on the basis that the primary judge intended the last sentence of [94] to be a rejection of the Liquidators’ submissions that there were reasonable grounds for making the SR in 1995/1996 and 1999. In this respect, the Liquidators complained on appeal that the primary judge failed to consider, or properly consider, the evidence adduced and relied upon by the Liquidators. Before coming to that evidence, it is first necessary, once again, to see how the matter was put by the parties at the hearing.
203	In its submissions in chief to the primary judge to the effect that the Liquidators were required to establish that Pan had reasonable grounds for making the representation in 1995/1996 and 1999 (see the oral submission at T 472, cited at [76] above), ANP submitted in [57] and [58] of its written submissions that Pan had not called any witness to prove the manufacturing processes, and that the audit certificates were an inadequate basis to conclude that there were reasonable grounds for making the SR (see [42] above).
204	In response to these submissions, the Liquidators relied, at the hearing and on appeal, upon documentary records which showed that Pan had been subjected to regular audits by the TGA and had been granted a licence by the TGA. On appeal, ANP made various criticisms of these records in order to impugn their reliability.
205	In order to assess the question of reasonable grounds for making the SR in 1995/1996 and 1999, it will be necessary to say something about all this evidence, including the audits and other TGA documentation in 2003, the year of the recall. To a significant degree, this examination will cover the ground necessary for the assessment as to whether reasonable grounds existed in April 2002 to make the QAR. For now, however, all this material will be examined for the purposes of assessing the SR in 1995/1996 and 1999.
206	As referred to in the introduction to the Code set out at [9] above, the Code contained the criteria for inspectors for evaluating manufacturing establishments and for the granting of licences after audits.
207	The Liquidators adduced evidence of audits and licences from 1994 to 2003. I will deal with the material chronologically.
208	An audit by the TGA was carried out over three days in February 1994, involving six inspectors, no notice having been given. By March 1994, various steps were taken by Pan in relation to identification of samples, documentation, quality control and validation that arose from the audit. A licence to manufacture was issued to Pan, subject to conditions, on 12 May 1994.
209	Another audit by the TGA took place on 14 and 15 February 1995. The audit report contained some criticism of aspects of Pan’s operations. Whilst the matters raised took up some pages of the audit report, no threat to Pan’s licence was identified and the auditor commented at the outset:

Based on the audit the auditor is able to report that in general terms the company had in place facilities, procedures and operating standards that indicated basic compliance with the general requirements of The Manufacturing Principles and where relevant the current code of GMP for Therapeutic Goods, Medicinal Products (August 1990). It was apparent to the auditor that the company continues to demonstrate a commitment to the improvement of its standards of operation and the related requirements of the Code of GMP.

There was evidence that by 7 April 1995, Pan had responded to the list of matters referred to in the audit report in an apparently tolerably comprehensive way.

210	Another audit by the TGA took place on 14, 15 and 16 November 1995. The audit report stated that Pan was operating to an acceptable level of compliance with the Code. Various specific deficiencies were identified "for the company’s information and attention." There was correspondence between Pan and the TGA in relation to this report, which included the steps being taken in relation to specific identified matters.
211	Pan’s licence to manufacture was renewed on 13 August 1996.
212	There was no basis from this information to consider in 1995/1996 that there were other than reasonable grounds for any view that Pan was conducting its operations in a manner likely to lead to its licence being retained.
213	An audit was carried out by the TGA on 21, 22 and 23 April 1997. A letter from the TGA describing the results stated that:

...the auditor observed an acceptable level of compliance and has commented favourably on the company’s commitment to GMP.

...

The auditor identified "non-conformances" with the Code that were discussed with Pan for its attention. Once again, there was ensuing correspondence between TGA and Pan about these matters, in which correspondence there was no suggestion of any threat to Pan’s licence.

214	Pan’s licence was renewed on 17 March 1998.
215	Another audit was carried out by the TGA on 16, 17 and 18 November 1998. Some "non-conformities" were identified. Responses were given to these issues promptly by Pan. There was nothing expressed in the audit report which reflected any danger to the licence of Pan. As with all the audit reports, the audit was stated to be for the purpose of assessing Pan’s "compliance with the Manufacturing Principles issued under the Therapeutic Goods Act 1989, in connection with its licence to manufacture therapeutic goods under the Act."
216	Pan’s licence was renewed on 15 October 1999.
217	On 17 December 1999, the TGA issued to Pan a "Certificate of Good Manufacturing Practice Compliance", which stated, amongst other things:

From the knowledge gained during the audit carried out on 16-18 November 1998, it is considered that the company has maintained an overall acceptable level of compliance with the Australian Code of GMP for Medicinal Products which encompasses all the recommendations of the World Health Organisation in relation to GMP.

...

218	Pan’s licence was renewed on 22 March 2000.
219	On 13 April 2000, the TGA issued to Pan another "Certificate of Good Manufacturing Practice Compliance" in slightly amended form to that issued on 17 December 1999. This certificate, like the one issued the previous December, was based on the audit carried out on 16, 17 and 18 November 1998.
220	There was no basis from this information to consider in 1999 that there were other than reasonable grounds for any view that Pan was conducting its operations in a manner likely to lead to its licence being retained.
221	Another audit was carried out by the TGA on 22 and 23 January 2001. There were "significant nonconformities" that were identified in the audit report. The report appeared to categorise non-conformities as "Critical" and "Other Significant". Despite this categorisation, the non-conformities were fewer in number than in previous audit reports. There was nothing said in the report which appeared to indicate that Pan’s licence was in any danger of revocation or suspension.
222	On 10 May 2001, the TGA issued another "Certificate of Good Manufacturing Practice Compliance", this time based on the audit conducted on 22 and 23 January 2001. The certificate stated, amongst other things:

From the knowledge gained during the audit carried out on 22-23 January 2001, it is considered that the company has maintained an overall acceptable level of compliance with the Australian Code of GMP for Medicinal Products which encompasses all the recommendations of the World Health Organisation and PIC in relation to GMP.

...

223	This certificate was issued again on 23 November 2001.
224	Pan’s licence was renewed on 24 January 2002.
225	Another audit was carried out by the TGA on 30 April 2002. The report for this audit was not put into evidence.
226	Pan’s licence was renewed on 28 June 2002. It can be inferred that this was done on the basis of the audit on 30 April 2002.
227	At this point in the chronology, the admissions made by the Liquidators, set out at [41] above, become relevant.
228	On 30 and 31 January 2003 a "special" audit was conducted by the TGA (all others had been apparently routine or in the ordinary course, though generally conducted without notice). The audit arose from the recall of a product called "Travacalm" because of adverse reactions of consumers and unacceptable variations in the concentration of an operative ingredient. The objectives of the audit were expressed in the audit report to be to investigate the probable causes of the recall and to assess compliance with the Manufacturing Principles and with conditions of the licence. The audit report stated as follows:

The audit revealed a number of significant deficiencies, including three items classified as critical. As indicated during the inspection, these deficiencies were to be referred to the Chief GMP Auditor and a Section Review Panel for further consideration, including the possibility of amendment, suspension or revocation of the company’s licence.

...

The detailed audit report identified numerous "critical deficiencies". Most of the report, though not all, concerned the Travacalm products. Some were very serious findings about deliberate and systematic manipulation of laboratory analysis results about batches of Travacalm.

229	After this audit, the TGA wrote to Pan in early February 2003 and stated the following:

...

The recall was prompted by a series of adverse reaction reports, some of which involved hospitalisation of people after taking Travacalm tablets. Some of these people became so ill that they required special intensive care while in hospital. Testing of samples of the recalled product by TGAL revealed wide variations in the content of one of the active ingredients, hyoscine hydrobromide (labelled content of 200 mcg per tablet); variations ranged from 0% to 700%.

The special GMP audit revealed critical non-compliance with the Therapeutic Goods (Manufacturing Principles) Determination No. 2 of 2002 made under subsection 36(1) of the Therapeutic Goods Act 1989 ("the Act") for the manufacture of Travacalm tablets and other tablet products containing low doses of active ingredients. Manufacturing Principle No. 2 of 2002 requires therapeutic goods to be manufactured in accordance with the Australian Code of Good Manufacturing Practice for Medicinal Products dated 16 August 2002 (Australian Code of GMP).

The deficiencies noted, amounting to non-compliance with Australian Code of GMP, during the audit include:

-	No evidence that the active ingredient had been properly milled.
-	Unreliable pre-mixing and blending steps.
-	Product not manufactured in accordance with conditions of registration.
-	Manufacturing process, including uniformity of mixing, had not been properly validated.
-	Equipment used during manufacture had not been properly identified on batch documentation.
-	Non-standardised and non-validated batch sizes.
-	Inadequate change control procedures.
-	Inadequate validation of analytical methods.
-	Test data had been systematically and deliberately manipulated (by eliminated "out of specification" results) to give results that were within specification.

A copy of the TGA’s report of the special audit is enclosed. This provides more detail on all deficiencies and non-compliance with the Code of GMP noted during the audit.

Based upon the deficiencies included in TGA’s report of the audit, I am satisfied that Pan Pharmaceuticals Limited has failed to comply with the Manufacturing Principles for the manufacture of tablet products requiring content uniformity testing under Therapeutic Goods Order No. 56. Consequently, I have decided to impose a new condition on your manufacturing licence (Licence No 117602) under section 40(2) of the Act. The new condition will read:

"This licence does not authorise the manufacture of any products that would be required by Therapeutic Goods Order No. 56 to have a uniformity of content test".

I have decided that this variation to your licence will take effect immediately because of the imminent risk of death or serious injury to persons taking tablet products requiring content uniformity testing under Therapeutic Goods Order No. 56 that have been manufactured by Pan Pharmaceuticals Limited.

A new manufacturing licence containing this new condition will be forwarded to you in the next few days.

...

230	A licence thus amended was issued to Pan on 5 February 2003.
231	Another audit was carried out by TGA on 24 and 25 February and 7, 8, 9, 10, 11 and 14 April 2003. It is necessary to examine the comments in this audit report and the other critical documents dealing with Pan’s non-compliance issued in 2003 with some care, given the primary judge’s use of them at [91] of his reasons as evidence of systemic deficiencies revealing the non-compliant position of Pan in early April 2002, and before.
232	The audit report of the February and April 2003 audit contained an "overview" in the following terms:

The audit revealed:

(i)	That the issues identified during the (30-31 January ’03) audit investigating the recall of Travacalm, were not restricted to that product;
(ii)	That "corrective actions" to previous TGA audits were unsatisfactory,
(iii)	(Further) Non-conformities:

- With respect to:

• The Manufacturing Principles; and

• The conditions of the company’s licence to manufacture Therapeutic Goods;

and

(iv)	Nine aspects regarded as critical:

...

233	The audit report then dealt in detail with these four areas with nine aspects that were regarded as critical, which included the following:

(a) data manipulation: This concerned four additional incidents to the five reported in the January 2003 audit. These four were products different from Travacalm, manufactured in October and November 2002 and January 2003.

(b) results fabrication: This concerned "compelling evidence" that test results from a third party were substituted with fabricated values to misrepresent four batches. These were four cod liver oil products manufactured in February and March 2003.

(c) substitution of chondroitin from shark cartilage with that from bovine cartilage: This concerned five batches. These five batches were manufactured in February and April 2002. A similar incident had previously been raised about a batch manufactured in August 2000.

(d) deficient raw material and finished product control: Important systemic deficiencies were identified. Also, importantly, the audit report appears to implicate a named person who was the General Manager at Pan and the person responsible for the correspondence with the TGA after each audit and, I would infer, for Pan’s actions in responding to disclosed non-conformities. The detailed commentary on these deficiencies referred to products manufactured in July and August 2002, in respect of which this person passed before they were tested. Other products were released in 2003 without testing. There were also records of raw material that failed specification, but were nonetheless used in manufacturing product. The records indicate this occurred in at least September and November 2002 as well as 2003.

(e) critically deficient controls for ensuring compliance with conditions of registration or listing: These concerned a number of products, in particular involving changes to formulations whether by omitting or substituting ingredients to approved formulae. The evidence of these deficient controls occurred in March 2001, February and April 2002, August, September, October and December 2002 and January 2003.

(f) critically deficient process controls: These concerned various products, being evidenced by events in September and November 2002 and January 2003. Many of the complaints about systematic problems were not dated. It should be noted, however, that one aspect of the complaints was inadequate investigations and remedial action following process or testing problems identified in the April 2002 audit and in January 2003.

(g) inadequate assurance about cross-contamination: These deficiencies could be seen as current problems in equipment, cleaning and systems.

234	On 23 April 2003, an Expert Advisory Group met with TGA members. The advice of this group was sought as to whether the matters thrown up in the February and April 2003 audit report reflected risks of death, serious illness or serious injury. The group expressed the opinion that the "multiple failures of GMP identified in the [TGA] auditors’ report... create risks of death, serious illness or serious injury...".
235	On this basis, Pan’s licence was suspended by notification in a letter dated 28 April 2003. By another letter of the same date, listings of the medicines identified in the letter were cancelled and a product recall was effected. Importantly for the argument on appeal, the product recall was made from 1 May 2002, and not any earlier.
236	Against the background of this evidence, the findings of the primary judge at [91] of his reasons, the arguments of the parties, the conclusions about the SR and QAR expressed earlier and the operation of s 51A, must all be assessed.
237	First, for the purposes of nullifying the deeming effect of s 51A(2), does that body of evidence suffice as "evidence to the contrary" of the SR being made without reasonable grounds in 1995/1996 and 1999?
238	A further question arises at this point about the operation of s 51A, to which reference was made earlier (see [120] above). Are the Liquidators entitled to point to only some of the evidence adduced by them as "evidence to the contrary" or must they seek to show, from all the evidence adduced by them, that there is evidence to the contrary? For instance, if one examined the evidence chronologically up to 30 April 2002, one could discern a history of audits, of apparent sufficient compliance and response to identified non-conformities with the Code to enable the Liquidators to state that as at 1995/1996, 1999 and 3 April 2002, there were reasonable grounds for the SR and the QAR to the extent that each contained a representation that Pan was and would in the future be in sufficient substantive compliance with the Code to be entitled to have and retain its licence. This body of evidence could be seen as tolerably clear "evidence to the contrary" of any lack of reasonable grounds for making the SR and QAR in 1995/1996 and 1999, and 3 April 2002, respectively.
239	What is the position, however, if the assessment about whether evidence to the contrary has been adduced must take into account all the evidence adduced by them, including the 2003 audit reports, report of the Expert Advisory Group and the TGA letters to Pan in April 2003?
240	It is not necessary to answer this question in relation to the SR. In respect of the SR, in my view, taking the approach less favourable to the Liquidators – that is taking all the evidence led by the Liquidators, including the investigations of 2003, that evidence does admit of the inference that Pan had reasonable grounds to make the SR in 1995/1996 and 1999. In other words, that evidence is "evidence to the contrary" for the purposes of s 51A(2). It is true that significant specific and systemic problems were revealed in the 2003 audit. These matters reached back into 2002 in significant respects. Other, isolated instances reached back to 2000 and 2001. The widespread and serious deficiencies identified in 2003 did not expressly or by implication lead to a view that the earlier audits in 1994, 1995, 1997, 1998 and 2001 had been either less than competently done or so inadequate in their sampling as to permit Pan to retain its licence and be issued with certificates of good practice in circumstances where there was substantial non-compliance with the Code. Evidence to the contrary having been adduced by the Liquidators, the deeming provision no longer operated. There was no other evidence adduced by ANP on this issue, and so it cannot be concluded that the SR was made without reasonable grounds. There was no attempt by anyone to call witnesses as to the state of Pan’s systems from 1994 or 1995. The party which or who bore the ultimate onus carries the disadvantage of that. Here, however, taking all the evidence of audits as a whole, I consider that the Liquidators adduced evidence to the contrary of the proposition that there were no reasonable grounds for making the SR in 1995/1996 and in 1999.
241	As to the QAR, the Liquidators argued for the same conclusion. Pan entered into the Manufacturing Agreement on 3 April 2002. The admissions of the Liquidators ran from 1 May 2002. The TGA recall, in the context of an acute appreciation of the risk of death, serious illness or serious injury, was made from 1 May 2002. The Liquidators emphasised the audit on 30 April 2002 (although its terms were not tendered) leading to the grant of the licence in June 2002. The Liquidators submitted, in effect, that there was evidence to the contrary of the QAR being made on 3 April 2002 without reasonable grounds.
242	At this point, the question posed above as to the operation of s 51A(2) might be seen to become important. If the Liquidators are entitled to point to the evidence of audits and certificates up to, but no further than, 30 April 2002, they will have adduced evidence as to the reasonable grounds for the QAR on 3 April 2002, and thus "to the contrary" for the purposes of s 51A(2). If that be so, the more problematic evidence arising from the 2003 audits and reports would be assessed with the statutory deeming provision eliminated. This 2003 material would need to be sufficiently strong for it to permit ANP to carry the onus of proof that, despite the evidence of audits and certificates up to 30 April 2002, there were in fact no reasonable grounds for the making of the QAR on 3 April 2002. If, on the other hand, to assess whether there has been evidence to the contrary one must examine all the evidence on the subject matter adduced by the Liquidators, the question is whether all that material, taken as a whole, is contrary to the proposition that there were no reasonable grounds for making the QAR on 3 April 2002. In the latter case, if the 2003 material only neutralised the effect of the earlier material (up to but no further than 30 April 2002), and in that sense meant that there was not evidence to the contrary, the issue would be determined by the statutory presumption. Thus, the answer to the question that I have posed might be critical in any given case. No argument was placed before us on this question. Difficult questions of statutory presumptions in evidence, including those operating in the criminal law, might intrude: see Heydon JD and Cross R, Cross on Evidence (7th ed, Butterworths, 2004) pp 249 ff.
243	Looking at the evidence here and approaching the matter in a way most favourable to the Liquidators, that the evidence up to, but no further than, 30 April 2002 was "evidence to the contrary" for the purpose of the removal of the deeming effect of s 51A(2), in my view, the evidence as a whole supports the primary judge’s conclusion at [91] of his reasons that ANP proved that Pan was in serious breach of the Code during 2002. This is sufficient for ANP to prove that there were no reasonable grounds to make the QAR on 3 April 2002.
244	The seriousness of the problems recognised by the April 2003 audit, the source or provenance of a considerable number of the problems in 2002, the systemic nature of a number of the problems, the apparent serious nature of some of the behaviour of Pan employees (including, it would appear, the general manager) and the lack of any foundation to conclude that there was any sharp differentiation between 3 April 2002 and 1 May 2002 in such a systemically deficient manufacturing environment, lead me to conclude that the primary judge was correct in his findings in this regard, or that there was no error in the finding.
245	Taken as a whole, the evidence adduced by the Liquidators not only fails to admit of the inference that as at 3 April 2002 there were reasonable grounds for the making of the QAR, but admits of the conclusions drawn by the primary judge that there were serious breaches of the Code in 2002, and thus that there were no reasonable grounds to make the QAR on 3 April 2002.

Reliance on the QAR

246	The primary judge concluded that Mr Schadel relied on both the SR and the QAR, stating the following at [95] and [96] of his reasons:

[95] I am satisfied that Naturalcare, through Schadel, did rely upon the Quality Assurance representation and the Supply representation. Counsel for Pan relied upon some factors to negative reliance, for example, the intention to source product from Amrion; the pattern of purchase from other suppliers; the freedom reserved by Schadel to acquire goods from other suppliers if price were favourable; and the variety of manufacturers Naturalcare had listed with the TGA to manufacture its products. It is submitted for Pan that the express evidence of reliance given by Schadel should be given little or no weight, citing Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 at 246 n64.

[96] Chappel v Hart does not compel that conclusion. Indeed, the absence of such evidence could be fatal to a claim of reliance and causation. In the present case, Schadel’s evidence accords with commercial reality. Naturalcare continued to acquire most of its goods from Pan and was lulled into what was a false sense of security by the assurances over the years and entry into the Manufacturing Agreements. It is obvious that if Schadel had thought that there was any real danger of Pan losing its licence because of non-compliance with the Code, he would have taken steps to reorganise the business to minimise dependence upon Pan for supplies. In essence, Schadel was induced not to reorganise the Naturalcare business to reduce dependence upon Pan as a supplier. The misleading conduct does not have to be the sole cause of the action or inaction said to cause the damage (I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited [2002] HCA 41; (2002) 210 CLR 109 per Gleeson CJ at [33], per Gaudron, Gummow and Hayne JJ at [57], per McHugh J at [90]–[93] per Callinan J at [216]).

247	The Liquidators submitted that these conclusions were not open on the evidence.
248	Mr Schadel gave evidence of reliance which the primary judge accepted. The primary judge was in a position of considerable advantage in drawing that conclusion.
249	The Liquidators first rely upon the criticism made of evidence of what would have been done if another posited event had occurred. Reliance was placed on the views of McHugh J in Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 at 246 in discounting the views of injured plaintiffs as to what they would have done to avoid their injury if appropriate warnings had been given. Making all due allowance, if I may respectfully say so, for the great common sense of these views, nevertheless, parties must deal with reliance and with evidence of an alternative hypothesis when the issues in a case call for it. The person who can speak is the person who was there. Hindsight may affect the weight of the evidence, as will many other factors including the passage of time, the objective state of the facts, an understanding of common human affairs and the quality of the cross-examination. The legislation in New South Wales dealing with personal injuries that was referred to is of no assistance.
250	Here, there were other factors which might be seen to tend against reliance. Mr Schadel conceded that in 1999, ANP intended to source product from its principal shareholder, Amrion. ANP did not pursue this because Amrion failed to secure a TGA licence, not because of assurances of Mr Selim. Secondly, ANP’s purchasing was, at least from January 2000 to April 2003, only 43% by volume and 56% by value from Pan. Thirdly, it was Mr Schadel’s evidence that ANP was free to shop around and that ANP purchased the volume it did from Pan because of price. The primary judge had the distinct advantage of hearing this and all the other evidence in a nine day hearing. The evidence as a whole permitted the primary judge to conclude that ANP relied on the SR and the QAR. The primary judge (wrongly in my respectful view) took those as continuing representations. That does not destroy reliance on the SR and the QAR as future representations when made. The SR was not misleading or deceptive; the QAR was.
251	In my view, there has not been demonstrated, any error in the relevant conclusion of the primary judge that ANP relied on the QAR.
252	That takes one to damages.

Damages from contravention of the QAR

253

The Liquidators submitted that ANP had altogether failed to prove any loss and that the primary judge erred fundamentally in his approach to the issue. Central to these submissions were the assertions that ANP had chosen a unitary structure for its damages claims, being the contractual measure of damages, and that having failed in the contract claim it was left without proof of loss by the misleading or deceptive conduct of Pan for the purposes of s 82 of the TP Act, arising from the QAR.

254

Before examining how the primary judge approached the question of damages for the found misleading or deceptive conduct, it is of assistance to examine how the damages cases were put by ANP. Its contractual case was that Pan had repudiated a supply contract under which Pan promised.

...to manufacture and supply to ANP the goods customarily acquired by ANP from Pan at those quantities ANP customarily obtained from Pan.

255	The primary judge rejected this contract claim for a number of reasons. First, there were discrepancies between the underlying evidence and the pleaded terms, in particular the evidence that it was open to ANP to source products from alternative suppliers. Secondly, there was an inherent improbability of the parties intending to be bound by conduct when they carefully regulated their respective positions in successive Manufacturing Agreements in writing. Thirdly, there were insuperable difficulties in establishing what goods were covered by the alleged Supply Contract, given that it was said to extend beyond the goods listed in the schedule to the Manufacturing Agreement, to any product that the ANP had ever ordered and that Pan had ever manufactured for ANP in their 14 year relationship. Related to this was the finding by the primary judge that he was not satisfied that there was any pattern about the ordering practice of ANP to form the basis of a finding that there were customary quantities purchased. It was clear that ANP was free to shop around for the best price, and that it did so.
256	ANP accepted in the Statement of Claim that under the asserted Supply Contract either party could terminate the contract by six months notice in writing to the other.
257	ANP claimed that it had suffered loss and damages set out in [49] and [50] of the Statement of Claims, as follows:

[49] As a result of Pan’s repudiation of the Supply Contract, ANP has suffered the loss and damage particularised in the report of Raymond John McKewen dated 19 October 2005 ("the Expert Report") of $1,747,640, comprising:

(a)

‘loss of profits on non substitutable products’ $3,078,443 representing the loss of profits which ANP would have earned from the sale of certain ‘non substitutable’ goods had Pan continued to supply those products until expiration of the Supply Contract on 1 March 2008, there being no alternate supplier for these products; and

(b)

‘interim loss of profits on substitutable products’ $1,082,289 representing loss of profits with respect to ‘substitutable’ products, being goods for which ANP has (ultimately) found an alternate supplier, the claim being for lost profits during that ‘limbo period’ between termination and obtaining supply from an acceptable alternate source. But for Pan’s repudiation, APN [sic] would have made profits on the sale of the substitutable products during that limbo period and claims the lost profit; less

(c)	Adjustments for marketing, selling and distribution (MSD) costs and wages as set out in the Expert Report.

[50] In addition, ANP suffered loss and damage to the extent of $193,724 as a direct consequence of Pan’s repudiation of the Supply Contract, being certain types of loss claimed as part of ANP’s "Costs Claim", particulars whereof are set out in the Expert Report, and at paragraph 9.5.1 of the Report of Mr McKewen dated 15 July 2005.

258	The damages claimed by the asserted contravention of the TP Act were the same: [49] and [50] were simply repeated in [60] of the Statement of Claim. Likewise, these paragraphs were repeated in [66] in the pleading of the damages in the tort claim.
259	The reasons for this unitary approach to the pleading and proof were not explored. It is not difficult in a case such as this to appreciate that there may be tensions produced by leading evidence for differently structured damages cases. That said, the choice made by ANP was to rely upon the same evidence as was led in the contract claim. That does not mean that the measure of loss under s 82 of the TP Act was the contractual measure; rather, ANP relied on the evidence adduced in the contract claim to prove loss in the trade practices claim.
260	The primary judge referred to Murphy v Overton Investments Pty Limited [2004] HCA 3; (2004) 216 CLR 388 at [44]- [52]. As was made clear in that case, the measure of loss for a claim under s 82 of the TP Act is not to be constrained by common law rules. The TP Act contains important remedial tools such as orders under s 87 which may, in any given case, affect how the conception of loss or damage caused by contravening conduct is to be analysed and assessed. Primary consideration should be given, one would have thought, to the loss or damage as perceived and asserted by the applicant.

the loss here

261	The loss or damage caused by the asserted contravening conduct was that which arose out of the asserted (and found) reliance in the continued course of dealing and reliance on Pan without seeking alternative suppliers so as to reduce materially its reliance and dependence on Pan.
262	The question for the primary judge was whether the evidence put forward in the case was sufficient to enable him to reach a satisfactory conclusion as to that loss.
263	The primary judge began by pointing out that ANP had been placed in a difficult position by Pan. The primary judge said the following at [100] of his reasons:

In my opinion, the approach taken by Naturalcare is acceptable as a starting point (Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388 at [44]–[52]). As it was induced to do nothing, it did not get out of the way and was a sitting duck when hit by the runaway train. Quantification of the effects of the train wreck is a good starting point for the assessment of loss. Of necessity, the assessment of damages in a case such as this is imprecise. There is a body of material in evidence as to the financial performance of the Naturalcare business prior to and after the suspension of licence and product recall which forms the raw material for the necessary assessment. The fact that the witnesses have approached the matter in one way or another is not decisive.

264	The appellants criticised this as the use of a colourful and inapposite analogy. Leaving to one side the aesthetics of the metaphor, I do not agree with the criticism of the Liquidators. It was submitted that this was a loss of opportunity case and, therefore, attempts had to be made in the evidence to reconstruct the decision-making process and to prove what would have been done and how it would have been done. At one level of generality, that can be accepted. However, ANP was not obliged to prove their case in a manner required by the Liquidators. The real question is whether the facts proved permitted a conclusion to be drawn about the position in which ANP found itself, compared to the position it would or may have been in had the QAR not been made.
265	The Liquidators point to the fact that there was no proof of the ability to source alternative supply or the terms of such likely supply. In particular, the Liquidators submitted that ANP needed to prove a number of matters which, by reference to the reliance on the QAR can be taken to be the following:
(a)	there were products that were replaceable from 2002;
(b)	there were potential suppliers of the products it would have replaced in 2002;
(c)	the potential suppliers could and would have supplied Naturalcare at the same or similar profit levels in 2002;
(d)	the time-frame over which Naturalcare could have changed its business to not be dependent on Pan Pharmaceuticals in 2002;
(e)	following the Pan Pharmaceuticals recall, there was demand for the same or similar products which would have allowed Naturalcare to maintain its levels of sales of the same or similar products; and
(f)	following the Pan Pharmaceuticals recall, Naturalcare’s alternative suppliers could and would have supplied it at the same or similar cost or profit levels in circumstances where Naturalcare would not have had long-term supply agreements and Pan had been removed from the market as a supplier. Pan Pharmaceutical’s former customers were competing for supply from the remaining suppliers and Naturalcare would have had to compete against them for supply.
266	ANP answered this criticism by pointing out a number of aspects of the evidence. First, ANP pointed out that Mr Selim’s own evidence was that ANP could have obtained alternative supply before 28 April 2003. Secondly, the evidence of Mr Esler that was led by the Liquidators was that there were alternative manufacturers in the business of supplying therapeutic goods between 2000 and April 2003, had access to the same raw materials as Pan and made similar tablet and soft gel products as those manufactured by Pan. Thirdly, there was evidence led by ANP that, after April 2003 existing suppliers tended to favour existing customers. Fourthly, there was evidence led by ANP of continuing demand for products after the recall. Fifthly, there was evidence of Mr Schadel and Mr Davis that was accepted by the primary judge that they would have reorganised the business to minimise dependence upon Pan.
267	The force of these matters was sought to be deflected by the Liquidators by the submission that since ANP had stated at the trial that the only way to calculate damages was as was done, it was disingenuous for it now to point to evidence not relevant to the way it pressed for damages at the trial.
268	Before turning to the primary judge’s reasons, it is appropriate to set out how ANP put the matter in argument in chief at the hearing before the primary judge. In its written submissions in chief, ANP said that but for the misleading or deceptive conduct, it would have diversified its suppliers. In recognising these matters, ANP also recognised the potential complexity of four factors: the 14 year history of supply, the availability of goods from alternative sources prior to April 2003, the difficulties of supply after April 2003 and the development of some of ANP’s products by Pan. ANP then put the following in [65]-[69] of those written submissions:

[65] However, the evidence plainly establishes that but for Pan’s misleading and deceptive representations, ANCP would have decreased its reliance on Pan, both by obtaining product from a range of suppliers and by developing more generic product rather than complex slurry mix soft gels.

[66] As a result, when the recall occurred and Pan ceased to supply ANCP, ANCP would have been obtaining similar therapeutic product from other suppliers who were still able to supply.

[67] Further, ANCP would have been far better equipped in the market to obtain alternative suppliers for those products it still obtained from Pan as at April 2003. For example, Lipa Pharmaceuticals favoured existing customers in the period after the Pan recall.

[68] In the circumstances of the present case, the only practical or realistic way of quantifying the loss suffered by ANCP as a consequence of the misleading and deceptive conduct is by reference to the quantum of profit that ANCP would have realised from the sale of the Pan product as calculated in Mr Stuart’s Spreadsheet. ANCP’s case, however, is not that it would have realised profit on Pan product but for the misleading and deceptive conduct – rather, its case is that it would have obtained profit on similar volumes of therapeutic products obtained from other suppliers.

[69] This approach provides the best possible estimate of the loss and damage suffered by ANCP as a result of Pan’s misleading and deceptive conduct. Trying to hypothesise for the purposes of evidence on quantum a business developed over 14 years, with different suppliers of varying quantities of products, would not provide any better estimate of damage; on the contrary it would provide a less accurate estimate, as every element involved in the calculation would be speculative.

[footnotes omitted]

269	The primary judge, in effect, accepted this structural approach. He said at [101] of his reasons that the proposed measure of damages would be a good proxy for the loss flowing from not reorganising suppliers. He stated at [101]

If reorganisation of the business could have been completed so as to eliminate dependence upon Pan prior to the suspension of Pan’s licence, then the proposed measure of damages would be a good proxy for the loss caused by the misleading and deceptive conduct. If reorganisation would not have been completed, there would need to be a discount to reflect the extent to which reorganisation would not have taken place. The evidence of what occurred in relation to reorganisation after the recall is of some value in assessing what may have occurred in the 12 months prior to it. However, the latter period was complicated by widespread effect of the failure of Pan, which meant that many other customers apart from Naturalcare were scrambling to obtain supply. I am not satisfied that the divorce from Pan would have been complete by the time of the suspension of the licence, even if commenced in March 2002.

270	No specific attack was made on the reasonableness of these findings.
271	In [102] of his reasons, the primary judge then discussed the fall in revenue in the two years after April 2003. His Honour plainly, in the light of the rest of his reasons, was using the past revenue (in pursuance of the arrangements between Pan and ANP) as the hypothesis of alternative supply.
272	After making other adjustments which were not the subject of debate, the primary judge made an adjustment for a discount of 20% to take account of uncertainties expressed in [104] as:

...Then there should be some discount for the uncertainty as to whether the business would have been completely reorganised by the time of the licence suspension and for other uncertainties.

273

Ultimately the legitimacy of the structure of this approach is what was in issue. I am not persuaded that there was any error in the approach. Mr Selim’s evidence was an ample basis for concluding that alternative supply could have been obtained before April 2003. Whether or not a 20% discount was sufficient for the kinds of uncertainties identified by the primary judge may be debatable, but the argument of the Liquidators did not descend to such detail. There was evidence that suppliers were favouring their own existing customers after Pan’s collapse.

274

Overall, I think that there existed a sufficient evidential framework for the primary judge to approach the evidence as he did, using the posited contractual supply as a surrogate for re-organised supply from other suppliers, applying a discount for uncertainty.

The tortious count

275	Though it is strictly unnecessary for me to deal with the tortious count on the above view of the misleading or deceptive conduct claim, I express my agreement with the views of Emmett J on this aspect of the matter on the assumption that I am wrong about the misleading or deceptive conduct claim.

Fresh evidence on appeal

276

At the hearing of the appeal, the Liquidators sought to tender fresh evidence pursuant to the Federal Court of Australia Act 1976 (Cth), s 27. The evidence that they sought to tender was a document that was publicly available from the TGA website, which was said to explain why the recall went back to 1 May 2002. Mr Sullivan QC, who appeared for the Liquidators, frankly conceded, without being asked, that the document was reasonably available at the time of the hearing before the primary judge. The Court rejected the tender and indicated that it would give its reasons for so doing in the reasons for judgment. My reasons for rejecting the tender were as follows.

277

First, the document was available at the time of the hearing. Though that is not a factor found in the terms of s 27, it is a relevant consideration bearing in mind the primary function of the appeal court being to correct error: Branir Pty Ltd v Owston Nominees (No 2) Pty Limited [2001] FCA 1833; (2001) 117 FCR 424 at 438 [30]. Secondly, the tender was justified on the basis of meeting a new case. To the extent that that assertion arose from how the primary judge dealt with the issues, that submission could be seen as understandable. However, the appeal should be dealt with, as I have done so above, on the basis of how the case was pleaded and conducted at the trial. At the hearing of the appeal I saw, and I see now, no acceptable reason why the parties should not be held to their pleaded cases and to the evidence that they adduced at the trial. Thirdly, and related to the second point, the acceptance of this evidence would, in fairness, have opened up a contest about the period April to May 2002 in a way that would or could have required the appeal court to engage in a trial. That was not acceptable in circumstances where there were no compelling reasons justifying it.

Result

278	For the above reasons, I would dismiss the appeal, though I would hear the parties on costs, which can be done by the exchange of written submissions.

I certify that the preceding two hundred and one (201) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.

Associate:
Dated: 24 January 2008

Counsel for the Appellants:	Mr AJ Sullivan QC with Ms KC Morgan
Solicitor for the Appellants:	Blake Dawson Waldron
Counsel for the Respondent:	Mr J Stoljar with Ms KW Dawson
Solicitor for the Respondent:	Australegal
Date of Hearing:	31 July, 1 August 2007
Date of Judgment:	24 January 2008