Albert Needham v Australian Chemist Analysts Pty Ltd & Ors [1998] FCA 579 (20 April 1998)

Last Updated: 2 June 1998

FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - misleading and deceptive conduct - whether misrepresentations made by inventor of scientific process as to commercial viability of process - whether reliance on briefing document or statements made in demonstration video

EQUITY - fiduciary obligations - promoters - whether breach of fiduciary obligation by promoter to disclose intended profits to investor in scientific process - whether entitlement to equitable damages

Trade Practices Act 1974 (Cth) s 52

Fair Trading Act 1989 (Qld) s 38

ALBERT NEEDHAM v AUSTRALIAN CHEMIST ANALYSTS PTY LIMITED & ORS

No NG 332 of 1994

SPENDER J

BRISBANE

20 APRIL 1998

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	NG 332 of 1994

BETWEEN:	ALBERT NEEDHAM Applicant
AND:	AUSTRALIAN CHEMIST ANALYSTS PTY LIMITED First Respondent GUY IMRE ZOLTAN KALOCSAI Second Respondent RESEARCH INTERNATIONAL LIMITED Third Respondent
JUDGE:	SPENDER J
DATE OF ORDER:	20 APRIL 1998
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The application is dismissed.

2. The applicant pay the respondents' costs of and incidental to the proceedings.

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

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	NG 332 of 1994

BETWEEN:	ALBERT NEEDHAM Applicant
AND:	AUSTRALIAN CHEMIST ANALYSTS PTY LIMITED First Respondent GUY IMRE ZOLTAN KALOCSAI Second Respondent RESEARCH INTERNATIONAL LIMITED Third Respondent

JUDGE:	SPENDER J
DATE:	20 APRIL 1998
PLACE:	BRISBANE

REASONS FOR JUDGMENT

In these proceedings the applicant (`Mr Needham') seeks to recover the Australian equivalent of [sterling]60,656 Stg, together with interest, which was paid by him by way of risk capital in connection with a process called the `Kalocsai Liquid Hydro Carbon Solidification Process' which has as its objective the conversion of water immiscible liquid hydrocarbons, particularly oil and petrol, into a stable and more manageable fine grain-like solid form from which the liquid can be readily recovered by appropriate means. Mr Needham claims that he was induced to make the payment by mis-representations made orally, by means of a video and by means of a brochure concerning the Kalocsai process. Mr Needham alternatively claims that Mr Kalocsai was a promoter of two companies, Skylab International Limited and Research International Limited and breached his fiduciary obligation to make full disclosure of all profits he intended or in fact made from the promotion of those companies. It is asserted that in breach of that obligation Mr Kalocsai has misled and deceived Mr Needham and that he is entitled to equitable damages.

The third respondent, Research International Limited, which the evidence shows was a company incorporated according to the law of Malta some time in 1991, but the precise date of registration does not appear, has not been served and no relief was sought in the proceedings against it. The first respondent is an Australian incorporated company of which Mr Kalocsai is a director. Since the case for Mr Needham focuses on the representations which he says were false and which induced him to invest in the process, it is necessary to set out at some length the allegations by the applicant.

The statement of claim relevantly alleges:

"5. In or about May 1991 the Second Respondent represented to the Applicant on behalf of himself and on behalf of the First Respondent that the Second Respondent had invented a chemical method of converting a range of generally water immiscible organic liquids (including crude or processed petroleum products) and derivatives into a more manageable or more commercially attractive solid (`the chemical method').

6. In or about May 1991 the Second Respondent represented to the Applicant on behalf of himself and on behalf of the First Respondent that:

a) Highly volatile liquids (such as petrol) as a result of the chemical method could be made more manageable and their volatility controlled. To demonstrate this process the Second Respondent applied the chemical method to petrol and then applied a match to the resulting substance without it exploding.

b) By showing a video tape recording (`the video tape') to the Applicant, that:

i) the contents of the video tape were a true and accurate demonstration or portrayal of the result and effectiveness of the chemical method as shown on the video tape.

ii) That the tests shown on the video tape were examples of the application of the chemical method.

iii) That the statements made in the video tape were true.

c) That the conversion of a wide range (sic) immiscible volatile organic liquids into a manageable fine grain like solid material is readily achieved by applying the chemical method.

d) That the chemical method had a present application to large scale oil spills.

f) That Dr. Robert K. Fagan had authorised and prepared a document described as the "`Kalocsia' (sic) Liquid Hydro Carbon Solidification Process Background briefing document".

g) That the document described as the "Kalocsai Liquid Hydro Carbon Solidification Process Background briefing document" contained the opinion of Dr. Robert K. Fagan.

h) That the "Kalocsia (sic) Liquid Hydro Carbon Solidification Process Background briefing document" (the briefing document) was a fair and accurate portrayal of:

i) the applications of the chemical method;

ii) The stage of development of the chemical method;

iii) The likely commercial applications of the chemical method;

iv) The existence of present commercial applications.

v) The existence of present commercial applications of the chemical method;

vi) The prospect of the process obtaining patent approval;

i) The spillage of most liquid hydro carbons could be easily cleaned up using the chemical method.

j) The result of the chemical method on oil and water would result in the oil being collected with ease.

k) Petrol to which the chemical method had been applied would not combust as easily.

l) The result of application of the chemical method to oil was that the oil would be malleable in a solid form and not sticky.

m) The chemical method would enable the clarification of oils.

n) The chemical method was unlimited as to what it could achieve with oil and that its application included oil spills, petrol transportation, oil solidification and oil clarification.

o) The petrol and oil would be easily reclaimable after the application of the chemical method.

7. The First and Second Respondents' conduct and representations set out above was conduct in grade and commerce which was misleading and deceptive or likely to mislead and deceive contrary to the Trade practices Act and Fair Trading Act (Queensland).

The statement of claim further alleges that:

"9. Further in or about May 1991 the Respondents represented:

a) That the Second Respondent had incorporated in Malta a company known as "Skylab International Ltd";

b) That Peter Taylor was a shareholder of Skylab International Ltd and investor in the chemical method;

c) That the Second Respondent knew of many international companies that were interested in the chemical method but that until patents were approved, the chemical method was being kept secret.

d) That the Applicant could invest in the chemical method.

e) That the Applicant could purchase shares in Skylab International Ltd and such shares would be issued or allotted by Skylab International Ltd to the Applicant.

f) That the funds paid by the Applicant for shares would become part of the issued capital of Skylab International Ltd and would be used to pay the cost of applications for patents, administrative costs and further development work and research into the chemical method by Skylab International Ltd."

Each of these representations is alleged to have been false and misleading. The particulars of the falsification concerning the Skylab representations are:

" i) Skylab International Limited did not at May 1991 exist.

ii) Peter Taylor was not a shareholder or investor but a person engaged as an agent to obtain investment on behalf of the First and Second Respondents.

iii) It was not the intention of the Second Respondent to issue shares in Skylab International Limited to the Applicant.

iv) It was not the intention of the Second Respondent to use funds obtained from the Applicant for the costs of application for patents administrative costs and research of the chemical method by Skylab International Limited.

v) It was the intention of the Second Respondent on behalf of himself and on behalf of the Third Respondent to pay a portion of the monies paid by the Applicant for new shares to Peter Taylor as a business funding fee.

vi) It was the intention of the Second Respondent to pay monies obtained from the investment of monies by the Applicant, inter alia, to himself and to Peter Taylor as a finding fee.

vii) The First and Second Respondents did not have reasonable grounds for representing that:

a) Funds paid by the applicant for shares in Skylab International Limited would be used for to (sic) pay for applications for patents, administrative costs and further development work and research to (sic) the chemical method by Skylab International Limited;

b) That Skylab International Limited would allot shares to the applicant;

c) That there were many International Companies interested in the chemical method.

viii) The Respondents did not intend to use the funds paid by the Applicant for purchase of shares in Skylab International Ltd

Mr Needham claims that in reliance on the conduct of the first and second respondents as set out in paragraphs 6 and 9 of the statement of claim, the applicant in or about July 1991 agreed to purchase 68 shares in Skylab International Ltd and on or about 17 October 1991 Mr Needham paid $131,514.27, being the Australian equivalent of [sterling]60,656.00 Stg for shares in Skylab International Ltd to an account that, without the knowledge of Mr Needham, was held in the name of Abacus (Nominee) Limited. The applicant, in addition to giving evidence himself, called in his case evidence from two witnesses, Dr Kumar and Dr Fagan.

Since the applicant's case crucially depends on the evidence of Mr Needham, I should say at the outset that his evidence was utterly unreliable and vague. I do not find him to have been a dishonest witness, but the number and extent of the contradictions and inconsistencies in his evidence is truly extraordinary, and I can place reliance only on those parts of his evidence which have an objective basis, namely, the matters of representation which have a basis in the video that was shown to him prior to the payment of money, and to the brochure he was given before the money was paid. Mr Kalocsai, on the other hand, was a person of fastidious habit and made frequent written notations of relevant events which were soon thereafter incorporated into a written history of relevant events. I have no hesitation in saying that I prefer his chronology of events and his version of what occurred on relevant days in that history where that version differs from the account given by Mr Needham.

The evidence abounds with instances of the unreliability of Mr Needham's recollection, but it is sufficient to illustrate by reference to two particular aspects of his evidence.

Mr Needham says that he is certain that he was introduced to Mr Kalocsai in May 1991. Mr Kalocsai says that he first saw and demonstrated the chemical method to him on 3 October 1991. Mr Needham said that on the first occasion there was present at the demonstration and at the showing of the video a Mr Geoff Scotter, Mr Needham, Mr Kalocsai, a female friend of Mr Kalocsai, and Mr Peter Taylor. I am satisfied that Mr Kalocsai first met Taylor on 1 June 1991 and that a letter dated 6 June 1991 contained a proposal by Taylor for Taylor to act as agent for Kalocsai. Mr Kalocsai says that he first met Mr Scotter on 8 August 1991 and both Mr Needham and Mr Kalocsai say that Mr Scotter introduced Mr Needham to Mr Kalocsai. Mr Scotter was not called in the applicant's case and his absence was unexplained.

Mr Needham says that he saw the physical experiments on three different occasions, the first being in May 1991, the second a month to six weeks after that, and the third occasion Mr Needham thinks was "when I had to bring back the paperwork to prepare for the money to be sent to Abacus". Yet Mr Needham later in his evidence admitted that he saw the experiment performed for a friend of his, Mr Ken Youdale, on 25 February 1993 (although Mr Kalocsai says this was on 22 February 1993), and further that he was present when there was a demonstration to Sir Joh Bjelke-Petersen. That occasion, according to Mr Kalocsai, was on 12 January 1993, when Mr Needham was present when Mr Kalocsai demonstrated the process to Sir Joh Bjelke-Petersen and a Peter Murray.

The second illustration is even more stark. In an affidavit sworn 21 November 1994, Mr Needham says that at the first meeting with Mr Kalocsai he received a document entitled `Australian Chemists Analysts Pty Limited; Kalocsai Liquid Carbon Solidification Process, Invitation to Submit Expressions of Interests, Background Briefing Document, Dr Robert J Fagan'. In the affidavit he swears that the document he received was in the form of a document which was annexed as Annexure B to that affidavit. However, on 14 September 1995, Mr Needham swore an affidavit in which he said:

"The document referred to in paragraph 9 of my Affidavit (sworn 21 November 1994) annexed and marked "B" to that affidavit was given to me by Mr Kalocsai. Mr Kalocsai provided me with a number of versions of the document described in that affidavit as `the Report' during the period 1991 to 1993. I have now conducted a further search of my home and personal records and have located a document also described as `Kalocsai Liquid Hydrocarbon Solidification Process'. This document is annexed and marked with the letter `A' to this Affidavit. The document is the first version of the document provided to me by Mr Kalocsai. I now believe that the document annexed `B' to my Affidavit of 21 November 1994 is a subsequent version of that document handed to me by Mr Kalocsai sometime after May 1991."

However, in his oral evidence he resiled from the version Exhibit `A' to the affidavit of 14 September 1995 and maintained that the document he received on the first occasion was the document Exhibit `B' to his first affidavit.

This cannot possibly be, because that version of the document contains, amongst other things, details of four publications by Dr Fagan, the last of which is dated 1992.

That version contains a disclaimer by Dr R K Fagan in the following terms:

"I make no claim as to any particular expertise as organic, petroleum or polymer chemists or to the patentability or likely commercial success of the process and although all due care has been exercised in the preparation of these documents, no responsibility is accepted for any errors or omissions or any decisions taken based on this material."

There were a number of versions of the "background briefing document" or "the brochure". The original draft briefing document is in evidence. I am satisfied that this document, which bears "Mindevco Pty Ltd" on the cover sheet was brought into existence in approximately February 1991. Mindevco is a company with which Dr Fagan is associated. On the front page is the date February 1991. In that document, under the heading "Current Status of Development" appears the statement:

"The process is still in the development stage at this time but the significant laboratory data now to hand suggests a range of applications many of which warrant further research. The basic concept of solidifying a wide range of liquid hydrocarbons is well established with future research needed in the process optimisation area particularly in the treatment and recovery of oil spills and in the safe storage and handling of organic liquids."

Under the heading "Commercialisation of the Process" appears this statement:

"The process is presently only at the laboratory stage of development and a significant research effort by appropriately qualified and funded organic and petroleum chemists is essential to understand the chemistry and to further expand the range of applications."

The disclaimer that appears in the first draft briefing document is in the following terms:

"DISCLAIMER

Mr Guy Kalocsai the inventor of the process is an analytical chemist. The author of this report and the accompanying video presentation, Dr Robert Fagan, is a geochemist. Both Mr Kalocsai and Dr Fagan make no claim as to any particular expertise as organic, petroleum or polymer chemists or to the patentability or likely commercial success of the process and although all due care has been exercised in the preparation of these documents no responsibility is accepted for any errors or omissions or any decisions taken based on this material."

The first version of the briefing document based on the draft was brought into existence in May 1991. I am satisfied that any document that was handed to Mr Needham prior to his paying money in connection with the Kalocsai process was the version which appears as `GIK2' to the affidavit of Mr Kalocsai of his affidavit sworn 24 January 1995. That brochure summarises the four tests demonstrated "in the accompanying video". The statements concerning the "Current Status of Development" is as in the draft version and the statement concerning "Commercialisation of the Process" is as in the draft briefing document earlier set out. The disclaimer is in the same terms as set out on the draft briefing document.

The brochure was updated on 12 May 1992. The only material change was the addition of three paragraphs in the following terms:

"NOTICE

Subsequent to the production of this report, the ownership of the rights to the process have been acquired from Mr Guy Kalocsai and is now vested in Skylab International Limited.

Mr Guy Kalocsai has been contracted to the new principals to provide technical support to the ongoing research programme and all demonstrations of the process will be conducted in his laboratory in Australia and he will represent the company as its spokesman on all matters relating to technical aspects of the process and its commercial applications.

The company is now seeking substantial corporate participation in a joint venture to complete the final stage of research leading to the development of a range of commercially viable processes and products."

The brochure was further amended on 26 March 1993 by, amongst other things, substituting "Skylab International Limited" for "Australian Chemists and Analysts" on the front cover; deleting Dr Fagan's name from the front cover and inserting "Guy Kalocsai"; and removing the words "Invitation to Submit Expressions of Interest".

A revised version of the original draft briefing document was made by Dr Fagan and faxed to Mr Kalocsai in February of 1993. That document contains handwritten suggested changes both as to the description of the tests and as to statements concerning research and development and applications of the process. It is apparent that the handwritten corrections are made on a version of the original briefing paper which differs in significant respects from the original draft briefing paper. For instance, under the heading "Current Status of Development" the typed words "although the process is now commercial, engineering solutions to the delivery of the reagents must necessarily be designed for specific applications" has been altered with handwritten corrections so that it reads "although an understanding of the process is now well advanced, engineering system (sic) for the delivery of the reagents must necessarily be designed for specific applications". Similarly, under "COMMERCIALISATION OF THE PROCESS" the typed words were "The process is presently considered commercial", which has been altered by the addition of the words "in some areas" after "commercial". Although it is not necessary to decide, I think that the Annexure `B' to Mr Needham's first affidavit was prepared by the same secretarial service as prepared the first version of the brochure, which is the one which Mr Needham received prior to investing, but that the preparation of the version in Annexure `B' was not directed or authorised by Mr Kalocsai. What is important for present purposes are the contents of the brochure GIK2, which is the version of the brochure given to Mr Needham and in which any misrepresentation has to be found.

I find the following facts:

Prior to June 1990 Mr Kalocsai had developed a process which "involves introducing a relatively small amount of an appropriate soluble chemical into a suitable liquid organic or petroleum phase and inducing the precipitation of a voluminous finely divided absorbing substance to effectively soak up that liquid. The liquid can then be extracted and recovered from the absorbing medium by a number of simple techniques." The description of the nature of the process is taken from a letter of 31 October 1990 to a patent attorney by Dr Fagan, who was assisting Dr Kalocsai in the patenting and exploitation of his process. Dr Fagan in June 1990 made a video of four tests involving an oil solidification process. The video also contained a test relating to oil clarification but, notwithstanding its appearance on the video, and notwithstanding the pleading in the statement of claim that "the chemical method would enable the clarification of oils" (which claim clearly misunderstands the video information), it has no present relevance to these proceedings.

Dr Fagan said of the first test, which appears on the video shown to Dr Needham, as follows:

"In the first example demonstrated in the accompanying video, 1 gram of a particular reagent was introduced into 10 grams of petrol and allowed to react to produce a voluminous precipitate. The amount and nature of reagent added can be varied to tailor the properties of the end product. Essentially a reaction is induced within the petrol that causes the precipitation of a substantial quantity of fine powder which effectively binds the organic liquid to produce a mush or paste. The petroleum is unchanged in its physical and chemical character but is effectively absorbed, still as liquid petroleum, into the solid powdery precipitate phase. The absorbed petroleum will slowly volatilize off if left unconfined or may be recovered if confined in a number of ways including direct distillation, pressure filtration or by re-dissolving the powdery precipitate. In all these cases it may be attractive to recover and re-use the principal reagents."

Earlier, in August 1990, Dr Fagan conducted a number of experiments which indicated that the petroleum content of the mix had a tendency to volatilise on air drying. While that indicated that the petroleum could be readily recoverable, there was a requirement to seal the converted substance so as to prevent the total volatile loss. Those experiments indicate that the hydrocarbon is absorbed by the other ingredients which precipitate to a sponge-like mass, but no new compound is produced, the hydrocarbon being absorbed much in the way of water by a sponge, and certain hydrocarbons can then volatilise off. A standard patent with priority date 2 November 1990 was granted to Skylab International Limited, the Letters patent being dated 24 February 1994. The actual inventor is said to be Guy Imre Zoltan Kalocsai and the invention is titled "Reversible Transformation of Hydrocarbons".

There was a meeting between Mr Kalocsai and Mr Peter Taylor and others on 1 June 1991, and on 6 June 1991 Mr Taylor made a proposal that he would act as a marketing agent for the technology. That letter is Exhibit 31. A further letter of 25 July 1991, Exhibit 25, contains details of travel undertaken by Mr Taylor in an attempt to promote the technology and, in particular, included a meeting with accountants in Malta. That letter included the following:

"I agree with your assessment that the trip has been very successful with a high level of interest being expressed by the oil companies approached and based on this initial expression of interest, it would seem reasonable to expect at least one of these companies to make a suitable offer for the equity."

Skylab International Limited (`Skylab') was registered in Malta on 5 July 1991. A declaration dated 10 July 1991 indicates that Abacus (Nominee) Limited, as the registered holder of all the 1800 ordinary fully paid shares in Skylab held all but one of those shares on trust for Mr Kalocsai. The letter by one of the Malta directors dated 9 December 1991 indicated the formation of Research International Limited in Malta. The date of registration does not appear. By a share transfer dated 6 November 1991, the shares in Skylab held by Abacus (Nominee) in trust for Mr Kalocsai were transferred to Research International Limited, to be held by that company "under the same conditions as they were held by the transferror".

On 14 November 1991, in consideration of the payment of [sterling]60,656 Stg, Research International transferred to Mr Needham 68 shares in Skylab, and by transfer of 25 November 1991, Research International for a consideration of [sterling]59,764 Stg transferred 67 shares in Skylab to Geoffrey L Scotter and Rhonda M Scotter.

I turn to consider whether the contents of the video shown to Mr Needham or the contents of the brochure GIK2 constitute representations that are misleading or deceptive in contravention of s 52 of the Trade Practices Act 1974 .

In light of the circumstances in which the representations were alleged to have been made, the speculative or risk nature of the investment is immediately apparent: first, the four experiments shown on the video were conducted essentially on a fish tank scale, and of course there are obvious difficulties in extrapolating experiments in a laboratory context of that kind to how things might happen in the context of an oil spill at sea; secondly, are the plain caveats that appear in the brochure under the heading "Current Status and Development" and "Commercialisation of the Process" which statements have earlier been set out; and finally, the disclaimer earlier set out.

It was submitted for Mr Needham that as far as the video was concerned, there were four express relevant representations:

(a) That the chemical reaction between the petrol and A reagent and B reagent would result in the solidification of the liquid petrol and that the Kalocsai process would produce coherent plasticine-like solid product.

(b) That the spill of most liquid hydrocarbons could be easily cleaned up.

(c) That the test performed in the video in a water tank simulates a crude oil spill using oil that had not been mixed with a reagent.

(d) That the addition of the reagents produced a petrol plasticine-like material which would become a stronger product.

I accept that Mr Kalocsai agreed that the liquid petrol does not solidify. Rather it is absorbed into a solid substance like a sponge absorbs water. Over time, the petrol which has been absorbed volatilises, leaving a substance that remains firmer. I do not think that the claimed representations (a), (b) or (d) constitute misrepresentations when viewed in context. I think there is an element of misrepresentation in respect of the experiment which attempts to simulate a crude oil spill on sea water. The third test was described as follows:

"After addition of the crude oil we inspect the spill. We will not mix the reagent with the oil, therefore the pressure and drop lip size control of the spray gun should be set accurately. We can see that the spray gun we use could not control the penetrating power and the fine size of the drop lips required for the reaction to be completed within a few minutes.

Sixty minutes have passed. We will now roll up the solidified crude oil onto a plain thin wooden rod..."

And the fourth test was described on the video in this way:

"In this test, in contrast with the previous third test, we will use mechanical mixing of the reagents with the crude oil. This will result we hope in a more coherent solid product in the shortest possible time...As you can see, the liquid crude oil is transformed into a solid product within about 20 seconds."

It seems that what had occurred in relation to these tests is that the "oil" had in fact been mixed with one of the activating ingredients prior to the spraying or mixing and agitation of the ingredients which permitted the collection of the "oil". It was submitted on behalf of Mr Kalocsai that the video itself expressly referred to "pre-mixing", but in fact what the voice accompaniment to the video stated was:

"In these tests the composition of the solid product created is 80-90 percent derived from the original liquid crude oil or the liquid petrol. The rest is the pre-mixed or added reagents."

I think on a fair viewing of the video the pre-mixing is meant to refer to a pre-mixing of the substance which is added to the "oil" and that what is represented as oil is meant to be oil without any pre-mixed additive to the oil. I think the clear impression of the video is that the pre-mixing relates to the reagent and not to a pre-mixing of some reagent with the liquid crude oil or liquid petrol.

The pre-mixing of the oil or petrol with a reagent prior to the addition of the substances shown being introduced on the video was said to be for the purpose of permitting the process to occur quickly. It is said, and I accept, that what was done was for the purpose of more quickly explaining what in fact the process could achieve. I accept further that absent any pre-mixing of any reagent with the oil or the petrol, the substance of the process occurs as demonstrated in the video. There are nonetheless serious questions of how the necessary reagents can be delivered in the event of an oil spill.

The evidence of Dr Fagan and Mr Kalocsai is that the process is effective, in that a solid absorbs the hydrocarbons, be they oil or petrol. I accept this as true. Notwithstanding that the video gives the impression that one reagent, not two, will need to be added to the oil to result in the process working, I do not regard this as a material misrepresentation.

On any view of the evidence, Mr Needham saw the experiments performed a number of times. He said:

"Usually when these tests were done Mr Kalocsai had considerable trouble getting the correct reagents together. He would weigh them up in this electronic weighing machine, and it was very hard to get it spot on so that when it was used it would work every time. There were times that it would not work at all."

And later, having referred to the fact that Mr Kalocsai "couldn't get it to actually work that time" said:

"It did eventually work with much more weighing and taking off and adding and trying to get this reagent and agent mixture right to put into the crude oil or the petrol. Mr Scotter and myself asked Mr Kalocsai if it is possible, if we were going to have more demonstrations, of the worthiness of this, if he could pre-mix and have it ready to go. (emphasis added)

Who asked him?---When anyone was going to come and have a look, so the mixed agent would be right so that it would work. But he said that he was terrified of leaving it mixed there in case somebody broke into his laboratory and stole the way it was done. So he wanted to mix it each time."

In an attempt to meet the other serious difficulties posed for the applicant's case by Mr Needham's evidence, in particular concerning which briefing document he received, Mr de Buse, counsel for Mr Needham, submitted that there was possibly a further document or that Mr Needham was mistaken about the absence of a disclaimer in the first briefing document that he received. In the context of what must have been the nature of the brochure shown to Mr Needham prior to his investment, it was submitted that:

"Mr Needham's evidence is that he was led to believe the process was commercially viable at the time when he first saw the video."

Reliance was placed on Mr Needham's evidence that:

"I'm not a chemist, and I'm not an engineer regarding the way this stuff was going to be put on to oil Having seen the videos, demonstrations, which appeared to me to work okay, that was when I invested in this company."

In my opinion, Mr Needham invested as he did because he believed that there was a present commercial application inherent in Mr Kalocsai's process. That opinion was quite contrary to what in fact was represented by Mr Kalocsai either in the video or in the briefing document or otherwise. Mr Needham admitted that he was told the process was still in the developmental stage. He was asked:

"The process is presently only at the laboratory stage of development and a significant research effort by appropriately qualified and funded organic and petroleum chemists is essential. Did you rely on that?

To which he replied:

Not really. I was only going on what I'd been shown in the laboratory tests, not what was going to happen in the future."

Mr Needham was asked:

"Do you remember seeing on either document that you received from Mr Kalocsai, according to you, the box with the word `disclaimer' in it?

To which he said:

"I have read that before, yes."

He was asked:

"And what about the statements above that such as "further research and development work necessary to fully commercialise the present system"?

To which he said:

"Yes, I would have read that."

He was then asked:

"And is that before you decided to pay the money?"

To which he said:

"I can't recall."

I am satisfied that nothing that was said or shown to Mr Needham prior to his paying of the money led him to believe that there was a present commercial application in the Kalocsai process. I am satisfied Mr Needham paid the money because he thought it would be a profitable investment.

I am not satisfied that the applicant has established any conduct in contravention of s 52 of the Trade Practices Act 1974 or of s 38 of the Fair Trading Act 1989 (Qld), except in relation to the one aspect involving the "pre-mixing" or "lacing" of oil with a reagent. Moreover, I am satisfied that Mr Needham's decision to invest was not induced in any way by any conduct in contravention of s 52 of the Trade Practices Act 1974 or s 38 of the Fair Trading Act 1989 (Qld).

I am not satisfied that Mr Kalocsai was in breach of his duty as a promoter.

Contrary to Mr Needham's first affidavit and the allegations contained in the statement of claim, Mr Needham said in evidence that Mr Kalocsai did not say to him that his name would be part of the issued capital of Skylab but that he would be buying shares in Skylab, and further Mr Needham said that Mr Kalocsai did not use the phrase "issued capital".

I do not accept the allegation that it was represented to Mr Needham by Mr Kalocsai that Mr Taylor was an investor and shareholder in Skylab. Mr Taylor was at best the owner of an option to purchase shares. Mr Kalaocsai was adamant that Mr Taylor was never a shareholder in Skylab. I am quite sure he never at any stage represented that he was. Mr Needham was in fact a party to the letter of 4 December 1992 dismissing Mr Taylor as an agent for Skylab.

There was no misapplication of the moneys for a purpose other than that represented. I accept that Mr Needham was told that the moneys invested by him would be used to pay the costs of patent applications, administrative costs and development costs. Having regard to the disbursements of the moneys (and specifically including payments to Mr Taylor and Mr Kalocsai as pleaded in the statement of claim), I am not satisfied that that was not what occurred. Mr Needham wanted to have an investment in the Kalocsai process and its commercial exploitation and that is what occurred. I am not satisfied that there has been any breach of any fiduciary obligation owed by Mr Kalocsai, and the truth of the matter is that Mr Needham has a shareholding in the company which has the entitlement to the technology that underpins the Kalocsai process.

It is significant that Mr Needham on a number of occasions engaged in discussions the effect of which would be to give him an entitlement to a larger share to the fruits of that technology.

A facsimile was sent on 4 December 1992 to the director of Skylab in Valletta, Malta, which was signed by Mr Kalocsai, Mr Scotter and Mr Needham, indicating that all shareholders had decided to terminate forthwith the services of Mr Taylor. The facsimile contained the statement:

"We therefore wish to advise you not to in any way discuss or divulge any details whatsoever in respect of both Skylab International Limited or Research International Limited. We wish to request that any dealing with us in the future be directed to Mr Kalocsai or if he is unavailable to either of the other 2 shareholders.

..."

There is an agreement dated 25 January 1993 and signed by Mr Scotter and Mr Needham and Mr Kalocsai which relates to a proposal to sell a further 7.5% of Mr Kalocsai's shares in Skylab International, the 7.5% of those shares to be split between Mr Needham and Mr Scotter. The "proposition" included the statement:

"The date of the transfer and payment of the above shares shall be contemporaneous with Research International receiving payment of US $15 million for 39% or other percentage so agreed by the proposed investor to Skylab International."

A short time later, on 19 February 1993, a facsimile was sent by Mr Kalocsai to Mr Needham, which included amongst other things the following:

"1. SUMMARY OF MY DECISION RE SELLING OF MY SHARES IN SKYLAB INTER-N.

A	51.0%	OF SKYLAB SHARES TO INVESTOR
B	7.5%	" " " BOUGHT BY YOU AND JEFF
C	6.5%	" " " TO YOU, AFTER THE MONAY [sic] IS RECEIVED FROM INVESTOR. ITS USE OR DISTRIBUTION REST [sic] UPON YOUR DECISION
D	1.0%	" " " TO KENNETH Y. YOUDALE AS AGENT FOR SKYLAB
E	34.0%	" " " REMAINS [WITH] RESEARCH INTERNATIONAL
F	100.0%	TOTAL"

These dealings between, inter alios, Mr Kalocsai and Mr Needham concerning shares in Skylab are inconsistent with Mr Needham's contention that he received something different from what he had been led to believe. They reinforce the conclusion I have reached that Mr Needham was keen to have a share of the Kalocsai process, and that in his assessment, it would be a profitable investment.

The final matter relates to damage. It was submitted on behalf of Mr Needham that the appropriate measure of damages was repayment of the moneys invested, with interest. No relief is sought against the third respondent. The statement of claim alleges that Mr Needham has suffered the loss of the purchase price of the shares. There is simply no evidence before the court to show what is the current value of the shares. I am far from convinced that an entitlement to a share in the benefits of exploiting the Kalocsai technology or process is worthless. The evidence, not only of Mr Kalocsai but of Dr Fagan and of Mr Cotham, suggests that the process has a value. It has not been established that Mr Needham has suffered any loss.

For the above reasons the application is dismissed. The applicant must pay the respondents' costs of the proceedings. I will hear the parties on reserved costs.

I certify that this and the preceding seventeen (17) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender.

Associate:

Dated: 20 April 1998

Counsel for the Applicant	Mr B De Buse
Solicitor for the Applicant:	Clinch Neville Long
Counsel for the Respondents:	Ms K Downes
Solicitor for the Respondents:	Trehernes
Date of Hearing:	23-26 February 1998
Date of Judgment:	20 April 1998