Campbell v Backoffice Investments Pty Ltd

• Jurisdiction: Australia Federal only
• Judge: French CJ.,Gummow,Hayne,Heydon,Kiefel JJ.
• Judgment Date: 29 July 2009
• Neutral Citation: 2009-0729 HCA A,[2009] HCA 25
• Court: High Court
• Docket Number: S435/2008
• Date: 29 July 2009

[2009] HCA 25

HIGH COURT OF AUSTRALIA

French CJ, Gummow, Hayne, Heydon and Kiefel JJ

S435/2008

Douglas Ronald Campbell and Anor

Appellants

and

Backoffice Investments Pty Ltd and Anor

Respondents

Representation:

A J L Bannon SC with J T G Gibson for the appellants (instructed by Rodd Peters Commercial, Media and European Lawyers)

J T Gleeson SC with T L Wong for the respondents (instructed by Watson Mangioni Solicitors)

Fair Trading Act 1987 (NSW), ss 42, 68.

Corporations Act 2001 (Cth), Pt 2F.1.

Campbell v Backoffice Investments Pty Ltd

Trade Practices — Misleading or deceptive conduct — Where vendor of share in company provided documents prior to making of share sale agreement that did not accurately state company's past financial performance, failed to correct some estimates of company's expected performance when vendor knew or ought reasonably to have known, prior to making of agreement, that estimated performance not achieved, and incorporated some statements of financial performance in share sale agreement with various warranties as to their accuracy — Whether conduct misleading or deceptive — Whether representations pleaded actually made — Relevance of whole course of conduct between parties — Relevance of character of some statements as estimates.

Trade Practices — Misleading or deceptive conduct — Whether purchaser suffered loss or damage ‘by conduct of’ vendor — Causation and reliance — General principles — Relevance of contractual warranty by purchaser that purchaser had not relied on warranties other than those given in agreement.

Corporations — Oppression — Where Corporations Act 2001 (Cth), s 233(1) empowered court, if one or more grounds set out in s 232 satisfied, to make any order it considered appropriate in relation to company, including order for purchase of any shares by any member — Where grounds in s 232 included circumstance that conduct of company's affairs ‘oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity of in any other capacity’ — Whether vendor's conduct ‘oppressive to, unfairly prejudicial to, or unfairly discriminatory against’, purchaser — Relevance of circumstance that conduct not continuing at time order made — Whether order for repurchase of share in company could or should be made in circumstances where, at time of making order, provisional liquidator had sold business and assets of company, proceeds had been disbursed and shares in company were worthless.

Contracts — Breach of warranties — Whether vendor breached warranties in share sale agreement.

Contracts — Implied terms — Implied duty to co-operate — Scope of duty contended for.

Words and phrases — ‘by conduct of another person’, ‘oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member’.

ORDER

• 1. Appeal allowed.

• 2. Set aside paragraphs 3 and 4 of the orders of the Court of Appeal of the Supreme Court of New South Wales made on 19 May 2008.

• 3. Respondents' application of 4 February 2009 for leave to further amend notice of contention refused.

• 4. Special leave to cross-appeal refused.

• 5. Remit the matter to the Court of Appeal of the Supreme Court of New South Wales for further hearing and determination in accordance with the reasons of this Court.

• 6. Appellants to file and serve written submissions as to costs within 14 days of the date of this order. Respondents to file and serve written submissions in reply within 7 days of the service of the Appellants' submissions.

French CJ.

Introduction

1 On 24 January 2005, Backoffice Investments Pty Ltd (‘Backoffice’), a company controlled by Timothy Weeks, entered into a share sale agreement (‘SSA’) with Douglas Campbell and his companies, Healthy Water (NSW) Pty Ltd (‘Healthy Water’) and Sentinel Construction Managers Pty Ltd (‘Sentinel’), to purchase, for $850,000, one of the two issued shares in Healthy Water. Under agreements between the three companies (together referred to as the ‘service agreements’), the two men were to work as joint managing directors of Healthy Water. By April 2005, they had fallen out. Backoffice and Mr Weeks sued Mr Campbell and Sentinel in the Supreme Court of New South Wales. They alleged oppression. They sought an order that Mr Campbell buy back the share 1 . They also claimed damages for breach of contractual warranty, breach of an implied duty to cooperate, and for misleading or deceptive conduct based, inter alia, on pre-contractual representations 2 . The facts giving rise to the claims and details of the relevant contractual documents are set out in the joint judgment 3.

2 The primary judge found for Backoffice and Mr Weeks on the oppression claim and ordered that Mr Campbell repurchase the share in Healthy Water for $853,000 4 . Healthy Water by this time was an empty shell, its assets having been disposed of by a provisional liquidator appointed by the parties. Her Honour held that the claim for misleading or deceptive conduct failed, as Backoffice and Mr Weeks did not establish that they had relied upon the alleged misrepresentations 5. She also held that Mr Campbell had breached contractual warranties 6 and an implied contractual duty to cooperate, but held it inappropriate to award any damages given the buy-back order 7.

3 The Court of Appeal of the Supreme Court of New South Wales set aside the buy-back order but found Mr Campbell liable for misleading or deceptive conduct and awarded $850,000 damages 8 . Having been granted special leave 9, Mr Campbell and Sentinel then appealed to this Court.

4 For the reasons that follow, the appeal should be allowed. Special leave to cross-appeal should be refused. Unresolved aspects of the claims for misleading or deceptive conduct and for breach of warranty should be remitted to the Court of Appeal of the Supreme Court of New South Wales for determination. I agree with the orders proposed in the joint judgment 10.

The pleading of the misleading or deceptive conduct case

5 Factual bases for the causes of action in misleading and deceptive conduct were set out in a commercial list statement incorporated in the further amended summons in the original proceedings in the Supreme Court of New South Wales.

6 In relation to a document produced to Mr Weeks pre-contractually and referred to as the ‘ add-backs document’, it was alleged:

‘44. On or before 11 December 2004, Campbell, by his agent Horn, provided to Backoffice:

• (a) a document entitled “Healthy Water Operating Results: Non-recurring expenses” for the period July to November 2004 (the “ 2004 Add-Backs”);

• (b) a document entitled “Healthy Water Operating Results” that stated the operating results, inter alia, for the 5 months to 30 November 2004 (the “ 30 November 2004 Results”).

45. By providing Backoffice with the 2004 Add-Backs and the 30 November 2004 Results, Campbell represented to Backoffice that:

• (a) the Company incurred non-recurring expenses of $96,100.00 for the five months ending 30 November 2004 (the “ Add-Backs Representation”);

• (b) the Company had an EBIT (after adjustment for the Add-backs) for the 5 months to 30 November 2004 of $163,590 (the “ EBIT Representation”).’

The representations were said to have been false, misleading and deceptive or likely to mislead and deceive, in contravention of s 42 of the Fair Trading Act 1987 (NSW), on the basis that the 2004 add-backs overstated the amount of non-recurring expenses of the company.

7 It was further pleaded that on or before 11 December 2004 Mr Campbell, by his agent Mr Horn, provided a document entitled ‘Healthy Water Operating Results: Sales Revenue’ (the ‘sales revenue report’) to Backoffice 11 . The sales revenue report was said to have contained estimates that 12:

• ‘(a) the Company's sales revenue for December 2004 would be $100,000;

• (b) the Company's EBIT for December 2004 would be $37,500;

• (c) the Company's sales revenue for the financial year ended 30 June 2005 would be $1,289,582.’

8 By providing the sales revenue report to Backoffice, Mr Campbell was said to have represented ‘the December 2004 Estimates’ to Backoffice. Those representations were designated as the ‘Express Representations’ 13 . ‘Implied Representations’, arising out of the circumstances in which the sales revenue report was provided to Backoffice, were also set out 14. They were:

The Express and Implied Representations were said to have been continuing from on or about 11 December 2004 to 24 January 2005 15. The December 2004 Estimates allegedly overstated the company's sales revenue by $7,147 and its EBIT by approximately $25,000.

• ‘(a) the December 2004 Estimates were a reliable prediction of the sales revenue and profit that would be achieved by the Company;

• (b) the December 2004 Estimates were suitable to be used for the purpose of estimating the value of the Company;

• (c) there was no information known to Campbell which was material to the accuracy of the December 2004 Estimates, and which tended

  to show or showed that the December 2004 Estimates were false, misleading or deceptive;

• (d) the December 2004 Estimates represented Campbell's belief as to the likely sales revenue and EBIT that would be achieved by the Company and that there was a reasonable basis for such belief.’

9 Backoffice and Mr Weeks pleaded that by making the Express and Implied Representations, Mr Campbell engaged in conduct in trade or commerce which was misleading and deceptive in contravention of s 42 of the Fair Trading Act for the following reasons, as particularised 16:

‘The December 2004 Estimates were representations as to future matters within the meaning of section 41 of the Fair Trading Act 1987. Contrary to the estimates:

• (i) the actual sales revenue of the Company for December 2004 was $92,853 rather than...