• Any

National Exchange Pty Ltd (ACN 006 079974) v Australian Securities & Investments Commission[2004]FCAFC 90

CORPORATIONS– misleading and deceptive offer document– adequacy of correction to misleading primarystatement







Corporations Act 2001 (Cth)s 1041H

Trade Practices Act 1974 (Cth)s 52



10thCantanae Pty Ltd v Shoshana Pty Ltd(1987) 79 ALR 299 considered

ACCCv Signature Security Group Pty Ltd[2003] FCA 3;(2003) ATPR 41-908 referredto

Branir v Owston Nominees (No 2) Pty Ltd[2001] FCA 1833;(2001) 117 FCR 424 referredto

Campomar Sociedad Limitada v Nike International Ltd[2000] HCA 12;(2000) 202 CLR45 applied

Curtis v Chemical Cleaning & Dyeing Co[1951] 1 KB 805referred to

Hornsby Building Information Centre Pty Ltd v Sydney BuildingInformation Centre Ltd[1978] HCA 11;(1978) 140 CLR 216 referred to

J Spurling Ltdv Bradshaw[1956] EWCA Civ 3;[1956] 1 WLR 461 referred to

Lego Australia Pty Ltd vPaul’s (Merchants) Pty Ltd[1982] FCA 135;(1982) 60 FLR 465considered

Medical Benefits Fund of Australia v Cassidy[2003] FCAFC289 applied

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd[1982] HCA 44;(1982) 149 CLR 191 referred to

S & I Publishing Pty Ltd v AustralianSurf Life Saver Pty Ltd[1999] FCA 316;(1998) 88 FCR 354 cited

Slazenger & Sons vFeltham & Co(1889) 6 RPC 531 cited

Taco Company of Australia Incv Taco Bell Pty Ltd[1982] FCA 136;(1982) 42 ALR 177 considered



J D Heydon,TradePractices Law, Law Book Company, Sydney,1989

















NATIONAL EXCHANGE PTY LTD (ACN 006079 974) AND DAVID TWEED v AUSTRALIAN SECURITIES AND INVESTMENTSCOMMISSION



V 915 OF 2003







DOWSETT, JACOBSONAND BENNETT JJ

22 APRIL 2004

SYDNEY (VIA VIDEO LINK) (HEARDIN MELBOURNE)

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERALCOURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.The appeal be dismissed

2.The cross-appeal be dismissed.

3.The appellants pay the respondent’s costs of theappeal.

4.The respondent pay the appellants’ costs of thecross-appeal.

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

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OFAUSTRALIA

REASONS FOR JUDGMENT

DOWSETT J:

INTRODUCTION

1At first instance the present respondent ("ASIC") sought to establish thatconduct of the first appellant ("National Exchange")in relation to a financialproduct or a financial service had contravened subs 1041H(1) of theCorporations Act 2001 (Cth) (the "Act"). The impugned conduct was theissue of certain written offers by National Exchange to purchase shares in thecapitalof Onesteel Ltd ("Onesteel") (the "two dollar offers"), which offerswere said to be misleading or deceptive or likely to misleador deceive. ASICalso alleged that the second appellant ("Mr Tweed") had aided, abetted,counseled or procured the alleged contraventionsand/or was knowingly concernedin and/or party to them.

FACTS

2At some time prior to 6 August 2003 National Exchange forwarded tocertain shareholders of Onesteel, offers to purchase their sharesin thatcompany, such offers being dated 25 July 2003. There were two differentoffers, one of $1 per share (the "one dollar offers")and the two dollar offersto which I have previously referred. The one dollar offers are not directlyrelevant for present purposes. However they may be of some evidentiarysignificance. There is hearsay evidence that individual shareholders receivedeither aone dollar offer or a two dollar offer, but not both. There is alsohearsay evidence that the two dollar offers were sent to "issuer-sponsored"shareholders, meaning‘less sophisticated investors who do not have anestablished relationship with a broker’. ASIC did not rely on thishearsay evidence at first instance. I will disregard it. The offers wereaccompanied by appropriateshare transfer forms. The one dollar offers were inthe form attached hereto as annexure A. The two dollar offers were in the formattached as annexure B. Examples of the relevant share transfer forms are alsoattached. The two dollar offers were sent to 5,000shareholders, of whom 4,114held less than 4,000 shares.

3By the two dollar offers National Exchange offered two dollars for eachshare acquired. The offer document invited a comparisonbetween such amount andthe closing market price for the shares on 25 July 2003 ($1.93). Theoffers bore that date and were presumablyreceived some days thereafter. However a subsequent (and less prominent) part of the two dollar offers providedthat the purchaseprice was to be paid by fifteen annual instalments payable on3 September in each year, commencing on 3 September 2004. Obviously,when this provision was taken into account, the actual value offered wassubstantially less than two dollars per share.

THE LEGISLATION

4Subsection 1041H(1) of the Act provides:

‘A person must not, in this jurisdiction, engage in conduct, inrelation to a financial product or a financial service, thatis misleading ordeceptive or is likely to mislead or deceive.’

PARTICULARS OF THE CLAIM

5ASIC asserts that by making the two dollar offers National Exchange wronglyrepresented that:

->	the total price offeredfor Onesteel shares was payable in full upon acceptance of the offers by therecipients, whereas the totalprice was payable in fifteen equal instalments,paid annually on 3 September each year for fifteen years, commencing on3 September2004;
->	the financialvalue of the price offered for each Onesteel share pursuant to the offers was $2per share, whereas the financial valuewas less than $2 per share;and
->	the financial value of the priceoffered for each Onesteel share pursuant to the offers exceeded the statedclosing market price forOnesteel shares as at 25 July 2003, whereas thefinancial value did not exceed the stated closing marketprice.

6I will refer to these three allegedmisrepresentations as the "first alleged misrepresentation", the "second allegedmisrepresentation"and the "third alleged misrepresentation" respectively.

EVIDENCE

7ASIC led evidence concerning the reactions of numerous shareholders to thetwo dollar offers. Much of this evidence appears inan affidavit of ColinStuart Grant filed in support of an application for interlocutory relief. Atleast two of the shareholdersto whom Mr Grant spoke, Mr Wittig andMr Weir, appreciated the consequences of the proposed deferred payment ofthe purchase price. However three other shareholders, Paul Reginald Locke, JeanConstance Himmelhoch and Marie Margaret Normoyle, were confused or misled,atleast temporarily. Although their evidence was initially set out inMr Grant’s affidavit filed in support of the interlocutoryapplication, each has subsequently sworn an affidavit. Perhaps unfortunately,those responsible for preparing the affidavits ofMrs Himmelhoch andMs Normoyle adopted the device of having each lady verify the paragraphs inMr Grant’s affidavit in whichhe set out their respective accounts. This may have created a degree of confusion in their evidence. I will summarizethe evidenceof all three witnesses.

Mr Locke

8Paul Reginald Locke was previously Company Secretary of Onesteel. Heretired in May 2002. On 5 August 2003, he held 3,041 sharesin Onesteeland his wife, Jennifer, held 20,000 such shares. They both received two dollaroffers on that date. Mr Locke noticedthat the closing market price forOnesteel shares on 25 July 2003 was $1.93. He recalled that NationalExchange had previously offered$1 per share and was surprised to receive thetwo dollar offer. He telephoned the present secretary of Onesteel,Mr Krenich, andinformed him of it. He said that he thought thatMr Tweed, a director of National Exchange, must have made a mistake. Afterthistelephone call Mr Locke looked more carefully at the documents andnoticed the provision for deferred payment. He then decided toreject theoffer, at least partly because of such deferment. He considered that thetransfer form which accompanied the offer (andmade no reference to the deferredpayment arrangements) was‘the most important document’. National Exchange objected to that evidence at the hearing, but it was admittedover such objection.

Jean Constance Himmelhoch

9Mrs Himmelhoch is a retired social worker. She held 2,505 shares inOnesteel. On 5 August 2003 she received a two dollar offer,together witha transfer form and noticed that the offer indicated that the closing marketprice for Onesteel shares on 25 July 2003was $1.93. She decided to accept theoffer because it was higher than the listed market price. She did not seek anylegal or financialadvice in relation to the documentation. On 7 August2003 she signed the transfer form and mailed it back to National Exchange,alsoforwarding a copy of her issuer-sponsored holding statement, presumablyevidencing her shareholding. She expected to receivea cheque for $5,010‘shortly’ .

10Mr Grant interviewed her at a later stage. He gave the followingaccount of part of that interview, which account Mrs Himmelhochhasadopted:

‘31. During that conversation, I asked Mrs Himmelhoch to go andobtain her copy of the[two dollar offers]. I then askedMrs Himmelhoch to read the paragraph on that document entitled "Payment". Mrs Himmelhoch told me she had read thatparagraph. She also told me and Iverily believe that until she did so she had been unaware that National Exchangewere proposingto pay her for the Onesteel shares over a 15 year periodcommencing in September 2004.



32.Mrs Himmelhoch told me and I verily believe that had she been awarethat National Exchange were proposing to pay her for the Onesteelshares over a15 year period commencing in September 2004, she would never have agreed to sellher Onesteel shares to National Exchange.’

11This account suggests that Mrs Himmelhoch read thepayment provision for the first time in response to Mr Grant’sinvitationand, having read it, realized for the first time that she was to bepaid over a fifteen year period. However, in her own affidavit,having adoptedMr Grant’s account, she asserted in par 8:

‘When I received the[two dollar offers] from National Exchange,I noticed in particular the table at the top of the page, comparing the marketprice of Onesteel shares againstthe higher price being offered by NationalExchange. When I read the section of the page marked "Payment", I believed thatI wouldbe receiving the full amount from the sale of the Onesteel shares bySeptember of this year.’

12This passage might suggest that she had read the paymentprovision prior to accepting the offer and had expected to receive thepurchaseprice by September, 2003.

Marie Margaret Normoyle

13Ms Normoyle is a director of Southbrook Holdings Pty Ltd, the holderof 812 shares in Onesteel. She holds a number of shares indifferent companies,most of them being "blue-chip". On or about 4 August 2003 she received atwo dollar offer (presumably addressedto Southbrook Holdings) from NationalExchange and noted the closing market price of $1.93. She decided to accept theoffer becauseit was at a price higher than the listed market price. She hadonly a small number of shares and thought that she would sell themand use theproceeds. She did not seek any legal or financial advice. She signed thetransfer form on 5 August and returned itby mail, expecting to receivepayment‘shortly’.

14Mr Grant later interviewed her, asking whether she had received therelevant offer document. She said that she had done so butwas now unablelocate it. He then asked her whether she was aware of the payment terms offeredby National Exchange. She said thatshe was not and thought that she wouldreceive a cheque for the purchase price‘very shortly’. Mr Grant then asked her if she was aware that the terms of payment providedfor fifteen equal instalments commencing on 3 September2004. She saidthat she had no idea about this, that she was nearly eighty, did not expect tobe alive in fifteen years and thathad she known of that term, she would nothave sold the shares.

15National Exchange produced to ASIC a "contract note" dated 11 August2003. It is exhibit CSG 8 to Mr Grant’s affidavit. It recitesthe number of shares held by Southbrook Holdings and the total purchase priceand then seeks certain information anddocuments. The last line of the letteris as follows:

‘We look forward to remitting payment in accordance with our offerletter.’

Mrs Normoyle says that she did not receive this letter.

THE DECISION AT FIRST INSTANCE

16The impugned conduct undoubtedly occurred within the jurisdiction and inrelation to a financial product or a financial service. The only question waswhether it was misleading or deceptive or likely to mislead or deceive. Finkelstein J found that the firstalleged misrepresentation wasestablished and was a breach of subs 1041H(1) but that the second and thirdalleged misrepresentationswere not established. It was common ground that sucha finding against National Exchange should result in an adverse finding againstMr Tweed. His Honour so found.

THE APPEAL AND CROSS-APPEAL

17National Exchange and Mr Tweed appealed against his Honour’sfindings as to the first alleged misrepresentation. ASIC appealsagainst hisHonour’s findings concerning the second alleged misrepresentation.

THE RELEVANT TEST

18InCampomar Sociedad Limitada v Nike International Ltd[2000] HCA 12;(2000) 202CLR 45, the High Court reviewed many of the seminal cases associated withs 52 of theTrade Practices Act 1974 (Cth) (the "TP Act"). Thatprovision is similar in effect to subs 1041H(1) of the Act. Much of thedecision inNike concerned trademark legislation and is not relevant forpresent purposes. It is also not necessary that I address the facts of thecase. For present purposes I need only consider [92–106] of the decision.The following propositions emerge:

->	Conduct will only bemisleading or deceptive, or likely to mislead or deceive if there is a nexusbetween such conduct and any actualor anticipated misconception or deception.
->	In identifying such nexus regard must behad to the circumstances of the particular case, including the remedies sought. Section52 of the TP Act does not confer any entitlement to a remedyfor breach or anticipated breach. One must look elsewhere in the TPAct forsuch entitlement and construe the act as awhole.
->	In some cases, a representationmay be made to identified individuals; in other cases the representation may beto the public at largeor to a section thereof. In the former case the processof deciding whether or not the representation is misleading or deceptiveorlikely to be so may be‘direct and uncomplicated’. In thelatter case‘the issue with respect to the sufficiency of the nexusbetween the conduct or the apprehended conduct and the misleading ordeceptionor likely misleading or deception of prospective purchasers is to be approachedat a level of abstraction not present wherethe case is one involving an expressuntrue representation allegedly made only to identified individuals’. (I infer that the word "representation" in [100] ofNikeshould be"misrepresentation", relying upon the relevant passage inTaco Bell towhich the High Court was referring.)
->	Whenthe representation is made to the public or to a section thereof, one mustconsider its effect upon an ordinary or reasonablemember of the class inquestion. Although such class may include a wide range of persons, the ordinaryor reasonable member willobjectively be identified as having certaincharacteristics. In particular he or she can be expected to take reasonablecare forhis or her own interests and otherwise to behavereasonably.
->	It is necessary to inquire asto how a particular or anticipated misconception has arisen or may arise. In sodoing, the Court willconsider ‘the effect of the relevant conduct onreasonable members of theclass’.
->	Conduct will only bemisleading or deceptive or likely to mislead or deceive if the representee‘labours under some erroneous assumption’ or may be expectedso to labour. Such an assumption or anticipated assumption may be obvious,predictable or fanciful.
->	In assessingthe reactions or likely reactions of the ordinary or reasonable member of theclass, the Court may decline to treat asreasonable, assumptions which areextreme or fanciful. The initial question which must be determined is whetherthe misconceptionor deception, alleged or anticipated, is properly attributableto an ordinary or reasonable member of the class.
->	The‘question whetherparticular conduct causes confusion or wonderment cannot be substituted for thequestion whether the conductanswers the statutory description contained ins 52.’

19I accept that theseobservations are of general application in proceedings alleging contravention ofsubs 1041H(1) of the Act. However, before turning to the decision at firstinstance, I should make a number of preliminary comments.

SOME PRELIMINARY MATTERS

20In the judgment under appeal at [10], Finkelstein J noted a possibledifference in approach between that contemplated inNikeand that adoptedby Deane and Fitzgerald JJ inTaco Company of Australia Inc v Taco Bell PtyLtd[1982] FCA 136;(1982) 42 ALR 177. His Honour considered that Deane and Fitzgerald JJhad‘made it quite clear that when the impugned conduct is directed ata diverse group, that diversity must be taken into accountwhen considering thelikely effect of the conduct’ and observed that:

‘It is not clear whether the High Court goes along with thisapproach.’

In other words, his Honour considered that to take into accountsuch diversity might be inconsistent with use of the responses ofan ordinary orreasonable member of the class as the basis for assessment of the effect orlikely effect of the impugned conduct.

21At [11] his Honour also referred to certain observations made by Wilcox Jin10th Cantanae Pty Ltd v Shoshana Pty Ltd(1987) 79 ALR 299 where, at302, his Honour said that it was necessary to establish that a‘significant proportion’ of readers would be misled before astatement can be misleading for the purposes of s 52. Finkelstein Jthought that this observationwas‘going too far’.

22These marginal observations were major strands of NationalExchange’s argument. It was submitted that they in some way demonstratedthat his Honour had misunderstoodNike. National Exchange argued thatthe High Court’s apparent adoption of the response of the reasonable classmember as the criterionfor judgment of misleading effect meant that it wasnecessary to formulate criteria for identifying such a person and thatFinkelsteinJ had not taken this step. It was also submitted, relying upon10th Cantanae, that in order to demonstrate contravention of the section,it must be shown that a significant proportion of the class would bemisled orbe likely to be misled.

23I consider that this approach misconceives the respective effects ofTaco Belland10th Cantanae.In my view, the relevant passages inboth cases merely express, in different forms, the test propound by the HighCourt inNike. The way in which such a test is propounded in aparticular case may, to some extent, reflect the way in which the applicant hassought to satisfy it. An applicant may seek to prove misleading effect byshowing that many representees were misled. To dischargethe relevant onus, itmay well be necessary to show that a significant proportion was misled. On theother hand, there will be cases,such as the present case, where there islittle, or perhaps no evidence that any person was actually misled. Where aregulatoryauthority seeks to prevent conduct in breach of a provision such ass 52 of the TP Act or subs 1041H(1) of the Act, this will oftenbe thecase. Such an applicant will rely upon the terms of the representation and thecircumstances in which it was, or is to bemade, looking to the notionalrepresentative class member as the basis for assessing the likely effect of theconduct in question. To speak of a reasonable member of a class necessarilyimplies that one is speaking of a significant proportion of that class. It isimpossible to postulate a situation in which the reasonable member of a class isnot representative of such a proportion. Thus the approach adopted byWilcox J in10^th Cantanae is simply an alternative way ofexpressing the test now clearly prescribed inNike.

24As toTaco Bell, the High Court considered that Deane andFitzgerald JJ had applied an objective test in their Honours’ jointreasons inLego Australia Pty Ltd v Paul’s (Merchants) Pty Ltd[1982] FCA 135;(1982) 60 FLR 465, a judgment published on the same day as was that inTaco Bell. It is inconceivable that their Honours would have applied anobjective test inLego and at the same time urged a different approach inTaco Bell. Whilst it is true that members of a class may differ inpersonal capacity and experience, that is usually the case whenever a testofreasonableness is applied. Such a test does not necessarily postulate only onereasonable response in the particular circumstances. Frequently, differentpersons, acting reasonably, will respond in different ways to the same objectivecircumstances. The testof reasonableness involves the recognition of theboundaries within which reasonable responses will fall, not the identificationof a finite number of acceptable reasonable responses.

25There is no inconsistency between the decisions inTaco Belland10th Cantanae on the one handand that inNike on theother. In any event, it is clear thatNikemust now be applied. Thereis nothing in the criticism that Finkelstein J failed to identify anyparticular criteria for selectingthe reasonable member of the class. It istrue that the High Court spoke of isolating‘by some criterion arepresentative member of that class’. I understand that process to bemore concerned with describing the class than with identifying any particularmember. The criterionfor selecting the class member is reasonableness. Thatthis is so appears at [102] ofNikewhere their Honours observed that inParkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd[1982] HCA 44;(1982) 149 CLR191:

‘... Gibbs CJ determined that the legislation did not imposeburdens which operated for the benefit of persons‘who fail[ed] totake reasonable care of their own interests.’

26Their Honours also observed that in the same case:

‘Mason J concluded that, whilst it was unlikely that an ordinarypurchaser would notice the very slight differences in the appearanceof the twoitems of furniture in question, nevertheless such a prospective purchaserreasonably could be expected to attempt to ascertainthe brand name of theparticular type of furniture on offer.’

27I should say something about certain evidentiary matterswhich were canvassed before us. Finkelstein J said at [19]:

‘In resolving this case it is impossible to ignore the fact (and I findit to be the fact) that the offer has been purposelycomposed so that it willmislead shareholders. No reasonable shareholder appreciating the offer price ispayable over fifteen yearswould accept it.’

28National Exchange disputes both the availability of thisinference of fact and its use in determining the primary issue, namelywhetheror not the two dollar offers were capable of being misleading or deceptive. Forreasons which I will give at a later stageI consider the inference to have beenfairly open and indeed, to have been correct in the circumstances. As to itsrelevance, theFull High Court said inNikeat [33]:

‘However, it is well established by the authorities referred to by thePrivy Council inCadbury Schweppes Pty Ltd v Pub Squash Co Ltd(1980)2 NSWLR 851 at 861 that, where there is such a finding of intention todeceive, the Court may more readily infer that the intention has beenor in allprobability will be effective.’

See alsoS & I Publishing Pty Ltd v Australian Surf LifeSaver Pty Ltd[1999] FCA 316;(1998) 88 FCR 354 at 361-2, apparently approved by the HighCourt inNike at [33] andSlazenger & Sons v Feltham & Co(1889) 6 RPC 531 at 538, cited by Finkelstein J at [7].

29I turn to the evidence of Mr Locke, Mrs Himmelhoch andMs Normoyle. Clearly enough Mr Locke was at least initially misledintobelieving that he had received a cash offer. Whether he was misled as aresult of his having failed to read the whole document oras a result of hismisunderstanding the effect of the payment clause is not clear. As toMrs Himmelhoch, I consider that it wouldbe unfair to give any weight toher evidence. It is ambiguous. That is unfortunate, but nothing can be doneabout it now. MrsNormoyle clearly expected that she was to receivepayment virtually immediately. As with Mr Locke, it is unclear whetherthis wasas a result of her not having read the payment clause or of her nothaving understood its effect. Finkelstein J observed:

‘If Mr Locke was mistaken about the terms so might othershareholders, many of whom may not re-examine the offer to discoverthe trueposition.’

30Although Mr Locke himself held only a relatively smallnumber of shares, his wife held 20,000. One might reasonably think thathe hadgood reason to give appropriate consideration to the offer. He did notimmediately commit himself to it and chose to re-readit with more care. Experience suggests that this may be a typical approach to such documents. HisHonour seems not to have actedupon the evidence of either Mrs Himmelhochor Ms Normoyle.

31One other factual matter requires comment. At [18] his Honourobserved:

‘I appreciate that no other shareholder has come forward with alegitimate complaint that he has been misled, and only few shareholdershaveaccepted the offer. Looked at in isolation these facts support NationalExchange’s submission that the offer documentis not misleading. Thereare, however, two factors which throw a different light on the situation. Thefirst is that shortly afterthe offers were dispatched ASIC issued a mediarelease warning against acceptance of the unsolicited offer from NationalExchange. It is reasonable to assume that many shareholders became aware of therelease. The second factor is that the market price of Onesteelshares hasrisen above the offer price. As at 7 August 2003 the closing price for theshares was $2.10. So, by that time the offerwas unattractive, even to thosewho believed it was a cash.’

32National Exchange asserts that his Honour erred in soconcluding. It submits firstly that there was no evidence that the ASICmediarelease received any publicity or that it was seen by any Onesteel shareholder. The release appears at AB 230. It was exhibitA. It constituted awarning from ASIC to investors considering ‘accepting unsolicitedoffers for Onesteel shares from National Exchange ...’. Althoughthere is no evidence as to the extent of its circulation, it is reasonable toinfer that it was circulated. Nonetheless,in the absence of evidence as to theextent of such circulation, it would be inappropriate to give substantial weightto its possibleeffect. I do not understand Finkelstein J to have given itgreat weight. His Honour simply noted that only a few shareholders hadacceptedthe offer, observing that this, to some extent, supported NationalExchange’s submission that the document was notmisleading. He thenidentified other possible explanations. His Honour was merely explaining theweight which he attributed tothe fact that only a few shareholders had acceptedthe offer. I detect no error in this approach.

33Secondly, National Exchange asserts that there was no evidence that themarket price of Onesteel shares had risen above the offerprice. ASIC pointsout that in its media release, the current closing price of $2.10 was mentioned.This document was received withoutobjection. At AB 83, in the course ofcounsel’s address on behalf of ASIC, reference was made to the increase inprice, atwhich stage counsel for National Exchange objected to what hedescribed as‘evidence from the bar table’. Counsel for ASICthen continued, suggesting simply that‘[o]ne can’t exclude thepossibility that the share price has changed, as indeed it did wesay.’

34ASIC could not, in the face of objection, have sought to prove the priceat which Onesteel shares were trading at any particulartime by tendering thepress release. However the absence of objection strongly suggested that thematter was not in dispute. AsI understand it, the trading price at aparticular time of shares listed on the stock exchange is relatively easy toascertain. In those circumstances it would not have been unreasonable forcounsel for ASIC to have assumed that, in the absence of objectionto the tenderof the media release, or any assertion that its use was to be limited in aparticular way, its factual content wasnot in dispute. If counsel for NationalExchange intended to object to the use of the document as proof of the value ofthe shares,he ought to have done so when the document was tendered. It isunfortunate that this misunderstanding should have arisen, but Ido not thinkthat it is of any great significance in the overall scheme of things. Again,his Honour’s reference to the matterwas designed simply to suggest apossible explanation for the fact that very few offerees had shown any interestin the offer. Thematter may have been more important if ASIC had reliedsubstantially upon the conduct of offerees in order to prove the misleadingnature of the offers.

WAS THE CONDUCT MISLEADING OR DECEPTIVE OR LIKELY TO MISLEAD ORDECEIVE?

35By reference toTaco BellFinkelstein J identified four steps inthis inquiry, namely:

->	Was there a falserepresentation?
->	What was the intentionunderlying the conduct in question? (His Honour identified correctly thatintention to mislead was not essentialbut nonetheless was relevant to theinquiry.)
->	Was the conduct such as to leadto an erroneous assumption on the part ofrepresentees?
->	Did the conduct mislead ordeceive or was it likely to do so, having regard to the behaviour of areasonable representative of thewhole class ofrepresentees?

A falserepresentation

36National Exchange argues that one must read the offer documents as awhole. Whilst that proposition may be true in some senses,I consider that adocument may be misleading even if a full and perfect understanding of itscontents would not create that effect. This inevitably flows from the generalproposition that a truthful statement may nonetheless be misleading ordeceptive. SeeHornsby Building Information Centre Pty Ltd v Sydney BuildingInformation Centre Ltd[1978] HCA 11;(1978) 140 CLR 216 at 227.

37The offers clearly invited a comparison between the offer of $2 per shareand the current market price of $1.93. That invitationcarried an implicitrepresentation that there was some point in such comparison, in other words thatthe comparison was between "likes". The invitation clearly implied that theofferee would be better off if he or she accepted, rather than rejected, theoffer. Theextent of that benefit may not have been clear. A person sellingshares on the stock market might have to pay brokerage and perhapsotherexpenses of the sale. Further, in any transaction there is the possibility ofdelay in payment of the purchase price. Whereno time for payment isstipulated, the law frequently implies an obligation to pay within a reasonabletime. No doubt the stockexchange rules deal with this matter. Suchconsiderations might mean that a reasonable offeree would understand that thecomparisonbetween $2 and $1.93 required some qualification. Nonetheless, I aminclined to the view that the heading‘OFFER TO BUY YOUR SHARES INONESTEEL LTD ("SHARES")FOR $2.00 EACH’, and the subsequentinformation appearing under the heading‘Offer’, representedto offerees that the comparison between the market price and the offer gave areasonable indication of the value ofthe offer. The subsequent provision fordeferred payment significantly undermined the validity of such a comparison. However, asNational Exchange points out, in the fourth column of the tableunder the heading‘Total Offer Price’, the words‘see payment terms’ appear in parenthesis. It is said thatthis is equivalent to an asterisk, drawing attention to that other aspect of thedocument. The argument is valid as far as it goes. However, as Stone Jpointed out inACCC v Signature Security Group Pty Ltd[2003] FCA 3;(2003) ATPR41-908:

‘... however the question remains whether the asterisk and its link tothe additional information are sufficiently prominentto prevent the primarystatement being misleading and deceptive or likely to mislead or deceive. Thedegree of prominence requiredmay well vary with the potential of the primarystatement to be misleading and deceptive.’

38Price is usually of pre-eminent importance in an offer topurchase property of any kind. Terms of payment might reasonably betreated bysome people as being of subsidiary importance. An offeree would not normallyexpect that information as to payment wouldhave the effect of substantiallyundermining the correctness of information found elsewhere in the document,particularly informationas to a matter of pre-eminent importance such as price.The prominence of the invited comparison in the offer documents and the absenceof any reference to deferred payment in the share transfer form would havefurther discouraged any such expectation. The offerswere capable of beingunderstood as offering a purchase price significantly in excess of the closingmarket price, with the tacitrepresentation that there was nothing else in thedocument which would seriously undermine the validity of such comparison. Thatrepresentation was false.

Did National Exchange intend to mislead?

39I am conscious of the traditional caution exercised by courts indetermining whether or not a person deliberately intended to mislead. However,as his Honour indicated, it is impossible to imagine even the most unworldly ofinvestors finding the offer attractive,given the arrangements for deferredpayment of the purchase price. It is of some significance that NationalExchange sent the vastmajority of the offers to the holders of relatively smallparcels of shares. Such persons, or some of them, could have been expectedtopay less attention to the offers than they would if large holdings wereinvolved. I also note that the one dollar offers werein a quite differentform. It might be thought that National Exchange was, in those offers, tryingto avoid any comparison betweenthe offer of one dollar per share and theclosing market price of $1.93, or at least to minimize the effect of any suchcomparison. When these factors are taken into account it is impossible to avoidthe conclusion that National Exchange expected that some peoplemight accept thetwo dollar offers without fully understanding them and tried to maximize thechances of uninformed acceptance. This view encourages me to infer that theoffer was capable of being misleading or deceptive.

Erroneous assumptions

40The two dollar offers invited the erroneous assumption that acceptancewould yield two dollars per share to the offeree, or aboutseven cents more thanwould be derived from sale on the stock exchange. As I have previously pointedout, the amount of the benefitmight need slight qualification. Nonethelessthat was the substantial effect of the offers.

The reasonable shareholder

41The class of shareholder to whom the two dollar offers were addressed wasdominated by small shareholders - persons who stood toreceive amounts of lessthan $8,000. Of course $8,000 is by no means an inconsiderable sum, but manyshareholders would have receivedsignificantly less. As I have said it islikely that some offerees would have considered the matter to be of no greatsignificance. There is evidence that both Mr Locke and Ms Normoylewere at least temporarily misled by the offer. It is not clear whether thiswasas a result of the impact upon them of the format of the offer or as a result oftheir not giving sufficient attention to thepayment provision. It would bewrong to place great weight upon their having been misled. Further, there is noevidence of anysubstantial number of people having been mislead. It is alsorelevant to give some weight to the factors addressed by his Honouras possiblyexplaining that fact, namely that there was a media release, warning of theoffer and the increase in share price.

42The format of the offer, particularly the heading and the informationwhich appears under the subheading‘Offer’ would suggest toany reasonable person that the benefit to be derived from the offer was about $2as compared to the market priceof $1.93. No doubt, a sceptical shareholderwould look for the "catch" but in my view, many reasonable shareholders wouldhave beeninclined to accept the offer at face value, assuming that conditionsas to payment would be subsidiary and not such as significantlyto reduce thevalue of the offer or the favorable comparison of it with the market price. Itmay be that many reasonable shareholderswould, before finally accepting, haveread the documents more closely and more critically. However I am satisfiedthat not everyreasonable shareholder in the class would have done so. Iconclude that the two dollar offers were likely to mislead or deceivereasonableofferees. The appeal should be dismissed.

43As to the cross-appeal, I cannot see that a further declaration reflectingthe second alleged misrepresentation will serve anyuseful purpose beyond thatserved by the existing declaration. For that reason there is little point inconsidering whether or notthe second alleged misrepresentation was made out onthe evidence. In any event, I accept the view expressed by Finkelstein Jthatit was not. The two dollar offer did not refer to the "financial value" ofthe offer. It is, in any event, an imprecise conceptand really only anotherway of expressing the first alleged misrepresentation. The cross-appeal shouldbe dismissed.

COSTS

44National Exchange should pay ASIC’s costs of, and incidental to theappeal. ASIC should pay National Exchange’s costsof, and incidental tothe cross-appeal.

Associate:



Dated:21 April 2004

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OFAUSTRALIA

REASONS FOR JUDGMENT

JACOBSON & BENNETT JJ:

45We have had the benefit of reading in draft the reasons for judgment ofDowsett J. We agree with his Honour’s conclusionthat the appeal must bedismissed and, generally, with his reasons. We wish, however, to add somefurther observations.

46The essential question in the appeal is whether the appellant hasdemonstrated error in the primary judge’s finding thata one-page offerdocument which, when read as a whole, was factually true, was neverthelessmisleading.

47The answer to this question is that, in our opinion, no error has beendemonstrated because his Honour’s finding that thedocument created amisleading impression that the price was payable in full on acceptance was onewhich was open to him. Indeed,we agree with the conclusion which his Honourreached.

48The principal ground of attack made by Mr Karkar QC, Senior Counsel forthe appellant, upon the judgment was that a document whichis factually truecannot be misleading. He said that the document, containing only one page,should have been read in its entiretyby the ordinary or reasonable shareholderwho would then see that the offer was for payment by instalments. He submittedthat theprimary judge had fallen into error by misunderstanding and failing toapply the test of the ordinary or reasonable member of therelevant class statedby the High Court inCampomar Sociedad Limitada v Nike International Ltd[2000] HCA 12;(2000) 202 CLR 45 ("Nike") at [102] – [105].

49It is well established that an offer which is literally true maynonetheless be misleading. It will be misleading or deceptiveif it carrieswith it a false representation; seeHornsby Building Information Centre PtyLtd v Sydney Building Information Centre Ltd,[1978] HCA 11;140 CLR 216 at 227-228 perStephen J. However, Mr Karkar submitted that this principle cannot apply wherethe statement is factually true.

50In our opinion, no such distinction can be drawn. A document which, whenread as a whole, is factually true and accurate may stillbe capable of beingmisleading if it contains a potentially misleading primary statement which iscorrected elsewhere in the documentbut without the reader’s attentionbeing adequately drawn to the correction.

51The principle which applies to those cases is that the qualifying materialmust be sufficiently prominent or conspicuous to preventthe primary statementfrom being misleading; seeMedical Benefits Fund of Australia Ltd v Cassidy[2003] FCAFC 289 at[35] – [38] (per Stone J with whom Mansfield Jagreed); see also J D Heydon,Trade Practices Law, Law Book CompanySydney 1989 at [11.730].

52As Mason J said inParkdale Custom Built Furniture Pty Ltd v Puxu PtyLtd[1982] HCA 44;(1982) 149 CLR 191 at 210-211 ("Puxu"):

"There may be situations where to exploit mistaken views of the public wouldcontravene s52 and would not be corrected by an inconspicuousaccuraterepresentation made in e.g. a concealed label or the ‘fine print’ ofa contract."

53The relevant document in the present case is Annexure "B" tothe judgment of Dowsett J. The striking feature of the document whenread as awhole is the disparity between the impression created by the primary statement,namely that the offer is for payment infull on acceptance, and the trueposition stated in the qualification under which payment is to be made over 15years. The primarystatement is made in bold so as to emphasise it to thereader and it is repeated and reinforced in the comparative table.

54The representation made in the table is that the shareholders will receivein cash in full on acceptance a premium of 7cents overthe closing price. Thetrue position is that accepting shareholders make an interest free loan of thepurchase price to the appellantover a period of 15 years. To describe it as acheeky offer would be to understate the full import of the document.

55Where the disparity between the primary statement and the true position isgreat it is necessary for the maker of the statementto draw the attention ofthe reader to the true position in the clearest possible way.

56An analogy is to be found in cases dealing with exemption clauses. InCurtis v Chemical Cleaning & Dyeing Co[1951] 1 KB 805 at 809,Denning LJ said:

"When one party puts forward a printed form for signature, failure by him todraw attention to the existence or extent of the exemptionclause may in somecircumstances convey the impression that there is no exemption at all, or at anyrate not so wide an exemptionas that which is in fact contained in thedocument."

57His Lordship’s remarks inJ Spurling Ltd v Bradshaw[1956] EWCA Civ 3;[1956] 1 WLR 461 were even more pointed. His Honour said at 466:-

"... the more unreasonable a clause is, the greater the notice which must begiven of it. Some clauses which I have seen would needto be printed in red inkon the face of the document with a red hand pointing to it before the noticecould be held to be sufficient."

58A similar approach is justified by the remarks of Stone J inone of the "asterisk cases",ACCC v Signature Security Group Pty Ltd[2003] FCA 3;(2003) ATPR 41-908. Her Honour observed at [27] that thedegree of prominence which must be given to a qualifying statement may well varywith the potentialof the primary statement to be misleading and deceptive.

59Although the primary judge did not refer to the disclaimer or asteriskcases, it seems to us that he took into account the questionof whether thequalification was sufficiently clear and prominent to prevent shareholders frombeing misled. He appears to havedone so at [20] by making the finding that "anumber of shareholders" would have formed a mistaken view about the offer byreasonof the "general impression" of the offer document.

60So long as his Honour did not apply the wrong test in identifying thepersons who fell within the class of the ordinary or reasonableshareholders, wecan see no error in the approach he took. The question was one of fact for theprimary judge and we would not departfrom his finding because we do notconsider that the finding has been shown to be wrong; seeBranir v OwstonNominees (No 2) Pty Ltd[2001] FCA 1833;(2001) 117 FCR 424 at[30] (Allsop J).

61It is not entirely clear whether his Honour applied the test of thehypothetical ordinary shareholder stated inNike. He said at [10] thatit was difficult to identify the criteria for the ordinary member of a diversegroup. He did not refer tothe ordinary or reasonable shareholder in making hisfindings at [20]. Instead, he referred to "a number of shareholders" and the"general shareholding public" who would be likely to have been misled by thegeneral impression of the document. It seems that theexplanation for this isthat he wrongly treated the case as one where the representation was made toidentified individuals; see.auDomain Administration Ltd v DomainNames Australia Pty Ltd[2004] FCA 424 ("Domain Names") at [17]– [18].

62But even if his Honour failed to apply the correct test, we are notpersuaded by the argument that the offer was not likely tomislead or deceivethe ordinary or reasonable shareholder. The disparity between the primaryrepresentation and the qualificationwas so great that the warning wasinsufficient to draw the true position to the attention of the ordinaryshareholder.

63In coming to the view which we have reached, we have borne in mind thathis Honour found at [19] that the offer was deliberatelycomposed to misleadshareholders of the company. As the primary judge said, no reasonableshareholder who read the payment termsand realised that the price was payableover 15 years would accept it. We agree with

Dowsett J that his Honour wasentitled to make this finding. Where there is a finding of intention todeceive, the Court will morereadily infer that the intention has been effected;seeNikeat [33].

64We agree with Dowsett J that price was likely to be of primary importanceto the ordinary or reasonable shareholder. The boldstatement in the headingthat the offer was to purchase the shares for $2 and the statement of the totaloffer price in the tableconveyed a representation that the price was payable infull. Even if the ordinary or reasonable shareholder read the words "seepayment terms", he or she would not have expected those words to direct thereader to a statement which drastically altered the natureof the offer. Thiswas an alteration which required not only a "red hand" but also the clearestpossible words. Nothing short ofa statement prominently made, as part of theheading or in the table, that the price was payable over 15 years would havebeen sufficient. We do not consider that the words "see payment terms" in themanner and form in which they appear in the table were adequate.

65Moreover, we do not consider that the words directing the shareholders toconsult an adviser if they did not understand the documentwere sufficient toremove the likelihood of misconception. This is because the words "see paymentterms" would not have indicatedto shareholders that there was something aboutwhich they might need financial or legal advice. The impression which wascreatedby the heading, the table and the fact that it was a one page documentwas that it was a straightforward offer for cash on completionwhich did notrequire legal advice about the nature of the consideration that was payable.

66Of course,s 1041H of theCorporations Act2001 (Cth) is notintended to benefit those who fail to take reasonable care of their owninterests;Puxuat 199 (Gibbs CJ), 209 (Mason J). However, as Gibbs CJobserved at 199, what is reasonable will depend on all the circumstances. Therelevant circumstances included the inadequacy of the wording which directed thereader to the very substantial alteration inthe terms of the offer. There wasnothing unreasonable on the part of an ordinary or reasonable shareholder infailing to read thatpart of the document which stated that the offer waspayable by instalments over a long period. We refer to the evidence as setoutin [7] to [14] of the judgment of Dowsett J.

67Mr Karkar submitted that the primary judge erred in failing to considerwhether a "significant proportion" of shareholders wouldhave been likely tohave been misled. He relied on the use of those words by Wilcox J in10^th Cantanae Pty Ltd v Shoshana Pty Ltd(1988) 79 ALR 299("10^th Cantanae")at 302. Mr Karkar also pointed to apossible inconsistency between the remarks of Deane and Fitzgerald JJ inTacoCompany of Australia Inc v Taco Bell Pty Ltd[1982] FCA 136;(1982) 42 ALR 177 ("TacoBell") and the test of the ordinary or reasonable shareholder stated by theHigh Court inNike. In a well-known passage inTaco Bellat 202,their Honours referred to the need to consider the question of whether conductis misleading by reference to all those whocome within the class including theastute and the gullible.

68InNikeat [102] and [103] their Honours referred to theattribution of characteristics to the ordinary or reasonable members of theclassand to the need to isolate the hypothetical member of the class who hasthose characteristics. The attribution is to be objectivein order to allow forthe wide range of persons who would, in fact, make up the class. It is also toallow for unreasonable reactionsof members at either end of the spectrum whichmakes up the class. We see no difference between this approach and that whichwascontemplated by Deane and Fitzgerald JJ inTaco Bell.

69Indeed, the same view seems to have been taken by Gibbs CJ inPuxuat 199 as follows:-

"Although it is true, as has often been said, that ordinarily a class ofconsumers may include the inexperienced as well as the experienced,and thegullible as well as the astute, the section must in my opinion by regarded ascontemplating the effect of the conduct onreasonable members of the class."

70Nor in our opinion is there any distinction between the wordsused by Wilcox J and the approach stated by the High Court inNike. Indetermining the effect of conduct on the reasonable members of the class, it isnecessary for the Court to consider objectively,as a question of fact, whetherthose persons have been, or would be likely to be, misled. A finding thatreasonable members of theclass would be likely to be misled carries with it thedetermination that a significant proportion of shareholders would be misled.

71In any event,10^th Cantanaewas a decision of a FullCourt. Pincus J observed (at 309) that it was not sufficient that "somereaders" were affected. GummowJ (in dissent, but not as to the test) referred(at 314-315) to the need to prove that a substantial proportion of persons wasmisled,in contrast to a need to establish that almost all purchasers were of aparticular view. Gummow J also referred (at 315) to "theusual manner in whichordinary people behave". Accordingly, it is apparent that the test stated in10^th Cantanaeis not inconsistent withNike. Wedisagree with a suggestion to the contrary by Finkelstein J inDomain Namesat [25] – [26].

72Although the primary judge referred to "a number of shareholders", it issufficient that we have reached the view that the ordinaryor reasonable memberswould be likely to have been misled.

73The primary judge found at [21] that only one of three misrepresentationswhich ASIC claimed to have been made was in fact made. This was themisrepresentation that the offer was for payment in full upon acceptance. Hemade a declaration in those terms andordered injunctive and other relief.

74The second and third alleged misrepresentations were that the financialvalue of the offer price was $2 per share and that itsvalue exceeded theclosing market price. His Honour found at [21] that those misrepresentationswere not made out because he wasnot satisfied that any shareholder formed aview about the economic value of the offer.

75ASIC has filed a cross-appeal against the primary judge’s finding onthe second and third representations. ASIC seeks declarationsin terms of thosealleged misrepresentations but it does not seek any consequential relief.

76We agree with Dowsett J that all three misrepresentations were related andthat they all endeavoured to express in slightly differentways the same generalconcept. However, it seems to us to follow that there is no need to considerwhether declarations ought tobe made in terms of the second and thirdmisrepresentations which are really no more than alternatives of the first.

77Neither ASIC nor the appellant sought to vary the declarations or theorders made by the primary judge other than to supplementthe declarations inthe manner sought by ASIC in its cross-appeal. In the absence of argument aboutthe terms of the existing declarations,we would not be prepared to amendthem.

78Accordingly, the orders we would make are that the appeal and thecross-appeal be dismissed with costs.

Associate:



Date:21 April 2004