Johnson v Mackinnon

MACFARLAN JA: Subject to the following qualifications, I agree with the judgment of Brereton JA.

First, whilst I agree with his Honour’s conclusions stated in [142]-[144], I have some concern as to whether they fall within the case put by the respondent against Ms Johnson. Ultimately, I have concluded that they do on the basis that they are within the ambit of the pleading against her (Further Amended Commercial List Statement at [3], [7], [7A], [20]-[21] and [23]) which was not, in any relevant respect, clearly narrowed by the course of conduct of the trial or appeal. I note that his Honour’s conclusions in those paragraphs are not in any event critical to his Honour’s ultimate conclusion that the appeal should be dismissed because his Honour finds that Ms Johnson’s liability was established on another basis as well.

Secondly, I agree with the observations made by Simpson AJA in [301]-[303] of her Honour’s judgment.

BRERETON JA: Between early 2013 and October 2014, more than 400 members of the public advanced funds totalling $29.6 million, initially to The Sports Trading Club Partnership (“the Partnership” or “STC”), in which the partners were the appellant Ms Leigh Johnson, a senior solicitor specialising in criminal law, and Ms Anne Patricia Larter, and following Ms Johnson’s resignation on 21 January 2014, to another partnership, called the STC Sports Trading Club (“the Second Partnership”), of which Ms Johnson was not a member. According to a document described as a proposal which was provided to all intending investors (“the Proposal”), STC was ostensibly a betting syndicate that used sophisticated methods to ensure high returns to investors (called “Associate Members”) without risk. In fact, STC was the vehicle for a fraudulent scheme of which the architect was one Peter Foster, described by the primary judge as a “notorious conman”, and essentially all the investors’ funds were lost. In proceedings in the Commercial List, the respondent Mr Ian Mackinnon, who had lent $200,000 to STC, sued, as representative plaintiff for 153 of the investors (“the Group Members”), twelve defendants, including STC (as first defendant), Ms Larter (second defendant), Ms Johnson (fifth defendant), Foster (twelfth defendant), and various other alleged partners and participants. Claims against some defendants were compromised or discontinued; Ms Larter entered a submitting appearance and was bankrupt; Foster did not participate in the hearing and, at the time of hearing, was also bankrupt and had criminal charges pending against him. Ms Johnson was the only active defendant. The primary judge held that she was liable for the whole of the loss suffered by Mr Mackinnon, by reason of having engaged in misleading and deceptive conduct [1] by representing that the statements in the Proposal were true, and by not disclosing that Foster was involved in STC, and gave judgment against her for $200,000, interest and costs.

The appellant does not dispute that the representations in the Proposal (“the Proposal Representations”) were false, nor that Foster was involved in STC. In this appeal, the essential issues are:

By a Notice of Contention, the respondent contends that the decision below should be upheld on grounds other than those relied upon by the primary judge, namely deceit and conspiracy. The Notice of Contention assumes significance because, if the appellant ought to have been permitted to rely on a defence of apportionment to reduce her liability for misleading and deceptive conduct, such a defence would not have reduced her liability for deceit.

The following summary draws heavily on the extensive and comprehensive account contained in the primary judge’s principal judgment. [2]

Details of Foster's “sad and lengthy history of dishonesty, deception and evasion” [3] including “direct involvement in marketing schemes which have resulted in the misappropriation of assets” [4] and his criminal history are related in a number of reported cases. [5] One episode involved the sale of distributorships in respect of a purported weight loss pill called “TRIMit”; on 2 September 2005, Foster was found guilty of price fixing and misleading and deceptive conduct, in respect of which he was fined, and restrained from being involved in any business relating to weight loss or to the cosmetic or health industries for a period of five years. [6]

Immediately before the events which give rise to the present proceedings, in September and October 2012, there was a trial of proceedings brought in the Federal Court by the Australian Competition and Consumer Commission against SensaSlim Australia Pty Ltd, which marketed a diet nasal spray, and which was found to be in effect a front for Foster. [7] Yates J found, inter alia, that “it was essential that Mr Foster not be publicly associated with SensaSlim or its business. Mr Foster’s self-assessment was that his name was ‘mud’ and that he could not be seen to be connected to a weight loss product”; [8] that “the mask” of Mr Foster’s involvement was provided by others, each of whom was no more than a “front man” for Mr Foster’s alter egos, who “only had … roles calculated to create a façade of respectability for that business”; [9] and that “SensaSlim’s conduct was deliberate, covert and fraudulent to a high degree. It was clearly directed to obtaining money by deceit. Its objective was to conceal the activities of an avowed and notorious conman, Mr Foster.” [10]

During the events which gave rise to the present proceedings, on 27 September 2013, Foster was held, by Logan J in the Federal Court, to be in breach of the orders of 2 September 2005, by reason of his involvement in SensaSlim, [11] and on 24 October 2013, he was sentenced to three years’ imprisonment for contempt of court. [12] However, he remained “on the run” until he was arrested a year later in October 2014.

The extent to which Ms Johnson was aware of Foster’s history and record was an issue in the present proceedings.

Ms Johnson was admitted to practice as a solicitor in 1984, and has specialised in criminal law. According to her evidence, she met Foster in or around August 2012, while on a holiday to the Gold Coast, when her good friend Ms Larter introduced her to Foster's sister, who in turn invited Ms Johnson to her home, where she met Foster. What Ms Larter said to Ms Johnson about Foster is mentioned later.

According to Ms Johnson, during her visit to Foster's sister's home, Foster mentioned pending litigation in which he was then involved – the SensaSlim matter. On her return to Sydney, he telephoned her “and persuaded me to act for him to seek an adjournment”. As a result, on 29 August 2012, Ms Johnson appeared for Foster before Yates J to seek an adjournment of the hearing, which was set down to commence on 3 September 2012. The application was unsuccessful, [13] and on 2 September 2012, Ms Johnson appeared before Perram J, on an application for leave to appeal from Yates J's decision. Leave was refused. [14] The proceedings, in which Ms Johnson played no further part, were ultimately resolved by the judgments of Yates J earlier mentioned.

According to Ms Johnson, after she had acted for him on the adjournment applications, Foster asked her to contact him again, and told her about “sports trading”. He proposed that she become a “limited partner” in a proposed new sports trading business, in which the other partner would be Ms Larter, and Ms Johnson agreed to do so. She was given to understand that Foster would not be involved in the management or operation of the proposed new business and would only be involved in setting up and operating the business's website and similar technological aspects, while one Richard Holmes, who was said to have been a professional sports trader for decades, would be doing the sports trading. Ms Johnson’s account of various assurances she says she was given by Foster is important and is more fully set out later.

On 30 December 2012, Ms Johnson and Ms Larter executed a “Limited Partnership Agreement”, which stated that:

Provision for the formation of a limited partnership is made by Partnership Act, s 50A(1), which provides:

By s 60(1), “[t]he liability of a limited partner to contribute to the liabilities of the limited partnership is … not to exceed the amount shown in relation to the limited partner in the Register as the extent to which the limited partner is liable to contribute.”

While Ms Larter and Ms Johnson clearly intended their partnership to be a limited partnership, with Ms Johnson's liability to be as a “Limited Partner”, their “Limited Partnership Agreement” was never registered – apparently by oversight – and so their partnership was not a limited one, and Ms Johnson’s liability was not limited. The discovery of this, shortly before the commencement of the hearing, led to a late amendment to the pleadings, which is referred to below. [15]

Concurrently with the establishment of the partnership, Ms Johnson advanced $182,500 in cash to STC, which Ms Johnson described as her “seed money”. She was the only one of the promoters and partners to contribute any capital; Ms Larter and Foster contributed no funds. Ms Johnson said that she borrowed all of the $182,500 in cash from “friends”; that the arrangement was that she would be paid 100% interest on her advance; that the money would be repaid within a few months; and that there was a document recording the arrangement, but that she had been unable to locate it. The evidence did not expressly reveal with whom Ms Johnson made this arrangement, but it must have been Foster and Ms Larter. In an email sent by Ms Johnson to Foster and Ms Larter on 10 September 2013, she wrote: [16]

Ms Johnson’s loan was unsecured. She said that she undertook no due diligence before becoming a partner or advancing funds to STC; that she did not ask Ms Larter how she had secured the rights STC was supposed to have, nor their value; and that she made no enquiries as to “who would be doing what” in the business. [17]

Ms Johnson said she paid the $182,500 in four tranches: the first tranche of $88,000 in cash, to one Bill Duffy, who she said was “a friend of Mr Foster's”. In her 10 September 2013 email, referred to above, [18] Ms Johnson said that $100,000 of the $182,500 seed capital was to be placed into STC's trading account, to be traded by Richard Holmes. However, in cross-examination she said that she deposited the remaining three tranches of $37,000, $25,000, and $32,500, in cash, into a bank account, and that she did not know who controlled that account. As there was no evidence of deposits of those amounts into the STC Westpac account in the joint names of Ms Johnson and Ms Larter, which was opened on 28 December 2012, the primary judge concluded that the account into which they were deposited must have been one associated with Ms Larter or Mr Foster. [19]

Ms Johnson withdrew $50,000, which she later claimed remained owing in respect of her initial loan, from the Westpac account in late December 2013. This fully repaid her $182,500 seed capital loan, with 100% interest. She resigned as a partner on 21 January 2014. When she resigned, Ms Johnson also froze the STC Westpac bank account, of which she was a signatory. Following her resignation, the Second Partnership, in which Ms Larter and others, but not Ms Johnson, were the partners, was formed. At least by the end of the trial, there was no suggestion that Ms Johnson had any liability as a partner in respect of the period after her resignation, and in this appeal it is the first partnership, of which Ms Johnson was a member, that is relevant. [20]

In early 2013, STC placed advertisements in a number of major newspapers inviting potential investors to call “Mark Hughes”, which the primary judge found was an alias used by Foster as he understood that he could not be seen to be associated with STC. A “Sales Script”, which his Honour inferred was prepared by or at the direction of Foster, instructed those who answered the telephone calls to tell potential investors: [21]

Investors were directed to the STC Website, which had a link to a media release showing Ms Johnson with former Prime Minister the Hon Julia Gillard AC and stating that Ms Johnson was involved in a $20 million partnership deal. The photograph of Ms Johnson and Ms Gillard had in fact been taken in a context unrelated to STC, and contrary to the “sales script”, the photograph was not taken on an occasion where Ms Johnson made any announcement about obtaining any rights connected with STC. It is not suggested that Ms Johnson was personally involved in the provision or use of this photograph, although she at some stage became aware that it was being used. [22]

The key marketing document was the Proposal, which was available on application by entering one’s particulars on a form accessible via the STC Website, through a hyperlink labelled “click to download proposal”. [23] It seems that the Proposal was not directly accessible from the website, but was forwarded in response to an on-line application. Mr Kenneth Gamble, an investigator retained on behalf of the Group Members, gave evidence that: [24]

The Proposal was also mailed to investors after the initial telephone call. [25] Thus it seems that it was not directly downloadable from the website nor viewable on it.

On the front page of the Proposal, Ms Larter was described as the “General Partner” and Ms Johnson as the “Legal Partner”. The Proposal included a photograph of Ms Johnson and Ms Larter, and the following description of Ms Johnson: [26]

Ms Johnson said that this was not an accurate summary of her career, and that she had never acted for “politicians”, “actors”, “physicians” or “large corporations”. [27] It was not found that she was personally involved in the provision of that resume.

The Proposal contained statements that: [28]

The Proposal concluded: [29]

The Proposal included the Terms of Associate Membership (as investors who made loans to STC were called), and attached the form of Loan Agreement. [30]

Whether Ms Johnson knew of the Proposal and its contents was an issue in the proceedings.

Over 400 members of the public, including Mr Mackinnon, became “Associate Members”, depositing a total of $29.6 million into a Westpac account in the name of Ms Larter and Ms Johnson (“the STC Westpac account”), of which the 153 Group Members' deposits account for some $12.3 million. Each investor executed a loan agreement which recorded that “The Sports Trading Club Partnership” was a limited liability partnership, and that the money loaned was to be used for trading on financial markets and to be repaid in full, along with distribution of all profits made “as outlined in the Sports Trading Club Associate Member Proposal”. The principal amount was repayable at the end of a fixed term. The terms of the Associate Member Proposal (“Proposal”) and “Terms of Associate Membership” were to apply as if incorporated in the loan agreement. The STC Westpac account was opened on 4 January 2013. Mr Gamble, an investigator retained on behalf of the Group Members, has identified all of the Group Members' deposits in the STC Westpac account. [31]

All of the money paid into the STC Westpac account has been paid away. Funds were withdrawn immediately after the deposits were made, often in round numbers; there were also “debit card withdrawals” in odd amounts for apparently private purposes. Mr Gamble's investigations revealed that almost $8.5 million of the funds paid into the STC Westpac account was transferred to an account with HSBC Bank in the name of the sixth defendant, Sports Trading Club Ltd. Funds were then transferred from that account into bank accounts in Hong Kong and Vanuatu in the name of offshore companies associated with Ms Arabella Foster and Mr Duffy (the person to whom Ms Johnson handed cash in December 2012). Thereafter, the funds were applied principally for the benefit of Mr Foster and his relatives and associates for purposes unrelated to those stated in the Proposal. Mr Gamble's investigations also revealed that a further amount of some $5 million was transferred from the STC Westpac account to accounts controlled by Mr Duffy, and was then used by Foster for personal expenditure and payments to his relatives and associates. Another almost $2 million was paid directly to Foster's associates and relatives. Almost $15 million of the money paid into the STC Westpac account has not been accounted for. [32]

There was no evidence that any of the money was spent for the purposes identified in the Proposal. In truth, as the primary judge found, STC had not acquired any rights from Sports Trading Club Ltd, or anyone else, to trade on sporting events or “prediction markets”; and STC did not conduct any trading or betting activity of the kind described in the Proposal, or at all. [33]

On 30 October 2014, shortly after Mr Foster's arrest, Ms Larter sent an email to all “STC Members” expressing confidence in the integrity of STC and offering a refund to investors who requested it; however, only five of the Group Members received a partial refund offered by Ms Larter, with the total amount refunded being $138,905. Otherwise no Group Member has been repaid the amount advanced to STC, although some recoveries have been made on behalf of Group Members: of the $12.3 million invested by Group Members, some $6.4 million has been recovered. [34]

Although Ms Johnson was one of the two persons authorised to operate the STC Westpac account, the other being Ms Larter, there was no suggestion that Ms Johnson received any of the money deposited into it (other than the $50,000 that she withdrew in December 2013 as final repayment of her advance of $182,500 and interest), nor that she authorised any payment out of the account. The primary judge found that Ms Larter must have authorised the transfer of funds out of the Westpac account, at the direction of Foster. [35]

Ms Johnson’s case at first instance was conducted on the basis that investors’ funds had been fraudulently misappropriated, by Mr Foster, with Ms Larter's assistance.

On 28 October 2013, after seeing an advertisement for STC in the Sydney Morning Herald and then speaking by phone to “Mark Hughes”, and receiving and reading the Proposal, Mr Mackinnon and his wife executed a loan agreement for $100,000, which was deposited into the STC Westpac account on 31 October 2013. On 4 November 2013, Mr Mackinnon executed a second loan agreement, and on 7 November 2013 he transferred a further $100,000 to the STC Westpac account. [36]

In the Further Amended Commercial List Statement (“FACLS”), Mr Mackinnon complained about two categories of alleged misrepresentations.

The first category was referred to in [20] of the FACLS, which ultimately alleged that between about February 2013 and about October 2014, representations were made to Mr Mackinnon and/or the Group Members by Foster or persons employed or instructed by Foster (including Ms Johnson, though the specific reference to her was a late amendment), to the effect that: [37]

The second category, comprising the Proposal Representations, was referred to in [21] of the FACLS, which alleged that between about February 2013 and about October 2014 STC, Ms Larter, Ms Johnson, and Foster made representations to Mr Mackinnon and the Group Members, in the Proposal, to the effect that: [38]

It was alleged that all representations in both categories were false and/or misleading or fraudulent because: [39]

Causes of actions were pleaded for breach of contract, misleading or deceptive conduct, deceit, conversion, and conspiracy. [40]

The hearing commenced on 5 February 2018, and on 6 February 2018, after cross‐examination of Mr Mackinnon had commenced, an application was made for leave to further amend the Commercial List Statement (“CLS”), essentially to clarify that the plaintiffs’ case was that certain representations had been made by persons including Ms Johnson. In a judgment delivered on 6 February 2018, [41] the primary judge granted leave to the plaintiff to file the FACLS, which had the effect of:

The grant of leave to amend by adding the Foster Representation is impugned in the present appeal.

On 12 February 2018, the primary judge refused to recuse himself on the basis of alleged apprehended bias. [42]

On 22 February 2018, his Honour granted an adjournment of the hearing, while Ms Johnson was under cross-examination, on the basis of hardship to Ms Johnson if cross-examination were to continue, based on medical evidence as to mental health distress arising from the trial. [43]

On 19 February 2019, the primary judge delivered the No 7 Judgment, in which his Honour concluded that Ms Johnson had engaged in misleading and deceptive conduct. His Honour found that Ms Johnson: knew that Foster’s involvement in the Sports Trading Club (STC) could not be publicly revealed; knew that Foster was using the alias “Mark Hughes”; knew of the “Proposal” and that it contained false statements; knew by mid-2013 that Foster was in control of STC; strongly suspected by September 2013 that investors’ funds were being misappropriated; and engaged in misleading or deceptive conduct by remaining silent despite these suspicions. [44]

His Honour relevantly found that:

Having heard further argument on issues not resolved by the No 7 Judgment, his Honour delivered a judgment on 28 November 2019 addressing questions of liability arising from the findings that Ms Johnson had engaged in misleading and deceptive conduct, including causation and apportionment. [48]

His Honour summarised the findings in the No 7 Judgment that Ms Johnson had engaged in misleading and deceptive conduct by making misrepresentations on the instructions of Foster: [49]

However, only the representation, by silence, that Foster was not involved in STC, and the representation that the statements made in the Proposal were true, were found to have been made or conveyed to, or relied on by, Mr Mackinnon, and only those representations ultimately resulted in Ms Johnson incurring liability to the Mr Mackinnon. Thus, although it was found that Ms Johnson had made the misrepresentations referred to in (1), (2), (3) and (4) above to Mr de Klerk, they can, for present purposes, be set to one side.

His Honour found that the statements in the Proposal were intended, and were likely, to induce investment in STC, and that the Proposal Representations did in fact induce Mr Mackinnon to invest in STC. [50] As to the Foster Representation, His Honour found that there were many points at which Ms Johnson could have disclosed Foster’s involvement, and that it was “more likely than not” that if Ms Johnson had taken such steps, Foster’s involvement would have become publicly known and thus known to Mr Mackinnon before he made his investment. [51]

His Honour found that deceit was established against Ms Johnson to the extent that it was held that she had made the Foster Representation knowing it to be false, but being of the view that it did not further Mr Mackinnon’s case in respect of the relief to which he was entitled, it was not considered further. [52]

His Honour refused to permit Ms Johnson to propound a defence of apportionment, for the reasons that the issue had been raised for the first time on 20 September 2019, [53] and had not been pleaded. [54]

On 13 December 2019, short minutes having been brought in, his Honour gave judgment for Mr Mackinnon against Ms Johnson and Foster for $200,000, with interest of $71,188.36, and costs. [55]

The grounds of appeal are contained in paragraphs 5 to 31 of the Notice of Appeal. Some of the grounds of appeal were not addressed at all in written or oral submissions, and are not further considered. Those which were relied on were summarised in Ms Johnson’s written submissions as follows:

As has been noted, not all the contravening conduct found by his Honour resulted in Ms Johnson incurring liability, because not all of it was causative of Mr Mackinnon’s decision to invest. As Ms Johnson can be liable only for such conduct as caused loss, it is convenient to address first the grounds of appeal that relate to causation, as that course will enable attention to be focussed on such conduct as was causative of loss.

Although his Honour found that Ms Johnson knew of the falsity of at least some of the representations for which she was responsible, this finding was not necessary to establish contravening conduct for the purposes of ACL, s 18: it is well-established that knowledge that conduct is misleading or deceptive is not an element of a contravention of the statutory prohibition on such conduct contained in s 18. [56] Although it is an element of accessorial liability as a “person involved” in a contravention, under ACL, s 236, [57] Ms Johnson was not sued as an accessory, but as a principal.

However, knowledge of the falsity of the representation is an essential element of the tort of deceit. While his Honour found that deceit was established to the extent that it was found that Ms Johnson knew of the falsity of at least some of the representations for which she was responsible, liability for deceit was not further considered, as it was “accepted that such a finding does not take Mr Mackinnon's case, so far as it concerns the relief to which he is entitled, any further.” [58] In circumstances where his Honour had disallowed any defence of apportionment, that was so. However, if his Honour erred in disallowing that defence, liability for deceit might be of considerable significance, as the statutory defence of apportionment is not available where the tortfeasor caused the relevant loss fraudulently. [59]

It is therefore convenient to consider first the appeal grounds relating to causation, and then those relating to amendment, before turning to those which impugn his Honour’s findings of fact in relation to the contravening conduct, including the extent to which Ms Johnson knew that the relevant conduct was misleading or deceptive, then to the Notice of Contention by which Mr Mackinnon seeks to uphold the primary judge’s conclusion on the alternative basis of deceit, and finally to the grounds which impugn his Honour’s quantification of damages, and the disallowance of a defence of apportionment.

These grounds, which challenged his Honour’s conclusion that Ms Johnson’s contravening conduct caused Mr Mackinnon’s loss, were as follows:

In respect of the Proposal Representations, his Honour was satisfied that the matters stated in the Proposal were in fact matters which caused Mr Mackinnon to make his investment, and were “of such a nature as would be likely to provide such inducement”, [60] and thus that Mr Mackinnon invested in STC “because of” the statements in the Proposal and Ms Johnson's misleading or deceptive representation that the statements in the Proposal were true, with the consequence that Mr Mackinnon was entitled to recover his loss from Ms Johnson. [61]

As to the Foster Representation, his Honour found that if Ms Johnson had disclosed Foster’s involvement to Mr Murray, a journalist who approached her with questions about Foster’s involvement in October 2013, then STC would have collapsed almost immediately, just as it ultimately did a year later following Foster’s arrest and the attendant publicity; and that had Ms Johnson taken any steps from March 2013 onwards to cause Mr Foster's involvement in STC to be disclosed, one way or the other such involvement would have become publicly known and thus likely known to Mr Mackinnon before he made his investment, so that he would not have invested and incurred loss, again with the consequence that Mr Mackinnon was entitled to recover his loss from Ms Johnson. [62]

The appellant submitted that it was not shown that ‘but for’ the representations, Mr Mackinnon would not have entered the loan agreements, and that if there was reliance, it was not reasonable reliance. It was also submitted that the primary judge’s conclusion that the matters stated in the Proposal were material in the sense required by the ACL was incorrect.

Causation in the present context involves two elements: the first is whether the contravening conduct caused or materially contributed to the plaintiff being under a misapprehension, and the second is whether the plaintiff incurred loss because of that misapprehension. Usual causation principles, including the ‘but for’ test of factual causation, apply. [63]

In his affidavit, Mr Mackinnon deposed:

Mr Mackinnon also deposed:

His Honour noted, and rejected, a submission that this evidence should be read as meaning that Mr Mackinnon would not have invested in STC had he known that Foster was involved in STC in the manner described in the ‘news reports’ to which he referred: that is to say, that the phrase “if I had known this” referred not to the mere fact of Foster's involvement in STC, but to his involvement in the manner in which it was described in the news reports. His Honour considered that the natural reading of Mr Mackinnon's evidence was that had he known that Foster “was involved in STC” – in any way – he would not have invested.

Neither of Mr Mackinnon’s statements of reliance, set out above, [64] was challenged in cross-examination. Moreover, it is logical and reasonable that a prospective investor would be influenced by the contents of the Proposal, and that knowledge of the involvement of Foster, given his reputation, would be a powerful deterrent to any investor. Indeed, it was for that very reason that, as discussed later, his involvement could not be and was not disclosed and he used an alias. His Honour was in those circumstances entitled, if not bound, to accept Mr Mackinnon’s evidence of reliance.

His Honour did not overlook that what was represented in the Proposal was “too good to be true”, and acknowledged that Mr Mackinnon may have been somewhat gullible, but that is not inconsistent with materiality or reliance. The gullible are not disentitled to protection against misleading and deceptive conduct; indeed, it is for the protection of those who believe and trust what they hear and see that the cause of action exists. After all, the statements in the Proposal were designed and intended to have the very result that their readers would be attracted to advance money to STC.

No error is apparent in his Honour’s conclusion that Mr Mackinnon’s decision to invest was a result of the Proposal Representations, and of the Foster Representation. These grounds of appeal fail.

Paragraphs 5 and 6 of the grounds of appeal concern the amendment, on the second day of the trial, of [20] of Mr Mackinnon’s Amended Commercial List Statement (“ACLS”), and are as follows:

When the trial commenced, the extant pleading was the ACLS which named as the first defendant “The partnership of Anne Patricia Larter, Alan Jones, Miraleste Pty Limited trading as USG Partner and Leigh Johnson, trading as ‘STC Sports Trading Club’”. After identifying the plaintiff and the capacity in which he sued (at [1]-[2]), it continued:

The pleading then identified the various other defendants (at [8]-[16]), and then the Group Members and common questions for the purposes of the representative proceedings (at [17]-[19]). Then, the representations sued on were pleaded, as follows:

It was then pleaded that the plaintiff and group members were induced by those representations to enter into agreements with and pay money to the first defendant (at [22]), and that the representations were false and or misleading or fraudulent (at [23]). After pleading causes of action for breach of contract (at [24]-[30]) and restitution (at [31]), the pleading turned to misleading and deceptive conduct, as follows:

Finally, deceit was pleaded:

It may be observed that this pleading:

Mr Argy, the solicitor advocate who appeared for Ms Johnson at the trial, had foreshadowed that there would be a “no case” submission at the end of the plaintiff’s case, apparently relying on the defects in the pleading. In response, on the second day of the trial, Mr Dixon, who appeared for Mr Mackinnon, sought to address the defects in the pleading by seeking leave to amend. For reasons given that day, [65] the primary judge granted leave to file the FACLS, which effected a number of amendments.

Relevantly, first, paragraph [3] describing the first defendant (the partnership) was amended, to read as follows:

Thus, the name of the partnership was corrected, and the allegation that the partnership was a “limited” one was omitted. As amended, the pleading thus alleged that there was one partnership, that traded as “The Sports Trading Club Partnership” until 21 January 2014, when Ms Johnson resigned, and thereafter as “STC Sports Trading Club”. In fact, there never was a partnership with the membership alleged, and Ms Johnson was never a member of a partnership called “STC Sports Trading Club”, [66] but at least by the end of the trial, it was common ground that there were two distinct partnerships, and that Ms Johnson was never a member of the second. In granting leave to amend in this respect, his Honour did so “upon the basis that such amendment was not to be taken as permitting Mr Mackinnon to advance a cause of action against Ms Johnson beyond those already pleaded in the ACLS. In particular, the amendment is not to be taken to enable Mr Mackinnon to allege, separately to the causes of action already pleaded, that Ms Johnson is jointly and severally liable for the debts of the partnership by reason of her status as a general or unlimited partner.” [67] This amendment is not challenged by the Notice of Appeal.

Secondly, to overcome the infelicity of nominating a partnership as first defendant, and although the inapt allegation that the partnership was “liable to be sued in its own name and style” remained, a number of amendments were made “to make clear that references to “the first defendant” in the ACLS are to include, and be read as, references to the parties (including Ms Johnson) who are alleged to have been members of the partnership from time to time.” [68] As the trial judge observed, the nomination of a partnership as a defendant was inapt, as a partnership is not a legal person. [69] Thus, the following allegation was inserted as [7A] (omitting an irrelevant reference):

As his Honour observed, [71] this was a somewhat inelegant way of dealing with the incorrect nomination of a partnership as a party, but made it clear enough that the pleadings were to be read as if references to “the first defendant” were to be read as referring to Ms Larter and Ms Johnson, as members of STC.

This amendment also is not challenged by the Notice of Appeal.

Thirdly, amendments were made to [20], as indicated by underlining below:

As to the insertion of the words “including inter alios the second, third and fifth defendants”, his Honour observed that in a request for particulars dated 4 March 2016, Ms Johnson had sought particulars of the representations alleged in [20], and evidently appreciated that the allegations contained in that paragraph may have been intended to be directed to her, and continued: [72]

As to the insertion of the new representation by silence, his Honour said): [73]

Thus it first became part of the pleaded case that Ms Johnson had, by silence, misrepresented that Foster was not involved with STC (or, alternatively put, that she did not disclose that he was associated with STC). As it transpired, this allegation, on which Mr Mackinnon ultimately succeeded, was fundamental to its case. I take his Honour’s reference to the “corollary” as indicating that his Honour thought that the issue was already, in substance, in play. For myself, I would think that this amendment, introducing for the first time an allegation of misrepresentation by silence or omission, was more than a mere corollary of the alleged misrepresentation that “Mark Hughes” was an alias adopted by Foster for the purpose of his scheme, and that it potentially opened up new issues. In particular, in a case of non-disclosure, questions typically arise as to the context, and as to the occasion which called for disclosure, which do not arise in the same way on an express misrepresentation case.

Moreover, the effect of the amendments was to clarify that it was alleged that Ms Johnson (now referred to in [33] via the amended [7A]) had engaged in misleading and deceptive conduct, by making the representations pleaded in [20] (in which she was now specifically mentioned) as well as [21] (in which she had always been mentioned); and that deceit was pleaded against her in [35] (in which she was now specifically mentioned).

These amendments were therefore no minor matter. The limitation imposed by his Honour, that the amendment omitting reference to a “limited” partnership did not permit Mr Mackinnon to allege, separately to the causes of action already pleaded, that Ms Johnson was jointly and severally liable for the debts of the partnership by reason of her status as a general or unlimited partner, did not significantly mitigate their impact, because the view was taken that causes of action for misleading and deceptive conduct and deceit were already pleaded against her as a partner in STC.

It was the amendments to [20] that were challenged by the Notice of Appeal. Ms Johnson submitted that in granting leave to amend, the primary judge did not have regard to, or address at all, the dictates of (NSW) Civil Procedure Act 2005 (“CPA”), s 58, and Aon Risk Services Australia Ltd v Australian National University, [74] and the relevant considerations referred to in them, and in particular, that no explanation had been offered for the delay in proposing the amendments; that the proposed amendments were bad in form, because they did not set out particulars of the Foster Representation or particulars of why Ms Johnson ought to be liable for it; and that his Honour failed to take into account the prejudice that would be occasioned by the insertion of an additional (unparticularised) claim (the Foster Representation) on the second day of the hearing, and sought no submissions on the issue.

I do not accept that his Honour failed to have regard to s 58 and the factors referred to in it (in s 58(2)). Reference was made, in the course of argument on the application for leave to amend, to s 58: at the conclusion of his submissions, Mr Dixon said: [75]

The applicability of s 58 and the factors referred to in it, which universally provide the backdrop against which judges implicitly consider such applications, is sufficiently notorious that it should not be assumed, from the mere absence of express reference to it in the primary judge’s reasons, that it was ignored by his Honour. On an application for leave to amend, a judge is not generally expected to give expansive reasons. In particular, it is not necessary to recite seriatim all the relevant factors to which consideration is given. To the extent that reasons are required at all, it will usually suffice that they identify the key or determinative considerations. In particular, it will usually not be necessary to refer to considerations that were not agitated by the unsuccessful party.

In submitting that his Honour failed to have regard to prejudice that would be occasioned by allowing the amendments, the appellant identified as relevant prejudice that allowing the amendments would deprive her of the opportunity to take advantage of the deficiencies in the pleading by making a “no case” submission without going into evidence; would require her to reshape her case, to seek particulars concerning the Foster Representation, and to adduce further evidence; and would result in an unfair open‐ended examination of her conduct without reference to any proper pleading or particulars.

Whether an amendment will occasion unfair prejudice to the other party will usually be a key question on a late application for leave to amend. The loss of a forensic opportunity to make a “no case” submission based on defects in the pleadings will usually carry little weight in the balance of prejudice. On the other hand, it is quite possible that to allow the amendments which were permitted in this case – having the effect both of introducing for the first time an alleged misrepresentation by silence, and articulating expressly a case that she had engaged in misleading and deceptive conduct – might have required Ms Johnson to reshape her case and potentially call additional evidence. However, I am unpersuaded that Ms Johnson was deprived of a fair and reasonable opportunity to meet the case against her. First, no such objections were taken at the time. Secondly, the appellant has not shown that the amendments had this effect.

After the application for leave to amend had been presented by the plaintiff’s counsel, Mr Argy was offered and accepted an adjournment to consider the position. He was then afforded an opportunity to make submissions, and he did so, addressing a number of issues; but he did not claim that he or his client would be unfairly prejudiced by the addition of the Foster Representation. Having afforded him a full opportunity to be heard, to the extent he wished, in opposition to the amendments, it was not necessary for his Honour expressly to invite submissions on the question of prejudice, which had not been raised. Indeed, his Honour would have been entitled to observe that Mr Argy did not submit that unfair prejudice would be occasioned to his client by that, or any other, of the amendments. Further, after the primary judge had indicated that he proposed to allow the amendments, Mr Argy did not seek an adjournment, but instead said “I don't want to add because at the end of the day I think we want to get on with it, and I think we can meet the amended case subject to one more point” [76] (that point was that the extant response would stand as a response to the amended pleading).

The complaint that the amendments were “bad in form” because they did not set out particulars of the Foster Representation or why Ms Johnson ought to be liable for it is without substance. The pleading, as amended, explicitly stated that the alleged representation was made by silence. From its context (in [20]), it is apparent that it was alleged to have been made concurrently with the express representations referred to in [20] of the pleading, by omission. That plainly sufficed to assert the relevant material facts. The basis of Ms Johnson’s alleged liability was provided by the assertion in the chapeau of [20], as amended, that she was one of those by whom the pleaded representations were made, and by the allegation at [33], as amended, to the effect that STC, in which she was a partner, had thereby engaged in misleading and deceptive conduct. It may be that further particulars could have been sought and provided, but they were not. No objection as to the insufficiency of the pleading was raised at the time, in opposition to the amendments. Ms Johnson has not identified what, if any, further particulars were required in order to enable her to meet the case.

From the outset, [21] pleaded the Proposal Representations specifically against Ms Johnson. There is force in his Honour’s observation that Ms Johnson’s 4 March 2016 request for particulars, including particulars of the representations alleged in [20], was indicative of her appreciating that the allegation in [20] may have been intended to be directed to her; and that the 19 May 2016 response to that request made quite clear that it was so directed; with the consequence that Ms Johnson had long understood that the allegations in [20] were directed to her, amongst others. [77] The relevant request for particulars was as follows:

There was no proper basis for Ms Johnson as fifth defendant to seek those particulars unless she believed that the representations pleaded in [20] and [21] might be relied on to establish that she was liable to the plaintiff. Moreover, the relevant response in the particulars provided on 19 May 2016 explicitly identified Ms Johnson as one who was alleged to have made the representations pleaded in [20]:

In any event, at the latest from the time the amendments were made, it was transparently clear that Ms Johnson was being sued personally in respect of misrepresentations allegedly made by STC when she was a partner.

I am unable to accept Ms Johnson’s submission that as a result of the amendments, the hearing developed into “a roving inquiry” or an “unfair open-ended examination of Ms Johnson’s conduct without reference to any proper pleading or particulars.” The amendments clarified the capacity in which she was sued, and added one specific alleged misrepresentation (the Foster Representation). That did not open up a “roving inquiry” into her conduct. If her cross-examination was wide-ranging, that was not a result of the amendments.

It follows that I am unpersuaded that the primary judge erred in permitting the amendment, on the second day of the trial, of [20] of Mr Mackinnon’s ACLS. Grounds 5 and 6 fail.

Paragraphs 7 and 8 of the grounds of appeal concern the manner in which the trial judge construed [23] of Mr Mackinnon’s FACLS, and are as follows:

The relevant portion of the No 8 Judgment is as follows: [78]

Thus his Honour concluded that the effect of [23] of the FACLS was to plead that each of the representations pleaded in [20] and [21] was false, notwithstanding that the subparagraphs of [23] do not precisely correspond with each of the pleaded representations.

Paragraphs [20] and [21] of the FACLS have been set out above. [79] In [22], the representations referred to in [20] and [21] together were defined as “the Representations”. Paragraph [23] was as follows:

I agree with his Honour’s conclusion that the effect of [23] was to plead that each of the representations pleaded in [20] and [21] was false. The opening words – “The Representations were false … in that” – quite plainly refer to all the Representations as defined, being all the representations referred to in [21] and [22]. In essence, [23] propounds a matrix of facts – including, as his Honour pointed out, [23(e)] which alleges that there was no “legitimate sports betting or trading business” but rather a “fraudulent scheme” – which is said to render false each of the pleaded representations.

The appellant also complained that the primary judge found that Ms Johnson contravened the ACL in circumstances where that allegation was only pleaded against the first defendant and Foster, asserting that [32] and [33] plead that “… the representations by the first and twelfth Defendants …” were misleading and deceptive, and that the first defendant was a partnership which did not come into existence until after Ms Johnson (the fifth defendant) had resigned from the entity of which she had been a partner. However, this overlooks that:

Grounds 7 and 8 therefore fail.

Ms Johnson challenges the primary judge’s findings that she made the Proposal Representations and the Foster Representation, and knew them to be false (or, in the case of the Proposal Representations, at least ought to have known them to be false).

These are challenges to findings of fact. Many of the appellant’s submissions relied upon evidence given by Ms Johnson, as if that evidence ought to have been accepted by the primary judge. His Honour formed an adverse view of Ms Johnson’s credibility and reliability as a witness: [80]

After referring to numerous examples, his Honour concluded: [81]

The No 7 Judgment is replete with references to evidence of Ms Johnson which was inconsistent with previous statements, to answers which were non-committal or less than responsive to the question, to assertions of absence of recollection, and to evidence which was implausible; only a few of these are captured in the summaries of and extracts from her evidence contained below. Although there were challenges to particular findings of fact, there was no challenge to his Honour’s rejection of Ms Johnson as a witness of truth, nor realistically could there have been. Where her evidence has been disbelieved by the primary judge, it cannot of itself provide a basis for overturning a finding of fact.

The burden facing the appellant in seeking to overturn findings of fact based in substantial part on the evaluation of the credibility of witnesses is a heavy one. While this appeal, being one governed by (NSW) Supreme Court Act 1970, s 75A, is by way of rehearing, so that this Court has the powers and duties, including powers and duties concerning the drawing of inferences and the making of findings of fact, of the court of first instance, caution must be exercised in departing from findings of fact made by the primary judge based on impressions about the credibility and reliability of witnesses formed as a result of seeing and hearing them give their evidence. Such findings should be disturbed only if they are demonstrated to be wrong by “incontrovertible facts or uncontested testimony”, or are “glaringly improbable” or “contrary to compelling inferences”. [82] As the High Court explained in Lee v Lee: [83]

In this respect, the appellant observed that the case was one which involved allegations against a solicitor of participation in deceptive conduct, such as to attract the standard of proof described in Briginshaw v Briginshaw, [84] and that despite reference to that standard in Ms Johnson’s submissions at first instance, it was not mentioned by the primary judge. In considering whether the impugned findings of fact made by his Honour should stand, I have borne in mind the Briginshaw standard. However, it is also necessary to bear in mind that, in a circumstantial case, the question of whether a state of “comfortable satisfaction” is achieved is not resolved by examining independently each one of the circumstances relied upon, but by considering the collective impact of all the circumstances, united and taken as a whole. [85]

Ground 12 contends that his Honour wrongly concluded that Ms Johnson knew that the Proposal contained false statements. Ground 26 contends that his Honour erred in holding that Ms Johnson must be taken to have represented to investors that the contents of the Proposal were true.

His Honour’s reasoning on these issues is encapsulated in the following passage from the No 7 Judgment: [86]

In the No 8 Judgment, his Honour summarised his findings in respect of the Proposal Representations as follows: [87]

Thus his Honour’s findings in relation to the Proposal Representations involved the following components:

In her affidavit evidence, Ms Johnson deposed that she was not involved in drawing the Proposal and was not aware of it until it was provided to her during the litigation. In the course of cross-examination, she gave this evidence (emphasis added): [89]

The significance of that passage is that while Ms Johnson denies that she was aware of the existence or contents of the Proposal, she admits having provided her photograph “to be included in whatever material it was required to be included in when I became a part of the business right at the beginning when Anne and I decided that I would be a part of it”, and she “was certainly aware that they were using me … because I was a partner.”

The first matter relied on by his Honour was that Ms Johnson knew that she was mentioned on the STC website. [90] This is founded upon an email of 10 September 2013 which requested that her name and references to her be removed from the website. That email does not refer to the Proposal, and it does not, at least of itself, establish that she even knew of the Proposal (as distinct from the website), let alone of its contents. Knowledge of the website does not bespeak knowledge of the contents of the Proposal, particularly as it seems that the Proposal was not directly readable or accessible from the website.

Next, chronologically, were the email exchanges between Ms Johnson and Foster in March and April 2014. On 14 March 2014, Foster sent an email to Ms Johnson (from teamleader@sportstradingclub.com): [91]

Ms Johnson replied the following day: [92]

On 29 April 2014, Foster sent a further email to Ms Johnson: [93]

These communications amount to assurances by Foster to Ms Johnson that her name and image had been removed from the public STC website and the Proposal, and support an inference that such removal was in response to a request or concern expressed by her. [94] They show that, at least by March 2014, she was aware that her name and image had been used in the Proposal. However, they do not sufficiently reveal the nature of her request to permit an inference that she had knowledge in any detail of the contents of the Proposal, and even less that she had such knowledge before she resigned from the partnership on 21 January 2014.

Next, on 3 November 2014, shortly after Foster’s arrest, and after receiving Ms Larter’s email of 30 October 2014 offering investors a refund, Mr Mackinnon called Ms Johnson on her mobile telephone. She was not available, but returned the call a few hours later and spoke to Mrs Mackinnon, who gave this evidence, which was accepted by his Honour: [95]

When asked about this conversation, Ms Johnson said: [96]

I do not think that Mrs Mackinnon’s recollection, expressed in conclusionary form in indirect speech, of what Ms Johnson had told her in November 2014, provides a firm basis for a conclusion that Ms Johnson actually referred to “the Proposal” in a conversation with Ms Larter before 30 October 2013. Nor do I think Ms Johnson’s faint admission that she may have used the word ‘proposal’ in that conversation takes the matter much further.

In my view, the evidence to which I have so far referred suffices to found an inference that, at least by March 2014, Ms Johnson was aware of the existence of the Proposal, and that her name and image had been used in it. It does not follow that she was aware of it before she resigned, or before Mr Mackinnon invested. Even less does it establish that she was aware of its contents, beyond that her name and image was used in it.

The decisive evidence, so far as his Honour was concerned, was that of Mr de Klerk, an investor, to the effect that at a luncheon meeting at Catalina restaurant in Rose Bay on 14 March 2013, he asked Ms Johnson detailed questions about various aspects of the Proposal, and that Ms Johnson was able to “clarify” the matters of concern to Mr de Klerk. Mr de Klerk’s relevant evidence was as follows: [97]

After setting out that evidence, his Honour proceeded: [98]

The appellant submitted that it was illogical for his Honour to have found that the Proposal was discussed at the Catalina meeting, because Mr de Klerk had already committed his investment, and that the “better interpretation” of Mr de Klerk’s evidence was that the discussion was “a high level discussion of the STC Scheme as it operated globally”. However, Mr de Klerk had withheld $100,000 of his investment, and he said that he proceeded with it on 21 March 2013, once Ms Johnson had cleared up “a lot of grey areas in the Proposal”. I do not accept this basis of the attack on his Honour’s finding.

However, while Mr de Klerk’s evidence was to the effect that he asked questions for the purpose of clarifying a number of matters which were referred to in the Proposal, he did not have the Proposal with him, though he had “a couple of notes”. He could not say with specificity what questions he had asked, nor what answers Ms Johnson had given. Neither in chief nor in cross-examination did he give evidence of having asked any question which actually referred in terms to the Proposal. Only in response to a leading question in re-examination did he say that he used the word “proposal”, and he still did not provide any context in which that word was used. In re-examination, he also explained that he assumed that Ms Johnson “knew everything in it”: [99]

The high point of his evidence in this respect was that he said that he asked Ms Johnson about how investment in STC “was secured”, in response to which Ms Johnson told Mr de Klerk that she and Ms Larter had invested $10m in STC which sum would be “held as security” [100] : [101]

That answer attributed to Ms Johnson – of which evidence was given for the first time by Mr de Klerk in re-examination – would have been false, and is consistent with the contents of the Proposal. However, the matters referred to in Ms Johnson’s answer were not necessarily the result of her having read the Proposal.

Thus, even accepting Mr de Klerk’s evidence, it does not follow that Ms Johnson was familiar with the contents of the Proposal. It is entirely possible that Ms Johnson could have had the conversation of which Mr de Klerk gave evidence without knowledge of the Proposal or its contents.

Other circumstances relied upon as founding the inference that Ms Johnson was aware of the contents of the Proposal included that she provided her photo (which was reproduced in the Proposal) for the purposes of marketing; that her resume appeared in the Proposal; and that the name of her accountants appeared on the front page of the Proposal as accountants for STC. Moreover, Ms Johnson alone supplied the seed capital to commence the business, but was very vague about her due diligence, though she thought that the ‘business proposal’ was a good one; it was submitted that assertions that she took no steps to understand what was involved in the marketing or played no role in those matters were not believable.

Ms Johnson readily accepted that she had provided her photograph for whatever purposes it might be required for, and was aware that it was used in connection with marketing. The extent to which a “silent partner” undertakes inquiries into marketing may vary widely. It is not at all improbable that, believing (incorrectly) that she was a “limited partner”, Ms Johnson took a limited interest in the detail of what was done by Foster in promoting STC. The only evidence that Ms Johnson was aware of the Proposal is Mr de Klerk’s assertion in re-examination that he used the word “proposal”, without any context. It does not follow that she knew of the existence and contents of the Proposal, and the strong credit findings adverse to Ms Johnson do not provide a basis for positively inferring that she did.

In circumstances where Ms Johnson adamantly denied that she knew of the Proposal or its contents, and where there was no direct evidence that she did, the primary judge’s conclusion that Ms Johnson knew of the existence and contents of the Proposal was one of inference, drawn from an accumulation of circumstances. While recognising that these circumstances derive their evidentiary force from their combined operation, in my judgment, having regard to the strictures of Briginshaw, and notwithstanding that her own evidence must largely be disregarded, I do not think it was open on the evidence to be “comfortably satisfied” that Ms Johnson actually knew of the existence and contents of the Proposal, at least before early 2014. It follows that in my view the primary judge erred in holding that Ms Johnson was aware of the existence and contents of the Proposal, and that they were false, before Mr Mackinnon made his investment in STC. On that basis, I would uphold ground 12.

However, that does not conclude the question of Ms Johnson’s liability for the Proposal Representations. The appellant submitted that while his Honour’s finding that the matters stated in the Proposal were false was undoubtedly correct, his Honour erred in attributing those representations to Ms Johnson. The evidence did not disclose who the author of the Proposal was, nor when it was created, though there is a strong inference that it was created by Foster or at least at his direction. It was submitted that the conduct of publishing and distributing the Proposal could not be attributed to Ms Johnson for the purpose of ACL, s 18, as it could not be said that she had made the Proposal Representations if she had no awareness of and made no contribution to its drafting.

That submission misconceives the liability of Ms Johnson as a partner. The Proposal was issued by STC, a partnership in which the partners were Ms Larter and Ms Johnson. Ms Johnson was sued, and on her own case understood that she was sued, as a partner in STC. All the partners in a firm are jointly and severally liable for misrepresentations made by any one of them in the ordinary course of the firm’s business, [102] and an action for damages for deceit lies against an innocent principal for the fraud of his or her agent committed in the course of the agent’s employment. [103] These principles, together, mean that all the partners in a firm are liable for the misleading and deceptive conduct, and fraudulent misrepresentations, of their agent(s) in the course of their employment, even though the partners themselves may be innocent.

There can be no doubt that the issuing of the Proposal was in the ordinary course of the business of STC, the essential function of which was to raise funds from investors to engage in “sports trading”. This is not a case of an unauthorised act of an employee on a frolic of his or her own. Moreover, whether or not Ms Johnson actually knew that there was a document called ‘Proposal’, she knew that marketing material to attract investment would be prepared and issued, and she provided her photo for such purposes as might be required, including for the purposes of marketing STC. If the form and contents of the Proposal were left to others working for STC, that does not detract from Ms Johnson’s responsibility as one of the principals; a partner does not escape liability by taking no further interest in the contents of the marketing material. As a partner in STC, Ms Johnson was legally responsible for material issued in the name of STC, and she must be regarded as having made the representations contained in that material, regardless of whether or not she actually knew of the contents of the Proposal.

Although this basis of liability was not expressly addressed on the hearing of the appeal, it is I think what the primary judge was referring to when his Honour said: [104]

Moreover, on the hearing of the appeal, counsel for the appellant was asked why knowledge of falsity was necessary, and acknowledged that it was not: [105]

Counsel did not return to the proposition.

Thus, while I would not accept that Ms Johnson was shown actually to have known the contents of the Proposal, his Honour was nonetheless right to conclude that, as one of the partners in STC, Ms Johnson made the Proposal Representations to the investors and potential investors to whom the Proposal was provided – including to Mr Mackinnon, who gave evidence that “[o]n the basis of the information in the Proposal … I decided to loan monies to STC”. [106]

Ground 26 therefore fails. The result is that although I would not accept that Ms Johnson knew that the contents of Proposal were false, she is nevertheless liable for the Proposal Representations.

In the No 7 Judgment, his Honour found that by silence or omission, Ms Johnson represented that Foster was not involved in STC, [107] and that Ms Johnson did so in accordance with Foster’s instructions: [108] In respect of Ms Johnson’s claims that she had attempted anonymously to alert authorities about Foster’s involvement, his Honour “[found] it hard to accept that Ms Johnson actually took all the steps she claims to have taken”, or that she could have believed they would be of any practical assistance, [109] and considered that in any event, the “most obvious persons” who would have had a reasonable expectation of disclosure were those who were continuing to invest in STC. [110]

In the No 8 Judgment, his Honour summarised the relevant findings from the No 7 Judgment, as follows: [111]

Elaborating on these findings, in the No 8 Judgment, his Honour found that by not disclosing matters of which she knew – namely that Mr Foster was involved in STC more significantly than “setting up and operating the business's website and similar technological aspects”, was instead involved at a sufficiently high level to be arranging meetings with potential investors, and was so acutely aware that his involvement in STC must remain concealed that he was passing himself off to investors actual and potential investors as “Mark Hughes”, when investors and prospective investors in STC were reasonably entitled to expect that she, as one of the two partners in STC, would disclose what she knew to be the true state of affairs, either to them or to a person or body that would cause them to be made aware of those matters – Ms Johnson engaged in misleading or deceptive conduct on and from 14 March 2013, being the date of her meeting with Mr de Klerk at Catalina restaurant, in the course of which she apologised for the absence of “Mark Hughes”, and represented that “Mark Hughes” was the “head of trading” at STC: [112]

The appellant challenges his Honour’s findings that:

Grounds 10, 11, 13, 14, 15, and 17 challenge various aspects of the factual findings which underpin the ultimate conclusion that Ms Johnson represented, by silence, that Foster was not involved in STC. Grounds 19 to 25, in substance, challenge that ultimate conclusion. It is convenient to deal first with the more specific grounds and progress to the more general.

Ground 11 contends that his Honour erred “by drawing the wrong inference of fact in finding that the appellant knew that Foster was using the alias “Mark Hughes””.

His Honour’s conclusion that Ms Johnson knew that Foster was using the alias “Mark Hughes” was founded on her role in a series of transactions, evidence of which was given primarily by Mr de Klerk.

Mr de Klerk said that on or about 9 February 2013, he read an advertisement in The Weekend West Australian which invited readers willing to make a contribution of a minimum of $50,000, “fully secured and totally guaranteed”, to “call Mark Hughes today” on a specified telephone number. He telephoned the advertised number and had a conversation with “Mark Hughes” about “sports trading”. At his request, he was, on 14 February 2013, sent by email a copy of the Proposal. During February, he had several further telephone conversations with “Mark Hughes”. He decided to invest in STC, and on 17 February 2013, signed five loan agreements, each for $50,000, which had been sent to him under cover of a letter of that date over the signature of Ms Larter. The letter referred to information said to have been communicated to Ms Larter by “Mark Hughes”, and requested that the executed agreements be returned to “Mark Hughes”. Mr de Klerk transferred $150,000 to STC on 18 February 2013; the remaining $100,000 was transferred on 21 March 2013, following the Catalina meeting on 14 March 2013. [113]

Mr de Klerk said that he spoke to “Mark Hughes” daily concerning STC’s trading activity. In response to a suggestion made by “Mark Hughes” in the course of one of these conversations, Mr de Klerk, who was of South African origin, expressed interest in acquiring the South African “rights” to STC. On 6 March 2013, he received an email from “Howard Robin” – in fact Robin Reichelt, an associate of Foster – which referred to having spoken to “Mark Hughes” about Mr de Klerk’s interest in the South African rights, and which nominated “Mark Hughes” as the liaison person. [114]

Mr de Klerk received a telephone call from “Mark Hughes” in which he was invited to come to Sydney to discuss the South African investment. He travelled to Sydney, and on 13 March 2013 went to STC’s “office” in Market Street (in fact a serviced office), expecting to meet “Mark Hughes”. Instead, he met “Kevin Joseph” (in fact Kevin McMullen, an associate of Foster) and, briefly, Ms Johnson. [115] In his second affidavit, he deposed: [116]

In cross-examination, Mr de Klerk accepted that he could not recall that Ms Johnson had said, in terms, that she was “the legal partner” of STC; rather, she said something to the effect that she was in charge of “STC’s legal matters”. [117]

Mr de Klerk said that later on 13 March 2013, either “Mark Hughes” or “Kevin Joseph” telephoned him and arranged a meeting at Catalina restaurant, in Rose Bay, the following day. On 14 March 2013, Mr de Klerk met “Kevin Joseph” and Ms Johnson at Catalina for lunch. [118] In his second affidavit, Mr de Klerk deposed: [119]

To similar effect, in cross-examination, Mr de Klerk said: [120]

In re-examination, Mr de Klerk said: [121]

Consistently with her position that she did not know “Mark Hughes”, Ms Johnson’s evidence was that she responded “I don’t know Mark Hughes. He must be someone Anne knows”. [122] In cross-examination, she said: [123]

However, Ms Johnson agreed that it was at Foster’s request that she was present at the meeting: [124]

On the following day, 15 March 2013, Mr de Klerk received a text message from Ms Johnson: [125]

Mr de Klerk responded: [126]

In cross-examination, Ms Johnson accepted that she had “very possibly” contacted Foster in relation to Mr de Klerk's request to visit the “trading room”, although she said that she may instead have spoken to “Tom” or “Kevin”: [127]

Thus:

Mr de Klerk paid the final tranche of his investment – the remaining $100,000 – to STC on 21 March 2013. He continued to communicate with “Mark Hughes” on a daily basis. He travelled to the Gold Coast to view the trading room, where he met “Kevin Joseph” and Richard Holmes, observed what appeared to be some trading on sporting events, and asked some questions. He also continued to negotiate with “Howard Robin” and “Mark Hughes” for the acquisition of the South African rights to STC, including travelling to London to meet “Howard Robin” for that purpose. [129] This culminated in the following email from “Mark Hughes” to Mr de Klerk on 28 May 2013: [130]

Although the email refers to the necessity of obtaining “Leigh's approval”, and to the proposal being “put to Leigh” before the proposed meeting on 30 May 2013, there was no evidence that Ms Johnson knew of any of those matters.

On 30 May 2013, Mr de Klerk travelled to Sydney, expecting to meet Ms Johnson, “Kevin Joseph”, and “Mark Hughes”. According to Mr de Klerk, he was taken to a conference room, where he met Ms Johnson. Mr de Klerk said that she apologised for the absence of “Mark Hughes” but that he would attend by Skype; she then left to deal with a court matter, but returned and there was a Skype call in which “Mark Hughes” appeared on the screen of a laptop computer. Mr de Klerk said that he addressed the person on the call as “Mark” at least once while Ms Johnson was present, and that she also referred to that person as “Mark”. [131]

In her affidavit, Ms Johnson deposed “I was never asked to attend the meeting on Thursday 30 May 2013”. In cross-examination, she at first maintained that position: “No I wasn't asked to go to that at all”. However, she agreed that “it must have been” the case that Foster asked her to attend that meeting, once she was taken to the email sent by her on 10 September 2013 to Foster and Ms Larter, which included the following: [132]

Ms Johnson again acknowledged that Foster had asked her to attend the 30 May 2013 meeting when it was put to her that she knew that Foster was “heavily involved” in persuading Mr de Klerk to invest in the South African venture: [133]

In her affidavit, Ms Johnson deposed: [134]

In cross-examination, she said: [135]

Thus:

On 30 August 2013, very shortly after a telephone conversation with Ms Larter and Foster in which Ms Johnson said that she had been told by a friend of Foster that he was improperly using investors’ money to place large bets on sporting events for himself, was losing a lot of money, and was operating STC as a giant Ponzi scheme using new money from investors to make up for losses of money from previous investors, [136] she had an SMS exchange with Mr de Klerk, as follows: [137]

In her affidavit, Ms Johnson said that on 30 August 2013: [138]

She described her SMS messages as a “warning” to Mr de Klerk, deposing: [139]

This was a reference to Mr de Klerk’s description, in his affidavit evidence, of action taken by him in response to Ms Johnson’s SMS messages. In cross-examination, Ms Johnson said: [140]

Thus:

The appellant submitted that the passage in Ms Johnson’s cross-examination in which she said that if Foster had attended the Catalina meeting, she would not have addressed him by any name other than his own, and that this was probably why he did not attend – which the primary judge took to be an acknowledgement that Ms Johnson knew Foster was passing himself off as “Mark Hughes” [141] – did not support the theory that Ms Johnson knew (or even suspected) that “Mark Hughes” was an alias used by Foster. I agree that it does not, at least on its own. However, the theory is amply supported by other evidence.

First, as explained below (under grounds 10, 13, and 17), Ms Johnson knew that Foster’s involvement could not be revealed.

Secondly, that “Mark Hughes” was an alias used by Foster cannot be seriously doubted. There was no evidence that there was in truth any such person as “Mark Hughes” involved in or connected with STC. Although “Mark Hughes” was the advertised point of contact and supposedly head of trading, Ms Johnson, though a partner, did not know any such person. Nor was any such person referred to in the Proposal. It was Foster whom Ms Johnson consulted about the affairs of STC, and from whom she appears to have received direction and guidance.

Thirdly, the meetings which “Mark Hughes” was supposed to attend were arranged with Ms Johnson by Foster. It is implausible that this could have happened if there were any risk that the fact that “Mark Hughes” was Foster would be disclosed, and that risk could have been avoided only if Ms Johnson knew of the alias.

Fourthly, the email exchange of 15 March 2013 in which Mr de Klerk referred simply to “Mark” without eliciting any query from Ms Johnson tells against her evidence that she did not know “Mark Hughes” and thought that he “must be someone Anne knows”; and the fact that Ms Johnson knew from Mr de Klerk's text message that “Mark” had contacted him – after she had spoken to Foster – suggests that Ms Johnson knew that “Mark” and Foster were one and the same.

Fifthly, given that Ms Johnson knew that Mr de Klerk was speaking to Foster on 30 May 2013 (because she at least recognised the voice of Foster), the fact that she thought that her “warning” involving the mere mention of the name of Foster confirms that she believed, until then, that Mr de Klerk was unaware of Foster’s involvement, and thus that Mr de Klerk did not realise that the person with whom he was speaking on 30 May 2013 was Foster.

None of the foregoing depends on acceptance of the evidence of Mr de Klerk or rejection of that of Ms Johnson; it is largely founded on Ms Johnson’s own evidence. However, Mr de Klerk’s evidence, which the primary judge found reliable and preferred to that of Ms Johnson, [142] takes the matter further still, by establishing that Ms Johnson conveyed that she knew “Mark Hughes”, and that Mr de Klerk addressed Foster as “Mark” in her presence on 30 May 2013. To that extent at least, the conclusion is not merely inferential but is founded on the direct evidence of Mr de Klerk, whose evidence his Honour accepted in preference to that of Ms Johnson.

Having regard to the effect of all that evidence taken as a whole, his Honour was well entitled to be “comfortably satisfied” that Ms Johnson knew that Foster was using the alias “Mark Hughes” in dealing with prospective and actual investors. Ground 11 therefore fails.

Ground 14 contends that his Honour erred “by drawing the wrong inference of fact in finding that the appellant knew that investors’ funds were being misappropriated”. In fact, his Honour did not make a finding in terms that Ms Johnson knew that funds were being misappropriated; his Honour’s relevant finding was that by September 2013, Ms Johnson “strongly suspected” that investors’ funds were being misappropriated. [143] Ms Johnson submitted that there was no evidence to support this finding.

In her affidavit, Ms Johnson said that when she left STC, “I thought I had a governance problem but had no inkling there might be a fraud problem”. [144] However, as early as July 2013, Ms Johnson had expressed the view that STC was a Ponzi scheme run by Foster. [145] On 16 July 2013, Foster sent Ms Johnson an email which included the following: [146]

Foster’s email also referred to an assertion by Ms Johnson that an investor (Mr Radica) had asked for a refund of $100,000 following a conversation with Ms Johnson about whether the business was a scam. [147] Ms Johnson accepted that this conversation occurred and said that she did not tell Mr Radica that Foster was involved, because she “was hoping that it would end”. [148]

As has been foreshadowed, and as is confirmed by Ms Johnson’s email of 10 September 2013, which is extracted below, [149] in a conversation with Ms Larter on 30 August 2013, at which Foster was present with Ms Larter (although his presence was not initially disclosed to Ms Johnson), [150] Ms Johnson informed Ms Larter that Foster’s friend, Kevin McMullen, had told her that Foster had a gambling problem, was using investors’ money for this purpose and was losing “a lot of money”, and was operating STC as a Ponzi scheme; [151] and that she could not understand why she had not been repaid the principal and interest on her loan, given that the STC website showed a profit “in excess of $750,000”. [152] Foster then started “screaming” and threatened to “put a bullet” in her head if she told anyone that he was involved. [153] It was immediately after this phone conversation, on 30 August 2013, that Ms Johnson sent the text message to Mr de Klerk, which has been set out above, [154] stating that she was no longer associated with STC, that she was worried about Mr de Klerk, that Ms Larter was not to be trusted, and that Ms Johnson believed Ms Larter was “in with” Foster.

Foster sent a lengthy email to Ms Johnson on 1 September 2013, from the email address “stcdesk@outlook.com.121”, which confirms that Ms Johnson had made such allegations, as does the email sent by Ms Johnson to Ms Larter and Foster on 10 September 2013, which included the following: [155]

In cross-examination, Ms Johnson admitted that as at 10 September 2013, she was “extremely concerned that STC was being improperly managed and operated”; that records and accounts of the investors were being falsified; that the investors’ money was at risk and not being properly accounted for; and that a Ponzi scheme might be involved. She gave this evidence: [156]

It may well be that, consistently with what she wrote in the 10 September 2013 email, Ms Johnson did not actually know whether invertors’ money was being misappropriated. However, it is clear on her own evidence that she strongly suspected that STC was engaged in fraudulent practices and that investors’ moneys might be “in danger” and “being improperly used”.

His Honour’s finding that by September 2013, Ms Johnson “strongly suspected” that investors funds were being misappropriated, was well founded in the evidence to which reference has been made. Ground 14 fails.

Ground 15 contends that his Honour erred in finding that Ms Johnson “actively represented to the recipients of Mr Tassell’s letter that Foster was not involved in STC”.

On 5 April 2013, Mr Robert Tassell, a partner in the law firm Pikes & Verekers Lawyers, wrote to Mr Neil Jenman and Mr Neville Baker (private investigators, who had apparently asserted that the STC venture was a dishonest scheme under the control of Foster), in the following terms: [157]

His Honour found that Ms Johnson either gave Mr Tassell instructions to write the 5 April 2013 letter, or did not demur when Ms Larter gave Mr Tassell those instructions, and that she did so because Foster had asked her (and Ms Larter) to keep his identity secret and because she knew, in any event, that STC’s business would not attract investors if Foster’s involvement in the business were known. The appellant submitted that her role in causing the letter to be sent was unclear.

Ms Johnson agreed that she went to Pikes & Verekers in order to “try to shut down the attempt to make Mr Foster’s involvement public”, adding that “he wasn’t supposed to be involved in it anymore”. She claimed that Ms Larter asked her to attend Pikes & Verekers because Ms Larter stood to lose everything if Foster’s involvement was exposed. Ms Johnson said that it would “affect her [Ms Larter’s] business” if it “was said that [STC] was [Foster’s] business”. In response to the suggestion that Ms Johnson knew that Ms Larter wanted Ms Johnson to suppress public knowledge of Foster’s involvement, she agreed that Ms Larter “certainly did not want that position to be made public because he wasn’t going to be involved.” Ms Johnson said that she recalled that Ms Larter spoke to Mr Tassell and said “this is a fledging business and, you know, this will destroy my business.” She did not respond directly to the proposition that she knew “the entire business would collapse” “the second people knew that Mr Foster was involved”, but when pressed, accepted that “it would not have been good, I suppose, for the business. It would have jeopardised the funds of anyone who had invested”. [158] She gave the following evidence: [159]

The letter was ostensibly sent on the instructions of both Ms Johnson and Ms Larter. Ms Johnson agreed that she saw the lawyers, made the call to the solicitors, was with Ms Larter when Ms Larter gave instructions to Mr Tassell on the telephone, and saw the letter once it was written. While she said it was Ms Larter who gave the instructions contained in that letter, it is not without significance that Ms Johnson, but not Ms Larter, was a lawyer; that despite Ms Johnson’s assertion that the solicitors were insistent on obtaining instructions from Ms Larter because she was supposedly the ‘general partner’, Ms Johnson is the first-mentioned client in the letter; and that to the extent that it was Ms Larter who gave instructions, by telephone, it was Ms Johnson who arranged for those instructions to be given, by initiating the telephone call, having previously attended, unaccompanied, on Mr Tassell in his office, as to which she gave this evidence: [160]

On Ms Johnson’s own evidence, the conclusion that she at the very least acquiesced in the authorisation of the letter is inescapable.

The conclusion that Ms Johnson took this course of action at Foster’s bidding was founded, at least in part, on her following evidence: [161]

While this answer demonstrates, as the primary judge found and as Ms Johnson concedes was open to be found, that Ms Johnson was aware that Foster was doing more than setting up a website, and was ‘doing the postings’, I do not think that, fairly read, it amounts to an acknowledgement that she was acting on Foster’s direction; read in context, it may be no more than an assertion that she was acting on Ms Larter’s request to suppress Foster’s involvement. However, whether or not she was acting on Foster’s instructions in going to the solicitors is beside the point; what matters is that Ms Johnson participated in steps to conceal Foster’s involvement in STC when there was a risk that it would be revealed. Ground 15 fails.

Ground 10 contends that his Honour erred “by drawing the wrong inference of fact in finding that Ms Johnson knew that Foster’s involvement in the Sports Trading Club could not be publicly revealed”. Ground 13 contends that his Honour erred “by drawing the wrong inference of fact in finding that the appellant knew that Mr Foster was in control of the Sports Trading Club’s activities”. Ground 17 contends that his Honour erred “by drawing the wrong inference of fact in finding that the appellant knew of Peter Foster’s criminal record, notoriety and modus operandi”. The substance of these grounds, which are closely related and are conveniently dealt with together, is to contend that Ms Johnson was not shown to have sufficient information about Foster’s past record and his role in STC to trigger any obligation to disclose his involvement.

According to Ms Johnson, when Ms Larter introduced her to Foster in August 2012, Ms Larter told her (emphasis added): [162]

The two adjournment applications in which Ms Johnson appeared for Foster in the Federal Court were in the SensaSlim matter, a case concerning the promotion of dietary products, but her involvement was not such as to require her to have any knowledge of the substantive case. In refusing the adjournment, Yates J observed: [163]

In her affidavit, Ms Johnson described how she came to be a partner in STC: [164]

Thus, on Ms Johnson’s own affidavit evidence:

In cross-examination, when asked about her knowledge of Foster’s history and reputation, Ms Johnson did not categorically deny knowledge of Foster’s past: [165]

And subsequently: [166]

Ms Johnson offered, as an explanation for why Foster was not to be a partner in STC, that she thought he would be going to gaol: [167]

Ms Johnson maintained that according to her understanding, at least initially, Foster’s role was to be limited to “setting stuff up” – in particular, the website – and that he was to have no involvement with investors’ money. Ms Johnson gave evidence that as at January 2013, Foster was not going to be involved in STC because he was involved in the ‘head company’ (being the licensor of the country rights associated with the STC business). She said that she did not want him to be a formal partner, and that she did not want him to have access to the money. [168] However, Ms Johnson contributed $182,500 to STC as seed capital – the only capital provided by anyone. In her email of 10 September 2013, she wrote “Peter had no objections to this loan at the time when he needed the money”. This is indicative that from the outset, Foster was the promoter of STC, and was controlling its funds – in particular, its seed capital. Moreover, as the following account reveals, it became clear to Ms Johnson at least by mid-2013 that Foster was not confining his activities to setting up or operating the STC website, but was involved in dealing with potential investors and conducting STC’s trading activities, such as they were: [169]

Later, she added: [170]

Reference has already been made to the circumstances that Ms Johnson attended the 14 March 2013 Catalina meeting at Foster’s request, in which it is implicit that she was aware that Foster was involved in dealing with potential investors and arranging meetings with them, using an alias; and that following that meeting it was Foster whom she contacted to follow up Mr de Klerk’s request. [171]

The letter sent, ostensibly on the instructions of Ms Johnson and Ms Larter, by Pikes & Verekers Lawyers on 5 April 2013, included a complaint that the email sent by the addressee “conveys an imputation that our clients are operating the Sports Trading Club as a mere front for the notorious conman Peter Foster.” [172] Ms Johnson gave this evidence with reference to that letter: [173]

She stated that “he [Foster] wasn’t supposed to be involved in it anymore”, [174] and: [175]

As the primary judge found, this evidence shows that Ms Johnson knew that Foster was doing more than setting up a website.

Ms Johnson was aware that it was Foster who was speaking with Mr de Klerk on the 30 May 2013 call.

Ms Johnson received emails from Foster in which he described himself as “STC Team Leader”, which is inconsistent with him having no material role. Foster’s email to her of 16 July 2013 was sent from the email address “teamleader@sportstradingclub.com”, and asserted that Ms Johnson’s only role, after providing start-up capital, was as a “figurehead” who could, in case of emergency, “put out any fires”; that Ms Johnson would be paid $12,500 per month for this; [176] that the ‘principal’ of her $182,500 investment had been repaid and the ‘interest’ (of the same amount) would be paid in instalments; [177] and that (emphasis added), “other than that you can sit back and relax … and allow me to run the business”. [178]

In his 1 September 2013 email to Ms Johnson, Foster stated that he was working “18 hours a day seven days a week running the sales team and doing all the trading myself.” [179] In an email to Foster and Ms Larter of 10 September 2013, Ms Johnson stated that the roles of sales manager and senior trader had been “replaced by one person, you” and that “STC is in fact operated from Peter’s Gold Coast home where Peter holds all the [Associate Members’] contracts”. [180] That evidence amply supports his Honour’s finding that, by this point, Ms Johnson must have known that Foster was “exercising complete dominion over STC”. [181]

On 23 September 2013 Ms Johnson sent an email to Ms Larter, again warning of the “risks”, including that Ms Larter would be civilly and criminally liable for “[turning] a blind eye to fraud, if there is any”. [182]

On 28 (or possibly 29) September 2013 – the day after Logan J published the judgment in Chaste No 3 and issued a warrant for Foster’s arrest – Ms Johnson sent an email to Ms Larter in the following terms: [183]

In her affidavit, Ms Johnson deposed: [184]

Yet in cross-examination, she denied that she had read the judgment: [185]

Later, she gave this evidence: [186]

Regardless of whether or not she read the entire judgment, or any of it, it is clear enough that she appreciated the substance of it, and in particular recognised in STC “a striking similarity of methods, techniques and facts to those which Justice Logan found Peter has used in the SensaSlim scam.” On any view, by this time she was aware of matters which caused her very deep concern about the affairs of STC, the role of Foster, and the jeopardy in which investors’ funds were. Critically, this was before Mr Mackinnon first invested in STC on 31 October 2013.

In answer to questions from the primary judge about draft answers she had provided to questions from Mr Murray, a journalist from The Courier Mail, that she said she prepared and forwarded to the STC desk on 4 or 5 October 2013, she said (emphasis added): [187]

This bespeaks knowledge that Foster was running the trading operations. Notably, there was nothing to suggest that anyone else was running the operations of STC, and if there was, Ms Johnson as a partner ought to have known. Moreover, it was with Foster that Ms Johnson dealt when making arrangements or demands for payment of her seed capital loan and her remuneration. [188]

Ms Johnson’s evidence, as the extracts set out above indicate, belies some knowledge of Foster’s record and reputation; indeed, she admitted that she was “vaguely” aware of the allegations made against Foster, and she said that the reason why Foster’s name was not on the Partnership Deed was that she was expecting him to be jailed. [189] It bespeaks knowledge that Foster had been involved in scams and illegitimate businesses, and in trouble as a result, and it shows that she believed that he ought not be trusted with investors’ money.

Accepting that Ms Johnson was reassured and believed that the STC business would be legitimate, and even assuming that she understood, at least initially, that Foster’s participation would be peripheral, that does not detract from the proposition that the investing public would consider it material that the undertaking in which they were being invited to invest was conceived and promoted by a notorious scamster. It is self-evident that the involvement of a notorious conman as principal architect of an investment scheme would be highly material to potential investors, and indeed that if it were revealed, no-one would invest. One can hardly conceive of a matter more requiring disclosure to the public, in the context of the promotion of an investment scheme, than the fact that its architect and a person involved in its management is a notorious conman. Ms Johnson’s answer, referred to above, [190] that she “never saw any evidence of it”, is redolent of a submission made on her behalf that, as a solicitor, she applied “Briginshaw-style thinking” to such rumours and allegations. I understand that to mean that she would not act on a suspicion or rumour unless “comfortably satisfied” of its truth. However, that entirely misconceives her role: she was acting not as a judge of the truth of allegations against Foster, but as one of two partners in an partnership promoting to the public an investment scheme for profit, in a context where her own professional standing was being used to provide an aura of respectability, and where mere knowledge of involvement of Foster would have been material to investors.

His Honour’s conclusion that Ms Johnson knew that Foster’s involvement in STC could not be publicly revealed was not inferential only, but was firmly founded in Ms Johnson’s own evidence, which confirms that she held the view that disclosure of his involvement would be destructive of the business. When it was put to her, with reference to Foster, that “[t]here was an understanding at the outset, that notwithstanding the scope of his role, his name was never to be associated with the business”, Ms Johnson responded that “he was not to be associated with the business”. [191] I accept, as was submitted on her behalf, that that answer may well mean that her understanding was that he was to have nothing to do with the business, beyond the peripheral initial aspects already mentioned, rather than that his involvement was to be kept covert; the answer is at least ambiguous. However, there is other evidence that Ms Johnson well knew that public knowledge that Foster was involved in any way would be seriously injurious to the business: [192]

Viewed objectively, disclosure that Foster was involved, in any way at all, with STC, would have been a material consideration for potential investors, because of his reputation and record. Subjectively, there was no error in his Honour’s findings that Ms Johnson knew that to be so, and that, at least by 1 September 2013, she “well knew” that Foster was directing the operations of STC. Grounds 10, 13, and 17 fail.

For the foregoing reasons I would reject the several challenges to the findings of fact impugned by grounds 10, 11, 13, 14, 15, and 17. The critical conclusions that emerge undisturbed from their consideration are that:

It follows that Ms Johnson knew, or at least ought to have known, that Foster’s involvement would be material to investors, and that they would have expected it to be disclosed.

Those findings provided the foundation for his Honour’s conclusion that Ms Johnson, by remaining silent on the topic, represented that Mr Foster was not involved in STC, and thereby engaged in misleading and deceptive conduct.

It is self-evident that Foster’s role and involvement in STC was not disclosed to the public, or to the section of it constituted by investors and potential investors, by Ms Johnson or anyone else. Not only did Ms Johnson merely not disclose Foster’s involvement, she actively participated in concealing it. At the March 2014 meetings with Mr de Klerk, she pretended that “Mark Hughes” was a real person with whom Mr de Klerk had been dealing, when it was in truth Foster. [193] She was involved in giving instructions to Pike & Verekers to send the 5 April 2013 letter, in which it was stated, on her instructions, that the “imputation that our clients are operating the Sports Trading Club as a mere front for the notorious conman Peter Foster” was without foundation. [194] At the 30 May 2013 Skype call meeting with Mr de Klerk, where Foster was to Ms Johnson’s knowledge on the call, when Mr de Klerk addressed him as “Mark”, she remained silent. [195] Ms Johnson received calls from a number of potential investors – including Mr Radica and Mr Seng – who inquired about aspects of STC, including, in the case of the former, whether it was a “scam”, yet Ms Johnson never referred to Foster’s involvement – even to Mr Seng, who contacted her in April 2014, after she had retired from the partnership; Ms Johnson warned him against investing, but still did not refer to Foster’s involvement. [196] Although Ms Johnson was no longer a partner, and is not sued in respect of this period, this reinforces a consistent pattern of not revealing Foster’s involvement, which supports the inference that she knew that it could not be, and was not to be, revealed, and is inconsistent with her claims to have taken steps at an earlier stage, albeit anonymously, to disclose his involvement.

In October 2013, in response to communications from the journalist Mr Murray, of The Courier Mail, who asked directly whether Foster was involved in STC, Ms Johnson again did not disclose it. [197] On 3 October 2013, in response to communications to STC from Mr Murray, the solicitor, Mr Tassell, again purporting to act on behalf of Ms Johnson and Ms Larter, wrote to The Courier Mail threatening to commence proceedings in relation to “grossly defamatory” allegations “[suggesting] that their business [STC] is in some way related to Mr Peter Foster”. [198] Ms Johnson did not recall whether she had any role in giving instructions for that letter. [199] However, Mr Murray then called Ms Johnson, who asked him to put his questions in writing, which he did. [200] Ms Johnson prepared draft answers to these questions, which she sent to the “STC desk”. The following day, 5 October 2013, an email was sent, purportedly on behalf of Ms Johnson, from her STC email address (to which Foster had access), stating that Foster had no involvement with the business and no relationship with Ms Johnson. [201] Ms Johnson denied having composed the answers which were sent, and the primary judge appears to have accepted her evidence on this point. However, as his Honour found, Ms Johnson must have known that by sending her proposed answers (which she was not able to produce) through the “STC desk”, Foster would become aware of them, leaving open the near certainty that he would edit them before they were released to the journalist. [202]

Ground 19 of the Notice of Appeal was as follows:

No argument was addressed to this ground, which in any event appears to ignore the effect of the amendments to the pleading. It is misconceived.

Grounds 20 to 25 essentially challenge the conclusion that Ms Johnson, by her silence, represented that Mr Foster was not involved in STC, and thereby engaged in misleading and deceptive conduct. They are as follows:

The primary judge observed that silence can amount to misleading or deceptive conduct, referring to Demagogue Pty Ltd v Ramensky, where Black CJ said: [203]

In particular, with reference to Rafferty v Madgwicks, [204] his Honour observed that “silence may constitute misleading or deceptive conduct if there is a reasonable expectation that the silence would be broken”. [205] In this respect, the appellant submitted:

The essential proposition advanced is that no “reasonable expectation” of disclosure could arise in respect of any investors other than Mr de Klerk. With reference to the judgment of McLure P in Owston Nominees, [206] it was submitted that reasonable inferences, reasonable assumptions, and reasonable expectations arise from the objectively determined circumstances in the actual or constructive knowledge of the parties, and that contextual circumstances of which a defendant has no actual or constructive knowledge, and which alter the scope of what would otherwise be attributed to the defendant, are irrelevant.

Properly analysed, Owston Nominees does not support the proposition that any “reasonable expectation” of disclosure was limited to Mr de Klerk and did not extend to other investors. McLure P’s illuminating examination of the different roles that “silence” can play in the context of statutory misleading and deceptive conduct supports the following propositions.

First, “engaging in conduct” involves an act or, at a minimum, refraining otherwise than inadvertently from doing an act. As her Honour explained (in the context of the predecessor to ACL, s 18, namely (CTH) Trade Practices Act 1974, s 52) (footnote added): [207]

Secondly, “refraining otherwise than inadvertently” involves a deliberate decision not to disclose. As her Honour said: [209]

Thirdly, however, conduct is to be viewed in context, and contextual matters may widen the range of conduct attributable to a person: [210]

Fourthly, in contextualising a person’s conduct, regard may be had only to circumstances of which the person had actual or constructive knowledge. For this purpose, reasonable explanations arising from the objectively determined circumstances are in the constructive knowledge of the parties. Her Honour explained: [211]

Fifthly, the making of a representation is an act; ordinarily, the role of silence is negative in that it confirms that there is nothing to prevent a representation arising: [212]

Sixthly, a non-disclosure can, because of common assumptions or other relevant surrounding circumstances, give rise to an implied representation that the undisclosed fact did not exist. Making such an implied representation is the doing of an act within ACL, s 2(2). In this way, the satisfaction of the “reasonable expectation” test can result in the defendant doing an act: [213]

Seventhly, notwithstanding that to “refrain otherwise than inadvertently” requires a deliberate decision to withhold information, it is necessary to establish a deliberate omission only where the actual conduct together with all the relevant surrounding circumstances are (objectively) incapable of giving rise to the misleading or deceptive contextual conduct complained of. This is because, where the actual conduct in its surrounding circumstances gives rise to the misleading or deceptive contextual conduct, there is an “act” within the definition and it is unnecessary to resort to “refraining otherwise than inadvertently” from acting. However, where the actual conduct in its surrounding circumstances is objectively incapable of giving rise to the misleading or deceptive contextual conduct, there is no “act”. In those circumstances, there may nonetheless be misleading or deceptive conduct, by a deliberate non-disclosure – for example, where the person is aware that the other party is under a misapprehension: [214]

In the present case, Ms Johnson knowingly lent her name, image, and reputation to the promotion of STC, even if she did not know in detail how it was being promoted. Use of her name, image, and reputation as a senior member of the legal profession was objectively calculated to confer an appearance of respectability on STC. A manifestation of this is that Mr Mackinnon noticed her name in the prospectus and contacted the Law Society to confirm that she was a registered lawyer before deciding to invest. [215]

Objectively judged, knowledge that Foster was involved in STC in any role, but even more so in the role which he came to play, would have completely undermined that respectability. As has already been explained, objectively judged, it would have been material to investors and prospective investors: even if Foster’s level of involvement was intended to be as limited as Ms Johnson claims to have believed, the fact that STC was conceived and promoted by someone with his record was likely to influence the decision of prospective investors. Objectively judged, prospective investors would reasonably have expected it to be disclosed: this was not an arms-length negotiation, but an approach to the public by promoters for the investment of funds in a scheme, which was represented to be risk free and reputable.

Thus, objectively judged, in the context that an investment in STC was represented to be risk free and reputable:

In circumstances where, on the principles already discussed, that was conduct for which the partnership of which she was a member is responsible, that suffices to render Ms Johnson liable for the contravening conduct, regardless of her knowledge. However, as “reasonable inferences, reasonable assumptions and reasonable expectations arising from the objectively determined circumstances will be in the constructive knowledge of the parties”, [216] those matters were within Ms Johnson’s constructive knowledge. Moreover, insofar as Ms Johnson’s actual knowledge of contextual matters is relevant, even if she did not know the form and contents of the Proposal, she knew that there would have to be marketing material of some sort; she knew that her name and image were being used in connection with marketing; she knew that Foster’s involvement was material to investors and could not be disclosed; and she at least ought to have known that investors and potential investors would expect it to be disclosed. Furthermore, even if it were necessary to show that she deliberately did not disclose Foster’s involvement, that requirement would be satisfied. Indeed, she took positive steps to conceal it, in connection with the instructions given to Pike & Verekers for the 5 April 2013 letter. Ms Johnson’s knowledge and deliberation is also relevant to the cause of action in deceit, considered below. [217]

His Honour therefore rightly concluded that Ms Johnson engaged in misleading and deceptive conduct, essentially by not disclosing to the public (or that section of the public constituted by potential investors) the involvement of Mr Foster in STC, in the context that STC was being marketed to the public as a risk-free and reputable investment using her name, image, and reputation, and where Foster’s involvement would have undermined that impression. Grounds 19 to 25 fail.

By Notice of Contention, leave to file and rely on which was granted at the hearing of the appeal but which had been foreshadowed in written submissions, Mr Mackinnon contends that the judgment below should be upheld on grounds other than those relied upon by the primary judge, namely:

Although I would uphold his Honour’s finding of liability on the basis of statutory misleading and deceptive conduct, the Notice of Contention remains relevant, because of Ms Johnson’s appeal from his Honour’s disallowance of a defence of apportionment. As explained below, [218] while a claim for damages for statutory misleading and deceptive conduct is an apportionable claim, a claim in deceit is not.

If there were any doubt about it, ground 19 of the Notice of Appeal, referred to above, [219] makes clear that Ms Johnson understood that there was a claim in deceit against her.

In the No 8 Judgment, his Honour said: [220]

The finding at [38] was as follows: [221]

The representations referred to at [35] of his Honour’s judgment are those set out in [52] above; of them, ultimately only that in [35(5)] is relevant, namely that Ms Johnson represented, from at least 30 September 2013, to all existing Associate Members of and all prospective investors in STC, that Mr Foster was not involved in STC.

The consideration, above, of the grounds of appeal relating to the Foster Representation shows that there was no error in those conclusions.

His Honour did not, in the deceit finding, refer to the representation referred to in [35(6)], being the Proposal Representations, although his Honour’s finding that Ms Johnson was “at the very least” recklessly indifferent to whether the statements contained in the Proposal were true or false would have supported a like finding in respect of the Proposal Representations. However, it follows from my conclusion that Ms Johnson was not shown to have known of the Proposal or its contents that she is not liable for deceit in that respect.

The primary judge considered that although deceit was established against Ms Johnson, it did not further Mr Mackinnon’s case in respect of the relief to which he was entitled. In circumstances where a defence of apportionment was disallowed, both the conclusion that a finding of deceit would not advance Mr Mackinnon’s case in respect of the relief to which he was entitled, and counsel’s concession on which it was founded, were correct. However, for reasons explained below, [222] it is seriously arguable that Ms Johnson ought to have been permitted to agitate a defence of apportionment, insofar as the claims against her were apportionable. If she were so permitted, then a finding of deceit would very much advance Mr Mackinnon’s case as to relief, because that claim would not be apportionable.

It follows that the Notice of Contention should be upheld, at least insofar as concerns the claim in deceit, in respect of the Foster representation. As that suffices to found liability to Mr Mackinnon on a non-apportionable claim, it is unnecessary further to consider the Notice of Contention, insofar as it concerns conspiracy.

Ground 29 contends that the primary judge “erred in not taking into account recoveries made” by Mr Mackinnon and for the benefit of the Group Members prior to judgment.

In the No 8 Judgment, delivered on 28 November 2019, his Honour directed that the parties bring in short minutes to give effect to the reasons and to provide for the future conduct of the matter. In the No 9 Judgment, on 13 December 2019, his Honour made the following orders, in accordance with short minutes brought in by the plaintiff: [223]

Ms Johnson submits that his Honour failed to take into account prior recoveries on behalf of the Group Members, and amounts received by Mr Mackinnon. In the No 7 Judgment, his Honour noted that of the $12.3 million invested by Group Members, some $6.4 million had been recovered, leaving a shortfall of some $5.9 million. [224] In his affidavit, Mr Mackinnon acknowledged that he had received what he was told were trading profits from STC, before he terminated the loan agreements, but not the principal.

CPA, s 177(1)(e), relevantly provides that in determining a matter in representative proceedings, the Court may “make an award of damages for group members, sub-group members or individual group members, being damages consisting of specified amounts or amounts worked out in such manner as the Court specifies”. The judgment in favour of Mr Mackinnon was presumably given pursuant to the power to make an award of damages for an individual group member. The principal sum of $200,000 awarded to Mr Mackinnon represents, self-evidently, the principal amount of his investment. The question of what if any damages might be awarded for the remaining group members remains to be resolved.

The amounts Mr Mackinnon acknowledged having received were ostensibly trading profits, to which he was entitled, under the loan and profit-sharing agreement between him and STC, while his investment remained on foot, as distinct from the return of principal. Those receipts did not affect his right to full repayment of his principal. There was no evidence that Mr Mackinnon had received anything on account of the principal. Moreover, the No 9 Judgment reveals that upon the plaintiff bringing in short minutes, and although there was argument in respect of some related issues, including an attempt to re-agitate the question of apportionment, [225] there is no suggestion of any argument about the quantification of the judgment at $200,000.

In those circumstances, no error is apparent in assessing Mr Mackinnon’s damages at $200,000. Ground 29 therefore fails.

Grounds 9 and 30 concern the primary judge’s refusal to permit Ms Johnson to advance, belatedly, a defence of apportionment. They are as follows:

The issue of apportionment was first raised on behalf of Ms Johnson after delivery of the No 7 Judgment, and was addressed by the primary judge in the No 8 Judgment, as follows: [226]

Before this Court, Ms Johnson submitted that she did not realise until the No 7 Judgment of 19 February 2019 that findings were being made against her personally, as distinct from in her capacity as a partner, and thereupon raised the issue at the first opportunity, in oral submissions on 20 September 2019 and then in written submissions on 27 September 2019. She submitted that the claim was clearly an “apportionable claim” which engaged (NSW) Civil Liability Act 2002 (“CLA”), s 35, and that on apportionment Foster ought to bear “a very high percentage” of the loss.

A claim for damages under ACL, s 236, for misleading and deceptive conduct in contravention of ACL, s 18, is an apportionable claim under CLA, Part 4, by reason of CLA, s 34(1)(b), which expressly so provides, and by reason of CCA, Part VIA, in which s 87CD provides as follows:

At least for all present purposes, the provisions are not materially different. Both CLA, s 35(1), and CCA, s 87CD(1), are expressed in mandatory terms, in stipulating that “the liability of a defendant … is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss” (emphasis added); and that “the court may give judgment against the defendant for not more than that amount” (emphasis added). However it is well established, by the authorities to which the primary judge referred, that it must be pleaded. [227] In this respect, it is analogous to a Limitation Act defence. The appellant’s contention that his Honour was bound to apply it regardless of it not being pleaded is not correct.

Although a defendant invoking CLA, s 35, must provide information of “the circumstances that may make the other person a concurrent wrongdoer in relation to the claim”, [228] and the appellant had not done so, it cannot seriously be disputed that the ACL claim against Ms Johnson was an apportionable claim, [229] and that at least Foster and Ms Larter were, for that purpose, concurrent wrongdoers. The relevant considerations in apportioning responsibility were described in Kayteal Pty Ltd v Dignan, [230] as follows:

It is difficult to see how, upon apportionment, Ms Johnson’s responsibility would not have been a minority share, albeit a still significant one, perhaps in the order of 30% (Foster as the architect and promoter bearing 50% and Larter 20%, Ms Johnson’s responsibility being arguably somewhat greater than Ms Larter’s on account of the significance of her professional standing to the marketing of STC). Disallowing reliance upon a defence of apportionment denied Ms Johnson a real prospect of much reducing her liability.

Although the application was belated, it must be seen in the context that the plaintiff’s case had been amended on the second day of the trial, when it became apparent that Ms Johnson’s liability as a partner was not limited. The possibility that the case might have been conducted differently had apportionment been in play, as the respondent argued, in that additional questions might have been asked in cross-examination about the degree of Ms Johnson’s involvement relative to the other protagonists, which would have been relevant to a submission on apportionment, appears remote, and its likely impact on any apportionment marginal. Although his Honour noted that the issue was not pleaded, and was raised after the evidentiary cases had closed, [231] his Honour did not refer, at least expressly, to what ought to have been the dominant consideration, namely the balance of prejudice between granting and refusing leave to amend to plead a defence of apportionment. In my judgment, it is at least strongly arguable that there was error in refusing leave to rely on a defence of apportionment, in circumstances where Ms Johnson’s liability depended only upon the ACL claim.

However, the decision on the Notice of Contention to uphold Ms Johnson’s liability on the concurrent basis of deceit renders further consideration of this issue unnecessary. It is only necessary to consider apportionment if Ms Johnson’s liability depends on an “apportionable claim”. While contravention of the statutory prohibition on misleading and deceptive conduct is such a claim, deceit is not. CLA, s 34A, provides as follows:

CCA, s 87CC, is to similar effect.

A person who causes loss by deceit does so fraudulently within s 34A(1)(b). In IBEB Pty Ltd v Duncan, it was held that apportionment was excluded by s 34A(1)(a) on the basis that the defendant intended to cause the loss the subject of the claim, where he had been “deliberately deceitful in the representation that he had arranged to be conveyed”. [232] That conclusion could equally have been supported by s 34A(1)(b), on the basis that the defendant in that case had fraudulently caused the economic loss.

It is inherent in upholding Ms Johnson’s liability on the basis of deceit that she caused the relevant loss fraudulently, and it follows that her liability would not be reduced by a defence of apportionment, if it were permitted to be raised.

For that reason, although I might have taken a different view in respect of leave to amend to raise apportionment as a defence, his Honour’s approach did not affect the correctness of the ultimate judgment. On that basis, grounds 9 and 30 fail.

My conclusions may be summarised as follows.

No error is apparent in the primary judge’s conclusion that Mr Mackinnon’s decision to invest was a result of the Proposal Representations and of the Foster Representation. Grounds 16, 27, and 28 fail.

The primary judge did not err in permitting the amendment, on the second day of the trial, to [20] of Mr Mackinnon’s ACLS, to specifically refer to Ms Johnson as one of those who made the representations complained of, and to plead the Foster Representation (being a representation by silence that Foster was not involved in STC). Grounds 5 and 6 fail.

His Honour did not err in concluding that the effect of [23] of the FACLS was to plead that each of the representations alleged in [20] and [21] were false. Grounds 7 and 8 fail.

Applying the Briginshaw standard, it was not open to conclude, as his Honour did, that Ms Johnson knew the contents of the Proposal. I would therefore uphold ground 12, but that does not affect the ultimate judgment, because his Honour was right to conclude that, as one of the partners in STC, Ms Johnson made the Proposal Representations to investors and potential investors to whom the Proposal was provided, including Mr Mackinnon. Ground 26 therefore fails. The result is that though I would not accept that she knew that the contents of Proposal were false, Ms Johnson is liable for the Proposal Representations.

His Honour did not err in holding that Ms Johnson: knew that Foster’s involvement could not be publicly revealed; knew that Foster was using the alias “Mark Hughes”; knew that Foster was in control of STC; strongly suspected that investors’ funds were being misappropriated; actively represented to the recipients of the 5 April 2013 Pike & Verekers letter that Foster was not involved in STC; and knew of Foster’s criminal record, notoriety, and modus operandi. Grounds 10, 11, 13, 14, 15, and 17 therefore fail.

Objectively judged, in the context that investment in STC was represented to be risk free and reputable, the involvement of Foster was material to a decision to invest in STC; there was a reasonable expectation on the part of members of the public invited to invest in STC that the fact that Foster was involved would be disclosed; and the promotion of STC, via the Proposal or otherwise, without disclosing Foster’s involvement, was conduct which was misleading and deceptive. That suffices to render Ms Johnson, as a partner in STC, liable for the contravening conduct, regardless of her knowledge. However, insofar as Ms Johnson’s actual knowledge of contextual matters is relevant, even if she did not know the form and contents of the Proposal, she knew that there would have to be marketing material of some sort; she knew that her name and image were being used in connection with marketing; she knew that Foster’s involvement was material to investors and could not be disclosed; and she at least ought to have known that investors and potential investors would expect it to be disclosed. Moreover, even if it were necessary to show that she deliberately did not disclose Foster’s involvement, that requirement would be satisfied. Indeed, she took positive steps to conceal it, in connection with the instructions given to Pike & Verekers for the 5 April 2013 letter. His Honour therefore rightly concluded that Ms Johnson engaged in misleading and deceptive conduct, essentially by not disclosing to the public (or that section of the public constituted by potential investors), and actively concealing, the involvement of Mr Foster in STC. Grounds 19 to 25 fail.

The Notice of Contention should be upheld, at least insofar as concerns the claim in deceit, in respect of the Foster representation. As that suffices to found liability to Mr Mackinnon on a non-apportionable claim, it is not necessary further to consider the Notice of Contention.

His Honour did not err in assessing Mr Mackinnon’s damages at $200,000. Ground 29 fails.

It is inherent in upholding Ms Johnson’s liability on the basis of deceit that she caused the relevant loss intentionally or fraudulently, and it follows that her liability would not be reduced by a defence of apportionment, if it were permitted to be raised. For that reason, although I might have taken a different view in respect of leave to rely on a defence of apportionment to the statutory misleading and deceptive conduct claims, His Honour’s approach did not affect the correctness of the ultimate judgment. On that basis, grounds 9 and 30 fail.

The appeal should be dismissed, with costs.

SIMPSON AJA: I have had the advantage of reading in draft the judgment of Brereton JA with which, subject to one matter, I agree.

Brereton JA would uphold ground 12 of the appeal, by which the appellant complains of a factual finding that she was aware that the Proposal contained false statements. I am unpersuaded that that finding was not one that was open to the primary judge (even applying the Briginshaw (Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34) standard, effectively enacted in statutory form in s 140(2) of the Evidence Act 1995 (NSW)).

The overall circumstances of the appellant’s participation in the syndicate, the evidence of conversations with Mr and Mrs Mackinnon, and the primary judge’s general rejection of the appellant’s contrary evidence all, in my opinion, point to the conclusion drawn by the primary judge that the appellant was aware of the Proposal and the falsity of some, at least, of its contents. I would not uphold Ground 12.

Since this ground is not determinative of the appeal it is not productive to say more.

I agree with the orders proposed by Brereton JA.