Ali v Hartley Poynton Limited [2002] VSC 113

5. The plaintiff seeks damages from the defendant. The defendant has counterclaimed for alleged outstanding brokerage.

8. The case has been elaborately pleaded and argued by both sides. I propose to refer in more detail to aspects of the pleadings as I deal with particular issues. At this point, it is sufficient to summarise the issues which the parties treated as the issues in contest at the conclusion of the trial.

14. The plaintiff alleges that in late October 1997 he, through his agent, Liyakat Ali (his son), entered into an agreement with the defendant through its agent, Christopher Martin, to engage the defendant to act as his share broker.

17. The plaintiff's case is that there were two aspects to this retainer each giving rise to claims for damages.

21. The plaintiff alleges first that, as one aspect of the retainer, it was agreed that the defendant would act as his broker to produce, by trading, a return of 15% to 20% per week compound, later changed in March 1998 to 25% to 35% per month compound. The plaintiff further alleges that it was agreed that this trading was to be conducted on a discretionary basis by the defendant subject to the overriding control of the plaintiff. Thus, any instructions given by him were to be complied with by the defendant. Another alleged term of the discretionary agreement was that stocks were to be sold if the price fell below an agreed stop loss limit of between five and ten per cent.

24. It is common ground that an amount of $101,818.54 was initially provided to the defendant for use in trading on the share market.

27. The plaintiff alleges breaches of the agreement and negligence in the trading conducted by Martin and in the advice given by him. He also alleges negligent supervision of Martin by the defendant. The plaintiff alleges losses were suffered as a result of the breaches and negligence, comprising the funds provided ($101,818.54) and the opportunities of which he was deprived (assessed at $267,971.67).

30. He also alleges that he gave instructions (through his agent, Liyakat Ali) in respect of a number of transactions listed in Schedule C to the statement of claim but that, in breach of the agreement, the defendant did not carry them out. In relation to those transactions the plaintiff claims damages for loss of opportunity of between $1,782,645.00 and $6,000,436.49.

33. The plaintiff also relies upon statements he alleges were made prior to entering into the retainer and investing money with the defendant, and made to induce him to do so, relating to the above-mentioned returns, the carrying out of instructions, lack of risk and the above stop loss limits and also as to the acquisition of a long term investment in Telstra - an issue to which I will return. The plaintiff alleges that the representations included a demonstration in September and October 1997 of realisable returns and other matters. He also relies on representations allegedly made in March 1998 about achievable returns, in particular, 25% to 30% compounding per month. The plaintiff relies upon these alleged representations as a basis for claims for negligent misrepresentation and false and misleading conduct under the Trade Practices Act 1974 and The Fair Trading Act 1985. Damages are claimed for the losses allegedly suffered, being the loss of the initial investment and the lost opportunity to generate a reasonable rate of return.

37. The other aspect of the plaintiff's claim relates to the acquisition and sale of Telstra instalment receipts (Telstra shares). The plaintiff alleges that, as represented by the defendant prior to entering into the retainer, an allocation of 100,000 Telstra shares in the initial Telstra float was offered to him, and ultimately secured for him, by the defendant. It is common ground that an amount of $195,000 was provided to purchase the Telstra shares. He also alleges that there was a plan developed as part of the retainer with the defendant, through Martin, for those Telstra shares, once they were provided to him, to be held as a long term investment and to be used, by means of margin lending, to build up initially a portfolio of Telstra shares and later blue chip shares. It is put that the defendant was so instructed prior to and at the time of the shares coming on to the market.

40. The plaintiff alleges that the defendant sold the shares contrary to instructions and then used the proceeds, contrary to instructions, to trade in securities in the trading account. The plaintiff alleges that negligently and "in contumelious breach of the plaintiff's instructions" the defendant sold the Telstra shares and misused the proceeds. He also alleges that those acts or omissions occurred as a result of inadequate supervision by the defendant of its broker, Martin.

43. The plaintiff also alleges that the defendant represented that the 100,000 Telstra shares would be retained as a long term investment in accordance with the plaintiff's instructions. The plaintiff alleges that this representation was negligently made. The representation is also relied upon as a basis for claims for compensation under s.52_Trade Practices Act_ 1974 and s.11 Fair Trading Act 1985, for misleading or deceptive conduct or conduct likely to mislead or deceive.

46. The plaintiff claims the sum of $195,000 paid for the Telstra shares and, further, or alternatively, $250,723 being the proceeds of the sale of the Telstra shares used for trading. He also claims compensation for an opportunity loss on the Telstra shares, if invested and prudently geared, calculated, as at February 1999, of between $2,536,125 and $2,689,715 or, at the date of trial, $3,343,555.38.

50. The plaintiff also pleaded a claim for breach of fiduciary duty relating to both the trading and Telstra aspects but in the end conceded that this did not take the plaintiff's claims any further. The allegations of breach of fiduciary duty were not developed as the basis for any particular relief.

54. The plaintiff seeks exemplary damages arising out of the conduct of the defendant and its broker, Martin, in relation to both the trading aspect and the Telstra aspect, referred to earlier in the pleading. That conduct is described as "reprehensible, unconscionable and deceptive" and "in contumelious disregard of the best interest of the plaintiff" and for the purpose of generating fees. (See para 29, Statement of Claim).

59. The defendant accepts that there was a retainer but argues that Liyakat Ali or "the club" was the client not Rahmat Ali and that it was entered into on 14 October 1997. It also disputes the terms of the retainer.

64. The defendant denies the above mentioned critical terms and relies in part on the various agreement documents (sponsorship, account application, warrant trading) executed by Liyakat Ali in the name of the plaintiff. It also argues that, assuming that the correct conclusion is that there was no "over-arching" contract with terms controlling the defendant, then the case involves an examination of the conduct of the defendant in relation to each transaction. In any event, it says that all transactions, save for about six, were conducted with instructions from Liyakat Ali who wished to trade aggressively.

67. It accepts that it was an implied term of its retainer that it would exercise that reasonable care and skill required of a stock broker. It argues that it did so act and, in particular, that all decisions were made with reasonable care - there was no negligence. As to the Schedule C transactions, it alleges that there were no instructions and that, in any event, there was no money available to enable them to take place and the market would not have permitted transactions of the size claimed by the plaintiff.

70. The defendant also argues that the plaintiff's conduct gave rise to waiver acquiescence and estoppel in relation to the alleged breaches of the retainer and alleged negligent trading. The arguments are difficult to analyse. It is put, as I understand it, that the plaintiff accepted and confirmed the transactions and did not complain to the defendant about non-compliance with instructions in breach of alleged obligations under the terms of the agreement. In final submissions it was put that the plaintiff chose to continue using the services of the defendant even though Martin persisted in acting contrary to instructions. The defendant alleges that the result of the above conduct was acquiescence or waiver by the plaintiff resulting in the plaintiff being estopped from pursuing any of the claims made. I will attempt to refer in more detail to this aspect when dealing with the issue of "waiver" (below).

74. The defendant's response is again that Liyakat Ali was the client and not Rahmat Ali. Further, it is said that the Telstra shares were sold and the proceeds were used in trading with the agreement and instructions of the client. As to the damages claimed, the defendant's position is that there was no plan for a long term holding and there was no plan to use margin lending to build up a Telstra or blue chip portfolio. It is further put that margin lending could not have taken place as allegedly planned.

77. The defendant also raises issues of waiver, acquiescence and estoppel. Again the analysis is difficult. In summary form, my understanding is that the defendant alleges that Liyakat Ali, assuming he was the agent of Rahmat Ali, completed all documents necessary to perfect the sale of the Telstra shares after they had been sold and did not raise any objection at the time and, thereby, confirmed the legitimacy of the transaction. Further, the defendant alleges that the plaintiff "excused" or "waived" any breach by his failure to make any complaint to the defendant, as allegedly obliged under the agreement, his instructions allowing the use of the proceeds of the Telstra sale to purchase other shares, and failure to instruct the defendant to re-purchase the Telstra shares, and his , finally, claim to the benefit of the purchases made with the proceeds of sale (5J-K).

In addition the defendant alleges that such conduct gave rise to a representation by the plaintiff that the defendant was properly and adequately carrying out its obligations in making the sale. It further alleges that it relied on this representation and that the plaintiff is estopped from seeking damages arising out of the sale of the Telstra shares and the use of the proceeds of that sale (5G - N).

81. The defendant also argues that the Telstra purchase was conducted in an unlawful manner and as a consequence the plaintiff cannot now recover compensation for any losses that may have flowed from the sale of the Telstra shares.

85. In response to the claims for damages in respect of both aspects of the retainer, other than those based on alleged representations, the defendant in its defence alleges that if it breached its duty of care, the loss and damage was caused or contributed to by the plaintiff `s own negligence (6A). The conduct relied upon in the pleadings is that referred to above which the defendant argues amounted to waiver and acquiescence. The conduct referred to in final submissions on contributory negligence included many other matters. While a failure "to mitigate loss" was pleaded, it was not pressed.

88. The defendant disputes the claim for exemplary damages denying there is any basis for them and arguing that, if there is, the defendant cannot be made liable vicariously.

91. The defendant also raises a misleading and deceptive conduct argument in response to the claims, other than those of the plaintiff based on the alleged representations relating to both the trading and Telstra aspects. It argues that the plaintiff, acting in breach of the terms of the retainer, represented to the defendant that it was performing its obligation under the retainer in a manner acceptable to the plaintiff by failing to make complaint about Martin's conduct to the defendant. Reliance by the defendant is alleged and it is said that the representations constituted misleading or deceptive conduct in breach of s.52 Trade Practices Act 1974 and s.11 of Fair Trading Act 1985 resulting in loss and damage, that loss being that chose in action being relied upon by the plaintiff in this proceeding. The defendant argues that the plaintiff's suit fails for circuity (5O - 5S). I note also a pleading in this context alleging that Liyakat Ali represented to the defendant that the plaintiff had understood the explanatory book issued by the ASX about trading in warrants and that Liyakat Ali desired the defendant to accept the plaintiff's instructions to trade on his behalf in warrants (the warrants representation). I will consider this issue, although I do not believe it was pressed.

95. Finally, the defendant has counterclaimed for unpaid brokerage totalling $67,017.00.

100. The parties have supplied extremely detailed and lengthy written submissions and added to them with substantial detailed oral submissions. I do not intend to specifically address every argument on every issue put by counsel for the parties. In the end that is not necessary and would unreasonably delay the giving of reasons. Rather I propose to address the critical issues in sequence and only deal with those issues that need to be determined. In addition, on those issues, I will refer only to those arguments, that, in my view, require specific mention in these reasons.

The first task is to indicate my assessment of the credibility of four key witnesses - Liyakat Ali, Rahmat Ali and Dominic Barba, for the plaintiff, and Christopher Martin, for the defendant. Their credibility is critical to the first substantive issue to be considered - the question of the identity of the client of Hartley Poynton - was it Liyakat Ali, "the club", or was it Rahmat Ali? Their evidence is also critical on the questions of the representations made, the terms of any retainer agreement between the plaintiff and the defendant, variations of that agreement, and the defendant's arguments based upon the subsequent conduct of Liyakat Ali. Thus, I will comment first on the credibility questions. I will comment elsewhere, where necessary, as to the credibility of other witnesses.

I will then turn to the identity of client issue. I deal with it as the first substantive issue because if that issue is decided in favour of the defendant that is the end of the matter. For the reasons set out below, however, I have come to the conclusion that the plaintiff was the client of the defendant and it is therefore necessary to go on and consider the other issues.

(3) Representations and Terms of the Retainer

In addressing representations and the terms of the agreement, I will refer to the pleadings between the parties in more detail and then consider the evidence and submissions relating to the negotiation of the agreement and the representations allegedly made and the terms ultimately agreed upon by the parties. I will also refer to aspects of the subsequent conduct which is relevant to those issues, and which is set out in more detail in Annexure A.

In light of the findings made on these aspects I then propose to consider the case put by the plaintiff of

(a) negligent misrepresentation and false and misleading conduct and of a want of reasonable care on the part of Martin in giving advice and in conducting the trading; and

(b) want of reasonable care on the part of other officers of the defendant in their supervision and control of Martin

I will consider the plaintiff's claim of alleged breaches of the agreement in relation to the Telstra aspect and the defendants responses to the plaintiff's case.

I will then consider the illegality defence in relation to Telstra claim. I will also consider the specific defence issues of waiver, acquiescence, estoppel and election, false and misleading conduct together with contributory negligence.

I will consider causation issues and the plaintiff's damages claims in respect of both the trading aspect and the Telstra aspect.

I will then deal with the defendant's counterclaim.

Finally, I will consider the issue of exemplary damages.

(10) Events Subsequent to the Agreement - Annexure A

I have analysed at some length the evidence and submissions relating to what transpired between the parties after entering into the agreement. This evidence is relevant to the credibility of Liyakat Ali, Barba and Martin and to a consideration of the representations and the terms of the retainer, its alleged breach, the alleged want of care on the part of Martin and the other officers of the defendant and issues raised by the defendant such as "waiver" and contributory negligence. The evidence of what occurred in those months is detailed and lengthy. It is not possible sensibly to isolate parts of that evidence by reference to the issues in the case. Accordingly I have, in Annexure A to these reasons, set out chronologically and discussed evidence of salient events that occurred subsequent to November 1997.

129. My normal approach is to comment no further than is necessary about the credit of witnesses - particularly where those comments are adverse. I am very conscious of the fact that my judgment on that issue is based solely on the evidence and argument put before me in the artificial context of the courtroom. However, the importance of the assessment of the key witnesses and the detailed submissions made necessitate a detailed analysis in these reasons. The remarkable allegations of the plaintiff also require close consideration of the credibility the witness called in support of his case.

134. Both Liyakat Ali and Martin have a great deal at stake in these proceedings.

137. Liyakat Ali, the plaintiff's son, negotiated the agreement and dealt with Martin. He is seeking vindication and the saving of face within his family. He has been the powerful driving force behind the presentation and pursuit of the plaintiff's claim. This is obviously of such importance to him that, as counsel for the defendant has correctly submitted, he is obsessed with winning the case.

140. As to Martin, his reputation as a trader is under challenge. So too are his honesty and ethical standards. He also has a personal interest in the outcome of the case. He is in the situation that, without an accommodation being reached with the defendant, he remains personally liable for the alleged substantial debts remaining in the relevant accounts. He has given evidence that he has received an indemnity from the defendant in exchange for giving evidence but the precise terms of that indemnity have not been the subject of evidence. Prior to receiving that indemnity it seems that he made his witness statements. His sworn evidence was given after receiving that indemnity. Further, while he was giving evidence, he was negotiating with the defendant's solicitors to recover the costs of legal representation which he obtained to advise him on possible use of the privilege against self-incrimination.

143. He has been put under considerable pressure by the defendant. On about 10 December 1998, he was threatened by Tim Moore, one of the senior officers of the defendant, that he would be black banned from work as a share trader throughout the world. Prior to service of the writ by the plaintiff, the defendant had decided to issue proceedings against him (12 February 1999, P65 document 10) and had instructed Freehills to obtain his passport (5 March 1999). It was after being served with the plaintiffs' writ that the defendant decided on 30 April 1999, to put proceedings against Martin on hold.

147. Liyakat Ali presented as an impetuous, emotional, volatile, erratic, unsystematic person, intelligent but undisciplined. He is full of bluster. Martin, on the other hand, generally presented as an intelligent and normally self-assured, controlled, decisive and disciplined person, very confident in his abilities as a trader in all securities. He appeared to have a quick mind. He spoke coherently and confidently about share and derivative trading. He had the capacity to be very persuasive as a witness.

150. In their memory they were very different. Liyakat Ali had a remarkable memory for the details of the case - although not always accurate. Martin, on the other hand, had at times a remarkably poor memory of events. One striking example was his lack of memory of the events around the signing of a discretionary trading agreement in August 1998. I have come to the conclusion that on that, and other aspects, his lack of memory was selective.

153. Both were subjected to prolonged, aggressive cross-examination. Liyakat Ali was cross-examined for approximately 18 days, and Martin for over 14 days. The cross-examination of Liyakat Ali was significantly more hostile and aggressive. He, however, coped with this very demanding and stressful experience very well. He found the experience, at times, frustrating and infuriating but did not appear generally to be feeling stressed. He seemed to relish the opportunity to cross swords with defence counsel - which he did at every opportunity. Martin, on the other hand, did not cope at all well. His evidence had to be delayed several times on the basis that he was not able to continue. He was unfit in the week beginning 19 June 2001. He returned on 28 June 2001 - witnesses having been interposed. On 5 July 2001 he was given the opportunity to seek legal advice about claiming privilege against self-incrimination.. He was visibly shaken by the suggestion that he consider seeking it. His own counsel appeared on 6 July 2001, and expressed concern about Martin `s condition and the length of the cross-examination. He resumed his evidence on 9 July 2001 and again on 16, 17 and 18 July 2001. On the morning of 19 July 2001, Seatscan evidence was given of the trading in the Telstra shares, which contradicted his evidence. Shortly after recommencing his evidence he appeared unwell, left the witness box and shortly afterwards commenced to dry retch. His evidence was resumed on 23 July 2001. His evidence concluded on 25 July 2001.

156. I am satisfied that on each of the above occasions he was not coping with the situation of being a witness under cross-examination in this case. In addition, on occasions he, uncharacteristically, sat in the witness box bent well forward with head bowed while he listened to and answered questions. At such times it was not possible to observe his face. He obviously found the experience extremely stressful.

160. Liyakat Ali repeatedly argued the plaintiff's case in answer to questions in cross-examination. He constantly gave directions to counsel in court, whether it be as to asking questions or making submissions. He was prone to highly emotional outbursts in the court room and in the witness box. It must be acknowledged that other factors contributed to his behaviour. I refer to the outwardly aggressive, and extremely critical manner in which the defence cross-examined him. It obviously seemed to him to be an almost constant personal attack on him. The conclusion, however, is inescapable that his behaviour was that of a person who was obsessed with winning the case.

163. Counsel for the defendant submitted that this obsession had caused Liyakat Ali over the intervening two to three years to reconstruct events into a story which he now fervently believes. I accept this assessment. This obsession has caused significant reconstruction of his evidence which at times did not accord with the realities. I refer, for example, to his evidence about what was agreed and his position that he was not aware that the account was in trouble until November 1998. He kept a very close eye on the account throughout. In my view it has also caused him to be less than frank on issues such as the conduct of the case itself, the Khan Account and the "second demonstration" and the use of the proceeds of the Telstra sale. I accept too that by the middle of 1998 he was much more knowledgeable than he now claims to have been when it came to the share market. He had acquired a familiarity with the various trading instruments and markets. His knowledge and understanding, however, was still limited and not soundly based. His instructor was Martin. He did not, for example, understand that trading very large quantities of warrants might not be realistic and did not have an accurate appreciation of the risks of share and derivative trading. To quote the defendant's broker, Whiting, who handled the plaintiff's accounts in August 1998 when Martin was on leave, in describing Liyakat Ali;

".....I mean, he didn't really know what he was doing, whether he was long or short, as long as there was a transaction occurring".

Whiting also commented that while his knowledge of trading and trading instruments particularly warrants was well above average he was not "astute in his view and understanding of the market and factors influencing it".

168. I note that questions have been raised about the propriety of Liyakat Ali's tax returns and tax payments but that evidence is inconclusive in that it is unclear whether this occurred on advice of employees of Barba or on Liyakat Ali's own initiative The issue was not resolved.

172. Before leaving the issue of Liyakat Ali's credit, it is necessary to comment on the diary that he kept through 1998. This diary was admitted into evidence after initial objection early in the trial. I note that the defendant did not subsequently renew its objections. It was prepared by Liyakat Ali at the suggestion of Dominic Barba, his accountant.

175. The defendant has presented detailed arguments directed ultimately, as I understand them, to the proposition that the diary has been largely reconstructed by Liyakat Ali in his obsession to win the case.

178. I do not propose to comment at this point on the detail of all the matters canvassed by defence counsel. In relation to alleged errors in the diary entries, in some instances the arguments turn on the interpretation to be placed on the words used when other interpretations which are open, and more likely, would point to no error. The arguments also assume that the diary entries recording information allegedly received from Martin which are shown to be erroneous were not the result of Martin himself making an error or Martin deliberately misleading Liyakat Ali.

181. For example, reference was made to the diary entry of 2 November 1998. This purports to record a conversation with Dominic Barba about his conversation with Martin in which Martin purported to go through the share holdings indicating what their prospects were. Defendant's counsel has been able to demonstrate that at the time some of the stocks were not in fact held in the account - at least, in the accounts which have been identified and for which we have seen statements. There are explanations for such errors in the diary and as far as Liyakat Ali is concerned it is reasonable to assume that he was simply recording what Barba told him. It may be that Barba misunderstood Martin. It may be that Martin made an error himself. It may be that Martin lied to Barba. It may be that these stocks were held in an account that we know nothing about now - perhaps the second trading account referred to in document 2223 an e-mail dated 16 October 1998 (see Annexure A) written by Martin to Liyakat Ali.

184. Counsel for the defendant also submitted that evidence of fabrication is to be found in the fact that errors can be identified in the diary entries which would have been demonstrated to Liyakat Ali when he examined the weekly reports. It was put that Liyakat Ali was spending so much time on the trading, that it is inconceivable that he would not have checked the diary entries with the weekly reports. It was then argued that such entries are more readily explained on the basis that they were inserted later and inaccurately.

187. Accepting that Liyakat Ali is impetuous and lacks discipline, I find it inconceivable, nonetheless, that if he had set his mind to writing up diary entries, in circumstances where he had a source available to him like the weekly report, he would not have accurately copied what was in it. The discrepancies rather, point to a document being prepared reasonably contemporaneously with the conversations recorded and containing the very sort of flaws and errors to be found in a document that was prepared spontaneously and hurriedly and not as part of a conspiracy to build up a case against the defendant.

190. In my view, the diary has all the appearance of a genuine, spontaneous, reasonably contemporaneous diary. The fact that, as counsel has demonstrated, some of the entries cannot be contemporaneous, that matters are not recorded that one might have expected to be recorded and that errors appear, reinforces, in my view, the conclusion reached from a reading of the diary that it is a genuine and spontaneous document. It is the sort of diary one would have expected Liyakat Ali to keep. At the same time it is appropriate to approach its entries with care when considering whether to rely on them and, in particular, to identify whether the facts asserted are supported by other evidence, the probabilities or other relevant considerations.

194. For the above reasons, I have come to the conclusion that it is generally unsafe to act upon the oral evidence of Liyakat Ali in the absence of independent reliable support. Much of his evidence, however, is so supported.

Credibility of Martin - presentation in court

198. The difficulty Martin had in giving evidence pointed to a witness under enormous stress. I have already referred to some of the pressures upon him. It must be borne in mind also that his wife was expecting their first child and was close to term and then beyond term during his evidence. For the latter part of his cross-examination, he had the added pressure of the need to decide whether to claim the privilege against self-incrimination and of the fear that he might unwittingly incriminate himself by his answers. While he had counsel in court to assist him, he would have been under considerable pressure. Whether there were in fact issues relating to his indemnity from the defendant we do not know. He would also have been well aware that his reputation was under challenge. These are all matters that would cause considerable stress to any witness. But he did not appear to me to be someone who would normally be easily fazed by such problems, especially if he believed that the facts supported him. It seemed to me, that his fundamental problem was that he found himself in the position that he was giving evidence which he knew would be shown to be untrue. The dry retching occurred after the evidence of the Seatscan, which contradicted his evidence about the sale of Telstra. I note also that, when asked about whether he had read the voluminous and detailed witness statements of Liyakat Ali and Dominic Barba, he said he had read them but not in any great detail because as he read them he felt sick.

202. In assessing his credibility as a witness, it is also relevant to consider undisputed evidence about other conduct. It reveals a person who has been dishonest in situations requiring honest behaviour and has ignored legal and ethical requirements without apparent compunction.

205. His evidence and that of the defendant's own records reveals that he had practised consistent and significant deceptions upon the defendant in various ways. For example, he moved stock between accounts to avoid credit limits imposed on accounts by the defendant. Further, in the course of a long struggle in 1998 with the Debtors Committee of the defendant, Martin's history of making promises and not keeping them reached the point where the Debtors Committee suspended his employment. What emerges from the Debtors Committee meeting minutes and his trading is a picture of a reckless trader who was not troubled about non-compliance with the Corporations Law, the ASX Rules, the defendant's credit and trading rules, a trader whom the Debtors Committee could not control. I will refer in more detail to those matters when considering the issue of the defendant's supervision and in Annexure A.

208. Serious issues are also raised by the following evidence which was not in dispute:

214. I refer to the episode involving the gift of Innovax shares by Martin to the plaintiff on 24 November 1997. Martin explained what occurred in his witness statement and adhered to that account in his evidence. It shows remarkable chutzpah and a worrying view of what is proper conduct.

217. Some 30,000 shares in Innovax were transferred to the Rahmat Ali trading account at no cost. They were not purchased on the share market but were transferred at no cost by a company associated with the managing director of Innovax. That much was common ground. Martin's evidence was that he had had a previous substantial dealing history with the managing director of Innovax. He said he was approached by the managing director with a proposition that if any of Martin's clients purchased 90,000 Innovax shares he, the managing director, would transfer 30,000 Innovax shares to them at no cost. Martin saw no problem with this arrangement. In his evidence, he said that it was part of the responsibility of any managing director to promote the shares in his company and that this sort of thing was not uncommon.

220. I find his explanation remarkable. It seems to me obvious that, if Martin's account be accepted, the managing director was attempting to either artificially cause trading in the shares to give the appearance of liquidity or was trying to boost the price of the shares, or attempting to do both. On that basis, Martin was either putting his trust in the managing director in circumstances where he should not have done so or was knowingly acquiring, for a trading account, stock which he would have known was either illiquid or had poor price prospects or both. Martin, however, had no concerns about the legality or propriety of this transaction. He showed no regard for the interests of the client.

223. To make the matter worse, Martin purchased for the plaintiff 50,000 of the 90,000 Innovax shares needed for the deal in a cross-trade conducted by Martin for a friend, Richardson, for a price of $0.85 which was the highest price on the day. Martin, acquired the balance on the market for prices ranging from $0.74 to $0.80. There were no other trades that day. Subsequently very little trading occurred. Single trades only occurred on 26 and 27 November 1997 and 1 and 3 December, 1997. The price fell over that period from $0.70 to $0.66 and a total of only 39,000 shares were sold. There were 5 trades totalling 14,000 shares at $0.65 on 5 December 1997, and no trades thereafter until 23 January 1998 (3 totalling 9002 shares at $0.40).

226. I am also satisfied that neither Liyakat Ali or Barba were given information about the true nature of the Innovax transaction or the source of the shares purchased. It was not in Martin's interest to tell them. They would have known that he could not be trusted to act in the best interests of the plaintiff. Even his persuasiveness could not have stopped Liyakat Ali terminating the retainer there and then. What he in fact told them was that the managing director had given the 30,000 shares and he, Martin, offered them to Liyakat Ali to mollify him, he still being angry about the sale of 100,000 Telstra shares contrary to instructions. Martin also sought to justify the purchase of 90,000 Innovax shares as a good investment (which he must have known it was not ) and concealed the connection between the two parcels.

232. It was common ground that in May 1998, Liyakat Ali agreed to make available from the plaintiff's accounts approximately $36,000 interest free as a loan to Martin's father to be used in one of his share trading accounts. There has been a debate as to whether and to what extent the debt has been repaid. I incline to the view that it has not. What is particularly relevant, however, is that the actions of Martin placed him in a situation where he had to serve conflicting interests and he placed his father's interests ahead of the other client. The beneficiary of the loan was going to be his father's account. To make the matter worse, he was aware that it was not in the plaintiff's interests to be suggesting that he part with significant amounts of money when the defendant was tightening its credit arrangements and he was aware that Liyakat and Rahmat Ali were not aware of that tightening. In Annexure A I have referred to the relevant events in April and May 1998 in more detail.

238. Martin approached Liyakat Ali to allow him to place Petroz stock bought for his father which he could not hold in his father's account because money was not there to cover it. He explained in evidence that that was a circumstance in which, and the only reason why, you would move a client's shares into a "friendly" account. He said he could have used another account. He arranged with Liyakat Ali to place them in the Rahmat Ali trading account on the basis that they would in due course be sold and that he, Martin, would make up any loss that might be suffered. The shares were later sold and sold at a loss, but Martin never made good the deficit. In evidence, he acknowledged the arrangements but showed no sign of any regret, embarrassment or discomfort over any aspect of the transaction. Some days later in his evidence he was asked how he could serve two masters at the same time. He said "that's what brokers try to do".

244. There were also several trades of shares in early 1998 on behalf of his father to the Rahmat Ali account but he could see no potential perception of conflict or a need to inform the buyer of the identity of the vendor.

250. Another matter of concern is that it is clear that one of the main selling points Martin used in dealing with Liyakat Ali and Barba was that he and his colleagues in the defendant company were privy to "privileged information" from the companies in question and other sources that was not available generally to the market. The contemporaneous notes of people like Barba, from time to time, also refer to Martin claiming to justify his trading in stocks, and particularly his holding of stocks, on the basis that he was privy to such information. Again, this was something that he obviously regarded as not only normal but also proper and caused him no concern.

258. I have also come to the conclusion that Martin practised major deceptions upon Liyakat Ali and Dominic Barba. In particular, I am satisfied that at no time did he alert them to the significant changes that took place within the defendant company on credit trading during the retainer or of his problems with the Debtor's Committee. I will refer to this issue in more detail below in Annexure A. Suffice it to say that whatever issues the defendant has been able to raise about errors and possible inaccuracies in the diary of Liyakat Ali or the file notes of Dominic Barba, one would have expected sharp references to the changes in credit arrangements if they had communicated. They were critical to the planned trading. Further, they were not mentioned by Martin in correspondence or e-mails when explaining his own actions, actions which were affected by the credit limits. The changes to the rules for credit trading significantly constrained Martin's ability to trade on the accounts in question and led to forced selling. He also did not inform them when he was required by his superiors in the defendant company to rapidly sell down stock.

261. If communicated, the above information would have provoked confrontations and major comment in the diary and file notes and written communications through Barba. Nothing like that occurred. Also Liyakat Ali would not have given the trading instructions he did if he had been aware of the true position. I refer to further analysis below in dealing with events subsequent to November 1997 and in Annexure A.

267. Next, faced with a series of documents typed and signed by him, in which he acknowledged receipt of instructions or recommendations from Liyakat Ali and his failure to carry them out, he asserted on oath that they were false. His explanation for them was that they were induced by threats from Liyakat Ali of physical violence to himself and his father.

270. The explanation should be rejected. The issue and the evidence in the documents is and was significant. The defendant has taken the position that it acted on and in accordance with the plaintiff's instructions. Liyakat Ali had referred to Martin's admission letters in his first witness statement and they were relied upon in the plaintiff's Reply (paragraph 3(k)). Yet the threat explanation was not mentioned in either of Martin's witness statements. No satisfactory explanation has been given for Martin's failure to raise the issue in his witness statements.

273. The evidence about the alleged threats was vague and fanciful. Martin said that Liyakat Ali claimed to have two business associates, one of whom was a South African, and that they had a private army, a private jet and a hotel in Darwin. The threats alleged to have been made were that if he did not type up these documents on the dictation of Liyakat Ali and sign them and provide them to Liyakat Ali, he, Martin, and his father would be contacted by Liyakat Ali's people. Asked when this threat was made, he said that it occurred only the once and in what he described as the middle of 1998, which meant somewhere in the middle months of 1998.

276. The plaintiff's counsel was able to point to a substantial body of evidence to meet this vague evidence. First, there were many e-mails passing from Martin to Liyakat Ali after the alleged threat, addressed to Liyakat Ali, expressed in terms of friendly banter and friendly exchange. Secondly, the defence position, in the end, was that the confirmation documents in question were almost certainly written between 10 November and 25 November 1998. On that basis, many months elapsed after the alleged threat before any of them were dictated, let alone signed. There was no evidence of the threatened "contact" in that intervening period or renewal of the threat. I refer also to Martin's letter of abject apology dated 27 November 1998 (2420). He gave evidence that this too was written in a state of fear induced by the threats made in the middle of the year and never repeated. In it, however, he referred to Liyakat Ali and stated;

"....but I know that someone wanted you and I to meet and be successful as a team. I must be the worst team mate going around. But I have never walked away and let my true friend handle a battle on their own, and I will never walk away from you!!!!. You have been through all the shit I kept hitting you with yet you always managed to laugh and see a positive out of a negative. If there are two very special people in my life that will go with me wherever I go, it is you and my father. I am so sorry, and yes I do love you. Your friend Chris".

He sought to explain his letter of abject apology on 14 December 1998 (2488) on the basis that it too was lies induced by fear for himself but said it was not dictated under alleged threats. He said he was trying to deflame the situation.

281. In addition, it is clear that he made no mention of any such threats to superiors or to the police. Martin did not strike me as someone who would allow himself to be intimidated by any such vague threats. He would immediately take action to deal with them. He was the manipulator not Liyakat Ali.

284. For the foregoing reasons, I reject Martin's explanation of the letters. I accept, however, that he was under great stress, especially in the latter half of 1998 and that the letters were probably written at Liyakat Ali's request but done to keep the latter pacified. I am satisfied, however, that Martin, contrary to his evidence, was not lying in those documents.

288. Counsel for the plaintiff has submitted that Martin is a compulsive and pathological liar. I would not go that far. For present purposes it is sufficient to state that, for the foregoing reasons, Martin has no credibility as a witness in this case. At the same time the person that emerges from his own and other evidence is one capable of doing what the plaintiff alleges he did.

Credibility of Martin & Liyakat Ali - conclusion

292. Both the principal protagonists are shown to be seriously flawed as witnesses and their evidence should not be accepted without independent reliable supporting evidence or other reliable support.

297. The plaintiff gave evidence. The defence submitted that I should reject his evidence because he was overly concerned to achieve an award of damages in the case.

300. Particular reliance was placed on a passage in his evidence where he was being challenged about why it was that in his witness statements he had not referred to the alleged long term investment plans in relation to Telstra. He was asked about whether he had been asked to make a witness statement putting down everything about his conversations. In response, he said that it was not each and every word which he recalled which he put in his statement and that he didn't keep any records of conversations. He then said he wished to express his feelings. In summary, he complained that he was before the court because of the cheating, the promises and deception of the defendant and he had to stand there after losing all his money. He complained that the defendant had even told the court that he was a dead person, that he wasn't alive. He asked, rhetorically, if he was a ghost standing before the court. He complained about tricky questions. He said that the defendant had promised a lot of things and that they gave a lot of trust. He referred to papers his son had shown him about the profit and said that his son didn't understand those things. He referred to their promise and said that now they came up with all these questions and he reiterated that the money was his money.

303. Other attacks were made on his credibility concerning his evidence on the Telstra aspects. I will deal with those attacks when dealing with those aspects. For reasons set out below, they were not made out.

307. Rahmat Ali is an elderly, unsophisticated man. He apparently lives in the village of Navau in Fiji. He gave his occupation as taxi proprietor and sugar cane farmer. His English is not fluent and this created difficulties at times for him in understanding questions and conveying his answers. He gave his evidence with dignity and patience.

310. His statement of his feelings did not so much show a concern to win but genuine anger. Bearing in mind the direct evidence (see below) presented for the plaintiff as to the defendant's knowledge of the identity of the client and the fact that Hartley Poynton had traded on behalf of "Rahmat Ali" for over 12 months, on extensive credit with a turn-over of about $39 million, had received nearly $300,000.00 in funds and received commission of approximately $140,000 from "Rahmat Ali", one can understand his anger and his outburst. The defence was, and is, really saying that he and his son and Barba have fabricated a case that it was he, Rahmat Ali, who was the client.

313. He presented as a litigant who, while plainly having a strong interest in the outcome of the proceedings and being extremely angry with the defendant, was aware of his obligations and remarkably calm and philosophical about the proceedings. I found him an impressive witness.

316. One other matter should be mentioned. I have formed the view that the case for the plaintiff, as pleaded and presented, claims grossly exaggerated damages. It might be said that that conclusion supports the defendants challenge to the credit of the plaintiff. In my view, however, if it reflects on anyone, it reflects on Liyakat Ali who, as I have indicated, I am satisfied has been the powerful driving force behind this litigation, not the plaintiff.

321. Barba is and was an accountant. He also held at the relevant time a limited financial adviser licence enabling him to give advice about investment funds.

324. His actual role varied from time to time. Initially, in August 1997, he introduced Liyakat Ali and Martin and actively supported Liyakat Ali in assessing Martin's initial proposals and assisted in negotiating the initial demonstration and its terms. Then, in Liyakat Ali's absence in Fiji, in September 1997, he monitored the early period of the demonstration and continued doing so after Liyakat Ali's return for a short period. He gave clerical assistance in the applications and transfers of the Telstra shares. After the initial activity, he played an occasionally significant role - particularly in corresponding for the plaintiff with Martin. In addition, he was always available to Liyakat Ali if he had concerns about what Martin was or was not doing and acted as a conveyor of messages and instructions to Martin. His office also received and filed all documents such as contract notes and holding statements . On occasions he personally recorded the receipt of documents, but that task, and the filing of the documents, was generally handled by other staff. Barba, however, did not give share trading advice as such and I accept that when he did attempt to intervene and give direction to Martin, particularly in the early period, it was on the basis of what Martin had undertaken to do and what he understood Liyakat Ali wanted and with a view to ensuring Martin carried out the agreement as he, Barba, understood it and also to ensure Martin acted consistently with views he had previously expressed. I am satisfied that he sought to assist Liyakat Ali because he could see potential benefits for his own business in assisting Liyakat Ali. There was an element of friendship as well.

327. As to his role, I accept that, while he had knowledge of more than the investment fund market, for which he was licensed, he did not have a detailed knowledge of the stock market for much if not most of the relevant period and regarded Martin as the expert to whom he deferred. He did claim in his dealings with Martin and Hartley Poynton on at least two occasions, a controlling role which was inaccurate. He did so to try to add to the pressure he was trying to bring to bear on Martin.

331. He was criticised by defence counsel for holding a strong and clear view that a grave injustice had been done to the plaintiff and that the defendant had tried to stretch out the case and burn more money. I accept that that is his view. It is a view that is arguable. He frankly volunteered it. I am satisfied that he was well aware of it and did not allow his views to affect the honesty or accuracy of his answers. He is not Liyakat Ali's front man. As will be seen, for example, he could , if he was partisan, have given much stronger evidence of the terms of the retainer than he did. I refer also to his evidence about the meeting on 14 October 1997 relating to the Telstra float. He could, if dishonest and partisan, have claimed a greater knowledge than that to which he deposed.

334. The defence also pointed to his continued attendance at court for some time and his accounting support for the case suggesting it was unpaid. Such involvement would be consistent with his expressed views. It does not follow that he had allowed those views to affect his evidence.

337. I accept that he became frustrated at times, and as a result argumentative, with counsel for the defendant. But there were explanations for his reactions. Such reactions were understandable on those occasions where counsel persisted in trying to test his memory when he had made it clear that he could not remember the detail sought and needed to refer to his file notes if he was to give an answer - even where counsel was seeking to do no more than establish what was said in the file note. Counsel also cross-examined on documents, such as file notes by going backwards chronologically, obviously trying to trip him up, an approach I, too, found extremely frustrating. In addition, the vigour and tone of the questioning left him with the impression that counsel was making a personal attack on him.

340. He was not immune from an occasional reconstruction of events as will appear but that was usually frank and clear. While I believe he was being honest, I do not accept all of those reconstructions (for example the change of $100,000.00 to $50,000.00 in figures mentioned at first meeting and CB133). Some of his evidence was based on memory, much on his file notes.

343. He was shown not to have been careful in checking his witness statements and a number of corrections were made during his cross-examination - particularly of the supplementary statement. His explanation was that he had assumed that he could rely on the lawyers to accurately record his evidence which was largely based on his file notes and so had not read them closely. I note, however, that before his evidence concluded, he had read them closely. He did not then seek to make any more corrections and counsel for the defence did not seek to cross-examine him to demonstrate other errors.

346. An attempt was made to attack his character over several issues. One attack concerned a transaction where he made an account with the defendant available for the purpose of a sale of securities and so enabled the proceeds to be withdrawn and passed to the plaintiff. This was done at the request of Liyakat Ali and Martin. Of course, if this was dishonest, it reflected also on both Martin and Liyakat Ali. It would seem that Barba was prepared to assist a client and broker both of whom had the potential indirectly to assist his business. But it must have been clear to him, whatever was said at the time, that the transaction was artificial and designed to achieve a result that could not be achieved in a direct way. On the evidence before me, such an action was out of character. I doubt, however, that he would have remembered the transaction when lending assistance in the calculation of the claim - an assertion advanced for the defence.

349. He was also challenged about taxation matters. It seems that no tax return was filed for Rahmat Ali even though papers were received by Barba's office from Direct Portfolio Investments setting out the income generated in the relevant tax year. I accept Barba's evidence that he was never asked to attend to any tax returns for the plaintiff and that, if asked, he would have assumed that as a foreign resident he would not have been obliged to lodge a return. The other matter concerned a tax return prepared by his office for Liyakat Ali in which the interest payable to the Commonwealth Bank on moneys borrowed to purchase the Telstra shares was treated as deductible against the rental income from the properties used as security for the loans. Liyakat Ali said that Barba told him that that was acceptable. Barba said he was not aware of the issue at the time and that one of his staff would have prepared the return. I prefer the evidence of Barba. I accept his explanations.

353. Barba was to a considerable extent dependant on his file notes. The defendant argued that they contained errors that rendered them unreliable and that some, notably the file notes of conversations with Martin in August, October and November 1998 about the plaintiff's portfolio were fabricated. In final submissions, the defendant closely analysed a number of the file notes and compared them with contract notes and other records. I have considered the analysis and have come to the following conclusions.

356. It is clear on the evidence that some dates on some file notes are inaccurate and some recorded times may not be precise. There also appear to be some duplications. The file notes were sometimes typed up by Barba after the conversation in question and sometimes recorded the time and date of the making of the file note not the original conversation. This needs to be borne in mind in considering this important evidence. Generally, however, the events and the trades referred to did occur in close proximity in time to the dates and times recorded in the file notes.

359. There is then the question of their interpretation. In several instances, Barba in cross-examination interpreted the notes in ways that the defendants argued did not accord with their correct meaning. Often issues arose for example, because of the tenses used for verbs in the obviously abbreviated notes. At times it seemed to me that the defence was approaching the construction of these abbreviated notes as if they were carefully drafted wills. In addition, the defence attacked the accuracy of the notes by relying upon interpretations of the content that were at best debatable. There were alternatives open, consistent with an accurate file note.

362. I do not accept that the August, October and November 1998 file notes of conversation between Barba and Martin are "totally incorrect" or were false. It must always be borne in mind that information recorded by Barba in the challenged file notes was his perception of information supplied by Martin. It cannot be assumed that Martin told Barba the truth. In addition Barba could have misinterpreted Martin - e.g. on occasions, Martin may well have been expressing his intentions and not stating what he had done. There are other possible explanations to which I have referred. Unfortunately a number of the issues raised in final submissions were not put to Barba - although he was cross-examined on the three documents.

365. The Barba file notes provide important contemporaneous evidence probative of the events of this case. One can be reasonably confident about their substance, especially when they record facts within the knowledge of Barba, although dates and times may on occasions be inaccurate. Thus one can generally accept, for example, that a conversation with Martin or Ali occurred on about the date recorded and that the substance has been noted in abbreviated form.

368. I will refer specifically to some of the other file notes and issues raised about them by the defence in the course of addressing relevant events, particularly the Telstra aspect.

372. I note at this point a matter bearing on the credibility of both Barba and Martin. Evidence was led from both witnesses as to a conversation that occurred in February 2001, while the hearing was in progress. Each gave very different accounts of their conversation.

375. Barba's evidence was that he had spoken to their mutual friend Richardson and expressed concern about Martin and his situation. Following that expression of concern, Martin rang Barba. Barba gave evidence that Martin was very rude and threatening. He expressed his annoyance that the plaintiff would not compromise the case. He threatened Barba and Ali with defamation proceedings and said that the legal team, on the defence side, would stretch the case out to the point where Ali and his family would have no money left. He told him they were playing with the big boys.

378. Martin's account was put to Barba and he denied it. In particular, he denied that he told Martin that Hartley Poynton and Phillips Fox were out to get him and hang him out to dry, and that Hartley Poynton were saying that it was all Martin's fault and was saying that they were not vicariously liable for him. He denied saying that Hartley Poynton were trying to pin it on Martin for fraud and have him sent to jail for ten years. He acknowledged, however, that he had made a comment that Hartley Poynton were renowned for ensuring that their brokers got nailed. He said this, he said, on the basis of what had happened in the past with Hartley Poynton and their brokers. He denied that he told Martin that Hartley Poynton and Phillips Fox were trying to sack the judge because the defence case was falling apart and the judge was going in the plaintiff's favour. Barba commented that most of the things were the other way. He said that Martin had said that the defence was out to ensure that the judge was removed from the case and he said that Martin had said that they would pursue Mr Ali for fraud, they would burn all his money and they were out to get him for defamation. Barba agreed that he had said in conversation to Cameron Richardson that he hoped the thing would go away really quickly. He said he was very concerned at the time about Martin and his situation and referred to the fact that he was getting married and having a child. He denied saying that Martin should be careful in working with people at Phillips Fox. He repeated, however, that he did say he was concerned what Hartley Poynton might do to him. He also said that he asked Martin what his evidence was going to be about his letters documenting his alleged failure to follow instructions. He asked Martin whether or not he told the solicitors for the defendant that the letters were "bullshit". He replied that Martin had said "he was going to get himself on the stand and lie through his back teeth to say they were bullshit". He denied saying to Martin " be smart, they are going to screw you so don't tell them too much".

381. Martin gave evidence substantially in accord with the matters put to Barba. Asked if Barba had told him anything about Mr Ali, he said that Barba just said that "he is getting words - words from the big people and he didn't say Mr Ali's name, no he didn't".

384. I accept Barba's account. It is consistent with the individuals as they presented in court. Martin's account contains invention and reflects in large measure his perception of the serious situation he was in, one which provided good reason for his fear and aggression.

388. The arguments advanced by the defendant do not warrant rejection of Barba's evidence. On the contrary, his evidence about the critical events should be accepted.

391. Barba impressed me, subject to one area to which I will refer, as a forthright witness and one who was conscious of and conscientiously sought to comply with his obligations as a witness. After normal initial nervousness, he was not shaken or made uneasy by a most persistent, thorough and vigorous cross-examination. He was forthright in his answers. He did not, like some of the witnesses take time to assess the questions and where they were leading before answering. There was nothing calculated in his responses. There were times when his frank answers did not assist the plaintiff. For example, asked about his calculation of the Schedule C claims he said that that he would have selected the date of the highest price for any putative sale and had not considered whether the market would have been such that the putative trade could have occurred. At one point, to move the cross-examination along, he volunteered to counsel that he discussed all the companies mentioned in a particular memo. He also volunteered that he had located two of his staff in whom he thought cross-examining counsel were interested and offered the information. He had not been asked to do so. He also co-operated in producing documents relating to a transaction of questionable propriety in which he was involved which enabled funds to be taken out of the plaintiff's account and himself drew attention to a possible misunderstanding about his margin lending arrangements concerning Telstra which in fact related to Telstra 2. He also corrected his evidence on occasions.

395. There was one area, however, where he appeared particularly sensitive to questioning and this affected his responses. This concerned the attempt by defence counsel to establish that it was Barba who was the principal adviser for Liyakat Ali, not Martin. He became at times argumentative - although in part, in response to aggression in the cross-examination. But I am also satisfied that he became concerned to present himself as playing a lesser role, and as having a lesser understanding of the stock market and securities, than was the case. I am satisfied, however, that what was concerning him was any suggestion that he may have been acting outside the scope of the licence that he held as a financial adviser. He was not attempting to argue the case of the plaintiff from the witness box.

400. In its original defence, the defendant admitted a retainer with the plaintiff Rahmat Ali. Subsequently, and as from at least 27 March 2000, it has taken the position that its client was Liyakat Ali not Rahmat Ali or alternatively, "the club". The defendant has presented elaborate arguments, in support of its argument, drawing on the subsequent conduct of the parties and the evidence given.

405. The direct evidence is overwhelmingly in favour of the position of the plaintiff. I refer particularly to the evidence of Barba. I accept that at both the August and September meeting Martin was told that the monies to be invested were those of Liyakat Ali's father, Rahmat Ali, and that Rahmat Ali, a foreign investor, was the proposed client. At the September meeting Liyakat Ali also explained to Martin his concern about the risks involved and about his responsibility since it was his father's investment. In addition Barba told Martin that Liyakat Ali would travel overseas to see his father in Fiji before any final decision was made as to the investment to be made by his father. There were later relevant communications prior to the making of the concluded retainer agreement.

(a) The information was repeated in a telephone conversation between Martin and Barba on about 16 September 1997. In a further conversation on about that date he advised Martin that he would forward a letter giving him details for the name of the account and that Rahmat Ali, the father, was an overseas investor.

(b) On 17 September 1997 Barba faxed a letter dated 16 September 1997 advising that the account would be in the name "Mr Rahmat Ali 461 Ballarat Road, Sunshine Vic. 3020 . . .". The letter stated "this client is an overseas investor from Fiji."

(c) Later, on about 14 October 1997, when the client account application form was signed, Barba had another conversation with Martin confirming that the account holder was an overseas investor and that the account was to be operated by Liyakat Ali and the agreement signed in his father's name. Barba went on to tell Martin that he had in his possession a power of attorney given by Rahmat Ali to Liyakat Ali and that if he needed a copy of that document he could provide it. Martin confirmed that he did not.

411. In the cross-examination of Barba his evidence was not challenged in any relevant way. In particular, when counsel put to Barba his file note of his conversation on 14 October 1997 (CB130), I asked counsel whether the defence disputed that the conversation occurred and he said the defence did not. Asked then whether the defence was saying that the client was Liyakat Ali not Rahmat Ali notwithstanding the defendant had the knowledge conveyed in that conversation, counsel responded "We'll come to that with Mr Martin, Your Honour". Counsel was urged to put the defendant's version to the witness if there was one and counsel indicated that he understood that obligation.

414. I note also that on 14 August 1998, Barba informed Whiting that the account was that of the father of Liyakat Ali who was extremely protective of his father's assets (for details see Annexure A).

417. The plaintiff, apart from the evidence of Barba and Liyakat Ali, has his own evidence on this issue. He confirmed that he authorised his son to act as his agent in dealings with Hartley Poynton and to that end he said he gave his son a power of attorney. The power of attorney is in evidence (CB 73). He also gave evidence that he authorised his son to sign in his name. There was a debate about the validity of this power of attorney. Whether valid or not, it indicated that Rahmat Ali was authorising his son to act on his behalf.

420. The defendant relied upon the evidence of Mr Martin to the effect that while he was aware of the existence of Liyakat Ali's father he had assumed that Liyakat Ali was Rahmat Ali. The defendant alleged, in final submissions, that the assumption was compounded by the fact that Liyakat Ali insisted on adopting "the fraudulent and deceptive practice of signing documents in the name of 'Rahmat Ali' without any indication that he was purporting to do so as the agent of Rahmat (a normal practice)". I note that the law recognises that an agent can sign using the name of the principal (LCC v Agricultural Food Products [1955] 2QB 218, 223-4). The argument is an example of the remarkable vigour with which the defence was maintained over the entire lengthy hearing.

423. Martin was cross-examined at some length on this issue. His evidence was that he believed the client was Liyakat Ali, asserting that it was by about November 1997 that he knew of the relationship between the father and son. Taken, however, to the file note (CB130) of the conversation with Barba on about 14 October 1997, he agreed that he was not in a position to deny the truth of what was contained in that file note. He said he was in the situation where he had no recollection.

426. It may well be that Martin had forgotten. He was not someone who paid close attention to that sort of information.

429. I turn to matters raised by the defendant, namely, the subsequent conduct.

433. The defendant argues that in light of evidence of subsequent conduct the conclusion should be reached that the client was Liyakat Ali or "the club"..

436. The matters relied upon by the defendant are at best, from the defendant's point of view, no more than equally consistent with a situation where Liyakat Ali was the agent and entrusted with full authority to act on behalf of Rahmat Ali. The defendant relies, for example, on the fact that

* Dominic Barba did not speak to Rahmat Ali during the entire period.

* Stefan Whiting, another employee of Hartley Poynton who became involved some months after the retainer commenced and claimed that he did not know about the arrangement and assumed that Liyakat Ali was Rahmat Ali, as did Karlson the officer manager (but note the evidence above of Barba relating to a conversation with Whiting on 14 August 1998).

* A lack of participation of Rahmat Ali and the significant role played by Liyakat Ali.

443. The defence also referred to correspondence from Barba and references in it to "the client" and also the letter of Martin of 14 December 1998. In relation to each it is put that references to "the client" were references to Liyakat Ali not Rahmat Ali. Accepting for the purposes of argument that that is so in relation to the Barba letters, Liyakat Ali was his client and Barba was concerned about his clients' situation. Agents are, of course, not prevented from having professional assistance and in that situation one can understand the professional adviser referring to him as the client if that be what Barba was doing. As to what Martin had in mind in his letter, only Martin can say. What matters, however, is the information conveyed to Hartley Poynton when the parties entered into the retainer. In my view, the evidence as to that is clear. Nothing occurred subsequently to change the contracting parties. Over time, because of the virtually exclusive, extensive and immediate involvement of Liyakat Ali, there may have been a tendency to erroneously refer to Liyakat Ali as the defendant's client (something that occurred repeatedly during the hearing in questions and statements from the bar table and the bench). That, however, did not change the contractual arrangements.

446. As to the other defence candidate, "the club", the defendant referred to comments appearing in documents in March 1998 from Barba about the people behind Liyakat Ali and Martin's introduction of the term "the club" pointing to Liyakat Ali being associated with a number of people in the mind of Martin. As to that, however, I accept the evidence that the Ali family is a closely knit family, particularly Liyakat, his father and his brothers, and it was to them that Martin was referring as "the club" - people taking a close interest in the success of the trading.

449. The defence also raised issues about the source of the money invested in the trading account and in acquiring the Telstra instalment receipts. As I understand the argument, it was put that the whole or most of the funds provided were from sources other than Rahmat Ali, and therefore, it is unlikely that he was the client of the defendant. That, of course, does not follow. In any event, I accept the evidence that in this closely knit family there was an objective, unusual perhaps, that the children of Rahmat Ali wished to assist their father to build up a fund for his retirement. In other words, to the extent that the money came from the children, in particular Liyakat Ali, it was provided as a gift to Rahmat Ali. It became his money. In terms of the relationship between the client and the broker, however, the identity of the client would not normally be determined by the question of who was providing the funding to the person wishing to engage the broker.

452. The defendant also relied upon an alleged refusal by Liyakat Ali to answer the question whether he was bringing the action on behalf of the whole family and not just Rahmat Ali. The passage referred to occurred in the course of cross-examination of Liyakat Ali on 19 March 2001 where he was being asked about Martin's use of the word "club" and what it meant. Liyakat Ali was asked whether he was bringing the action on behalf of the whole family and not just his father. At that point he responded angrily with a number of his own questions and when pressed said he thought counsel would have read the statement of claim by now. When asked to answer the question he said he was trying. The question was put again and he replied "no, sir no". He was then asked if he had "control" of the action and he asked that the question be explained. Counsel did not press the matter.

455. In my judgment, what occurred in that exchange was simply an angry response to an aggressive suggestion of dishonest behaviour on the part of him and his family and a legitimate request for clarification of the question as to whether or not he and not his father had "control" of the action. Counsel for the defendant suggested this latter answer was a dishonest refusal to answer because it should be compared with the fact that he had earlier given evidence that he and Barba had provided all relevant instructions to the lawyers acting for the plaintiff. Why that should lead to the conclusion that there was something deliberately dishonest in his answer is not clear. Bearing in mind that it was Liyakat Ali and Barba who were involved in the relevant events, it is understandable that they would have given all the relevant instructions to the lawyers about the facts of the case and that they, especially Liyakat Ali, would be heavily involved in the litigation. Control of the litigation is a different issue and control is not a single concept.

459. In my view, the answer on this first issue is clear. At all material times the client of Hartley Poynton was Rahmat Ali. He, however, dealt at all times with Hartley Poynton through his son Liyakat Ali who was his agent. Accepting that Martin was fully informed of these matters, there was no deception practised on the defendant.

462. In light of these findings it is unnecessary to consider the alternative argument advanced for the plaintiff that he was an undisclosed principal - an alternative argument open to the plaintiff if it be accepted that the defendant was not aware of the principal and agent relationship.

468. It is common ground that Hartley Poynton Ltd, the defendant, was engaged to act as broker by late October 1997. For reasons already given, I am satisfied that the client of the defendant was Rahmat Ali not Liyakat Ali. It is common ground that,

* the initial $101,818.54 investment was to be used for trading in securities to be conducted by the defendant.

* it was a term of agreement that both parties would each act in good faith towards each other

* the defendant would act with the reasonable care and skill required of a stock broker in the course of its acting for the client.

As to other terms of the agreement, there is some disagreement. The cases as presented also differed at times from the pleadings.

Terms and representations relevant to trading aspect

476. The plaintiff pleads in his statement of claim that the agreement was originally in two parts reflecting distinctly different purposes. The first part concerned the creation of a retainer and the agreement to trade in shares. As to that, he alleges that there were terms that;

(a) the defendant

(i) would invest the money in the share market or advise on its investment so that the plaintiff would derive average profits in the order of 15% to 20% per week compounding during the operation of the account, and

(ii) would not suffer a loss in excess of 5% on any individual investment in a share or financial derivative.

(b) that the plaintiff would have a period of up to 6 to 8 weeks to settle any investment transaction undertaken by the defendant for the plaintiff.

482. The plaintiff does not plead in his final version of the statement of claim any terms as to credit arrangements other than a term of six to eight weeks extended settlement. He maintained, however, in the presentation of his case, that there was a clear agreement from the outset that the defendant would provide significant credit through gearing in addition to the credit implicit in a six to eight week settlement period.

485. The plaintiff also pleads that it was a term of the agreement that the defendant would exercise reasonable

* supervision of its employees in order to ensure it and its employees complied with the rules of the Australian Stock Exchange;

* control over the trading activities on the account and would advise the plaintiff and/or his agent of the high risk attached to trading on margin on speculative stocks and/or financial derivatives with funds borrowed from the defendant

The plaintiff also pleads that it was a term that the defendant would advise

"the plaintiff and/or his agent of the nature of financial derivatives and of the high degree of risk attached to them prior to undertaking any investment in financial derivatives on behalf of the plaintiff."

492. These particular terms are denied by the defendant in its defence. The defendant relies upon the express terms set out in the documents executed by Liyakat Ali for Rahmat Ali in opening the accounts. In particular, it relies upon cl. 2.1.1 of the Sponsorship Agreement, which required payment for securities purchased to be made within five business days from the date of purchase. Also to be noted is its reliance in its defence, in particular, on;

* Clause 2.2.3 of the Sponsorship Agreement which it alleged empowered the defendant to sell securities that remained unpaid,

* Clause 3 of a Client Discretionary Account Agreement which entitled the defendant to rely on information provided by the client, which allegedly included instructions, which instructions could only be altered by terminating the agreement,

* Clause 7 of a Client Discretionary Account Agreement which allegedly required the plaintiff to notify a complaints officer of the defendant in writing of any complaints about the performance of the defendant.

498. It also alleges two implied terms; namely, that the parties would perform their obligations in good faith and, arising out of that term, that the plaintiff would notify the defendant, immediately, he became aware of a transaction which he considered he had not authorised.

501. The plaintiff also pleads that in March 1998, the terms of the "retainer" were varied as to the promised rate of return, so that it was then agreed that the defendant would invest the plaintiff's funds and derive average profits of 25% to 30% compounding per month during the operation of the account. The defendant denies this allegation.

504. I note that the defendant does not allege that Martin lacked authority to make the representations or to enter into an agreement on the terms that the plaintiff alleges.

507. Next in the statement of claim, the plaintiff also pleads that representations were made by the defendant that the defendant would invest the plaintiff's funds and/or advise the plaintiff as to investment of those funds so that the average profit abovementioned would be derived and would not suffer any loss in excess of 5% of the value of any initial investment in a particular stock. The plaintiff also pleads a representation;

"That trading in shares of the defendant on the advice of the defendant was not risky and the plaintiff would not be exposed to losses in excess of the stop loss limit."

The defendant denies the making of any such representations.

512. The plaintiff further pleads that in March 1998, it was represented that the defendant would invest the plaintiff's funds to achieve weekly average minimum return of $10,000 to $15,000 and a return of up to $25,000 per week and would implement strategies, which would help to achieve monthly returns in the order of 25% to 30% on a regular basis. The defendant also denies that allegation.

515. The plaintiff also alleges in his statement of claim that it was a term of the agreement that the defendant would carry out the instruction of the plaintiff and/or his agent and further, that it was agreed that ( para 3(e))

"the defendant would not buy or sell any shares and/or financial derivatives without the express agreement and/or authority or instruction of the plaintiff and/or his agent except for:

(a) an investment that would contribute towards the achievement of the promised rate of return; and

(b) any sale of shares and/or financial derivatives which would result in a loss equal to or less than the stop loss limit".

522. The plaintiff also pleads the making of representations by the defendant that it would carry out the instructions of the plaintiff or his agent and as to the nature and extent of the discretion as pleaded.

525. In presenting the plaintiff's case, however, counsel submitted that, in essence, the agreement was that the defendant was to exercise a discretion subject at all times to the right of the plaintiff to give instructions.

528. The defendant argues that the pleadings do not allege a form of discretionary agreement and maintains the position that there was no discretion invested in Martin or the defendant and that all, but a few, transactions were carried out on the express instructions of Liyakat Ali. The defendant also argues that there was no "over-arching agreement", in the sense that there was not at any time a binding or enforceable agreement between the plaintiff and the defendant that the defendant would act as his stock broker and investment adviser. Instead, the defendant argues that the proper analysis was that a binding agreement arose between the client and the defendant on the occasion of each transaction and that at all other times there was as between the defendant and the client an incomplete arrangement pursuant to which it was understood by each party that, in the event of the client giving an instruction or ratifying actions, a contract would arise pursuant to which the defendant would execute orders in consideration of the client paying the requisite brokerage and stamp duty and that the only obligation imposed upon the defendant was to supply the service of stock broking, namely the execution of orders to buy or sell in consideration, the client paying the brokerage.

Terms and representations relevant to Telstra aspect

532. The other significant part of the retainer agreement alleged by the plaintiff relates to the acquisition of Telstra Instalment Receipts (Telstra shares) in the Telstra float.

535. The plaintiff argues that Hartley Poynton agreed to make available to Rahmat Ali 100,000 Telstra shares in the Telstra float which were to be held for long term investment purposes using margin lending to boost the number of Telstra shares held and ultimately also to acquire other blue chip stocks.

538. In pleading this aspect, the plaintiff, having set out the creation of the retainer and its above term, then pleads the following

"4. Pursuant to the retainer; (a) ..... (b) In or about November 1997, the plaintiff provided the defendant with cheques in the total sum of $195,000.00 payable to Telstra with instruction to; - (i) acquire 100,000 Telstra shares (the initial Telstra shareholding); (ii) use the initial Telstra shareholding for "gearing" purposes in order to enable the defendant to acquire additional Telstra shares on behalf of the plaintiffs; (iii) to maintain these Telstra shareholdings as a long term investment:

PARTICULARS

Instruction was oral to the stated effect and was given by the plaintiff's agent to Chris Martin of the defendant in or about October 1997".

The plaintiff also pleads that the defendant represented that it would acquire 100,000 Telstra shares on behalf of the plaintiff and retain such shares as a long term investment in accordance with the plaintiff's instructions.

544. In its defence the defendant admits receiving twelve bank cheques in the sum of $15,600.00 drawn in favour of "Telstra share offer" and one cheque in the sum of $7,800.00 in favour of "Telstra share offer" on 29 October 1997 but otherwise denies the allegations.

547. The defendant denies that there was any instruction given or agreement reached or representation made that the Telstra shares, once acquired, would be held for a long term investment purpose or that there was any "gearing" plan agreed to by the parties.

550. The defendant in final submissions while accepting that it made the above quantity of Telstra shares available to Rahmat Ali, denied that there was any discussion or instruction about the handling of the investment once obtained and, in particular, denied that there was any agreed long term investment or margin lending proposed. The defendant also pointed to the pleading history and changes that occurred. I accept that those changes require careful consideration of the plaintiff's case and the evidence now put.

555. I propose to consider first those representations and terms alleged which the plaintiff claims arise from the documents, conduct and statements of the parties. I propose to look at the evidence relevant to the issue of the trading aspect and to look subsequently and separately at the Telstra aspect. For both purposes, it is necessary to analyse events that occurred in and between August and November 1997.

558. To establish the terms of the retainer and the representations, the plaintiff relies upon the evidence of discussions involving Liyakat Ali, Barba and Martin on 27 August 1997 and 15 September 1997 and a demonstration conducted by Martin leading up to the first deposit of funds, on about 29 October 1997. It appears to be common ground that that event marked the latest point at which the agreement to retain the defendant was concluded.

561. In my view, reliance cannot be placed on the evidence of Liyakat Ali and Martin about the initial meetings, except to the extent that they are supported by Barba or other evidence. My findings are generally based on Barba's witness statement, his oral evidence and his file notes. Barba made contemporaneous notes of the first meetings, notes which were not seriously challenged by the defendant. No contrary account of the meetings was put to Barba by counsel for the defendant. The notes of Barba are important evidence but they are not, and were not intended to be, exhaustive.

564. The evidence is detailed but that detail is important in that not only does it bear on the representations made and the subsequent agreed terms, it details how Martin persuaded Liyakat Ali to engage the defendant as broker and how the returns offered were justified - including Martin's emphasis on his access to privileged information. What was said at these meetings also needs to be borne in mind when judging the later conduct of Liyakat Ali.

568. The first meeting appears to have been essentially an opportunity to introduce Martin and Liyakat Ali and for Martin to talk about what he and the defendant could offer. It occurred after Liyakat Ali had discussed with Barba his desire to have direct participation in investment decisions when investing his father's money. Barba arranged the meeting.

571. The discussion was in general introductory terms. Martin gave background information on the defendant, asserting it was the second largest broking firm world wide and was owned by the Royal Canadian Bank. He spoke about the many company contacts that he had for whom he brokered deals and how he came into a lot of information which they could take advantage of and use to make significant gains. He asserted that the information came to him well before the market knew about it. He said that he was regarded as the number one broker at the defendant where he had been working for some four years. He gave them information about his qualifications and he said he dealt with clients who had millions of dollars. He attempted to sell himself further by saying that he regarded himself as a "counter puncher" who was very quick on his feet. He said he had the ability to adapt to the market as it evolved so that he could take significant advantage and be a couple of steps ahead of everyone else. Barba noted that Martin appeared "very confident in his own ability".

574. There was discussion about the Direct Portfolio Investment Fund approach (where the plaintiff had funds invested). Martin said he was the major broker for Direct Portfolio and talked about what he saw as the disadvantages of the sort of approach offered by Direct Portfolio. In the course of discussion mention was made by Liyakat Ali of an article that had been published about John Aldersley of Direct Portfolio and his thoughts on making money on the stock market and Martin said that he agreed with Aldersley's thoughts saying it was not hard to make a million dollars. He spoke of the advantages of working with a broker and indicated that if Liyakat Ali's father invested with the firm he would be able to make an allocation to him in the float of Great Southern Oil. The participants agreed to meet again.

577. After Martin left Liyakat Ali and Barba discussed what had occurred. Barba was to speak to others for references. Barba's notes record the following in conclusion

"I felt confident. He was a quick thinker and looks sharp. Displayed very detailed knowledge of the markets, his philosophy and attitude was very good ..... impressive".

Trading Aspect - Meeting of 15 September 1997

582. During this second meeting there was, to quote Barba "a lot of discussions" which established the profile of the client. Barba said that that profile was of a very risk conscious client with Liyakat Ali being purely concerned about the safety of his father's investments, he having a background only in real estate and fixed term interest or term deposit investment apart from Direct Portfolio Investment. Barba`s evidence in cross-examination was that Liyakat Ali did not wish, at that time, to achieve a high return from investments but that he wished to invest in what Barba would have called blue chip stocks. When asked about risk Martin assured them that the money would be as safe as it would be in the bank except for greater returns.

585. When asked what would be invested, Liyakat Ali responded saying that they would start with $50,000 to $100,000 but that the $100,000 would be the maximum amount that would be available if they did invest with the defendant. He said he did not like the way Direct Portfolio would not permit him to participate in its investment.

588. Martin offered to commit himself with no obligation from the client to prove his abilities. He offered to perform his services at no obligation. He said he would make 15% to 20% per week compounding. He said that if there were any losses he would wear them, there would be no obligation on them. If a profit was made, they could keep it even if they did not retain him. Barba's file note records that Martin was very confident in his ability. Barba's evidence is that he believed that this return was extraordinary but it was indicative of the level of confidence that Martin presented in their discussions. His notes record concern about the 20% figure.

591. Martin confirmed the Great Southern Oil allocation but also promised to secure a large allocation in the Telstra float and said he would do that for them regardless of whether his services were engaged or not. It seems that at about that point Liyakat Ali, asked why, if Martin was capable of making the sort of money he was indicating, he needed clients. Martin responded indicating that he had personal wealth of $250,000, that he enjoyed life to the full and that the proof of the pudding would be in the eating. Liyakat Ali pressed Martin asking why he would go out of his way to focus on this proposal before any decision had been made and offer the generous enticements of share floats. Martin said that he was regarded as the best broker at the defendant, the number one broker. Ali and Barba asked him, in those circumstances, why he needed them. He indicated that what was attracting him was the real possibility that he could market to Barba's client base of approximately 3,000 clients. He said his ambition was to become a portfolio manager and this was a very good starting point. Barba conceded that if Martin did do a good job it was possible that he would be able to market him to his client base, which was about 3,000 clients.

594. Martin repeated that they had nothing to lose, that he would trade for two weeks with no money exchanging hands and, at the end of that time, they could assess his performance. He repeated that they should judge him on his ability to obtain 15% to 20% return compounding per week. Liyakat Ali offered a deposit of $20,000 to be used in the trial but Martin declined saying it wasn't necessary, that he would trade for a two week period with no money and whatever he made would be theirs and whatever lost his. Martin said that he needed only the office address of Barba and the name of the account and Barba said that he would forward that to him.

597. Discussion returned to the issue of the 15% to 20% return. Both Liyakat Ali and Barba were uncertain about that and thought it seemed unrealistic. They didn't understand how such a return could be achieved. Barba in his oral evidence on this aspect altered his witness statement, which otherwise had generally mirrored his notes. The notes recorded that Martin said that as one of the top brokers he had a gearing facility with the defendant and as a result would be able to offer gearing against the stock held, he gave by way of example, according to the notes, that on $100,000 invested, an additional $200,000 would be made available via the gearing facility. In his sworn evidence, however, Barba said that reference to $100,000 was wrong that it should have been $50,000. He gave a frank explanation as to how he came to the conclusion that the figure was wrong. The explanation is clearly pointed to a reconstruction. It is based on a recollection that Martin had spoken of a ratio of 1 to 4, a recollection reinforced by the borrowing he, Barba, had achieved at a later date with Telstra, on a 1 to 4 ratio. While I accept that Martin may well have talked about ratios of 4 to 1, in relation to margin lending, the notes are, I suggest, likely to be the more reliable evidence as to the credit facility available and provide the evidence that should be used. Thus, on that basis, Martin was talking about an initial investment of $100,000 with a gearing facility from the defendant of $200,000 making a total available for investment of $300,000. Barba has, I suggest, confused margin lending ratios with the interest free credit then under discussion. As to the "gearing" amounts, Barba in cross-examination was referred to further and better particulars of the statement of claim dated 25 May 1999 and asked whether he gave instructions to Slater and Gordon that Martin told him that he had authority to gear up against the plaintiff's cash contributions by allowing the plaintiff to borrow a further $200,000. His response was that that was what Martin had said in relation to his gearing facility he imagined. He said "I can't recall the amounts, but I can only imagine that was the gearing facility through the trading account." He could not recall giving those instructions to Slater and Gordon.

600. Returning to the meeting, Martin went on to explain that when he was talking about a 20% return per week compounding on the initial investment - i.e., he was talking about the return to be achieved by the total amount invested and then considering that return as a percentage of the client's funds actually invested, namely the $100,000. It would follow that on that basis he was talking about a return on $300,000 of the order up to 5% to 7% per week compounding which no doubt made his predictions seem less far fetched.

603. I accept that Martin said to them that the loan facility was not subject to repayment like a normal bank loan but the defendant would hold the stock as security for the gearing. The defendant would not charge interest but rely on brokerage. I accept that he also said that the defendant would waive normal settlement terms and enable them to hold stock purchased over and above the total amount of $300,000. Barba said in evidence that this period of extended settlement terms was "beyond 30 days, six to eight weeks, or thereabouts" without requiring payment. His notes, (CB41) however, speak of "30 days plus" as being available for extended settlement - to take advantage of privileged information. I note, also that in his witness statement, Barba said that the securities additional to those bought pursuant to the gearing facility would have to be bought and sold within the 30 day period. There does not appear to be any note of that in the file note but it does distinguish between the gearing facility and the extended settlement facility. In cross-examination, Barba was asked questions about the extended settlement period and spoke in somewhat vague terms about it. He referred to the period being "beyond 30 days, six to eight weeks or thereabouts ". He said "basically he would buy large quantities of stock directly related to the stocks that he had a lot of information on and he needed a six to eight week period to generate his return".

606. Martin told them that he had foreknowledge of investment reports and contact with key officers of various companies which he wished to target. He described this information as privileged information. He said that the extended settlement facility would enable them to take advantage of the privileged information and purchase additional securities and give them an opportunity to capitalise on profit taking. Martin referred to the risk issue saying it was minimal if at all because of his stop loss and averaging strategies.

609. Barba and Liyakat Ali still questioned the realism of the projected returns. Martin then gave a more dramatic example such as $300,000 invested plus $600,000 of gearing totalling $900,000 and talked about $20,000 being generated in profits. Barba at that point recorded in his notes

"It starts to make sense that the bigger position CM trades the better opportunity he has of getting 20% on our $100k dollars rather than expecting 20% on $900k or more."

613. Barba said that Liyakat Ali was still not convinced and asked Martin to prove not only the 15% to 20% return but also the extended settlement period and further to prove that no funds would be required to meet settlement of the stock purchased during the extended settlement period. He said that Martin promised that during his demonstration period he would demonstrate the workings of gearing since they would not be investing any funds at the time. Martin said he would also demonstrate the way he could eliminate risk by adopting various stop loss strategies and trading the same stock to recoup losses. He also said he would demonstrate the return of 15% to 20% compounding per week and that no funds would be required from Liyakat Ali. The demonstration would be done in stages. Martin further explained that the way he would be able to trade without funds was that he would, for example, buy 500,000 units of stock A at 10 cents because of information that the stock was in an upward rise and that once the stock reached 20 cents he would sell 250,000 unit to cover the initial cost with the balance of the shares representing profit, the shares could be left unsold or the cash could remain in the account for the next opportunity. He said funds could be withdrawn from the account if required. At this point Liyakat Ali and Barba agreed that it was making sense and a lot clearer. Martin emphasised they were not to expect 20% on the total position traded but only on the initial investment. Martin also said that the return would fluctuate from week to week but over a six to eight month period the return would be 15% to 20% compounded per week.

616. Discussion then turned to the issue of control - an issue that proved critical. Martin said he was to have a discretion regarding transactions on the accounts. Barba and Liyakat Ali told Martin that they were novices in the workings of the stock market but that Liyakat Ali wanted to participate in the process and that as he learnt more about the market he would want to become more involved in the decision making. Liyakat Ali also said that it was important at all times that he could tell Martin what to do. Martin responded by saying that he would always have the overriding right to give instructions for the purchase and sale of stock.

619. Liyakat Ali also queried Martin on how it was that he could use Hartley Poynton money. He said that it appeared to be unheard of. Martin said that it was because of his standing with the defendant and his proven ability to generate significant amounts of profit. He said the defendant made this facility available to their best. He said further there was no risk to the defendant because it held the security. Ali asked wether it was like buying a house with a mortgage and Martin said it was exactly the same except that brokerage was paid on the trades rather than interest on the loan - that is, it was interest free . The meeting concluded with Martin being given permission to commence the demonstration.

Trading Aspect; Evidence of meetings - comment

623. At the conclusion of the meetings it could not be said that there was a concluded agreement beyond an agreement that Martin attempt to demonstrate at his own risk the matters he had represented. As to the representations made, the following comments may be made.

626. There is uncertainty in Barba's recollection of what Martin said about the amount of gearing available and the period of extended settlement. This is understandable with the passage of time. The prudent course is to rely on the contemporaneous notes. They suggest that Martin purported to distinguish between gearing and extended settlement and stated that the gearing was in the ratio of 2 to 1 and the extended settlement was "30 days plus".

629. The conclusion that such representations were made is supported by the credit arrangements in place within Hartley Poynton at the time. As to the extended settlement terms, the evidence from the defendant's own records establishes that at the time of these meetings, brokers like Martin could call on a thirty day interest free extended settlement arrangements for them and their clients. The defendant complied with the requirement of settlement within 5 days (T+5) from its own funds, and allowed clients 30 days in which to pay without charging interest. Thereafter, interest would be borne partly by the broker and partly by the defendant. It would be surprising, therefore, if Martin had not offered that facility to attract the business that he was obviously anxious to obtain. In addition, it would not be surprising that he would be prepared to carry interest himself for two weeks to a month after the expiration of the 30 day period. The defendant's records reveal that that was his practice. In August 1997, for example he had incurred an interest charge of $17,351.00 and in September 1997, $6,748.00. In and between June 1997 and April 1998, he incurred interest charges totalling $79,506.00 (CB 1080).

632. As to limits on credit, there appear to have been none at the time although some were under consideration. Martin gave evidence that there were none until the middle of 1998. Internal documents obtained by the plaintiff from the defendant reveal that on about 25 August 1997 (P38 & P41) David Craig advised all advisers that consideration was being given to changes in relation to debtors policies for advisers. It appears that the proposal under consideration was that debtors overdue 30 days or more would automatically come under the control of the credit manager and be removed from the control of the adviser and that no further buying for that client would be permitted. In relation to overdue accounts, limits were also proposed. For directors there were no limits proposed but for senior advisers there were to be limits of $100,000 for 8 to 14 days and $25,000 for 15 to 29 days. For advisers the limits proposed were $50,000 for 8 to 14 days and $10,000 for 15 to 29 days. No limits were specified for T+8. On the face of it the memorandum indicated proposals for credit limits inconsistent with the representations made by Martin to Liyakat Ali and Barba on 15 September 1997. It seems, however, that it was never more than a proposal and was not implemented. It appears that by memo of 15 December 1997 (P39 and P41) a different regime involving categories of accounts was put forward to operate from 1 January 1998. The memo of 15 December 1997, however, reserved the possibility of exceptions for particular clients in special circumstances and would affect "very few advisers**"(**P39).

635. The defendant did not call witnesses who could explain the progress of the credit proposals. From the documents it appears that at the critical time (August and September 1997) no regime was in place and the situation was fluid. Martin, in any event, was someone who would have been confident that he could operate despite any constraints or, if necessary, persuade his superiors to make an exception - as he subsequently attempted. Martin would have been confident that he could negotiate special treatment for the account; for if he could persuade the plaintiff to trade through him, he could generate a lot of commission and rely on that fact to argue, as he did later, that an exception should be made.

638. He did not inform the plaintiff's agent of the proposed changes on 15 September 1997 but repeated his representations. He did not inform the plaintiff's agent of the further proposed changes in December or January 1998.

641. In all the circumstances, in August and September 1997, Martin would appear to have been in a position to offer interest free "gearing" of $200,000 on $100,000 invested, with the stock purchased being used as security and no repayments required. He was also in a position to offer extended settlement of six to eight weeks. The practical limits were the risk he was prepared to accept himself, because he would be liable to the defendant for any losses, and the interest he was prepared to pay. He would be protected against the risks to a considerable extent, however, if the plaintiff deposited substantial funds in the relevant accounts.

644. Martin also represented that he could achieve a return of 15% to 20% per week compounding on the initial client investment using the gearing facility and do so over a period of six to eight months.

647. As to the discussion of returns and risk, I also note the following points. Martin strongly promoted himself, and the defendant, and did so with special reference to their access to what he called privileged information not generally available to the market. This would greatly assist in profit making and significantly reduce risk in trading securities. He played down the risks involved, assuring Barba and Liyakat Ali that to invest through the defendant would be as safe as in the bank but generate greater returns. He represented that the risk of loss could be virtually eliminated because of the strategies he would employ, in particular, the stop loss and averaging strategies and his fast footwork and counter punching. Remarkably, he still projected the view that the risks were minimal when giving his evidence. He comes across as a person with remarkable apparent confidence in his abilities and an attitude that he is someone to whom the normal rules and risks do not apply. I have no doubt that during the preliminary discussions, he played down any suggestion of risk.

650. It is also clear that both Liyakat Ali and Barba were sceptical about Martin's ability to achieve the returns that he represented he could achieve and took some persuading. In persuading them, Martin advanced a plausible reason for making such a generous offer to Liyakat Ali, namely his ambition to be a fund manager and his desire to tap into Barba's 3,000 clients. He also explained the generous gearing and extended settlement facilities on the basis of his special position at Hartley Poynton. In addition, his creative use of those facilities brought the suggested returns significantly closer to reality. Finally, Martin said that he would demonstrate, at his own cost and risk, his capacity to achieve the returns, the fact of the gearing facility being available, the availability of extended settlement and his risk management strategies - thus conveying the clear impression that he saw no risk for himself in so acting.

653. As to control it was also proposed that Martin would, in any retainer, have a discretion in investing the funds but that it would be subject to an overriding right in Liyakat Ali to give instructions.

656. As to the client's profile, Martin was made aware of it prior to the demonstration, at least to the extent that the identity of the client was known, the creation of a fund for retirement was the objective and minimisation of risk was a major concern. This is confirmed by subsequent events (see below). Martin, however, did not obtain information in these conversations about the client's financial position. Such information was never obtained even though extensive credit was contemplated and given.

659. As to the Telstra aspect, Martin had foreshadowed that he would also make a substantial allocation of Telstra shares in the Telstra float but, there was no specific proposal at that time. That was developed over the ensuing weeks during the demonstration period to which I now turn. Plainly, however, in addition to considering engaging the defendant to trade on the Stock Exchange for his father , Liyakat Ali was also contemplating a secure blue chip investment. Thus, it is not correct, as the defendant has tried to argue, that the aim of Liyakat Ali, from the outset was to engage in aggressive trading. Later he appeared to want to do so, but in different circumstances.

663. It is common ground that following the meeting of 15 September 1997, Martin embarked upon a demonstration. Barba maintained that in a staged process, Martin had essentially demonstrated each of the aspects which he had undertaken to demonstrate. This is also the evidence of Liyakat Ali. The defence on the other hand submits that an examination of the events reveals that this did not occur. In analysing the arguments and evidence much depends on the view taken as to what it was that Martin was to demonstrate and when it was to be demonstrated.

666. I accept that he was going to demonstrate initially his capacity to achieve a return of 15% to 20% per week. This he in fact did, over the first two weeks, boasting, for example, on 17 September 1997 that he had made 11% in 4 minutes (para 71) and 13.7% on 19 September 1997. After the first two weeks, I am satisfied that his focus was primarily on demonstrating that he could trade on extended credit.

669. It would also appear from what occurred during the demonstration period that he attempted to demonstrate stop loss and averaging and other strategies during the initial two-week period. As to that, I refer to what occurred with the shares in Jubilee. On 19 September 1997, 10,000 Jubilee were purchased at $1.12 and 20, 000 at $1.06. Martin explained to Barba that he had thereby averaged the price at $1.08 (CB 61). On the same day 10,000 were sold for $1.17 and five days later on 24 September 1997, 20,000 were sold for $1.02, incurring a loss of $750.00. $1.02 is approximately 5% below $1.08. On the same day he bought 20,000 for $1.10 on the basis of information from a good contact and sold them for $1.13. He boasted to Barba that he had almost recouped the loss within the day (CB 76, 77, 122, 245) - an example of trading the same stock to recoup the loss. On 23 October 1997 (CB 245) I am satisfied that while discussing with Barba the wisdom of holding stocks in Defiance Option and Preston, Martin reminded Barba of the Jubilee shares and how he had demonstrated his ability to claw back the losses. It would appear that what occurred in Jubilee was presented by Martin as an example of his averaging and his loss minimisation strategies and capacity to recover losses quickly. I note, also, another trade claimed by Martin to represent his stop loss strategies was Preston on 29 September 1997.

672. The performance was discussed with Martin on 6 October 1997 after Liyakat Ali returned to Melbourne from visiting his father in Fiji and rang Barba. Liyakat Ali went to Barba's office and he and Barba spoke with Martin using the loud speaker phone. I accept Barba's evidence that during this conversation Martin asserted that he had proven a number of things beyond any doubt. In particular, he said he had established his ability to achieve a net return of 16.04% per week over a two week period. He also said that he had established negligible risk due to his implementation of stop loss strategy and averaging and trading in the same stock and he further pointed out that all this had been done with no funds from Liyakat Ali. I accept Barba's evidence that Liyakat Ali said to Martin that he was still concerned and not convinced that the six to eight week settlement period had been proven. Martin said that he would not need any funds until the end of October and that this would prove to Liyakat Ali that there was a minimum of a 6 to 8 week settlement period and Martin said that no one from Hartley Poynton would write or contact Liyakat Ali requesting funds within that period. At this time, it appeared that it was extended settlement that was still to be demonstrated.

675. As to trading on credit, it was in fact only from the 9 October onwards that there were any trades held for more than five days and the longest of those was Defiance Options held for fourteen days. It is true that these trades could not demonstrate the availability of extended credit for six to eight weeks, let alone 30 days. But Martin had also stated on 6 October 1997 that he would demonstrate extended credit by trading without funds until the end of October. What the trading demonstrated was that extended terms of settlement were available, as was a capacity to trade on credit such that it was possible for the account to hold open positions totalling $90,015.95 in value without any money having been paid. It is true that losses were incurred in the later period and that, in the end, there was a net loss of $2,756.38 but this was caused by two trades which had been held for fourteen and thirteen days respectively - Defiance Options and Preston. The pattern that emerges lends support to Liyakat Ali `s evidence that these securities were held for that length of time and incurred losses because they were demonstrating the availability of extended credit.

678. The overall pattern, however, suggests that both Liyakat Ali and Barba were mistaken if they were suggesting that there was in fact a series of stages to demonstrate the various aspects. There is an element of truth in that but it would appear that there were basically only two stages. In the first stage of two weeks Martin demonstrated his ability to achieve the high returns. He also claimed to have used averaging and stop loss. In the second stage extended settlement was demonstrated and some stop loss. Throughout there was a demonstration of an ability to trade on credit.

681. Another important aspect of the demonstration was that it showed Martin's confidence in his own abilities, his access to privileged information and his belief of a lack of risk, he having exposed himself to all the risk of the trading, trading which was on credit. I accept Liyakat Ali's evidence that he was told during October by Barba that Martin was holding stock worth sixty to eighty thousand dollars. I note that the statement of account records a highest debit balance of $123,19970.85 at one point on 22 October 1997. At the time of the deposit of $89,818.54, the debit balance was $92,772.73. It is unlikely that Liyakat Ali or Barba had any knowledge of the precise account details at those times. They were aware, however, of the substantial trades conducted on credit.

684. New client account application forms were forwarded to Barba and received on about 13 October 1997 and executed by Liyakat Ali on 14 October 1997. Funds were not then provided. At the end of the demonstration period, 29 October 1992, the initial trading funds were provided.

Trading Aspect - Comment on the evidence of the demonstration

688. By 29 October 1992 enough had apparently been demonstrated by Martin to persuade Liyakat Ali and his father to proceed to conclude a retainer agreement with the defendant - a retainer which they then assumed was subject to their control.

691. The represented achievable return had been demonstrated as had the way the risk strategies could be employed. Gearing as such had not been demonstrated and could not be demonstrated until the funds were provided. A capacity to trade in substantial quantities of stocks on credit over six weeks was demonstrated.

694. An examination of what occurred during the demonstration period and prior to the payment of funds to the defendant is also relevant to other issues, notably the extent to which the account was to be discretionary and whether risk was an issue for the plaintiff.

697. Initially, while Liyakat Ali was overseas, Barba kept a close eye on the trading during the demonstration period, discussed trading decisions with Martin. He tried to exercise control. For example, on 24 September 1997, Martin told Barba he had purchased Preston on the basis of information from a senior broker of a possible takeover. On about 29 September 1997 (CB 88) Barba spoke to Martin about Preston and advised him that he should reduce his exposure to such "specy stock". I accept his evidence that he raised that issue because of the concern about risk, the plaintiff being risk conscious, and because Martin had maintained he was risk conscious and he was therefore, puzzled as to why he should expose the account to such a "specy stock". He also emphasised to Martin that he did not appreciate him taking too many risks. Martin, however, maintained that he had quality information which warranted holding the stock. There was further discussion but Martin was persuaded to sell them. There was further trading in Preston options which Barba continued to discuss with Martin and persuaded him to sell. The control pattern later was very different, but the claimed access to privileged information was repeated.

Trading aspect; the initial terms and representation - conclusion

701. Between the meetings and the deposit of funds, there does not appear to have been a further discussion of the terms of the retainer in relation to trading generally. While it is clear that Liyakat Ali relied on the representations made about returns, credit and risk in finalising the retainer, it does not follow that all those representations became terms of the agreement.

704. I am satisfied that the retainer agreement was concluded when the trading account was provided with funds. The agreement was partly oral, in writing and to be implied. Specific oral terms prevailed over written terms where they were inconsistent.

707. As to the terms of the retainer agreement, I reject the defendant's analysis. There was an overarching agreement in which the defendant, through Martin, was invested with a discretion. I am satisfied the defendant, through Martin, made the representations alleged about returns and that the parties were agreed that the defendant would invest in the share market for the plaintiff and attempt to achieve an agreed target return of 15% to 20% compound on the initial investment over a period of at least six to eight months. To that end, Martin had a discretion to determine what to buy or sell, subject to the right of the plaintiff to give instructions. The fact of an agreed target is confirmed by Martin's own evidence and by subsequent conduct - particularly admissions made subsequently by Martin. (See below and Annexure A). I am not persuaded, however, that there was a contractual promise to produce those returns. The subsequent behaviour of Liyakat Ali and Barba also supports an agreed target but no more.

710. An agreement to attempt to achieve an agreed target over time, however, places implied mutual obligations on the parties to work towards a result. Properly analysed, each party was under an obligation to do all that was necessary to be done on his or its part to achieve the result. (McKay v Dick (1881) 6 App. Cas. 251; Secured Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596). In light of the imbalance in knowledge, expertise and experience, between Martin and the plaintiff, and his agent, it would have been reasonable for the parties to address their mutual obligations by the plaintiff deferring to Martin when decisions were made when working towards the result. This was to be expected and is what eventuated (see below and Annexure A). Martin in fact insisted that he have control and the ultimate responsibility for the outcome and the plaintiff accepted that position.

713. I am satisfied that there was not an agreement to apply a 5% (or a 10%) stop loss system or averaging for minimising loss. They were represented to be risk minimisation strategies that would be employed.

716. As far as the credit arrangements are concerned it was represented and clearly understood that the trading would proceed on the basis of the abovementioned substantial credit and substantial extended terms and such credit and extended terms would be interest free. The extended terms and credit were critical to the achieving of the agreed target return over six to eight months. In those circumstances, I am persuaded that it was an initial term of the agreement that for six to eight months;

(a) $200,000 of interest free gearing would be provided if $100,000 was deposited; and

(b) the plaintiff would not be called upon to settle any trade on a T+5 basis and that there was and would be available extended settlement terms of at least 30 days..

These conclusions are supported by subsequent events (see below and Annexure A).

722. I note, however, that the plaintiff does not now plead that there was a term of the agreement that gearing to $200,000.00 be allowed although he did in his original statement of claim. The term pleaded now relates only to extended settlement. I note also that in August 1998 Liyakat Ali noted in writing on a fax from Whiting as to the current state of the account an entitlement to a $200,000 loan (see Annexure A).

725. Later events confirm Martin was a person reckless in his approach to risk and dismissive of it. It was to be expected that, when seeking the plaintiff's business, he would play down the dangers of what was being proposed. I am satisfied that Martin's representations made prior to the retainer relevant to risk, are correctly described, in substance, by the pleading that he represented that trading in shares with the defendant on the advice of the defendant was "not risky".

728. Looking back, it seems remarkable that Liyakat Ali and the plaintiff were prepared to rely on the representations of achievable returns and lack of risk and to rely on the demonstration and enter into the retainer for his father. The demonstration as such was not particularly impressive but in incurring a debt of approximately $96,000.00, Martin demonstrated his belief in himself and in the lack of risk he had represented. It must be remembered that Martin claimed to be the best and succeeded in impressing Barba, an experienced professional. It must also be remembered that Martin emphasised his access to privileged information. This gave considerable credibility to his claims of how high returns and lack of risks could be achieved. As to the latter, he also referred to his strategies for controlling risk. He also had explained that the returns were not on the whole sum used for trading but on the sum invested for the plaintiff - not more than one third of the total sum. There were also the strong inducements of extensive interest free credit and offers of substantial participation in floats - particularly Telstra float (see below). I am also satisfied that Liyakat Ali and the plaintiff assumed that they had control of the retainer and would not have appreciated the problems inherent in the agreed terms.

731. It also seems remarkable that Martin should have made these representations. But in his evidence, he maintained that the returns he spoke of were possible. He also during the subsequent trading, and in his evidence, showed a unique view of the lack of risk involved in what he did.

Trading Aspect; Initial Terms - Conundrum and Conflict

735. Accepting the above analysis there were at least two problem areas created for the parties by the terms of the retainer and their objectives.

(1) The defendant, through Martin, had agreed to attempt to achieve a target return of 15% to 20% per week compounding over six to eight months and did so on the basis of a unique capacity to achieve those returns. If the plaintiff was to hold the defendant, through Martin, responsible in carrying out this agreement over six to eight months, he could not interfere with Martin's trading. If he did so, he would relieve the defendant of responsibility for the outcome - what came to be described during the trial as the conundrum. I am satisfied that Martin and Liyakat Ali had not discussed how this issue would be addressed prior to the funds being provided.

(2) There was a conflict between the aim of minimising risk and achieving high returns. I am satisfied, however, that Martin did not see a necessary conflict between the aims of minimising risk and achieving higher returns and would then have been of the view that both objectives were possible. In reality, he had attempted to demonstrate his view, and his confidence in that view, by trading without any funds and holding shares at the end of the period at no risk to the plaintiff totalling over $90,000 in value. This was a clear demonstration of Martin's confidence in himself.

741. The agreement placed the plaintiff in a vulnerable and dangerous position. Martin wanted to demonstrate how good he was as a trader using the plaintiff's account. He was very persuasive. He had an unrealistic view of his own ability. He also had a high risk threshold or as unrealistic view of risk, or both, such that he was prepared to embark upon transactions which to most would be terrifyingly risky, but for him were not, with a view to achieving the agreed target. He was someone who would always give priority to the objective of achieving the high target over the objective of low risk.

744. Inevitably, the situation was going to arise where the plaintiff, through his agent, would seek to assert the authority and control he believed he had. The plaintiff would then be confronted by the conundrum, with Martin saying to the plaintiff's agent that he had a choice. He could put his trust in Martin and allow him the control he required over the agreed period to produce the outcome or relieve the defendant of its responsibilities for the outcome and wear any losses that had occurred to that date because that would be his responsibility and not Martin's.

747. The first serious attempt on behalf of the plaintiff to assert control occurred in early January 1998. Martin, however, resisted it and asserted control then and throughout and was permitted by the plaintiff to exercise it. Counsel for the plaintiff submitted that a reading of Martin's second witness statement confirms that he, Martin, controlled the trading. I originally did not accept that proposition but on further consideration do so. The chronology in Annexure A also demonstrates the proposition.

Trading Aspect- Events occurring during the retainer

752. What occurred in the months following the entry into the retainer is relevant to the issues of the representations made and terms of the agreement. It is also relevant to variations of the terms and to the issue of the defendant's supervision of Martin, Martin's ethics and honesty, and the issues of negligent trading, "waiver" and contributory negligence.

755. I propose, however, to identify and comment on some of the points that emerge relevant to issues in the case to which reference has already been made; in particular, the representations and terms as to targets, credit arrangements, discretion and the plaintiff's profile. For more detail, reference should be made to Annexure A.

Terms of the Retainer - agreed but not promised Target

759. Subsequent dealings between Liyakat Ali on the one hand and Martin on the other confirm aspects of the retainer. As to the agreed target of 15 to 20%, the document prepared by Barba on the advice of Liyakat on 9 January 1998, noted the returns expected as "benchmark returns". The subsequent note provided on 15 January referred to the benchmark in the following terms:

"Remember the benchmark returns expected is 20% as promised by you" -

again pointing to an agreement but an agreement as to a target not a promised return.

764. During January the parties varied the agreement by extending the period within which Martin was to pursue the agreed target from the original 6 to 8 months to 12 months.

767. Later in March 1998 when Martin wrote to Liyakat Ali setting out a new proposal, he acknowledged that they had "endeavoured to gain a result of 15 to 20% per week" - again an agreed target not a promised return.

770. In that same document, he changed the target return to a monthly return of 25% to 30%. It is apparent from the responses of Liyakat Ali and Barba and subsequent correspondence that this change was accepted. Thus the agreed target as to the return was varied. In particular, in a letter from Barba of 23 March 1998 he referred to the downgrading of Martin's original commitment to a return of 15% to 20% per week, thus confirming acceptance of the downgrade.

774. In December, an event occurred which might have resulted in the then credit facilities being accurately revealed to Liyakat Ali and Barba when during Martin's absence on leave a request was made for $20,000.00 to cover an alleged shortfall. It was decided to sell some shares and let Martin sort the matter out later. I am satisfied that Martin, or his return, said it should not have been mentioned.

777. In the documents submitted to Martin in January of 1998 when, through Barba, Liyakat Ali was attempting to assert control over the accounts, a calculation was made using an estimated portfolio value of $400,000.00 with proposals then as to how that should be split between stocks of various kinds. This was consistent with the portfolio using $100,000.00 initial investment, $200,000.00 of gearing and extended settlement terms.

780. Later, in his letter of 16 March 1998, Martin referred to the endeavour to gain the result of 15 to 20% per week "on a portfolio with an initial investment of approximately $325,000.00 to $350,000.00". This was also consistent with an initial investment from the client of $100,000.00 plus gearing of $200,000.00 and extended settlement. If it be suggested that it was a reference to the funds invested by the client including the Telstra moneys or the Telstra proceeds, the figures do not match. Liyakat Ali's reaction at that time was that the figure should have been $500,000.00 on the basis of $100,000.00 investment with gearing of $400,000.00 as noted by him on his copy of the letter which he received. In my view he was confused as to the different types of credit available and was using the margin lending ratio of 4 to 1 which had been mentioned by Martin.

783. As to the $200,000.00 facility and 30 day credit, there is also consistency throughout the period of the trading on the part of Liyakat Ali, Barba and the defendant supporting that view. I refer to the substantial trades that Liyakat Ali asked Martin to perform. I refer also to the substantial credit provided by the defendant initially, at times in excess of $300,000.00. I note that the weekly report for 20 March 1998 showed a balance owing on the trading account of $342,717.05. In fact the weekly reports up to and including April 1998 showed substantial credit being available and used, often exceeding $300,000.00 - Martin must have appeared to Liyakat Ali to be delivering on the credit promised. Martin, after a period of delay, changed the format to one that did not reveal the reduced credit facility or forced sales.

786. In Annexure A, I have set out in chronological order, the changes that occurred within Hartley Poynton to the credit facilities made available to brokers and, through brokers, to their clients - the gradual reduction of interest free settlement periods for accounts and, later, the $100,000.00 credit limit for Martin's clients. The account of events reveals that it was not until near the very end of the retainer that there was any suggestion made by Martin to Liyakat Ali or Barba that the credit limit available on the trading account had been reduced or that he could no longer give the extended terms of settlement which he had represented. Even then details were not given. Martin in fact had had numerous opportunities in which to do so. I refer to the meetings in January 1998, Martin's letter of 16 March 1998 and a conversation with Barba in March 1998. In that conversation, Barba had expressed concern about the stocks that were held in respect of which losses were being recorded and had complained that holding them limited the purchasing power of the account. Martin responded that the concern was an invalid one because at no time had the account been restricted in its capacity to purchase stock. Later when telling Liyakat Ali in April and May 1998 that he was being constrained so far as his own father's account was concerned, and needed funds, he made no mention then of the way credit limits also affected and would affect the trading in the Rahmat Ali account. If he had, the money would not have been lent.

789. I refer also to the opportunities Martin had in his letters in June and July of 1998 and his confirmation letters in which he explained his reasons for not carrying out various instructions. There were, of course, many opportunities in conversations with Barba and Liyakat Ali throughout the retainer in which he could have told them of the difficulties.

792. In August 1998 when difficulties emerged about the extended credit limits while Martin was on leave and Stefan Whiting was conducting the account, Liyakat Ali and Barba maintained that they could purchase $200,000.00 of stock and conveyed that view to Whiting. The issue appears to have been avoided and not resolved while Martin was away. On his return he then actively traded in such a way as would have given the impression to Liyakat Ali that there was ample credit available. In fact at the time the credit limits within Hartley Poynton were operating as a constraint. The constraints had also led to some forced selling over the period in April and in May and June and that fact was not conveyed at the time to Liyakat or Barba.

795. Martin practised a long and major deception on the client and did so because of the likelihood that the plaintiff would have terminated the retainer if he had known the true position, the credit arrangements being critical to achieving the agreed target return.

799. The events subsequent to November 1997, resulted in clarification of the terms of the discretionary aspect of the retainer.

802. Clearly at the outset, it was agreed that the defendant, through Martin, was to have a discretion to operate the accounts of the plaintiff. But the parties had not expressly addressed the question of responsibility for attempting to achieve the agreed target and control of trading decisions. This they did in the early months of trading.

805. Martin asserted control in early trading. In meetings, however, on 9 and 15 January 1998, Liyakat Ali, through and with Barba, attempted to assert control and, in particular, to change the quality of stock held and traded. Martin continued to assert control by indicating a willingness to change the stock in due course but only when the stocks held realised their true value. On 15 January 1998, he insisted that his approach was correct and should be followed. He insisted upon and accepted responsibility for the ultimate outcome and insisted that he not be judged until the period of the retainer was completed (by then twelve months). I am satisfied that the plaintiff, through Liyakat Ali, accepted this resolution of the issues. The defendant, through Martin, accepted that a residual power to give instructions or terminate the retainer remained but maintained that it could not be exercised during the retainer without relieving the defendant of the responsibility for the attempt to achieve the target and the responsibility for the outcome of the trading.

808. Counsel for the defendant submitted that a discretion in the above terms was not pleaded by the plaintiff. The plaintiff, it is said, had pleaded a different discretion and so, it is argued, has failed to establish his case. It is not argued, however, that there was any prejudice suffered by the defendant in meeting the above interpretation of the discretion.

811. The correct analysis, I suggest, is that the plaintiff has established that the defendant, through Martin, was given a trading discretion. He has established that it was subject to his instructions. As to those aspects, his pleaded case is established. The pleading also attempted (para 3(e)) to address what I see as the remaining issue - that while the defendant through Martin, was attempting to achieve the agreed target and accepted responsibility, Martin had an unfettered discretion. The pleading raised the issue of the connection of the discretion with the returns objective, albeit in an indirect way, but the issue was nonetheless pleaded. The situation is one where the evidence was led within the ambit of the pleadings and the dispute between the parties should be resolved on the basis of the facts found even though not precisely spelt out in the plaintiff's pleadings

814. The acceptance of these terms as to control and responsibility is borne out by the subsequent conduct of Liyakat Ali. He would from time to time give instructions to Martin which Martin would refuse to carry out. He would then ask Martin to confirm his refusal in writing giving reasons. In this way he sought to protect himself and hold Martin responsible for the outcome. The first recorded example occurred in February 1998.

817. Martin was obliged at the very least to do all that was necessary on his part towards achieving the target - and, if he failed to do so, the plaintiff was entitled to terminate the retainer or might recover damages or do both. The duties of care continued. But while the agreed retainer was on foot and the parties accepted that the defendant had responsibility for the outcome, Martin was in control and entitled to reject the client's instructions.

820. In March, April and the middle of the year, the parties' conduct confirmed that the defendant, through Martin, had discretionary control. The pattern was for Liyakat Ali and Barba to criticise, give instructions and record concerns but to allow the arrangement to continue. Termination was raised more than once but not carried out. Over time, Liyakat Ali and Barba came to adopt generally the expression "recommendations" instead of "instructions"; for that was what their requests were. They were requests which he was not obliged to follow so long as he was attempting to achieve the agreed target and had responsibility for the trading outcome**.**

823. In August, however, Martin was forced for internal reasons to formalise the reality of a discretionary account by having the plaintiff execute a discretionary account agreement. He sought to qualify it with a secret document. There was, however, no change in fact made to the agreement that had been reached on control and responsibility.

826. Counsel for the defendant submitted that the pattern of seeking confirmation of a refusal to follow instructions resulted in a situation where the plaintiff was authorising Martin to ignore instructions provided he acknowledged them in writing. I agree that it reflected an acceptance of a situation but what the plaintiff was accepting was that as long as the retainer was on foot and Martin, for the defendant, was attempting to achieve the agreed targets and responsible for the outcome, he was the person with the ultimate control to make the trading decision and, therefore, was entitled to reject the plaintiff's instructions. The plaintiff was acknowledging that authority when seeking the written acknowledgments, not granting it.

830. The subsequent events are also relevant to the question of the objectives of the plaintiff in trading and Martin's awareness of those objectives.

833. The major attempts by Liyakat Ali and Barba during the retainer to assert control were directed in large measure to reducing the speculative nature of the stocks held because of anxiety about risk. Their concerns were conveyed, for example, in the January memoranda and meetings, on 16 February 1998 when Liyakat Ali wanted Martin to sell out of speculative stock and in conversation by Barba from time to time. The response from Martin in March 1998, when he set out his new proposals, reveals that he was conscious of the risk issue and expressed an intention to switch substantially from speculative to blue chip stocks and wrote of short term and long term goals. In my view this confirms that he was aware, as he had always been, that minimising risk was a major objective and that Liyakat Ali remained anxious about it, despite Martin's reassurance, because the long term aim was to create a fund for his father's retirement. He had to acknowledge these aspects of the profile to mollify the client, keep the retainer and keep control. At the same time he was able to persist with his high risk trading because the new plan was deferred until the "current situation" was resolved. It should also be noted that on 18 March 1998, when Barba spoke with Martin, he said to Martin that he had to understand that the money was Liyakat Ali's father's money and there was concern about the speculative nature of the stocks. Subsequently, when Barba wrote to Martin a few days later on 23 March 1990, he referred to the client's profile and the expectation of the client for a certain result. I accept that the profile reference was to the retirement nest egg aspect and that Martin was well aware of that. He certainly referred in his letter to the issue as if Martin knew what he would be talking about. The expectation referred to the target return which Martin had sold to the plaintiff on a risk free basis. Martin did not query the statements.

836. Martin's actions in August 1998 in asking Liyakat Ali not to provide information, inter alia, about investment objectives in the Client Discretionary Account agreement also point to him being well aware of the low risk aspect of the profile (see Annexure A). I note also the fact that Martin played on the father and son relationship when he sought Liyakat Ali's assistance for his father and, at the end, when he sought his support. He saw the relationship that Liyakat Ali had with his father as an important psychological fact that he could use to his advantage.

839. The defendant relies on the fact that Liyakat Ali was constantly talking with Martin and wanting to trade as evidence to the contrary. The defendant also relies on Whiting's evidence to suggest that Liyakat Ali was in fact an aggressive "red blooded trader" and that that had always been his objective. Whiting was speaking of his impressions and did not have knowledge of the history and the view of the market that Martin had conveyed to Liyakat Ali or the role Martin had played in setting the objectives or the terms on which they were based. The plaintiff certainly wished to be trading but aggressive speculative trading was not the initial objective. He was dealing through a broker who controlled the account and was persisting in trading frequently in speculative stock. Accepting that, as he did, he made his own requests in the same area. In judging his conduct it must be remembered, also, that his view of the market and risk (e.g., warrants and short selling) was conditioned by Martin's exposition to him of it and Martin's approach to trading. Whiting was not aware of these matters.

842. I turn to the evidence relevant to the representation and terms concerning the Telstra aspect.

846. I propose to consider initially the evidence of the dealings between the parties prior to the Telstra shares coming on to the market on 17 November 1997. It sheds light on the plans of the plaintiff for the Telstra shares and Martin's instructions. The evidence is also relevant to the illegality issue referred to later in these reasons. Before doing so, however, I should refer to an issue raised by the defendant.

849. The defendant challenges the plaintiff's case that the Telstra shares were to be part of a long term margin lending plan on the basis that the claim as formulated was not raised in the original pleadings. Damages were originally claimed on the basis that if instructions had been followed, and Martin had not sold Telstra, the stock could have been sold prior to the second instalment at $4.80 and a loss of profit of $230,000.00 was claimed. But in the particulars in the original statement of claim (2017) there was a reference to an initial plan to margin lend blue chips using the total initial investment. Thus, while damages were calculated on the basis that the stock could have been sold prior to the second instalment, it is clearly stated that there was an initial plan to margin lend albeit against all the funds invested and in different terms.

852. In the subsequent pleading the Telstra issue has been handled very differently. The explanation may lie, as the defendant argues, in changing instructions from Liyakat Ali. I think the more likely explanation is that the original pleading was not accurate, and, with more time, a more detailed understanding of the evidence has been obtained. The first statement of claim had to be prepared in some haste and accurately ascertaining the facts, would have been an extremely difficult task, having regard to the factual and documentary detail available even then and the task of obtaining clear instructions from Liyakat Ali. The present statement of claim better reflects the evidence.

855. I turn to other matters raised and referred to in discussion of the evidence of the relevant events.

Telstra Aspect; Events prior to 17 November 1997

859. I base my findings primarily on the evidence of Barba and Rahmat Ali. It should be noted that counsel for the defendant was highly critical of Rahmat Ali's evidence relevant to the Telstra aspect. I refer to my earlier comments. At times there was some confusion between questioner and witness. The explanation lies, I suggest, in Rahmat Ali's lack of skill in English.

862. Rahmat Ali's evidence was specifically challenged on the basis that the relevant telephone discussions with his son were not recorded in the original witness statement and that the only Telstra document discovered was one application form.

865. As to the first point, it should be borne in mind that Rahmat Ali did not deal directly with his lawyers and that when he made his first witness statement, the question of the history and bona fides of the Telstra applications and transfers had not been raised. As to the matter of discovery, when discovery occurred, again there was no issue about the bona fides of the Telstra transactions. I note, also, that it was the defendant that obtained the original transfer documents and produced them to the court in the early stages of the trial.

868. In addition, the evidence of Rahmat Ali was challenged on the basis that he, having been in court, had heard all the evidence and that he had memorised what was contained in his second statement and had, in particular, admitted that he had memorised the names of the thirteen individuals named as applicants. True he was in court, but I did not conclude that he had memorised his evidence. Should it matter so far as his credit is concerned, I am of the view that he did not say that he had memorised the 13 names. The exchange in question occurred after he had been asked by counsel to tell him who the people were. He listed 11 names and then said there were two others that he had forgotten. What then occurred was as follows;

"Yes. You have memorised the names, haven't you Mr Ali? Sorry? I said you memorised the names haven't you?....Well, it is my family, sir".

In his answer he did not indicate whether he had memorised the names or not. In substance he was saying that he had a memory of the names because the people were his family. Counsel had in fact put him to a memory test, and then, having attempted it, challenged him on the basis that he had memorised the names.

873. Counsel has also referred to alleged errors in his evidence when he was, in my view, confused about questions concerning when he had last read his witness statement and when he had last read the witness statement prior to that.

876. In weighing up the evidence I have considered arguments put by the defendant in support of the illegality defence to justify the rejection of the evidence adduced for the plaintiff on the Telstra aspect. For reasons set out below relating to the illegality defence I explain why I do not accept those arguments.

879. I am satisfied that, by the second meeting in September 1997, Martin had promised a large allocation of Telstra shares. Martin had said that he would provide them whether the plaintiff retained the defendant or not, but there would always have been a lingering doubt about that and the generosity of the offer carried its own pressure to proceed. Barba maintained in his evidence that the sort of figures being mooted envisaged acquiring a further 400,000 Telstra shares by margin lending based on a four to one ratio. He said these figures were initially discussed at the meeting of the 15 September 1997, where the building up of a holding of 500,000 had been envisaged.

882. I am satisfied that by about the middle of October 1997, the amount of the allocation for Rahmat Ali out of Martin's allocation of 150,000 shares had been agreed at 100,000 shares. On about 14 October 1997, a meeting was held at Barba's offices involving Barba, and one of his employees, Stephen O'Halloran, and Liyakat Ali to discuss the prospects of the Telstra float and how the Telstra receipts might be used as security for what was described then as "gearing". I accept that "gearing" was a term used at times to include "margin lending". Barba was in and out of the meeting. O'Halloran was to find out the percentage of gearing available on the number of shares offered. He was not at the meeting long. There was discussion about holding Telstra long term and borrowing against it to buy blue chip shares and that Martin was only to trade using the $102,000 that would be given to him from the Direct Portfolio sale and the Great Southern Oil float. The plan was that the Telstra shares, and blue chip stocks, would be held separately. The blue chip stocks would be purchased after 500,000 Telstra shares had first been acquired. The expectation was that the Telstra receipts would appreciate as had occurred with the Commonwealth Bank float.

885. I note that Barba was initially uncertain in his oral evidence whether the amount of the allocation was known on 14 October 1997. Later he confirmed that they knew on 14 October 1997. He had noted in a relevant file note that Martin "was to get back to us on the amount of Telstra we could secure". I accept the final position taken by Mr Barba that this was not a reference to the number of Telstra shares that could be obtained initially but was a reference to the amount of money that could be obtained by the way of margin lending on the Telstra shares that were allocated to be used to purchase more Telstra shares. This explanation makes sense, accepting as I do that Martin had expressed interest in organising margin lending through the defendant and it was intended initially to use margin lending to increase the Telstra holding. I accept Barba's evidence that Martin said he could organise it within 24 hours. Thus, at that stage there was a long term investment plan envisaged using 100,000 Telstra shares.

888. Sometime after the middle of October, however, Martin informed Liyakat Ali that he could only initially allocate 8,000 shares not 100,000 but that he would keep his promise and provide 100,000 by arranging for 13 names to whom the Telstra shares would be allocated. Rahmat Ali would have to transfer $195,000 to Hartley Poynton to enable the applications to be made in those 13 names. I accept that Liyakat Ali discussed this proposal with his father and expressed concern about the shares being allocated to people they did not know for whom they would be paying $195,000. It was decided in that conversation that Rahmat Ali would talk to family and relatives to see if they would be willing to take up the shares. Rahmat Ali then spoke to family and relatives in Fiji to discuss the possibility of them acquiring shares in the float.

891. Late in October, Rahmat Ali again spoke with Liyakat Ali who told him that they had only one day left in which to make a decision about the Telstra float. Liyakat Ali told his father that Martin had assured him that if the family members could not pay then the Telstra shares could be transferred to him. Rahmat Ali said he would again speak to the family members and relatives. He then met with most of the thirteen who ultimately applied for the shares. He explained the situation to them. He told them he was going to pay for the Telstra shares for them and he needed their authority for Liyakat Ali to sign the necessary forms. He also told them that Liyakat Ali had told him that the shares could be transferred to him, Rahmat Ali, if they couldn't pay for them or did not want them. Otherwise they would have to pay about $16,000 within one week if they were to keep the shares. He told them he wanted the money so that he could buy Telstra shares. In cross-examination he said he understood that if they bought the shares, they would own them and not him. They authorised him to authorise Liyakat Ali to go ahead and sign the forms and acquire the shares for them and their family members. The following day Rahmat Ali spoke to Liyakat Ali and gave him the names of the family members and advised him that they had instructed him and authorised him to sign the forms.

894. On 28 October 1997 Barba was advised by the Commonwealth Bank that the funds would be ready to be transferred to the defendant's nominated account by Wednesday 29 October 1997 and on that day Barba spoke to Martin advising him of the availability of the funds and the application forms. A letter was also faxed to the defendant on the same day by Barba advising of the impending transfers of money. At or about the same time, Barba filled out the necessary share application forms, having been told by Liyakat Ali the names of the persons who were applying and of his authority to sign on their behalf. They were executed by Liyakat Ali, signing in the name of each applicant and delivered to the defendant on or about 29 October 1997, together with bank cheques for each application. On 31 October 1997, funds were also transferred to the defendant to finance the trading account. Thus, should it matter, the trading aspect of the retainer agreement was finalised at that time, but the Telstra aspect was not.

897. Barba had a further conversation with Martin on about 1 November 1997 about the purchase of Telstra in which Martin said that he would open a separate account to house the Telstra holdings. During this conversation, he explored with Martin the question of margin lending and the purchase of that stock before the float and how it would provide the foundation of a margin lending portfolio to enable stronger purchasing power. Martin advised him that, with a value of say $3.00 per Telstra share, the plaintiff could gear up to $1.2m of blue chip shares, Martin agreed that that strategy was the way to go.

900. About a week after Rahmat Ali last spoke to the members of the extended family (approximately 5 November 1997), he spoke with them again and enquired whether they wished to keep the shares and give him the money or whether they wanted to transfer them into his name. They all adopted the latter course, some saying that they had problems raising $16,000.00 They orally authorised Rahmat Ali to authorise Liyakat Ali to sign the transfers in their names to transfer the Telstra shares to Rahmat Ali. He spoke to Liyakat Ali and told him of these developments.

903. On about 5 November 1997, (CB 351) Barba spoke to Martin seeking information about stamp duty payable depending on whether the Telstra shares were transferred before they came on the market or afterwards, and also about the loss of the discount benefit for the second instalment payment - noted as "5c/", if the shares were transferred. In that conversation they also discussed the question of the timing of the margin lending. Martin said there was no need to apply at that time because one can only apply for margin lending once stock has commenced trading and that Martin had said that in any event there was enough time for him to put the margin lending in place - about ten to fifteen days. On the same day Martin faxed the stamp duty and loss of discount information to Barba.

906. On 14 November 1997 a second client application form was signed to open the Rahmat Ali Number 2 account. It had been forwarded, by the defendant, to Barba for signing by the client. (CB 415 -417). The defendant had caused to be typed into the application document a description of the account "Mr Rahmat Ali 461 Ballarat Road Sunshine Vic 3020" and gave the account a number (1525675). This was again signed by Liyakat Ali in the name of Rahmat Ali.

909. The defendant has sought to make much of the fact that if the Telstra shares were to be used for margin lending purposes, there would be no place for an account with the defendant for the Telstra shares because they would be held by the margin lender and it would maintain the account. In my view, this argument assumes a very narrow view of the plan. The plan encompassed purchasing further Telstra shares and other blue chip stocks for long term investment as the value of Telstra increased. In those circumstances, it would make sense to open a separate account. Taking a long term view, there would be some buying and some selling of shares for which there would be a place for an account additional to the trading account. Accepting, as I do, that the plan at that time was to have a trading portfolio and a blue chip investment portfolio, it would make sense to have separate accounts for those purposes. I am satisfied that that was the fundamental reason behind the opening of two accounts.

912. I accept Barba's evidence that also on 14 November 1997, Liyakat Ali executed the transfer forms signing for each of the parties to each transfer. He has a clear recollection that this occurred at his office and that he and Ali painstakingly completed transfer forms matching them against the application forms. A former employee, Stephen O'Halloran, currently a colleague of Martin, swore a witness statement in which he asserted that he took the transfer forms to Liyakat Ali's premises and waited while they were signed by Liyakat Ali. I am satisfied that he is mistaken. He conceded that that was possible. The more likely explanation is that it was in respect of Direct Portfolio documents that he visited Liyakat Ali; for at the time he, O'Halloran, was involved with the Rahmat Ali Direct Portfolio Investments and documents were required at different times for that. I also accept Liyakat Ali's evidence that both the application and transfer forms were signed by Liyakat Ali in Barba's presence. I accept that Barba prepared the majority of the documents. He queried, however, whether the pencilled date appearing on one of the transfers of "17/11" was in his writing. He thought it looked similar to the HIN numbers included and commented that if he had filled the document out in pen he could not suggest why he would have inserted the date in pencil.

915. I note also that on about 17 November 1997, Barba received an ASX Warrant Agreement. It was executed for the plaintiff by Liyakat Ali after representations by Martin about the safety and benefits of warrant trading. I refer to this evidence below in dealing with the issue of alleged negligent advice.

918. I also accept Rahmat Ali's evidence that if it had not been possible to acquire the Telstra shares in the float it was his intention to acquire them in the open market for the purpose of long term investment.

922. Support for the plaintiff's case that the Telstra holding was intended to be a separate investment is supported by other evidence that emerged during the trial.

926. On day 25 of the hearing the defendant produced a copy of the Rahmat Ali No.2 account statement of account. It had not been produced in the discovery process. Its absence had left the impression that the No.2 account was not activated and that everything from 18 November 1997 onwards relating to the Telstra proceeds and their use was in fact recorded in the No.1 account and nowhere else. The statement for the No.2 account, however, revealed that on 18 November 1997, the Telstra proceeds of sale were entered in the No. 2 Account. Thus as at 18 November 1997, Martin and the defendant considered it appropriate that the Telstra sale proceeds should be treated differently and recorded in the No.2 account not the No.1 account. The statement also revealed that the transactions originally recorded on that account had been later transferred to the trading account.

929. The defendant relied on the evidence of Martin that an explanation for opening the number two account was not the recognition of any long term investment plan but rather to record the sale of the receipts, there being a deferred settlement system proposed for initial sales on the market.

932. The subsequent history shows that there was delay in obtaining the necessary numbers for insertion in the thirteen transfers. They were received on 5 December 1997. The contract notes reflecting the sale of the Telstra shares recorded settlement occurring on 10 December 1997. Defence counsel submitted that if the proceeds of sale had been recorded on the day of sale in the "number one" account (the trading account), they would immediately have been treated as a large credit which would have been used straight away as against any debits to the accounts, whereas if it was put into the Number 2 account, it would have been quarantined - it would not be expected to be used immediately.

935. There is a problem with this argument. The proceeds in the Number 2 account were in fact used by Martin on 24 November 1997 and succeeding days, within six days of the sale, to purchase a number of speculative stocks commencing with Innovax (90,000). Thus - they were used well before settlement could occur. At the same time, the first entry in the Number 2 account was the Telstra sale - showing that in Martin's mind the account was separate and connected with the Telstra plans.

939. Karlson gave evidence that, in the course of his manager's duties in the Melbourne office, he noticed that Rahmat Ali was trading on two accounts in the name of Rahmat Ali and he sought an explanation from Martin. Karlson said he could not recall the details of the explanation but it was unsatisfactory and that he, therefore, directed Martin to close the account. Martin caused the transactions to be moved to the No.1 account but did not close the No.2 account. He, in fact, attempted to use it later in 1998.

942. It is significant that Martin was unable to give a satisfactory explanation to Karlson for the No.2 account. If he had given what, in my view, would have been the correct explanation - that it was for long term blue chip investment - issues would have arisen immediately with Karlson as to why he was purchasing shares like Innovax and Rio call warrants, not to mention Southern Group Options, in an account intended to be used to develop a blue chip portfolio. Martin was not in a position where he could justify a second trading account without revealing that he had breached client instructions.

946. Another piece of evidence relevant to the plaintiff's plan to hold the Telstra shares is that stamp duty was paid on these transfers and paid at the higher rate payable for the transfer of shares to Rahmat Ali prior to the date on which they came on to the market. This confirms that the transfers were executed prior to that date, again consistent with the long term investment plan; for there would have been no need for the off market transfers if the intention was to take the profit on the shares and stamp duty would have been saved. Martin accepted that the thirteen holdings could have been sold through the Rahmat Ali account - as a one off, as long as all agreed, gave instructions and authorised payments.

949. These matters support the plaintiff's case that the No.2 account was intended to be used for the development of an investment portfolio based on the Telstra allocation. So too does Martin's approach to the selling of the shares, a matter to which I will refer below in dealing with the question of liability for the sale of the Telstra Shares.

953. I am satisfied that the Telstra plan was an agreed separate and specific aspect of the retainer. 100,000 shares would be held by the plaintiff and used with margin lending to build up the holding to 500,000 Telstra shares and then to add blue chip shares. I am also satisfied that Martin represented prior to the acquisition of the Telstra shares that the Telstra shares would be held by the defendant as a long term investment for the plaintiff.

956. Martin had clear instructions not to sell the Telstra shares. He was obliged to implement those instructions. He knew that the client intended to use the Telstra float as the basis for setting up an investment portfolio. A second account was opened for that purpose. Even though, in any initial margin lending stage there might not have been a great deal of use of such an account, once shares were purchased and buying was done to build up the portfolio there would have been a place for the recording of transactions in that account.

961. In the present case, the defendant was not engaged simply to execute the plaintiff's orders. The defendant was engaged to advise and to conduct trading on behalf of the plaintiff in its discretion. Money was entrusted to the defendant for the purposes of investment and trading. The plaintiff relied on the defendant. The relationship between the defendant and the plaintiff was fiduciary in nature. It has been held that such a relationship between stockbroker and client demands "high standards of integrity". The stockbroker acts "not for himself but for his client". It has been said that clients are "entitled to expect from a broker not only competence, but also integrity and absence of conflicting personal interests. His position is one of trust and responsibility. (Bonds and Securities (Trading) Pty Ltd v Glomex Mines N.L. and Ors [1971] 1 NSWLR 879 at 891; Meddick and Meddick v Cutten and Harvey (1984) 36 SASR)".

"by the recognition and pursuit of the high traditions of their occupation, brokers have aspired to the status of an honourable profession. The price they must pay for this status is that they forswear all compromise of their integrity, and that they repudiate the creation of personal interests which could bring them into conflict with their duty to their clients". (per Street J. in Bonds and Securities (Trading) Pty Ltd (above)).

966. Where a stockbroker holds himself out as having an expertise in advising on investments and is approached for advice on investments and undertakes to give it, in circumstances where the stockbroker has a financial interest, a stockbroker's duty is:

"to furnish the client with all the relevant knowledge, which the adviser possesses, concealing nothing that might reasonably be regarded as relevant to the making of an investment decision including the identity of the buyer or seller of the investment when that identity is relevant, to give the best advice which the adviser could give if he did not have but a third part did have a financial interest in the investment to be offered, to reveal fully the advisers financial interest, and to obtain for the client the best terms which the client would obtain from a third party if the adviser were to exercise due diligence on behalf of his client in such a transaction".

(See Daly v The Sydney Stock Exchange Limited [1986] HCA 25; (1986) 160 CLR 371, 385 per Brennan, J.); The above propositions are, as I understand it, common ground.

973. In addition, and of more immediate relevance, the defendant accepts there was an implied term of the retainer that the stockbroker would, in performing its obligations under the retainer, exercise such reasonable care, skill and diligence as might be expected of a reasonably competent stock broker. Plainly also stock brokers who provide professional services to clients owe a common law duty of care to their clients in respect of those services. (Presser v Caldwell Estates Pty Ltd [1971] 2 NSW LR 471 (CA) Mason J.A. at 491).

976. The duty to exercise reasonable care and the contractual obligation to exercise reasonable care apply to each of the professional activities undertaken for the client and extend to advice and recommendations for buying and selling stock on the share market and any decisions by the broker himself to buy and sell stock on the share market for the client in the exercise of his discretion.

979. In addition, I am satisfied that in making the representations, through Martin, which I have identified, the defendant owed a duty of care to the plaintiff in accordance with the Hedley Byrne principle (Hedley Byrne and Co. Ltd. v Heller and Partners Ltd. [1963] UKHL 4; [1964] A.C. 465), In particular, it knew or ought to have known that the plaintiff would rely upon the skill of Martin and the exercise of care by him in what he said.

983. The allegations in respect of Martin's conduct fall into two broad categories;

(1) Representations

(a) the "general representations" made to Liyakat Ali and Barba at the two initial meetings which are alleged to have been made negligently.

(b) the "general representations", the "Telstra representations" and representations made during and by means of the demonstration and the "continuing" representations in March 1998 as to returns that would be achieved, which together are said to have been false and misleading.

(2) Acts and Omissions

Acts and omissions in the course of the retainer in breach of contractual and common law duties of the defendant in;

(a) advising Liyakat Ali,

(b) trading, and

(c) selling the Telstra shares.

989. Many matters have been referred to in the course of submissions and it is necessary to address the issues by reference to the way in which the case was pleaded.

Negligent Representations prior to the retainer

994. The plaintiff has pleaded that a number of representations were made prior to the demonstration and the retainer. I have already referred to the pleadings but, for convenience, repeat the following.

997. First, it is alleged that Martin represented that the defendant would invest approximately $100,000 of the plaintiff's funds and/or advise as to its investment so that the plaintiff

(a) would derive average profits in the order of 15% to 20% compounding per week during the operation of the account;

(b) would not suffer any loss in excess of 5% of the value of any initial investment in a particular share and/or financial derivative;

1003. It is also alleged that the defendant, through Martin, represented that trading in shares with the defendant on the advice of the defendant was

"not risky and that the plaintiff would not be exposed to losses in excess of the stop loss limit." (see para 10).

1007. These representations are alleged to have been made at the initial meetings and are described in the statement of claim as the "general representation". Other representations are pleaded relating to instructions and discretion in terms similar to the contractual terms pleaded and I refer to my earlier findings as to those matters.

1010. It is further pleaded that the "general representations" were made negligently in that

* the defendant knew or ought to have known that they were not true or alternatively might not be true;

* they were made without any proper or adequate investigation of the subject matter;

* the defendant knew or ought to have known that the generation of profits and/or the ability to avoid losses in relation to the buying or selling of shares depended substantially on matters beyond the control of the defendant and it was not possible to make any accurate prediction as to the making of profits or avoiding losses in relation to the buying or selling of shares;

* the defendant knew that it was not capable of honouring the representations.

The plaintiff further alleged that, if the representations had not been made, his agent would not, on behalf of the plaintiff, have entered into the retainer or paid the sums of money paid to the defendant.

1018. The defendant denies each of the allegations.

1022. As noted above, I am satisfied that during the early meetings Martin represented that a weekly return of 15% to 20% compounding was achievable. This was his view then and was, remarkably, his view during the trial. He quibbled in his evidence over the choice of "possible" or "achievable" but essentially maintained that view. This is subject to the qualification that he was referring to a return achieved on a cash outlay from the client and interest free credit from the broker with the percentage return related to the original cash provided by the client.

1025. As to the aspect of risk, I am satisfied that at those meetings, he made statements about the level of risk. He denies doing so and denies mentioning stop loss but I do not accept that evidence. The substance of what he said, I am satisfied, was that risk was a matter of no concern. He supported his statements by referring to his access to privileged information, his being the best, his fast footwork and his ability to minimise the risk with stop loss and averaging strategies. As is pleaded, he represented in substance that what he was proposing was not risky. I am not persuaded, however, that there was a firm commitment made in any representation to apply stop loss in all trading or that a single specific stop loss figure to be applied in all cases was specified of 5% or 10%. Rather, it was referred to as a technique that was available and which he would use and a range represented of 5% to 10%.

1029. The issue of representations made at the early meetings may be dealt with briefly.

1032. As to the represented achievable returns, the parties' experts and witnesses agreed that it was absurd to say that he could achieve them over six to eight or twelve months.

1035. As to risk, trading even blue chips holds a real risk of loss of portions of capital over time. I accept the evidence of the plaintiff's expert Jasch that in his view every professional in the industry knows that loss of substantial portions of capital is a very real risk and to claim no risk in trading shares. I also accept that trading on credit, as was intended, increased the risks for the client. The one factor that could remove risk was what Martin called privileged information. But for such information to remove risk it must be accurate and reliable and it must provide the foundation for each trade - unlikely events. It is reasonable to infer that the sort of information that Martin in fact relied upon was the kind of information that he had in mind when he spoke of his privileged information. It was a mixture of information from contacts in companies and broker firms, analysis by Hartley Poynton based on historical information, technical information and information as to intention supplied by the companies in question, market rumour and hearsay. Such information does not remove the risks inherent in share trading.

1038. I accept the evidence of the plaintiff's expert Jasch that borrowed money should never be used to trade derivatives and speculative shares. He said they are purely for risk capital. Martin, however, pressed the credit on Liyakat Ali initially (and throughout the trading used it) without any discussion of the dangers of doing so and with no knowledge of his or his father's financial position, save that he knew that $195,000 of the client's capital was also borrowed. I accept that Martin was contemplating such use of credit when he made the representations.

1041. There can be no doubt that, for the above reasons, in making the representation that he did as to possible returns, Martin was reckless. The no risk representation was also reckless in itself. All brokers would, or should, know the equation between risk and return. Martin must have known it. His conduct was extraordinarily negligent. To combine those representations compounded the recklessness. His evidence shed some light on how he was able in his own mind to combine them.

1044. Martin conceded under pressure that it was a fundamental principle to avoid exposing a client to unacceptable risk - a principle by which he claimed to live! A little later he gave a revealing response. Asked if he agreed that a professional broker should not gamble with his client's money, he agreed. He was then asked whether to forsake fundamental risk management principles would be akin to gambling, he said it would not. Asked why, he said

"Because when you enter a transaction, you're not gambling on the transaction. You are entering the transactions based on what you believe are the fundamentals and technicals of entering the stock. You do not enter the stock on the basis of red or black"

It may well be that that sort of thinking enabled Martin to represent throughout to Liyakat Ali and Barba the lack of risk in pursuing incredible returns.

1051. The plaintiff has also put his claim in an alternative under s.52 Trade Practices Act 1974 (Cth) and s.11 Fair Trading Act 1985. Several categories of misleading and deceptive conduct are raised:

(a) Pre-retainer representations. He relies on the "general representations" already referred to which were also alleged to be negligently made. In particular, they related to returns and lack of risk. (para 10). I refer to my analysis above.

He also pleads that in or about 15 September, 14 October and late October 1997 the defendant represented that it would acquire 100,000 Telstra shares on behalf of the plaintiff and would retain such shares as a long term investment in accordance with the instructions of the plaintiff (the "Telstra representations").

It is pleaded that relying upon the general representations and the Telstra representations, the plaintiff entered into the retainer with the defendant and paid the sums referred to above (para 12). It is further pleaded that each of the representations above mentioned were false and untrue and, in so far as the general representations involve future matters, the defendant did not have reasonable grounds for making them (para 20).

(b) Demonstration. The plaintiff also relies upon representations allegedly made during and as a result of the demonstration in September and October of 1997. It is pleaded that the defendant through Martin represented that he could generate average profits of 15% - 20% compounding per week by share trading and represented that to prove that he would invest a sum of $20,000.00 on behalf of the plaintiff in share trading for a period of a fortnight and demonstrate his ability to achieve a minimum profit of 15% to 20% per week with ease, and return to the plaintiff's agent after a fortnight producing evidence that he had generated 32.08% compounded over a two week period.

It is pleaded that induced by the demonstration, the general representation and the Telstra representation, the plaintiff entered into the retainer and paid the sums above mentioned. The plaintiff alleges that the demonstration, in particular, was false and misleading in that there was no basis upon which the defendant could predict that it could consistently replicate the results of the demonstration, a proposition that was falsely and imprudently suggested by the demonstration.

(c). March representations. The plaintiff further pleads that in or about March 1998 further representations were made by the defendant that it could invest the plaintiff's funds and derive average profits in the order of 25% to 30% compounding per month during the operation of the account, would achieve weekly average minimum returns of $10,000.00 to $15,000.00 and produce returns of up to $25,000.00 per week and implement strategies which would help to achieve returns in the order of 25% to 30% on a regular basis.

These "continuing representations", it is said, were relied upon by the plaintiff and induced the plaintiff to continue to retain the defendant. It is pleaded that they were false and untrue.

1061. In light of the conclusions I have reached above about the general representations concerning returns and risk, made by Martin, it is unnecessary for me to explore them in any detail in the present context. They were false and misleading. As to the Telstra representation, it was a factor, but it has not been demonstrated that it was false when made. Rather, the defendant failed to honour it subsequently. For reasons given in relation to the general representations, the demonstration and March representations as to returns were false and misleading. There were no reasonable grounds for making them. I am satisfied, therefore, that the defendant, through Martin, engaged in deceptive and misleading conduct in those instances. The plaintiff relied upon the representations, respectively, to enter the retainer and to continue the retainer.

1066. The plaintiff alleges that the defendant was under an obligation to advise the plaintiff or his agent (para 3 (h))

"of the nature of financial derivatives and of the high degree of risk attached to them prior to undertaking any investments in financial derivatives on behalf of the plaintiff".

1071. As noted above, the pleadings also allege a contractual and tortious duty to exercise reasonable care, skill and due diligence but do not develop further detail in relation to the giving of advice. The defendant denied such an obligation and denied, in particular, that a term to that effect should be implied by law. It was prepared to concede, however, that at most one might imply a term that, in providing investment advice when requested, the defendant would exercise such reasonable care and skill and due diligence as might ordinarily be expected of a reasonably competent investment adviser providing such advice. I will address the specific defences later in these reasons. They comprise the "waiver" and the contributory negligence defences.

1075. The issues relevant to giving advice that have emerged, appear to be the following:

(a) failing to alert a novice investor to the risks associated with

* trading on the stock market

* trading on speculative shares and on options and warrants

* trading on credit

* trading in company options

(b) in undertaking short sale transactions without

* explaining the risks associated with the short selling

* advising the client of margin calls and breaches of ASX business rules in regards to shorting

Evidence

1081. It is clear that no advice was given on any of the above issues. Martin `s style was to play down risk and ignore procedures. He had a reckless attitude to risk.

1084. As to the risks of warrant trading and short selling he took an extreme position.

(a) Warrants

In about the middle of November 1997, a very short time prior to the Telstra float, Martin forwarded an ASX warrant agreement to Barba for signature by the client. He was concerned, he told Barba, to be in a position to take advantage of the Telstra float. He thought there would be big opportunities in warrant trading. He said that warrants were the best way to go. Martin told him that warrants were very cost affective because there was no stamp duty and they were very liquid. He told him that the percentage returns were very high and that they created fantastic opportunities and would bring excellent results. He said that trading call and put warrants was a sure way of making money, in particular when large quantities of warrants were traded. This conversation occurred with only 1 ½ hours to run before the Telstra shares came on the market and Barba complained about the rush. The warrant trading agreement was executed. I am satisfied that Martin expressed similar sentiments to Liyakat Ali about warrants and options on about 12 January 1998. When asked about safety he said they were "safe as blue chips, only better".

It is to be noted that Barba asked him to forward the explanatory booklet and Martin undertook that he would do that, later saying it could not be faxed (CB 431). I am satisfied that it was not sent.

Barba in his evidence elaborated that Martin had said that they were better than shares because of their liquidity and the leverage you can generate out of a warrant. Martin also said you can go to a warrant maker at any time and purchase your warrants directly, that you don't have to go to the market. Barba said that he knew that they were derivatives of stock and so they moved in line with the stock. Martin told him that they "are as good as gold". I am satisfied that Martin again created the impression that trading was not risky - this time in warrants. He also managed for some time to appear to back that up with apparently good results.

(b) Short Selling

A similar attitude was revealed in relation to short selling. Martin had explained to Barba that a short was the opposite of a buy - that you would sell the stock and then cover it with a lower price which meant that you would buy it back and that that was where you made your profit. He said that Martin said that it was basically trading on the stock moving downwards. You would sell and then buy it back on the market. He said it wasn't necessary to have any funds to participate in the short sale. He said all you needed to do was have twenty percent security value in the form of stock in the account to ensure that you can cover the short sale. He said there was no time limit whatsoever.

This sort of conversation bears a striking resemblance to that which, according to Liyakat Ali, occurred between him and Martin - although it went further and expressly dealt with risk.

He said that Martin explained to him the way short selling worked was that if they were at their peak price or above it you would sell the stock and then when it went down to a certain price you would buy it back and whatever was the difference was the profit. Martin had said to him that that was why the stock market was so safe. He said to Liyakat Ali that you make money when the stock is going up and you make money when the stock is going down. Martin assured him that losing money would not occur with the stock going up because of the reasons he would have for shorting the stock. He said that Martin assured him there was nothing to lose to the point that he was ready to sell his own properties to invest money in it, that that was how convinced he was.

Liyakat Ali said he did not realise then that if you short sold stock that you could make a loss. He denied that he was joking when he said that. He said that he asked Martin why someone would give you the stock for nothing and you sell it and he gets nothing. Martin told him that he didn't understand and he shouldn't worry about it, that the stock market was safe and that what you do is sell it at the highest price and then you buy it back. He also told Liyakat Ali there was no time limit at which it had to be bought back so he didn't have to fear it had to be bought back within a month or two. He could be out for two to three years, and there was nothing outlaid. He said that you have sold it and the money would be put aside and you cannot lose.

1090. Martin's statements about warrant trading and short selling seem remarkable and it seems remarkable that they were accepted. But I am satisfied that they were made and continued to affect the thinking of Liyakat Ali and Barba. As to Barba, I note, in particular, that in his notes of conversations with Martin in August, October and November 1998, reviewing securities, Barba on occasions referred to particular warrants as "blue chip" (see Annexure A) and warrants were discussed as if they were shares. I note also that the trading in call warrants and put warrants and short selling over the period of the retainer was relatively speaking successful compared with the trading in stocks. The ultimate loss on call warrants was $18,638.13 of which approximately $84,000.00 was generated in the final sell down in late November 1998 and the ultimate loss on put warrants was $74,395.61 of which almost all was generated from trading in All Ordinaries Index put warrants, a loss of $32,540.00 being incurred in the sell down in late November 1998. The loss from share trading was $189,915.33 and that from short selling $25,515.00 which included, of course, the loss of about $100,000.00 on Newscorp.

1093. It is reasonable to assume that Liyakat Ali has, in his evidence, to a degree, exaggerated what it was that Martin said. Nonetheless, I am satisfied that Martin did have a view of the market, and for that matter still does, that it is not nearly as dangerous a place as reasonably informed people realise. In his own evidence Martin gave indications that he is still of that view. For example, while accepting that there was a risk and reward ratio, he attempted to play down the risks associated with warrants. He would not accept that usually the chances of making a loss on a warrant increased as the expiry date approached. He also played down the risk of not being able to sell warrants at a reasonable price.

1097. The defendant could not discharge the obligation to exercise reasonable care without taking reasonable steps to ensure that the client was aware of or informed of relevant risks before using credit or embarking on any particular form of trading but especially trading in derivatives and trading by short selling. This conclusion is supported by the evidence, if that support be needed.

1100. Martin did not simply fail to inform Liyakat Ali of such risks in relation to trading in warrants and short selling. He recklessly dismissed or ignored the risks involved.

1105. In paragraph 5 of the Statement of Claim, the plaintiff alleges generally that the defendant failed to exercise all reasonable care, skill and due diligence. He also alleges that the defendant

"bought and/or sold shares and/or financial derivatives without having a reasonable and adequate basis for taking an investment action". (para 5(a) (ii)).

1109. The following particulars have been given ( Particulars - para (vii)ff):

* failing to maximise average profit by cutting winning trades or existing winning trades too early

* failing to have a consistent or rational exit method

* failing to control risk through appropriately sizing trades

* trading in amounts of risky stock which were too large for the size of the account

* failing to trade stocks in appropriate proportions to the account

* failing to trade consistently in similar sizes in similar vehicles

* failing to balance risk with consistent trade size

* failing to balance the portfolio between blue chip stocks and stocks with higher risk

* trading in high risk low probability of success stocks

* failing to use a consistent methodology or any logical approach

* failing to exercise or have a reasonable basis for trading

1130. There are also some specific acts of negligence pleaded. In relation to the loan to Martin's father, it is alleged that the negligence included advising the plaintiff's agent and organising the plaintiff's agent to lend $36,339.55 to Mr Martin senior and failing to have the loan repaid. In addition, the pleadings refer to negligent rotating of stock and cross trading:

* rotating shares of Petroz to the plaintiff's account from a Martin account causing loss in relation thereto

* rotating ANZ call warrants; ANZ WMB about 5 November 1998, ANZ WBC early November 1998 and All Ordinaries put warrants about 15 April 1998

* buying or allocating stocks at or about the highest price of the day by crossing the same.

1136. These matters have not been used to support any particular claim for damages. I treat them simply as being put forward as examples of unjustifiable and negligent actions that contribute to the loss of capital.

1139. The plaintiff also has raised an issue that was not specifically pleaded - that Martin was negligent in his conduct in opening various accounts. I have referred to the matters in other parts of these reasons as matters of evidence. On the evidence, the allegation is made out but I do not propose to consider them as acts on which the negligence claims are based. It seems to me that these failures might have had an impact upon the plaintiff's conduct. But, however well informed Liyakat Ali would have become if Martin had opened accounts in the prescribed manner, Martin could and would still have maintained his position on returns and risk and relied on his claimed privileged information. His persuasiveness would have prevailed. More importantly, the negligent conduct in opening accounts denied to Martin's superiors the opportunity to monitor his activities (e.g., the striking out of the profile parts of the discretionary agreement). As to this issue I will say more later.

1142. The defendant denies the allegations. It also raises specific defences which I will address separately. They comprise the "waiver" and contributory negligence defences.

1146. It was put in argument that it was negligent on the part of Martin, whether the account was discretionary or not, to embark upon the program that he did without any knowledge or information about the financial position of Rahmat Ali or Liyakat Ali (or MA Khan). Without that information, he had no reasonable basis for making recommendations for trading or making decisions as to trading. It is said that such information was critical to the assessment of what risks might be undertaken. This allegation may be said to be covered by both the broad pleading and the specific pleading.

1149. Counsel for the defendant submitted that it was Liyakat Ali who chose not to fill in the forms and supply the information and that, therefore, Martin and the defendant cannot be blamed. But Martin had an obligation to exercise reasonable care by taking reasonable steps to have all necessary information before embarking on a trading or investment program. While Martin had some information about the financial position of the plaintiff, he did not have adequate information and accordingly breached his duty of care in trading in stocks without such information which was essential in advising about the risks that could properly be undertaken and the extent of any portfolio. It is further evidence of his reckless approach to trading on the stock exchange.

1152. At best for the defendant, the plaintiff's failure to supply information raises an issue of contributory negligence. Martin, however, would not have acted differently if he had known a complete financial picture. After all, he knew the objectives which were a low risk approach to building up funds for retirement. He also knew that the $195,000.00 for the Telstra shares had been borrowed.

1155. Thus, the non-supply by the plaintiff of the information would not have had any direct causal connection with the losses resulting from Martin's recklessness. The absence of the information is relevant, however, to supervision by "Martin's superiors" - an issue to which I will return.

1159. The issue of negligent trading must be considered in the context of terms of the retainer. I have concluded that the retainer was one in which there was an initial agreed target return of 15% to 20% per week compounding but also an agreed objective to provide funds for the plaintiff in his retirement. In pursuit of those objectives, minimising risk was a major objective. The initial negligence of Martin lay in bringing about the entry into such a retainer and the way he did so. That having been done, he remained obliged to exercise reasonable care. To that end, he was obliged to take reasonable care to minimise the down side risks and maximise the upside opportunities.

1162. Turning to the trading itself, the plaintiff pointed to strategies that it says a broker, exercising reasonable care, should have used in trading. The defendant argued that the correct approach in assessing whether there was negligence in trading is to look at each trade and ask whether it was a reasonable trade. Its counsel also submitted that in determining that question it is necessary to refer to the material that was relied upon by Martin. Martin gave evidence of that and it was put that it was not challenged. Counsel submitted further that the issue should be considered assuming that the situation was one where the client gave instructions and wanted maximum returns from the trading.

Trading negligently - overview of the evidence

1166. The plaintiff relies upon the evidence of Jasch. The defence seeks to meet that evidence with the evidence of Martin himself and the evidence of a Mr Chappel.

1169. The evidence of these witnesses tended to pass like ships in the night. Jasch assumed a discretionary account. Chappel assumed an account where the client gave instructions for trades and certified the account. Jasch looked at the pattern of trading to discern whether there were any patterns inconsistent with reasonably prudent trading measures which, in his view, a trader should adopt to minimise the risk of loss and maximise the chance of profit. He did not attempt to explore the reasons for each of the trades. Chappel on the other hand appears to have been asked only to consider individual trades on the basis that he accepted the reasons advanced by Martin for the various trades. Neither Chappel or Martin satisfactorily addressed in their witness statements the principles advanced by Jasch as principles that should guide a reasonably prudent trader trading with the information to which Martin referred.

1172. In cross-examination, Martin initially denied that successful trading depended on managing and controlling risk. Put that a prudent trader manages and controls risk to the best of his ability, he initially disagreed. A little later, however, he agreed that, in essence, a professional trader is supposed to properly manage risks consistent with the client's objectives and financial position of the client. Put that the daily challenge facing a professional trader is to manage risk when trading, he said it was one of the factors. He said that the daily challenge was to make money. He then agreed that you try to make money by applying proper risk management strategies in the pursuit of profit.

Qualification of Experts - criticism of Jasch

1176. No challenge was made to the expertise of Chappel. Jasch, on the other hand, was said by the defendant to be inadequately qualified. It was put that he had never been employed as a trader for a stock broking house and it was suggested that his experience was limited to writing some teaching manuals on trading and that at present he was employed to manage funds totalling no more than $2 million, only $350,000 of which was available for trading.

1179. It would appear, however, that he has been involved for some time in designing and analysing trading strategies and has been involved in training people in trading on the share market. It also appears that, for some twelve years, he has had experience in trading shares, options, warrants and futures. He holds a Bachelor of Science degree in applied mathematics and a Bachelor Degree in Psychology (both from the University of Queensland), and a Post Graduate Diploma in applied finance and investment. In his present employment, he manages a fund for an off shore merchant bank which requires him to make trading decisions and investment decisions. He is sufficiently qualified.

1182. Of course, if the defendant is right, there should be people available to give evidence who are better experienced and qualified. The defendant, however, has not presented evidence that directly addresses the strategies advanced by Jasch about reasonably prudent ways to minimise the risk of loss and maximise the chances of profits.

1186. The question is whether the principles stated by Jasch to be used in trading are valid and should be applied by a trader in exercising reasonable care. Before turning to those propositions, however, I note that the fact that Jasch did not look into the detail of the trades and consider information available to Martin affects the extent to which the plaintiff is able to demonstrate that the failure to follow the principles enunciated by Jasch may be said to have been a cause of any of the loss suffered. I will return to that issue in due course.

1190. In essence, Jasch's position was that in considering trades that last for at least a day and longer, certain principles should be applied to avoid the possibility of large losses and to maximise the probability of making a profit.

1193. He, like Chappel, commented on the risks involved in share trading and trading in other stocks. He drew a distinction between gamblers and speculators. Gamblers risk money in the hope of making a profit on the basis of luck knowing that the laws of probabilities are against them. Speculators risk money in the hope of making a profit on the basis that under the laws of probability there is an expectation that a profit will result in the long run. He put it that what a person needs to do in trading on the stock market is to trade in such a way as to maximise the probability of taking a profit and accept that the result of a trade is a probability outcome. This means that any single trade holds the possibility of being wrong. One should therefore trade in such a way as to

(a) maximise the average profit

(b) minimise the average loss

His view is that if you do not act according to these basic principles then you may be construed as gambling or relying on luck for success.

1199. In the present case, the defendant argues that while Martin did not apply the strategies referred to by Jasch, he relied upon information available which in his view justified his actions. I am satisfied, however, that the principles advanced by Jasch are principles that have application in the situation where the person trading has the sort of information that Martin claims was available to him.

1202. Jasch advanced the following principles to be applied to minimise the average loss.

(a) Holding period. Never hold a losing trade for a long period. To do so carries with it the cost of lost trading opportunities which could produce a profit;

(b) Stop loss. Never allow the price to move too far in an adverse direction before closing out the position held because otherwise you increase the average loss figures. He said that stop loss or similar strategies are commonly employed as a risk control mechanism for this reason. He emphasised that minimising losses is one of the very basic trading rules and that even if a stop loss rule had not been agreed upon it was reasonable to expect a discretionary trader to exit trades before a large loss eventuated. He described this as "standard practice in the trading industry" and in that he was referring to short term trading.

In cross-examination, he acknowledged that the stop loss concept was first utilised in the futures market and was slow to be taken up on the share trading side because in the futures market the practice was for the broker to compensate the client for any failure to execute a stop loss if it was a broker's error. He said, however, that many clients were now demanding that facility and more brokers were taking up that approach.

I note that Francis acknowledged stop loss as a recognised practice. He accepted, however, that it cannot be certain 100%. He described the technique as a "classic way of reducing risk". Chappel agreed that establishing a stop loss figure with a client was a "fairly standard procedure", established having regard to "risk, profit and trading strategy". He agreed it was a way of preserving capital. He commented, however, on the practical difficulties of implementing the strategy in practice referring to the extreme example of Defiance at .02 cents.

I accept that whether or not stop loss strategies as such were a standard practise in 1997 and 1998, a broker exercising reasonable care in trading in stocks would exit a trade before a large loss occurred. Jasch noted (see his Table 3) that there were examples of more than 90% of funds used being lost in a particular trade. He noted that 26% of the trades went beyond the 10% risk level and that 50% of the initial investment was lost in 23% of cases. He also found that more than one in four trades were allowed to go beyond the 10% level at some point during the trade and almost a quarter of those were allowed to continue to a loss greater that 50% of the initial funds invested. While you could not expect 100% compliance with 10% stop loss for practical reasons, he described this as an extremely poor practice and that it resulted in some very substantial losses on the account. He calculated that the cumulative effect of allowing trades to run beyond the 10% stop loss level was a loss of approximately $450,000. He expressed the opinion that the account would have been in profit if that basic principle had been adhered to.

Counsel for the defendant submitted that Jasch had not been accurate in his assessment of the transactions but conceded that this was not "overly significant". Counsel argued that this, however, pointed to a predisposition to assist the plaintiff. I disagree.

(c) Adding funds. Never add funds to a losing position. Jasch said a large loss can decimate an account. He said it makes no sense to add new funds into a losing trade because this extends the loss and compounds the error and ignores the fact that the trade has already been shown to be wrong. His point was that the security to be traded will have been acquired, or short sold, on the basis of certain expectations and if the expectations are not realised then the trader should generally assume that the expectation was wrong.

1213. There would appear to be some force in this proposition in that if a person is trading in the stock market, he or she is trading in the expectation of movement in one direction or another. If that direction does not emerge, however wrong the trader might think the market to be, when trading the market, the market is right and the trader is wrong. He said there are examples in the record showing additions to losing trades which he said is called "averaging down". He described it as "well known as a poor practice". He calculated that the overall outcome from this approach was a loss of $434,444 and a little over 23% of all trades were involved. He noted that the averaging down process did on occasion result in a profit as the price recovered but it resulted also in such large losses that the minor profitable instances were swamped. He said that the only time averaging down is ever suggested is in a long term blue chip portfolio investment and even then the strategy is arguable. In this instance, however, he regarded the trading account as one that you would not describe as being concerned with long term investment.

1216. To sum up the first two points, the fundamental proposition advanced by Jasch was that you do not hold on to a losing trade for a long period of time nor do you allow the price to move too far against the position before closing it. I note that Chappel, the defendant's expert, questioned the wisdom of Martin holding shares on a long term basis when prices were not improving. It was one of two queries he voiced in relation to Martin's trading practices. The other related to the third point - averaging. Chappel queried the continued shorting of Newscorp when the initial dollar cost averaging strategy had not succeeded.

1219. I turn to Jasch's propositions on maximising profit.

Jasch argued that you should maximise your profits by staying in a stock while a market is moving favourably for the stock. On his analysis, 84 instances, or 25% of all trades, were trades where quick profits were taken on shares that were moving in a favourable direction. He said that shares were sold at a relatively small profit while the price continued on in the correct direction for days to weeks or months after closing. Those conclusions were based on an analysis of the charts. He said that there is no rational or professional basis to believe that a net profit can result when almost one quarter of the trades are closed after only a few days when the trade is moving in your favour, particularly when at the same time there is a failure to execute appropriate stop loss strategies. He calculated that the total of the profits of the above 84 instances was $215,495 but a much larger profit would have resulted if what he called a "reasonable and sensible exit at profit" strategy was followed. He said it is imperative to hold correct trades so that a good profit can be taken since there are losses to be made up even if proper techniques are used to minimise those losses. He thought it dangerous, however, to put an actual figure on the cost of early exits because such an estimation has the benefit of hindsight. He said that if the situation was one where the broker acting as a discretionary trader had a consistent and rational trading method that he followed, then it would be possible to work out the loss but he could not identify a rational basis. He said that the trading records revealed no consistent or rational exit method. The only consistent theme he could identify from an examination of the trades themselves was that there was a tendency to close profitable trades after one or two days. He thought the most likely reasons were the T+5 or T+3 settlement requirement, excessive trade sizing and the amount of capital being tied up in losing positions. I note that the evidence supports the conclusion that all three factors were operating at least by the middle of 1998 - some earlier.

He provided an analysis (table 4) which showed that the most frequently occurring holding period for winning trades was one day and for losing trades was twenty days. The average holding period for winning trades was twenty days and the average holding period for losing trades was eighty- eight days. He concluded that the statistics showed that the exit decisions were made in such a way that there was very little chance for an overall profit being produced. He said there could not have been a rational reason or sensible basis under which these decisions were made assuming a profit was the desired outcome.

(a) Trade size. Jasch said that the size of trades is a key aspect of risk management. This was not challenged by defence counsel. Assuming a $300,000 account for trading, the logical and general industry practice was, he said, to use a reasonable and relatively small portion of the account on any single trading decision - such as 10% of the account. He said it is a well known and standard practice in the funds management industry not to risk more than 1% or 2% of the account in any single trade - that is 10% of the account in a trade and permitting no more than a 10% loss. He said there is no evidence of any attempt to control risk through appropriately sizing trades. His view was that the opposite was the case. He said there were many examples of extremely large risks being taken in risky vehicles such as warrants and options. He said there was one warrant trade involved which cost $85,000 (All ordinaries Index Warrant December 1998 2550P) on 31/8/98. He said this represented almost 30% of the account assuming that there was still $300,000 left in the account at that time (which was not the case). He said that using such a large portion of the account on one trade is an extremely risky decision. There were other examples. For example, between 15 January 1998 and 11 March 1998, Martin purchased 40,000 XAOWMQ (2600) warrants for $100,248.00 - an initial purchase of 20,000 for $57,629.00 to which he added, as the price fell, two parcels of 10,000 costing a little over $20,000.00 each. They were not sold until 7 April 1998 for a return of $60,098.00.

Jasch referred also to even greater risks being taken - for example the series of Newscorp short sales between the 12 and 26 June 1998 (all exited on the one day) which involved shorting a total $428,900 of Newscorp stock. This one exercise resulted in a loss of over $100,000 and severely crippled the trading exercise. (see Annexure A).

(b) Similar size trades. Jasch said that it is standard practice to "trade relatively similar sizes in similar implements" (P16). He said if the size of the trade is varied too much then there are extra risks in the form of the smaller trades turning out to be winners and the larger ones the losers. He said in such a case the account can go backwards even if the actual trading decisions are appropriate. He said in trading one cannot know beforehand whether the result will be a win or a loss. It is irrational and unreasonable to randomly vary trade sizes. He said that when trade size is varied extensively and/or entry and exit decisions are inconsistent, the most probable outcome is a long run loss. He said trade sizes here varied from as little as $105.00 up to $600,000. He said such a practice can be described as nothing more than sheer recklessness and showed a total disregard for "account integrity" and commonsense money management rules. He suggested that a reasonable stock trade in a $300,000 account should be at a maximum of 25% or $75,000 with one quarter of that as a maximum for warrant trading because warrants tend to leverage to stocks in a ratio of about four to one. He suggested that the maximum warrant trade size on a $300,000 account should in fact be $30,000 but expressed the view that most professionals in the trading and fund management industry would view even those numbers as a little "aggressive". He analysed the trades on that basis and his conclusion was that 14% of them were too large even applying his generous limits which were that any trade in warrants above $40,000 was too large and any share trade greater than $100,000 was too large. He said the professional traders, that is people trading other people's money, never risk large portions of the fund.

A challenge made by defence counsel was whether this practice should always be followed. He agreed that in exceptional circumstances, like a market crash, you would have to "throw out the rule book".

(c) Reasonable size parcels. Jasch next stated that trading sizes that are too small should be avoided. They will not have an impact one way or the other on the account except to generate extra commissions. He prepared a table showing all trades of less than $15,000 which, in his view, could be considered too small. They totalled 28% of trades. He said it suggested considerable churning but in the end said he could not categorically say it was because he could not look into the mind of the trader. He said that a 60% profit on $300,000.00 needed to be generated on the initial investment over the period of trading to compensate for brokerage of $140,000.00 and stamp duty before the client could make a single dollar. He said that the quantity of small trading suggested that it was too frequent and played a big part in the poor result. He said trade size is something wholly in the control of the trader and suggested self-interest as the only rational explanation. A review of the contents of the relevant table, table 6, does not suggest that the small trades were confined to any particular period they appear to cover the whole of the period of trading.

I note that, on this aspect, Jasch did not have the evidence before him that has been led which reveals that Liyakat Ali did try to get Martin to trade frequently. Thus it is difficult for the plaintiff to argue there was churning. His other points, however, about trade sizes and their impact remain valid.

(d) Diversification. It is important to ensure that the funds are properly diversified. This was accepted by counsel for the defendant. Standard practice is to use only a small percentage of funds for high risk vehicles.

Jasch said there was no evidence of any investment in this portfolio. Even where blue chip stocks were acquired they were traded - speculated with, not invested in. In addition, large amounts of available funds were used for the trading of warrants, options and speculative shares. He said they are high risk vehicles and it is well known in the industry that most people lose their money in such securities. He commented that "the risks taken in the context of vehicles used in this portfolio were phenomenal". He noted, also, that some of the warrants and options traded were very high risk choices within the context of warrants and options. He referred to the "out-of-the-money warrants and options". (Table 7) He said they hold a low probability of profit and are not a sensible choice of trading vehicle. 11% of all trades demonstrated use of such high risk vehicles and the net effect was a loss of $28,000. He was also critical of three occasions where there was short selling of warrants contrary to the ASX rules. He said it was the broker's responsibility not to accept such trades and to ensure the client did not infringe the rule.

(e) Illiquid stocks. It is important to avoid illiquid stocks if one is trading, particularly in speculative stock. He identified five instances where the stocks selected were illiquid. He said they added an extra unnecessary element of risk to the trading account and the size of some of the positions taken made it extremely risky. He calculated the losses as in excess of $130,000. The stocks included Audax, Innovax, Growth Resources and Roebuck. The amount attributed to Audax was $2986.00, Growth Resources, $12,387.00, Innovax, $43,007, and Roebuck $64,705.00.

(f) Timing of trades. He then turned to an analysis of the appropriate method for analysing stocks and deciding whether and when to buy or sell and considered the relative merits of fundamental analysis and technical analysis in making trading decisions. He saw the latter as more relevant to trading. It analyses price patterns and movements. He said the concept is to move with the flow of funds generated by crowd decisions which can be irrational at times. He said this is a primary tool for timing the market and that as a result shorter term traders generally favour the technical approach. He said that technical analysis involves two different approaches: either the buy low and sell higher approach or the follow the trend approach. He said mixing the two approaches produces erratic and irrational trading as the trader buys high in following the trend and yet sells high on the other approach. He said such an approach is not reasonable or rational and the result is typically long run losses. Jasch also said that one should always combine with any such approach what he describes as the sound risk control measures that have already been mentioned.

He said that in the trading records he could find no evidence of a consistent use of any logical approach. He said in some instances it appeared that a bottom or top picking method had been attempted but the necessary risk controls were absent. He said fundamental analysis may have been the reason for buying and selling but the time periods of trades denied a reasonable exercise of this method. There was also no evidence that the trends had been consistently followed because there were numerous examples of selling out in a good strong trend and buying into falling stock.

In exploring these issues, Jasch was handicapped by the lack of information about the precise reasons for the timing of particular trades. He was here obviously attempting to analyse reasons at a theoretical level without having all the specific information. He said that if what occurred was a combination of the techniques - eg. buying at the top or bottom and selling with the trend - you are using different techniques which will increase the risks of losing trades no matter the method and missing out on the winning trades. A consistent approach is needed when considering a series of probability based outcomes.

He criticised some trades as wildly speculative. He was referring to buying into stocks that have had an extremely strong run and buying puts or trading short after a significant fall. He said, for example, Amity Oil was purchased after it had increased by over 60% in less than two days. He said such volatile moves are high risk and buying after such a strong run makes little sense. Jasch might also have mentioned Roebuck, a related company with a 30% interest in Amity Oil, in which Martin bought 100,000 shares at $0.90 the day before the Amity purchase at a time when its price had already increased substantially.

Jasch noted, however, that his discussion centred mainly on the exit decision because its reasonableness or otherwise can be gleaned from the result. In that regard, he said he was not judging reasonableness by the result of an individual case but rather by the patterns of the moves and he was not saying that the actions were unreasonable simply because there was a loss. He said that only the trader himself can explain the reasonableness of entries into trades. He said a sufficiently intelligent trader can justify any trading decision by switching between methods but such an approach is not valid and introduces statistical randomness. He argued that a consistent and logical entry method is necessary for trading success but given the information available to him, he could only conclude there was no such method. He said he could only conclude that there was no reasonable basis on which buying and selling decisions were made in the portfolio (because of inconsistency). If on the other hand, there were reasonable bases for entry decisions, his ultimate conclusion was not endangered. His view was that trade sizing, the failure to execute stop losses and the failure to hold good trades meant that the ultimate loss of funds was highly probable.

(4) Comparison of general trading with day trading

He then turned to what he described as type 2 trades being trades in which the trader entered and left on the same day. He said the points he had previously raised did not apply to such trades. He said settlement is a non-issue since the holding period is so brief - the stocks are sold before they need to be paid for. If there is a loss, only the difference has to be paid for and profits are credited to the account. He said if a trade was going to be sold out with 1 or 2 cents profit then obviously the trades have to be much larger than would otherwise be contemplated if intending to hold the stock for any time longer than the one day. He said the figures he had talked about for warrant trades ($40,000) and share trades ($100,000) would not be too large for trading and he considered anything up to say $200,000 to be an acceptable size. He said there were only 57 trades of this kind versus 333 of the other. He said the net impact of this type of trading was a net profit of $33,000 but also $25,000 of brokerage was generated, a number being small sized trades. He said it was curious that one approach could be executed profitably while another was operated with what he called "complete recklessness". He said you would also expect the trader to cease persisting with the losing methodology and stay with the strength. He considered that the trading was probably never analysed or reviewed by the trader or his managers, the firm or anyone else who knew what to look for. Martin had in fact an 89.5% win to loss rate with this type of trading which he said was a little hard to believe. One reason for the approach's apparent success, however, may have been Martin's tendency to hold on to losing trades.

Jasch concluded that the plaintiff's accounts were operated in a reckless and unprofessional manner. He said there was no sign of a normal industry standard being adhered to nor understanding or knowledge of the issues involved in professional trading. He emphasised that the selection of stocks, the size of trades, the timing of exits and the general management of the account demonstrated a lack of even average expertise. He said that the consistent acceptance of large risks over a large number of trades made large losses an inevitable result. He said that the way the trading was conducted made the outcome of a total loss of all funds, and then some, almost a mathematical certainty. He said trading in the manner shown by the trading records holds very little chance of success. He said that the true risks appear to have been disregarded and could reasonably be considered to be beyond a naive client's knowledge.

The defendant challenged the description "reckless". Other criticisms were made.

1247. I turn to the specific criticisms of Jasch made by defence counsel. I have already referred to the issue of his qualifications. As noted above, there may well be people with more impressive qualifications. He was, however, qualified to give the evidence he did and the defence had not called anyone else to comment in detail on the propositions he put forward.

1250. He was picked up on errors in some details such as his use of information and data about particular trades but, ultimately, these did not detract from his thesis - as counsel conceded in relation to some errors in his detail on stop loss. Other errors of detail were referred to in later submissions but not all were put to Jasch. Accepting the criticisms, for present purposes, they do not in my view detract from his general analysis. The fact that the strategies were not used is confirmed by Martin himself. He does not agree with the risk strategies advanced by Jasch and he did not use them. I do not accept the argument put for the defendant that any errors show a predisposition to favour a result for the plaintiff against Hartley Poynton.

1253. The principal attack on his reasoning was that it was flawed, being based, it was said, on incomplete information. He had no detailed information about the circumstances prevailing. The defendant relies on Martin's criticism of Jasch's approach. He said that it is a

"very narrow and rigid view of the nature of the stock market and the manner in which a trader should operate by stipulating that a trader should use only one method or discipline in making trading recommendations and decisions".

1257. I can well understand that Martin would see any such strategies as narrow and rigid but it is incorrect to say that Jasch was saying that only one method or discipline should be used in trading. Martin went on to say

"the market is more complex than Jasch suggests and the methodology adopted by a trader more dynamic and selective."

1261. It seems to me that Martin has not seriously considered Jasch's report. Jasch was well aware of the complexity and dynamics of the market. He talked about risk strategies and strategies to maximise the chances of profits bearing in mind those complexities and dynamics. He did not ignore the need to consider the sorts of data that Martin focussed upon such as fundamental analysis and technical analysis although he suggested the former is more relevant to a long term investor.

1264. Chappel criticised the approach taken by Jasch to transactions undertaken by Martin for the plaintiff on the basis that it

"seems to fail to take into account the practical nature of the market which affects trading on a day to day basis and seems to be based on hindsight".

1268. Jasch was well aware of, and took into account, the practical nature of the market and of the fact that he was applying hindsight. In several parts of his analysis he drew attention to the dangers of hindsight - e.g. the issue of early profitable exits and whether there was churning. He also acknowledged that he did not approach the matter by analysing particular transactions having regard to the precise information that was available to Martin - other than the charts which he attached to his report. He said that if there were reasonable explanations for the entry decisions then his ultimate conclusion was not endangered. The trade sizing, failure to exercise stop loss and the inability to hold good trades meant that the loss of funds was a highly probable outcome.

1271. In essence, the experts addressed different issues. Thus, Chappel attempted to comment on particular transactions and said very little about the risk and the profit and loss management strategies that Jasch argued should be applied. He did, however, refer adversely to two matters to which I have referred above in which he supported Jasch - holding shares for a long time when prices were not improving and adding to a losing position. Having regard to the trades involved and the losses that flowed, those concessions are significant. I will return to the general issue when considering whether a causal link can be established between the failings identified by Jasch and the losses alleged.

1274. Reference was also made to Jasch's conclusion that the operation of the account had been completely reckless. He was vigorously cross-examined on this issue. It is true that he said, in effect, that he would probably have used more conservative language if he had known it would lead to such cross-examination, but he remained highly critical of what occurred. In the end he said:

"I have described that as reckless but I can't see another word".

1278. From his evidence, it may fairly be said that he saw the trading as reckless because the whole fund was lost and Martin did not adopt one of the techniques he described to minimise loss, maximise profit or manage risk. Further, when things were plainly going wrong, Martin failed to analyse the trading even though he had months in which to do so. It must be borne in mind that Jasch gave his evidence on the basis that the account was a discretionary account.

1281. Counsel for the defendant argued that Martin had acted reasonably. He drew my attention to Jasch's evidence about the risks of trading and how one cannot guarantee any particular result. Counsel also relied upon the evidence of Chappel about the difficulties of trading successfully in the stock market, saying that in the last 20 years of his experience traders in speculative securities (including warrants), who achieved a result of 6 wins out of 10 trades, with the value of the winning trades exceeding the value of the losing trades can be regarded as extremely successful.

1284. The defence also relied upon Chappel's views about the reasonableness of Martin's actions. Relying on Martin's supplementary statement, Chappel said that Martin seemed to have acted "responsibly and appropriately in most instances". As to a dollar cost averaging as a trading method he said that he understood that this was in fact discussed and agreed between Liyakat Ali and Martin and commented that while it wasn't always successful it did appear on some occasions to reduce losses and in fact achieved overall profits.

1287. Critical to Chappel's assessment is his assumption that all trades were conducted with the client's instructions. Chappel acknowledged that he was also assuming that Martin had complied with the "Know Your Client" rule and he assumed that Martin had all the material and analyses that he had referred to in his evidence. The first two assumptions are incorrect. As to the third assumption, while the plaintiff did not challenge the detail, I do not have faith in Martin's detailed explanations. Their detail is in stark contrast with his lack of memory for detail in his oral evidence.

1290. Chappel's support of Martin, however, is significantly qualified. He thought Martin acted responsibly "in most instances". He said that it was apparent to him that Martin "at times" considered all the tools available to him in making recommendations. I have already noted above the two other matters. It would not be unreasonable to conclude that Chappel was saying that he would be critical of the conduct of holding on to losing stock and adding to losing positions unless it was done on the client's specific instructions. I am satisfied that Martin did not act on instructions and often acted contrary to instructions.

1294. Having regard to the plaintiff's profile, the strategies referred to by Jasch should have been employed by Martin if exercising reasonable care. On their face, they seem sensible. Further, the defendant called no independent evidence to challenge in detail the wisdom of these strategies or to suggest that they could not be applied. No evidence was called to suggest that such evidence was not available.

1297. A broker in the situation of Martin should have employed those techniques. The failure to do so was negligent. The plaintiff must, however, establish on the balance of probabilities a causal connection between the failure to apply the techniques and the losses suffered. I address that issue below.

1301. The fourth category of alleged negligent conduct concerns Telstra. It is alleged that the plaintiff was negligent in failing to follow the agreed plan in respect of Telstra.

1304. The issue with the sale of Telstra is not one of want of care but of a deliberate decision by Martin to ignore the client's instructions in circumstances where he was obliged to follow them. His conduct constituted a wilful breach of contract. Negligence does not arise.

1310. The plaintiff mounts a claim for breach of contract and in negligence alleging want of care by the defendant in its supervision and control of Martin. For convenience, I refer again to the alleged terms of the retainer relied on by the plaintiff.

1313. In his statement of claim he alleges that there was a term of the retainer or, alternatively, a duty of care owed by the Defendant to the Plaintiff, that

(a) "the defendant in acting pursuant to the retainer would exercise all reasonable care, skill and due diligence"(3 (a) (i))

(b) "the defendant would at all material times exercise reasonable supervision over its employees in order to ensure that it and its employees complied with the rules of the Australian Stock Exchange " (3 (i))

(c) "the defendant would exercise reasonable control over the trading activities on the account and would advise the plaintiff and/or his agent of the high risk attached to trading on margin on speculative stocks and/or financial derivatives with funds borrowed from the defendant...." (3(j)).

1319. The Plaintiff alleges breaches of these terms and duties by the defendant in failing to exercise

(a) all reasonable care, skill and due diligence

(b) reasonable control on the trading activities of the account

(c) reasonable supervision of its employees to ensure that "it and its employees complied with the rules of the Stock Exchange".

1325. The defendant denies the alleged terms and duties save and except that it admits that there was an implied term;

"of the stockbroker retainer that HPL would at all material times in performing its obligations under the stock broker retainer exercise that reasonable care and skill required of a stockbroker".(3A)

The Defendant also denies any breaches or negligence and pleads in the alternative its defences of "waiver" (5A-5F) and contributory negligence (6A). I refer to the specific defences below.

1331. In giving particulars of the breaches of the terms and duties, the Plaintiff relies upon the particulars also given in respect of the negligent trading allegations.

1334. In addition, the Plaintiff alleges a failure to exercise reasonable supervision over its employees to ensure that it and they complied with the following business rules of the Australian Stock Exchange (applicable at time):

(ii) Rule 3.3 requiring a broker when requested by the client to advise the client of its policy in the allocation of securities in fulfilling orders placed with it.

(iii) Rule 3.4.1(l) which required that brokers managing or operating a discretionary account on behalf of a client must first obtain from the client a written authorisation signed by the client setting out the terms and conditions under which the brokers shall operate the discretionary account including brokerage rates.

(iv) Rule 3.4.2 prohibiting a broker effecting an excessive number of transactions in managing or operating a discretionary account.

(v) Rule 3.4.3 requiring a broker managing or operating a discretionary account at the request of the client to forward reports to the client made up to the last day of the months of September, December, March and June setting out the value of executed transactions, the fees charged and a calculation giving a percentage of the value of transactions compared with the total portfolio in the account.

(vi) Rule 3.4.4 which requires a broker operating a discretionary account to maintain a register of details of the account .

(vii) Rule 3.10 imposing obligations on brokers to make inquiries of the Stockbrokers Mutual References Society Limited before transacting business for a new client who is not a member of a recognised stock exchange.

(viii) Rule 8.14.1 requiring the obtaining of a signed warrant client agreement form and the provisions of the ASX explanatory booklet on warrants before accepting an order of a client to buy or sell a warrant.

(xi) Rule 8.14.2 prohibiting the recommendation of the subscription to or purchase of warrants to a client unless the officer or employee of the broker "has reasonable grounds to believe that the entire recommended transaction is not unsuitable for a client on the basis of information furnished by such client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and any other information known by such member organisation, officer, or employee". In assessing the suitability of such transactions, an adviser is entitled to rely on representations made by the client.

1346. The Plaintiff also relies upon the content of the ASX Business Rule Guidance Note 13/97 dated 8th Debember,1997, (revised for ASX demutualisation October 1998). The purpose of the note was to give assistance to brokers on the interpretation of procedures to be adopted "to govern the establishment of an account by a new client". It set out a summary of the business rules and other requirements relating to opening a new account and trading for the first time for a new client together with operational controls that "can be adopted" by brokers. It referred to Rule 3.10 and 3.4.1 (I). In relation to derivatives, it referred to the need under the Business Rules to have a new client sign a client agreement prior to undertaking derivative transactions and requiring participating organisations to make an assessment of the suitability of recommendations made to clients. Reference was also made to the requirement that explanatory booklets be provided to the client and a risk disclosure be signed. Reference was made to Rule 8.14 in relation to warrants. It then referred to section 851 of the Corporations Law. This provision is also relied upon by the Plaintiff in its particulars alleging a failure on the part of the defendant to exercise reasonable supervision over its employees to ensure compliance with s.851 Corporations Law.

"Adviser must have reasonable basis for recommendation" 851. (1) [Recommendation without reasonable basis] A securities adviser who

(a) makes a securities recommendation to a person who may reasonably be expected to rely on it; and

(b) does not have a reasonable basis for making the recommendation to the person

contravenes this section.

851. (2) [What constitutes reasonable basis] For the purposes of subsection (1), a securities adviser does not have a reasonable basis for making a securities recommendation to a person unless:

(a) in order to ascertain that the recommendation is appropriate having regard to the information the securities adviser has about the person's investment objectives, financial situation and particular needs, the securities adviser has given such consideration to, and conducted such investigation of, the subject matter of the recommendation as is reasonable in all the circumstances.

851 (3) [Not an offence] A person who contravenes subsection (1) is not guilty of an offence.

The Plaintiff also alleges a failure to exercise reasonable supervision to ensure compliance with Section 846 relating to short selling.

"Short selling" 846 (1) [Prohibition on selling securities to buyers] Subject to this section and the regulations, a person shall not sell securities to a buyer unless, at the time of the sale:

(a) the person has or, where the person is selling as agent, the person's principal has; or

(b) the person believes on reasonable grounds that the person has, or where the person is......selling as agent, the person's principal has

a presently exercisable and unconditional right to vest the securities in the buyer.

846 (3) [Limitation of operation of subs (1)] Subjection (1) does not apply in relation to:

(i) the securities are included in a class of securities in relation to which there is in force a declaration, made by the board of a securities exchange as provided by the business rules of the securities exchange, to the effect that the class is a class of securities to which this paragraph applies;

(ii) the sale is made as provided by the business rules of the securities exchange; and

(iii) at the time of the sale, neither the person who sold the securities, nor any person on behalf of whom the first-mentioned person sold the securities, was an associate, in relation to the sale, of the body corporate that issued or made available the securities".

1369. In the context of s.846 of the Corporations Law, the Plaintiff also refers to Rule 2.11 of the ASX rules which deals with short selling and Appendix 6.6 which lists approved securities. It is common ground that, at the relevant time, the securities approved for short selling did not include call or put warrants. The Plaintiff pleads in the particulars of failure to exercise reasonable supervision that the defendant short-sold warrants contrary to the legislation, namely ANZWSP on 15th May,1998, AMPWMA on 9th July,1998, XAOWMB on 6th November1998 ad XAOWMS on 20th October,1998. This allegation is made out on the evidence in relation to the AMP and XAO warrants. The trades were also recorded in the trading account not the short sales account.

1372. In the same particulars, the plaintiff concludes by alleging that the defendant failed "to exercise reasonable supervision over Chris Martin in respect of each and every transaction alleged".

1377. Counsel for the plaintiff submitted that the defendant, in discharging its duties to the plaintiff was required to supervise and control its brokers with reasonable care. In support of his case, plaintiff's counsel referred to a number of documents of the defendant in which, he argues, the defendant showed an awareness and acknowledgment of its obligations.

(a) Corporate Governance

The Plaintiff referred to statements of Corporate Governance appearing in the Defendant's Annual Report. In the 1997 Report, for example, the Defendant referred to the existence of a Compliance Committee described as responsible for the development and implementation of all Compliance Policies and Procedures and for adherence to both internal and regulatory guidelines and rules (Page 21). Under the heading "Ethical Standards and Core Values (page 22) it was stated:

"HPL ensures that it, and its employees, comply with the spirit and letter of the various Act, Rules and Regulations set down by the Australian Stock Exchange. In addition, however, the Directors believe it is fundamental to HPL's success that these specific rules are augmented by a widely held set of core values. Employees are constantly encouraged to be a contributor, to act with integrity, to create opportunities and to be achievers in their field.".

The 1998 report was in similar terms except that there was added to "Ethical Standards and Core Values" the following:

"All staff are issued with a copy of the Company's Compliance Policies and all staff have access to the latest version of all policies on the Company's internal computer network". (b) Compliance Policy Documents The Plaintiff also referred to a number of documents made available by the Defendant on the request of the Plaintiff, These included a general compliance policy entitled "Opening and Amending Accounts", the earliest version of which appears to be dated 22nd December,1997(exhibit P31). Counsel also referred to specific compliance policies, No. 3 "Discretionary Accounts" dated 3 September,1996, (P52) and a later version dated 30th July,1998 (P51) and Compliance Policy No. 8 (Short Selling Procedures) dated 14th November,1997 (P53)..

Counsel drew attention to passages in those Policies which refer to the need to have agreements executed and certain documents provided to the clients - in particular, explanatory booklets on warrants and option trading before entering into derivative transactions (see exhibits P31, P51, P53), and the need to "know your client" rule (P51, P52 and P55).

Attention was also drawn to monitoring procedures laid down in Compliance Policy No. 3 "Discretionary Accounts" (P51and P52) which noted (p3 and p2 respectively), inter alia,

"1. Trades which are inconsistent with investment parameters:

- review of client reports to determine if inappropriate stocks acquired.

- review of client reports to determine if monetary limits are being adhered to".

In Compliance Policy No. 8 "Short Selling Procedures" it was provided:

"The "Compliance Officers" and the "Credit Manager" are responsible for monitoring compliance with this Policy. Random audits are conducted to ensure compliance with the short selling procedures contained in this Policy" (Cl.4).

It also required that a separate account be opened and an authority be signed by the client before a short sale be transacted (Cl.2).

Counsel also referred to Compliance Policy No. 14 entitled "Disclosures and Disclaimers" published in 2000 (p55). It is put forward as evidence of what should have been done at the relevant time and as reflecting the Defendant's common law obligations.

In relation to "know your client", Policy No. 14, inter alia, sets out obligations and responsibilities of people giving personal security recommendations and elaborates on the obligation

"You are required to `know your client'. That is, you must have a reasonable basis for making a securities recommendation to a person who may rely on it, based on full analysis of personal information about that person's investment objectives, financial situation and particular needs. Disclosure will only be effective if you have first made enquiries from the client to obtain that information.

You must warn your client that your recommendations are based on the personal information provided to you by him/her, and that, if this information is incorrect or incomplete, your recommendation may not be appropriate.

In addition you must assess and classify your clients as either `speculative' or `non-speculative' and you must specify in your recommendation whether you have classified your client as `speculative' or `non-speculative'. This classification should be based on information provided to you by your client and you should ask the client for any further information required to enable you to make the assessment. If your client is unwilling or unable to provide sufficient information to enable you to determine which category the client falls into, you should:

* make a note of the conversation in which the information is requested; and

The recommendations you make to clients must always be consistent with that classification".

In Compliance Policy No. 14 "Disclosure and Disclaimers" the following appeared on the issue of monitoring

"The Compliance Department is responsible for monitoring compliance with this policy. Random audits will be conducted to ensure that all recommendations contain the appropriate disclosures".

1405. Counsel for the plaintiff also submitted that the defendant itself had created a situation, potentially dangerous for the defendant and its clients, by providing substantial interest-free credit and credit extended for at least 30 days and actively encouraged its brokers to pursue business. Thus, it was encouraging and facilitating high-risk trading and, as a result, should have had increased supervision in place. Instead, the plaintiff submitted, it adopted and encouraged the attitude that the individual brokers were conducting a business of their own within the business

Additional Need for Supervision - Martin's history

1409. The Plaintiff also argued that there were particular reasons why special attention should have been paid to Martin and his activities. It was put that they were such that the defendant was put on notice that a special need existed to supervise and control his activities in the interests of the defendant's clients as well as the defendant.

(a) Prior History of non-compliance. The defendants records reveal that in 1997 a fine of $9,000 was imposed upon Martin as a "Compliance Penalty".

(b) The No. 2 Account. In December 1997, Karlson, then deputy to the office manager, queried with Martin the opening of the No.2 Account and directed that it be closed because Martin failed to give a satisfactory explanation. Nothing more was done. Martin removed the trades but did not close the account.

(c) Debtors Committee History. In addition, it is put that the problems experienced by the defendant's officers on the Debtors Committee in dealing with Martin's activities raised questions about his honesty, failure to comply with the law and the defendant's requirements and his willingness to comply with instructions and should have prompted careful supervision and control of Martin's activities generally. I note the following. In some instances there are more details in Annexure A.

(i) On 6 April 1998, he was required to bring the plaintiff's account within the 30 day payment requirement. He protested and was told to attend to the matter promptly.

(ii) In a memorandum of 21 April 1998 the Committee recorded concerns about the operation of some 12 accounts by Martin and his attitude to "not seemingly wanting to fix these problems" and not wanting to comply with instruction from Malloch and Newton. It listed the complaints generally as Martin

* allowing new clients to open accounts and trade without deposits, (in particular the M A Khan Account where the first trade was a warrant),

* allowing too much credit on individual transactions, and

* trading outside T+5 (including the plaintiff's trading account) which showed a "lack of discipline", and

* too much warrant trading.

He was directed in several instances, including the plaintiff's account, to cease further buying and organise selling until those accounts were current. He was given one week to attend to the instructions.

(iii) In a memo of 5 May 1998, the Committee suggested that he re-read the memo of 21 April 1998 and respond to the questions asked and complete the tasks requested. Concern was expressed about his purchase of 50,000 EEC in the plaintiff's account which it said was in breach of its instructions and comment made on his failure to respond to the criticisms relating to the M A Khan account. Another complaint was his failure to respond to a request to make Martin and Rojul Nominees accounts, accounts associated with Martin, current. Martin replied on 6 May 1998, attempting to explain, making promises of compliance but denying that he was taking any risks.

(iv) Concerns were raised on 14/5/98 about Martin's handling of debts and handling of Committee requests (P44).

(v) On 21/5/98, concerns were expressed in the Committee about the manner of Martin's dealings, the potential for serious debt, his lack of response and his ignoring of directions of the Committee. Guidelines were set.

(vi) The Committee sent a memo to Martin the following day, 22 May 1998, which listed a number of alleged short comings on behalf of Martin namely:

* Contrary to HPL policy, allowing new clients excess credit in their accounts without first obtaining funds.

* Clients not settling their trades on T+5.

* Allowing clients to purchase shares when their accounts are unsettled after T+5.

* Associated accounts not settling on T+5.

* General unco-operative attitude to providing information and satisfactory answers to the Debtors Committee and the credit manager.

* Placing orders for clients whose accounts contain net unpaid losses" (P45).

The memorandum also advised him of a resolution of the Committee that from 1 June 1998 to 31 August 1998 certain conditions were to apply to his client debtors, namely a credit limit of $100,000 whether current or T plus five, associated accounts to be settled on a T plus five basis and he was required to comply with all current compliance and debtor's policies.

The plaintiff submitted that the defendant, supervising Martin with reasonable care, would not have stopped there and would have, on the Debtors Committee experience from at least 21 April 1998 onwards, examined his dealings to ensure that their clients had not been failed by Martin and to ensure that the law and relevant rules were complied with.

(vii) On 18 June 1998, the Committee recorded its concerns about the way Martin had traded in AMP.

(viii) On 14 July 1998, the, Compliance Committee wrote to Martin complaining of breaches on 9 and 10 July 1998 involving the short sale of a warrant. It stated that he had breached Compliance Policy No. 8 - Short Selling Procedures, by not having a short selling authority form signed by the client prior to the sale, not having sufficient margin cover and failing to transact the sale in the short sale account. The Committee then stated that this was his fifth breach of the Policy over the previous three months. His penalty was the loss of the brokerage - $232.00 (CB 1635). The memo was marked to be sent to Martin with copies to Newton, Malloch and Karlson. Martin was invited to respond with any mitigating circumstances to Donna Brennand or David Craig.

(ix) On 16 July 1998, there are again references to Martin disregarding the restrictions of the Debtors Committee and of there being risks to the defendant because of his dealing practises (P65).

The subsequent history is set out in Annexure A.

(d) Events of August 1998. The plaintiff also submitted that the events in August 1998, arising in Martin's absence on leave, should have alerted the defendant to the need to supervise and control Martin.

(i) To the knowledge of Karlson and Whiting, Liyakat Ali and Barba appeared to have a view of the credit arrangements available to the client which was at odds with limits imposed by the Defendant and claimed that their understanding was based on what Martin had told them.

(ii) In conversation with Whiting on 14 August 1998, Barba made complaints about Martin's performance.

(iii) The e-mail sent by Liyakat Ali to the Defendant praising Whiting's performance, commented unfavourably on Martin's performance - in particular complaining that he was not following instructions.

(d) The discretionary account agreement. The plaintiff argues that another matter that should have triggered supervision and control was the execution in August of 1998 of the discretionary account agreement.

As background fact, I note that a new compliance policy (No 3 - Discretionary Accounts (P51) was issued on 30 July 1998. It required, inter alia, new discretionary account agreements to be used immediately. It required the "adviser" to be "fully conversant with investment parameters" and to have "a good understanding of the client's requirements". As noted above, it set out monitoring procedures. It laid down that client reports be reviewed to determine if inappropriate stocks were acquired and if monetary limits were being adhered to by "advisers". Thus, the monitoring then laid down was designed to provide some protection to the client as well as the defendant.

On 5 August 1998, Martin forwarded the new agreement forms to Liyakat Ali. Counsel referred to the fact that the agreement lodged with the defendant contained no personal details relating to the client, that part of the form having been crossed out. Bearing in mind the particular importance of "know your client" in relation to discretionary accounts, it was put that the defendant, if adequately supervising its staff, should have been aware that this had occurred and followed the matter up - particularly in light of the new policy. I note, also, that the Discretionary Accounts Register (CB1990) printed out on 19 November 1999 recorded that the account 1523977 was opened on 17 September 1997 and a discretionary account agreement executed on 11 August 1998 with no restrictions. It also records that the same account was opened presumably as a discretionary account on 11 August 1998 with an agreement dated 27 August 1998 which contained within it restrictions of no tobacco, gaming or bank stocks. It also appears that the paper work passed through the hands of the compliance staff, notably Donna Brennand the compliance officer. It seems unlikely that she read it because she wrote to the plaintiff asking him to retain it as a record of investment categories, investment objectives and investment requirements to which he agreed at the time of signing. There were none recorded on the documents. She was not called to give evidence.

1415. It was put that the above matters, both singly and in combination, should have prompted very close supervision of Martin's trading.

1419. Counsel submitted that notwithstanding the development of policies, presumably by a Compliance Committee, there was no evidence of any monitoring activity by that Committee in relation to Martin. In the Melbourne office, the office manager apparently reviewed the daily sheets of traders but beyond that, it is submitted for the Plaintiff, nothing was done by the Defendant to supervise brokers to ensure that they were complying with the Policies and with the Rules and Regulations under which the Defendant and its brokers were supposed to be operating. As noted above, the papers revealed a compliance officer in Perth but she was not called to give evidence nor were any of Martin's superiors in the Defendant, other than Karlson, who became office manager in 1998. No member of the Compliance Committee was called to give evidence. Counsel submitted that on the evidence, reinforced by the absence of such witnesses, it should be concluded that there was a total failure to supervise, monitor and control the activities of Martin to ensure compliance with the Compliance Policies and the Rules and Regulations. It is said that this is consistent with what emerged in evidence of the policy of the Defendant to view its traders as conducting a business within a business.

1422. The absence of supervision, it is said, is also borne out by the fact that Martin had a history of commencing trading prior to complying with the defendant's requirements for opening accounts. Thus, a short sale account was opened and short selling occurred on 15 January 1998 without an authority signed by the client. It was not obtained until 4 February 1998 (P72). He traded warrants prior to any warrant trading agreement being signed. He acknowledged in his evidence that the main trading account was a discretionary account within a couple of months of the commencement of trading, (he, of course, gave evidence that there were only half a dozen trades where he did not obtain instructions prior to the trade) but it was not until August 1998 that he caused a discretionary account agreement to be executed. It is put that there is no evidence of any concern within the defendant arising from this sort of activity.

1426. Counsel for the plaintiff referred in final submissions to breaches of a number of policies, rules and regulations and, in particular, submitted that the Defendant breached ASX Rules 3.3., 3.4.1 (1), 3.4.2., 3.4.3, 3.4.4, 3.10, 8.14.1 and 8.14.2., ASX Business Rule Guidance Note 13/97 and Corporations Law Sections 851, 846.

1429. As to Rule 3.4.2 relating to excessive trading, I do not accept that it was breached; for the volume of trading was encouraged by Liyakat Ali, who became critical of a lack of trading. Rules 3.3 and 3.4.3 were not breached there having been no requests. I accept also that there is no evidence of breach of Rule 3.10. Breach of other rules, sections and policies were raised, but I will not refer to those that were not pleaded. Rules 3.4.1 (1), 3.4.4, 8.4.1 and 8.1.4.2 require consideration as do the above Corporation's Law provisions.

1433. The Defendant's response disputed a contractual obligation to supervise and control in the terms alleged. It referred to the plaintiff's pleading (para 3(i) and 3(j) above) and submitted that such terms were not, contrary to the plaintiff's case, to be implied by law in the retainer contract. It also submitted that the term pleaded in para 3(j) of the statement of claim was uncertain and for that reason also could not be implied by law.

1436. In my view, this debate is ultimately academic. The defendant concedes in its pleadings a term imposing a duty on a stockbroker to exercise reasonable care and skill in carrying out the retainer (see above). Where the stockbroker is an organisation employing a number of brokers, it cannot discharge that admitted duty without exercising reasonable care in supervising and controlling its brokers.

1439. The defendant also focussed on the pleading in the Statement of Claim (para 3(i)) which alleged a failure to exercise reasonable supervision to ensure compliance with the Rules of the ASX. Counsel went through the various ASX rules referred to and argued that they had not been breached. I refer in particular to the following submissions made about particular ASX Rules which remain for consideration.

* Rule 3.4. The general submission was put that there can be no breach of this rule if the account was not operated on a discretionary basis. I have already indicated my views on this issue. It was operated as a discretionary account. That was why Martin believed he was compelled to have the agreement executed in August 1998 to comply with the discretionary account requirements.

As to rule 3.4.4 relating to keeping a discretionary account register, Counsel sub mitted that there is no evidence of a breach of that Rule. I accept that there is insufficient evidence to determine

* * when the entries was made in the register, and

* * whether there was a failure to record the agreement when it was entered into.

The defendant did not call a witness who could speak to the document. Karlson said he had never seen it.

* Rule 8.14.1 The Defendant submitted that the rule was not breached because the requisite booklet was provided. It relied upon the signing of the warrant agreement form which acknowledged receipt of the booklet together with the inference that it would have been sent assuming business practice was followed. Reliance was also placed on the lack of any written complaint to Hartley Poynton that it was not received. I am satisfied that the booklet was not sent. It should be noted that the submission does not address the breach of the Rule involved in the trading in warrants prior to the signing of the agreement form. This is understandable, there being no answer available.

* Rule 8.14.2 The plaintiff alleged breach of all aspects of this rule which relates to warrant trading. The Defendant submitted, however, that on the objective evidence Martin did know the client and that Martin had no reasonable grounds to believe that any warrant transaction was not unsuitable on the basis of information furnished by the plaintiff after reasonable enquiry concerning the client's investment objectives, financial situation and needs.

Counsel put that it is a question of fact and that Martin and the Defendant did have sufficient information about the investment objectives, financial situation and needs of the client. He also submitted that the defendant should not be disadvantaged because the client did not wish to divulge personal information. As to the client's "investment objectives" Counsel submitted that the objective was clear. The client wished to make as large a profit as possible and to that end was prepared to take as many risks as necessary to achieve it. The argument developed for the Defendant was in essence that the client, who presented to Martin, was Liyakat Ali, that he was introduced by Barba to Martin as a trader who wanted an aggressive return of 15% to 20% per week and wanted to exercise more control over his investments. Counsel for the defendant submitted that it was plain that Liyakat Ali wished to attempt to make money through speculation and not passive investment. As to the financial situation, he submitted that the client made it clear, "at least by innuendo", that "money was no object" and that Liyakat Ali was backed by people with substantial means. Counsel further submitted that 10 months after opening the account, Liyakat Ali seemed to Whiting to have unlimited funds.

The defendant developed arguments on the issue of whether the "know your client rule" had been satisfied. Reference was made to the fact that Barba in his letter of 23 March 1998, to Martin expressed concern about losing a client that he was sure would "bring significant financial rewards". Counsel submitted that this confirmed the message conveyed from the outset. Counsel also relied upon the fact that the client's initial payment of $89,800 went into an account holding speculative stocks which at that stage also recorded a loss of $2,700.

Counsel further submitted that the "know your client" rule was satisfied because as a result of the demonstration and discussions it was clear that the client wanted a large, even excessive return, was prepared to trade heavily and could afford to pay for losses.

Counsel sought to narrow the debate further to the issue of failing to ensure that the back page of the client application form and the other documents were filled in. He submitted that this was not required by the ASX rules and that the supply of information being voluntary, the defendant was entitled to assume the client did not wish to disclose the information. He submitted that it was clear on the evidence that Liyakat Ali had read the document.

After referring to documents which counsel said were supplied to Liyakat Ali, counsel referred to evidence of the plaintiff's expert, Francis, as to the practice of considerable informality in the industry when it comes to opening accounts even though, on 3 July 1995, the ASX sent a new Guidance Note recommending that brokers should not accept the opening of accounts over the telephone but rather by the attendance by clients at the brokers' office to sign a client agreement form. Counsel submitted that the standards in the industry was significantly lower than that which the plaintiff sought to impose. It was also put that, in opening the trading account and the No. 2 Account, Liyakat Ali deliberately chose not to supply the requisite information.

* Rule 8.14.2 - Analysis Much of the foregoing debate is not relevant to Rule 8.14.2. I am satisfied that the rule was breached because the defendant through Martin was aware that the plaintiff wished to build up funds for his retirement and wanted minimum risk and wanted, through his son, to control investment decisions. Martin failed to obtain detailed financial information about the plaintiff or his family. As to investment objectives they were known in any event. The knowledge of his objectives and lack of knowledge of financial circumstances did not change. From the inception, and throughout the retainer, Martin and the defendant had no reasonable basis on which to acquire warrants. It is true that subsequent conduct, viewed in isolation, pointed to someone wanting higher returns at great risk and someone who believed he had substantial credit but that was the result of the conduct of Martin. Liyakat Ali over time joined in but his understanding of the risks was limited and it was informed by Martin and as time went by the need for higher returns increased. Martin knew at all times, however, that what he was doing was inconsistent with the client's objectives. That was why he insisted that the defendant not be supplied with the discretionary agreement details. The fact that Liyakat Ali failed to complete relevant forms did not excuse the defendant. "Reasonable enquiry" did not occur as to the financial information.

1456. Counsel for the defendant submitted that, in essence, the failure to supervise argument came down to an allegation of a breach of the "know your client rule" and it had not been breached.

1459. I can sympathise with the Defendant in the task of identifying the Plaintiff's submissions with accuracy but to describe the Plaintiff's submissions in that way is to misunderstand them. The issues are whether, accepting there was an obligation to exercise reasonable care to supervise and control Martin, that obligation was breached.

1462. A stockbroker employing brokers cannot supervise each dealing they make as they make it. It can, however, set down policies. This the defendant did through its Compliance Committee in Perth. Policies, however, are worthless without systems and people in place to enforce those policies by checking from time to time that they are being applied.

1465. There was no adequate system in place in Melbourne or Perth to monitor the way brokers carried out their trading activities. In Melbourne there was an Office Manager. In Perth, there was a compliance officer who, on the evidence presented appears to have done very little. There was a Committee but it too appears to have done little.

1468. There was, more particularly, no supervision and control of the way Martin carried out his trading activities, except for debt aspects and possibly, at one point, his short selling activity. The latter, however, on the evidence was limited. I refer to the memo apparently from the Compliance Committee of 14 July 1998, mentioned above, in which Martin was taken to task. In response to a notice to produce, counsel for the defendant asserted that there were no Compliance Committee Minutes which referred to Martin. This is curious in view of the 14 July 1998 Memorandum. Accepting counsel's response, however, it points to a Committee that was not properly monitoring brokers. There is a singular lack of evidence from the defendant, or submissions, on the monitoring, if any, of brokers by the Compliance Committee.

1471. I am also satisfied that the abovementioned incidents involving Martin of which the defendant was aware, separately and in combination, put the defendant on notice that Martin was someone requiring very close supervision and control - if only because of his reckless conduct and deception so far as the defendant itself was concerned. That conduct should have raised concerns about whether he was conducting himself with integrity and reasonable care in his dealings with the defendant's clients and close supervision and control in the interest of those clients should have occurred as a result of that conduct.

1474. Eventually by 22 October 1998, one of Martin's superiors, Newton, was monitoring his accounts daily because of his failure to comply with the Debtor's Committee requirements. (P65).

1477. On about 3 November 1998, Newton prepared a summary of the status of various accounts, notably the Rahmat Ali, Barba, Khan and Martin accounts. The document is in summary form and opens with the following:

That Chris might take a big "get out" punt and loose".

The document then in summary form considered the financial position of each of the accounts and the extent to which there was or was not adequate cover in the accounts. In the case of the Rahmat Ali account he noted that the account was effectively without cover for short sales totalling $154,00.00 and "technically in breach of ASX rules" and had a net surplus down to $13,000.00. He then listed a number of accounts including the Barba accounts, in which there were deficits, an absence of cover in the Mohamed Khan account for $194,000.00 of short sales and deficits in the Martin accounts. The document then stated -

Multiple breaches of ASX rules exist regarding short sale margin cover. I am extremely uneasy".

This document appears to be the first document where there is any concern expressed for clients. I note too, Newton's concern that Martin might take a "big get out punt and loose". He had, of course, already done that and won and lost. I refer to the AMP and Newscorp punts (see Annexure A). The overwhelming concern of the memorandum, however, remains the extent of the debts in the accounts from the point of view of the defendant. On 6 November 1998 Martin had again short sold warrants. Later Malloch expressed his concerns in an e-mail of 10 November 1998, addressed to the Debtor's Committee, Martin and Karlson. He referred to previous concerns and the debate that had passed in Debtor's Committee meetings about the "manner in which Chris Martin handles his client's debtor's accounts". It referred to a failure to adhere to the defendant's policies and a number of trading accounts which had insufficient equity, either in the form of cash or stock. Reference was also made to a noticeable pattern towards derivative trading and that the situation had been reached where the majority of Martin's accounts had serious problems. He then attached an analysis which focused again on the issue of deficiencies in the accounts - a matter of concern to the defendant, of course. The focus remained on the defendant's financial position.

1490. Martin responded to the Debtor's Committee and Malloch by a memo of 11 November 1998, in which he endeavoured to paint a picture of matters being under control and of little risk in fact existing for the defendant and promised to curb his trading "to clients with available funds and cash deposits".

1493. Eventually, on 20 November 1998, the Debtors Committee stepped in and resolved that all outstanding accounts be cleared. If not "it would result in the termination of CRM". No one, however, appears to have, even then, investigated his trading in any detail. The Committee requirement was conveyed to Martin by a memo of 23 November 1998. In it he was told that he had to clear the accounts in full by 1 December 1998 and that, if he did not, his employment would be terminated. The author of the memo, Craig, suggested to him that he immediately turn off his screens and spend the next week focussing on meeting the requirements of the memorandum. Undeterred, the following day Martin sought extensions and was rebuffed. Again the focus was on the debt position of the defendant and whatever concerns others may have shared with Newton about the clients, nothing was done at this time to speak with the plaintiff or his agent about the overall situation.

1496. There was a failure by Martin to comply with ASX Rules 3.4.1(1), 3.4.4, 8.14.1 and 8.14.2, which were breached as was s.851 and s.846 of the Corporation's Law. I am satisfied that that occurred because of the absence of any adequate system for supervising and controlling brokers.

1499. The defendant plainly breached its obligations to supervise and control Martin's trading with reasonable care. The question that remains is whether this breach caused or contributed to the alleged losses. I will address that question when considering arguments put on all aspects of causation.

ALLEGED BREACH OF TELSTRA ASPECT OF AGREEMENT - SALE OF THE SHARES

1504. It is common ground that the defendant received $195,000.00 for the acquisition of the Telstra shares. Trading on the market in the Telstra shares began on 17 November 1997. The plaintiff's holding of 100,000 Telstra shares was sold by Martin late the next day - 18 November 1997.

1507. The plaintiff alleges that they were sold negligently and in breach of the plaintiff's instructions and, therefore, the retainer. The plaintiff further alleges that, while he accepted the sale, he did so only on the basis of a promise by Martin, on behalf of the defendant, to buy them back and to meet any difference between the price at which they were re-purchased and the price at which they had been sold.

1510. The defendant, on the other hand, alleges that they were sold on instructions from Liyakat Ali although Barba had urged that they not be sold.

1513. In putting its case, the defendant relies on its denial of any long term investment plan being in place as at 17 and 18 November, involving the Telstra shares. I have already referred to this issue above and my acceptance of the plaintiff's case on that issue. The events of 17 and 18 November 1997 pose a further major problem for the defence position on that issue. If, as at 17 November 1997, the Telstra shares were like any others held by the plaintiff, and, so, to be used to make profits by trading, they would have been sold the first day. They would not have been sold, as happened, at the very last moment on the second day of trading on the market. Over the first two days, the market price of the Telstra shares fell and, if it had been intended that these shares were to be traded like any other shares, they would have been sold as soon as the downward trend became apparent on the first day. I am also satisfied that Martin `s view, at the time, was that the fall was to be expected and that the price would decline to $2.20 and this was the view he conveyed to Barba and Liyakat Ali at that early stage. The delay in selling points to Martin believing that the Telstra aspect of the retainer was separate and distinct and that he needed to obtain permission to sell and tried to obtain it.

1516. I turn to the other issue, whether the shares were sold on instruction.

The evidence for the plaintiff of the events of 17 & 18 November 1997

1521. Barba was involved in discussions with both Martin and Liyakat Ali and was able to give evidence about the events. His evidence is supported by the file notes that he kept at the time.

1524. His evidence was that, late in the trading period on 17 November 1997, Martin contacted him saying that he wanted to sell the Telstra shares at $2.75. Barba spoke to Liyakat Ali and having done so spoke again to Martin advising him that if he wanted to trade he must buy and sell another parcel separate from the stock that had been purchased. At this point Martin became upset and advised that analysts' reports had indicated that the share would drop to $2.20 and that if the shares weren't sold some $50,000 would be lost. He stated that if this did occur he could not be held accountable for any inability to achieve the 20% profit. He assured Barba that he would buy them back at $2.20 and would then gear the shares. Barba advised Martin that Liyakat Ali did not agree. Martin confirmed that he had himself spoken to Liyakat Ali and asked Barba to try to influence his thinking. Martin argued that they must be flexible and not rigid in their decision. He said that the enthusiasm for the stock would die out and they were looking at a possible $50,000 loss. Barba told Martin to stick to the plan, that Ali was adamant. Barba in his evidence said that the reference to the $50,000 loss and the 20% result was, as far as he was concerned, irrelevant so far as the Telstra holding was concerned. He could not recall if he expressed that view to Martin.

1527. Barba's evidence was that on the following day, Martin again spoke to him. He said the stock was then at $2.55. He was upset about not selling at $2.75 and so losing an $80,000 profit. He had the potential for a $60,000 profit and they had already lost $20,000 from the previous day. He said that the next day it might be $2.40 which would result in only a $40,000 profit and, therefore, a lost opportunity of a $40,000 profit. Martin said the stock would go down to $2.10 to $2.20 and that that would be the time to buy it back. He strongly urged that the profit be taken then. This conversation occurred on or before 1342 (1.42 pm). I accept that Martin urged Barba to encourage Liyakat Ali to sell Telstra and take the profit now and that Barba told him that Liyakat Ali wanted to stick to the plan.

1530. On or shortly before 1610 (4.10 pm) on 18 November 1997, Martin telephoned Barba to say that he had sold Telstra and made a profit of $56,000. He assured Barba that he would buy Telstra back in the near future at a much cheaper price. In support of his argument that the price was too high he spoke about the Bank of England and the Americans having sold their shares on day one. Martin urged Barba to note particularly that a profit of $50,000 plus had been made. Barba told him that that was a fair effort but there was a plan in place and he should have followed his instructions. Barba reminded him that it was he who had first encouraged the concept of gearing Telstra with the example of the Commonwealth Bank. Later Martin again called Barba. Barba reminded him of Liyakat Ali's instructions not to sell and that he should have bought Telstra back immediately. Martin said that he had sold the stock just before the close of business. Barba also told him that Liyakat Ali insisted that if the stock went up in price rather than down then Martin would have to pay the difference in buying back the Telstra shares into the portfolio, and that Martin must adhere to the original plan. Martin said he would buy back at a lower price and he would make up any shortfall. There was a further conversation between Martin and Barba which went over similar issues. In the course of that conversation Martin commented, amongst other things, about the expectation that the price of Telstra would fall the next day, he emphasised his professionalism as opposed to that of Barba and Ali and urged them to leave the job to him. He asked Barba to speak to Ali and convince him of the wisdom of the course that had been taken.

1533. Barba's evidence also was that he did speak to Liyakat Ali conveying Martin's attitude. Both agreed that what had happened was a "knee jerk" reaction - comparing the CBA history. Both agreed that the sale be accepted as long as Martin bought Telstra back and that if he couldn't buy it back at the price sold then he would have to cover the difference from his own pocket.

1536. Liyakat Ali's evidence was substantially similar.

1540. The defendant relied on Martin's evidence of the events leading up to the sale of the Telstra shares. Martin asserted that Liyakat Ali was wanting to sell the Telstra shares but Barba was not and that he placed the shares on the market at $2.53 as soon as he got instructions and they were sold very quickly. This evidence was shown to be incorrect.

1543. He was shown the sale order from the defendant's records which he had filled out. It recorded the time of 4.05pm and the date of the order. He said if this was filled in compliance with the ASX Business Rules it would have recorded the time at which he received the instruction to sell. Later, he confirmed his evidence that shortly before the actual sale, he had received instructions from Liyakat Ali to go ahead. He said that was the only instruction he received.

1546. His evidence of the placing of the order and the sale was contradicted by the objective evidence. He was referred to a number of Seatscan print-outs (P63). They revealed that Martin placed the following offers on the Seat system on 18 November 1997, to sell the plaintiff's 100,000 Telstra shares;

* 10 minutes 28 seconds later the offer was amended on the screen from a disclosed offer to an undisclosed offer and

* 23 minutes 21 seconds later (at 16.02.06), the offer was amended to $2.53 from $2.54

The final print out shows the sale occurring at 16.05.01 at $2.53 confirming that it had been sold in the match-ups of all unresolved bids and offers that occurs in the Seat system at the end of the day's trading.

1555. Martin was asked if he still adhered to his evidence about what had occurred and he replied that he did not. He said "It probably appears that I may have offered 100,000 shares in Telstra at those prices". It was put to him that at no stage in his evidence had he ever suggested that half an hour before the actual trade was undertaken he had received instructions to put an offer for the sale of Telstra at $2.52, he replied saying "I'm not too sure". Put that his evidence had been that he had received instructions shortly prior to the sale to sell at $2.53, he said again "I'm not too sure".

1558. I note that the sale order, in light of the above, accurately records the selling price and the time of the sale. It obviously does not accurately record the time of the instructions to sell, assuming instructions were given, before Mr Martin commenced to try to sell the shares at 3.25pm. I also note that he ticked the square in the selling order "advice given". This was true as far as it went. He had been trying for over 24 hours to persuade Liyakat Ali to sell the Telstra shares and advising him accordingly.

1561. It is also relevant that Martin acknowledged, in the course of some prevaricating evidence, that prior to 17 November 1997, he had no firm instructions to sell the 100,000 Telstra at any particular price. In addition, Martin asserted that there was much talk in the period leading up to the float of price and likely prices. But he agreed that the price would affect the amount that could be borrowed for further purchases and he did not dispute that on his evidence there had been a lot of talk about prices but not much talk about what to do on the day.

1564. The defendant also faces the difficulty that documents were given or sent to Martin at different times which asserted that he had sold the Telstra shares contrary to instructions and he either did not deny the assertions or accepted their truth (See meeting 15 January 1997 and letter from Barba 30 June 1998 and Martin letters 30 June 1998, 1 July 1998 and 3 July1998.

1568. The defendant relied upon evidence of O'Halloran, an employee of Barba at the relevant time. O'Halloran at the time he made his witness statement and gave oral evidence was working as a colleague of Martin. I have come to the conclusion that critical parts of his evidence were unreliable.

1571. In his witness statement he stated that, at Barba's request, he had investigated the pattern of trading in initial public floats and concluded that there was a pattern of heavy initial trading and a rise in price over the first few days and then a fall. He said that he discussed with Barba an appropriate selling point for Telstra. He said that he, and he believed Barba, had discussed this strategy with Liyakat Ali prior to Telstra coming on the market.

1574. Cross-examined about this statement, O'Halloran gave very unsatisfactory evidence about whether and, if so, when such conversation with Liyakat Ali occurred - at one point he said it was after the shares came on the market. In the end, his evidence was of a conversation about what Telstra might do but he was unable to say what Liyakat Ali said. Bearing in mind that O'Halloran had applied for shares and the likely price was of interest to both of them, it is likely that they did discuss the price prospect. But the likely price was also highly relevant to any margin lending. Further, it emerged that he assumed Barba would have spoken to Liyakat Ali about selling Telstra but had no knowledge of that occurring.

1577. The defence also relied on his statement that on the morning of 18 November 1997, he told Liyakat Ali that he had sold his Telstra shares for $2.71 and that Liyakat Ali said he was disappointed that he had not sold his at that price and that he might sell them if the price continued to fall. In cross-examination he said that Liyakat Ali's reaction was shock and surprise at his selling of his shares and a questioning as to why he had done this. He also said that the conversation could have taken place on 19 November 1997. Finally, asked to give the substance of this conversation in his own words he said:

"the discussion after the float was centred around what I did with Telstra, what I thought of Telstra, where I thought it was going and what I did with it. ..........That's the extent of our discussion".

I am satisfied that the statement in the witness statement about the conversation should be rejected. His evidence highlights the dangers of witnesses failing to take care before accepting their witness statements.

1583. Later, in a conversation on about 24 November 1997, Martin again discussed the Telstra sale with Barba saying amongst other things that he stood by his decision to sell the shares and had informed Liyakat Ali of that. Barba told Martin that Liyakat Ali was not at all happy with the decision and still insisted that Martin buy them back. Martin told Barba that to put Ali's fears to rest he had given his own free allocation of Innovax shares to compensate for the sale of Telstra. I am satisfied that he claimed this but it was false. He said the value of the Innovax shares would more than make up for the extra price of Telstra having regard to the then price of Telstra. He said that Innovax would see $1.20 in the short term. Martin also complained to Barba that Liyakat Ali was insisting on selling Innovax stock to take whatever amount it would bring and to use that money to buy Telstra shares back and commence gearing as originally planned. Martin told Barba that he had used the allocation of Innovax to average down the price of that stock held by Ali. He said the stock should see $1.20 in the short term which would give a profit of $70,000 to $90,000 while Telstra had lost its hype so that it would be smart not to buy Telstra now but rather at a later time. He said that with profits from the Innovax shares he would be able to purchase 50,000 extra Telstra shares over and above the 100,000 that were sold and that the 150,000 units could be used for gearing purposes.

1586. Liyakat Ali also spoke with Martin. In particular he spoke with Martin after 19 November 1997 demanding that he quit the account and give the plaintiff his money. Martin persuaded him to continue by, inter alia, repeating his promise to buy back the Telstra shares and cover any losses. On 24 November 1998, Martin made the Innovax "gift".

1589. Another conversation occurred on about 28 November 1997 between Martin and Barba about the Telstra issue. Martin said that he was going to buy 40,000 Telstra call warrants to be held for the long haul and to safeguard against the decision that had been taken to sell the stock. Martin again stated he would buy back the Telstra shares in the future and Barba reminded him that Ali was insisting that this be done. Martin said that the calls would make a greater profit than the shares in any case and that it would be easy to have a minimum of 500,000 shares. There was at least one other conversation in the month following the sale when Martin was asked to re-purchase the shares.

1592. I am satisfied that the topic of the Telstra shares was raised subsequently from time to time. For example, I accept that on the 9 January 1998 and on the 15 January 1998, Liyakat Ali raised with Martin the selling of Innovax and the purchasing of Telstra. On 12 June 1998, Liyakat Ali also spoke to Martin about buying back into Telstra, either through shares or options. Liyakat Ali spoke to Barba about Barba speaking to Martin about buying back into Telstra. Barba did so, but Martin, as he did from time to time, said that it wasn't the right moment to buy back Telstra. Barba asked Martin why he would not take on board what Ali wanted him to do, suggesting that it was the best way for him to protect himself. Martin responded, according to the file note, by asking them "to get off his back. He is the broker and he knows what he is doing".

"Spoke to him about the Telstra request. I said just buy it. It is easy to spend someone's money when they have given you the okay but why are you not doing it. CM response - Telstra on a downer and will crap out. Overpriced overpriced. He has been saying that since day one on Telstra!!!!".

I am satisfied that throughout the period of the retainer, Liyakat Ali maintained and Martin accepted that there was an agreement that the Telstra shares would be repurchased. Martin skilfully managed to avoid doing so by relying upon the ascendancy that he had gained in the relationship as a result of the terms of the trading aspect of the retainer - he was the one in control.

1598. At no time did Liyakat Ali, on behalf of the plaintiff, ever indicate that he accepted what had occurred in relation to the Telstra shares. On the contrary he continued to express his dissatisfaction.

1602. The defendant has argued that the plaintiff's subsequent conduct supports the defence case that there were no long term investment plans for the Telstra shares and the sale was not against his wishes.

(a) Failure to terminate_._ The defendant argued that the plaintiff did not terminate the retainer at the time of the sale because the plaintiff had in fact gone along with the sale of the Telstra shares in the first place. I accept the evidence referred to above, however, that that was not what occurred. The explanation for the willingness of the plaintiff and his son to continue lies in a combination of factors. There were factors that would have ameliorated Liyakat Ali's anger and so caused him not to terminate the retainer. They included the fact that the plaintiff was considerably in the debt of Martin in that he had organised a very generous allocation of Telstra shares and shares in the float of Great Southern. Further, from the first day of trading in Telstra shares, Martin applied enormous pressure to Barba and Liyakat Ali to try to get the latter's agreement to the sale of the shares. He spoke confidently of a decline in the price of Telstra and the enormous potential profit that would be lost if they were not sold and emphasised the expertise that he had and that Barba and Liyakat Ali lacked. After the sale, he maintained strongly that what he had done was done to further the long term best interests of the plaintiff and a profit of more than $50,000.00 was realised. At the time, Liyakat Ali had no grounds for doubting the bona fides of Martin's position. Martin was not alone in his views about Telstra. Then there was Martin's promise to buy back and cover any adverse difference in price. Later, when obviously Liyakat Ali was still unhappy, Martin provided, on the face of it, 30,000 Innovax shares out of his own holdings for nothing and maintained that the plaintiff would do better out of them, and the other Innovax shares purchased, than he would have done with the Telstra shares.

(b) Use of proceeds. Another issue raised is whether Liyakat Ali was aware that the proceeds of the Telstra receipts had been used to purchase speculative stocks that were acquired shortly afterwards by Martin. This was inconsistent with the plaintiff's alleged plans for that money. The defendant argued that Liyakat Ali was aware of the use and accepted it because the plaintiff did not in fact have separate plans for the Telstra shares and their use and saw them simply as part of the plan to trade on the market to make a targeted return of 15% to 20% per week compounding.

1608. Initially I was inclined to the view that both Liyakat Ali and Barba were not aware of the use of the Telstra proceeds in this way until the very end of the retainer. This was possible because I accept that the contract notes, which would have revealed what had happened to the proceeds if read carefully, were not read by Barba and not received by Liyakat Ali. In addition Liyakat Ali did not receive account statements which would have identified the use of those funds. On the one occasion where Martin produced a weekly report that referred to the Telstra account showing a balance in the account of $3,787.01, I could well understand, as Liyakat Ali claimed, that Martin said that that was a mistake. In addition the other weekly reports did not expressly flag the use of the Telstra proceeds. I also note that Liyakat Ali did not authorise the closure of the No 2 account or the transfer of funds and trades to the trading account prior to these events occurring.

1611. I am satisfied, however, that while Barba did not, Liyakat Ali did closely monitor what was occurring and studied the weekly reports. In doing so, he would have become aware that the Telstra funds were being used in these share trading activities. The weekly report as at 19 December 1997, listed portfolio holdings with a market value of $428,250.00. It showed a balance outstanding on the Number 1 account of $82,890.00. Assuming that only approximately $102,000.00 had been invested by the plaintiff to acquire that portfolio, the plaintiff was approximately $233,000.00 ($428,250.00 - $184,890.00) ahead at that point. On an investment of $102,000.00 that was a 238% return -a very satisfactory result. On the other hand, one would expect Liyakat Ali to be concerned if those figures represented a portfolio holding for which the Telstra money had also been used. In that situation, the monies invested to acquire those shares was of the order of $300,00.00 and the profit, therefore, only a little over $45,000.00. On that basis, the $50,000.00 profit made on Telstra had already been whittled away. A similar analysis of the portfolio holding weekly report as at 9 January 1998 shows a worsening of the position with the value of the portfolio $479,425.00 but $161,986.00 owing on the account. Again, however, if it is analysed on the basis that only $102,000.00 of the plaintiff's money's was involved in acquiring the portfolio, the plaintiff was at that stage ahead by $216,000.00, a 211% return on his $102,000.00. On the assumption that the Telstra moneys were also used to acquire the portfolio, the profit had been whittled back to approximately $20,000.00. It is that lack of performance, together with the speculative nature of the stock held, which explains Liyakat Ali's concerns leading up to meetings in January 1998 and his concerns leading up to exchanges of correspondence in March and in June and July of that year. I will refer in more detail later to these events, particularly in Annexure A.

1614. As to Barba's knowledge, he gave evidence in cross examination that as at 23 March 1998, his understanding and that of Liyakat Ali was that "the appropriate funds" were in the respective accounts - "that's all we knew". He also said that he did not know that the Number 2 account had been closed - no one had advised him of that. Put that as at 23 March 1998, he knew that the proceeds from the sale of the Telstra shares had been used to purchase other shares, he replied "not at all". Counsel then said, "We will come back to that". Counsel did not do so, with the result that the issue was not pursued. It is possible that Barba did not know as at 23 March 1998 that the whole of the proceeds had been so used. I accept that he, like Liyakat Ali, was under the impression that substantial amounts of credit were available in the trading account and so the trading that went on would have been explicable on the basis that such credit was being used. He may have believed some money remained in the No 2 Account. I also accept Barba's evidence that he received few weekly reports and that he did not monitor in detail what was happening. While he had raised the issue of the retainer, absent anyone telling him that the proceeds were being used, he could well have not known that they had been. It is likely, however, that he at least assumed by March 1998 that some of the proceeds had been employed in trading. It would be surprising if Liyakat Ali had not talked to him about the use of the funds.

1617. Accepting that Liyakat Ali was aware that some or all of the proceeds were being used by Martin, it does not follow that the reason he permitted that to occur was that there were no long range plans for the Telstra holdings. What occurred was that Liyakat Ali did not initially prevent Martin using the proceeds because he relied on his promise to buy back into Telstra when the shares fell further, as he confidently asserted they would. Subsequently, Martin used his position of control to defer the buy back. By the middle of 1998 it was not possible to buy them back using the plaintiff's funds until the financial position of the accounts improved.

1621. I am satisfied that Martin breached the retainer by selling the Telstra shares contrary to the instructions of the client. He was well aware of his obligations. I am not persuaded, however, that the representation relied upon can be shown to be false when made or negligently made.

1624. The defendant's liability, however, depends in part on the legal effect of the subsequent conduct of the parties. I will address those issues after considering the illegality issues raised by the defendant.

1630. The defendant alleges that, on about 29 October 1997, Liyakat Ali, or Dominic Barba as his agent, completed Telstra share application forms in the names of A. Din, F. Din, R. Din, Sharifa Bin, Yakub Khan, Meena Begum, Hamisra Begum, Sheema Begum, Mohina Begum, Mohammed Iqbal Khan, Mohammed Imran Khan, and Mozamai Begum (5AB). The defendant further pleads that each of the application forms purported to be signed in the names of the above named people but were signed by Liyakat Ali using a false signature (5AC, 5AD). As a result it is alleged (5AE) that Liyakat Ali sought to obtain the Telstra shares by deceiving Telstra. In giving particulars of that allegation, it is pleaded that the statement made in the share application is to the effect that the person whose name appeared on the form was applying for the Telstra shares when in fact either;

(a) no such person existed; or

(b) the person named therein was not applying for the Telstra shares.

It is also alleged that Liyakat Ali, by reason of the above, made a statement that to his knowledge was false or misleading in a material particular and contravened s.1308(2) of the Corporations Law as then in force and s.82 of the Crimes Act 1958 (Vic). In addition, it is alleged that in so doing, he attempted to impose upon Telstra by an untrue representation with a view to obtaining benefit or advantage and, therefore, committed an offence under s.28B of the Crimes Act 1914 (Cth) (5AF).

1636. It is further alleged that, on about 10 December 1997, Liyakat Ali purported to sign Australian Standard Transfer forms in the names of each of the above people as transferors and in the name of Rahmat Ali as transferee purporting to transfer the Telstra shares from the above named people to Rahmat Ali(5AG). In particulars to this allegation, it is alleged that;

(a) the signatures and names written on the transfer forms as transferors were false; and

(b) the consideration shown was false in that no moneys were paid by Rahmat Ali to any of the transferors.

It is alleged that by reason of those matters, Mr Liyakat Ali made a statement that to his knowledge was false and misleading in a material particular and thus was in breach of s.1308(2) of the Corporations Law and s.82 of the Crimes Act 1914 (Cth) (5AH).

1642. Finally, it is alleged that by reason of the above matters the plaintiff and/or Liyakat Ali is estopped from deriving any benefit from the Telstra shares issued by Telstra in reliance upon the application forms or the transfer forms (5AJ).

1645. The plaintiff in his reply joins issue with the defendant on all allegations. In particular, he alleges that the relevant documents were signed by Liyakat Ali as agent for each signatory and that, if there were contraventions, they were not his and cannot be attributed to him. Other issues are raised, in the alternative, including estoppel. The plaintiff alleges that the defendant represented that it was safe and proper and valid for Telstra Instalment Receipts to be purchased by 13 persons and after market transfers executed and that it facilitated the same and is, therefore, estopped from relying on the illegality alleged. Alternatively, the plaintiff alleges that, if the transaction did contravene the legislation, the court in its discretion should allow the plaintiff to pursue the claim.

1648. In addition, on the assumption the defence is upheld, the plaintiff has pleaded in his statement of claim a claim for damages on the grounds of negligent misrepresentation and also misleading and deceptive conduct by the defendant. (para 30 to 42) - as to , inter alia, the propriety of proceeding by 13 applications for the provision of the instalment receipts. The defendant denies the allegations and raises a number of issues which it is not necessary to detail.

1652. The defendant's allegation of illegality appears to be confined to particular alleged deceptions - namely;

(a) in relation to the applications to Telstra;

* the making of untrue representations that the persons whose names appeared on the application forms were applying when if in fact they did not exist or were not in fact applying for the Telstra instalment receipts; and

* the signatures upon them were false;

(b) in relation to the Telstra share transfer forms allegedly executed on about 10 December 1997, that they contained false and misleading statements in that;

* the signatures and names written on the forms as "transferors" were false; and

* the consideration shown on the forms was false in that no moneys were paid by Rahmat Ali to any of the transferors.

The Legislation

1658. The following are the sections allegedly breached:

Section 1308(2) of the Corporations Law provided relevantly:

"A person who, in a document required by or for the purposes of this Act, makes or authorises the making of a statement that to the person's knowledge is false or misleading in a material particular, or omits or authorises the omission of any matter or thing without which the document is to the person's knowledge, misleading in a material respect, is guilty of an offence".

Section 82 of the Crimes Act 1958 provides:

"A person who by any deception, dishonestly obtains for himself or another, any financial advantage is guilty of an indictable offence and liable to level 5 imprisonment (10 years maximum)".

For the purposes of Section 82, deception means:

"Any deception (whether deliberate or reckless) by words or conduct as to fact or as to law, including:

(a) ....deception as to the present intentions of the person using the deception nor any other person; and

(b) includes an act or thing done or omitted to be done with the intention of causing -

(ii) a machine that is designed to operate by means of payment or identification;

to make a response that the person doing or omitting to do the act or thing is not authorised to cause the computer system or machine to make".

Section 29B of Crimes Act 1914 (Cth) provides:

"Any person who imposes or endeavours to impose upon the Commonwealth or any public authority under the Commonwealth by any untrue representation, made in any manner whatsoever, with a view to obtain money or any other benefit or advantage, shall be guilty of an offence".

1674. In the defendant's submissions much attention was devoted to the elements of the offences alleged to have been committed and to the issue raised by the plaintiff as to whether the alleged deceptions were of any consequence so far as Telstra was concerned and the relevance to that issue of the arrangements between Hartley Poynton and Telstra - of which there was no evidence. In light of the conclusions to which I have come on the evidence, it is not necessary to consider those issues. What is critical is the conclusion to be reached on the factual matters raised relevant to the defence of illegality as pleaded.

1677. In the present case the defendant has pleaded an agreement to apply for 100,000 Telstra shares for the plaintiff by using dishonest means which constituted the commission of criminal offences. The defendant does not allege an illegal contract or a contract with an illegal object but it has argued that the court should not assist the plaintiff by awarding damages in respect of the Telstra shares where to establish his entitlement to those shares he has to prove conduct which amounted to contravention of one or more of the three statutory provisions - ex turpi causa non oritur actio. The defendant has submitted that the court must determine whether the conduct is "sufficiently anti-social to justify the courts refusing to enforce that right" (Hardy v Motor Insurer's Bureau [1964] 2 All ER 142; Fire and All Risk Insurance Co Ltd v Powell [1966] VicRp 73; [1966] VR 513, 523). In considering that question, the court must consider the gravity of the illegal or criminal act in question, the possible tendency to encourage the doing of such acts if civil claims are allowed and the extent of the need for deterrence (ibid).

1680. The defendant, in my view, carries the legal burden of proof on these issues. The formulation of the substantive law principles to be applied has that result. In particular, before the plaintiff's claim can be defeated, the Court would have to be satisfied that the alleged illegal acts occurred.

1684. The illegality issue emerged early in the actual hearing. There had been no suggestion prior to that of any illegality issue. I required the defendant, if it wished to raise the issue, to plead it. Having raised the issue of illegality, and pleaded it, however, the defendant has not led any direct evidence to support the allegations that the 13 people did not exist, that they were not applying, that the signatures were false or that no consideration passed. Rather, counsel for the defendant argued, first, that the evidence as to what occurred shifted the onus of proof to the plaintiff and it had not been discharged.

1687. The defendant's argument appears to have several elements. The first is that the signing of a name by a person except by an attorney is not usually acceptable in respect of shares and that an applicant must sign either personally or by attorney in the space provided on a share application form. It was put that this is normal procedure and there is no reason why it would be any different in respect of the Telstra application. The defendant led no evidence of what is usually acceptable or done in signing such documents for others.

1690. It was further submitted that Liyakat Ali had admitted that the signatures on the application forms and the transfer forms of the 13 individuals and his father were placed there by him writing their names and without contact with the 13 individuals. Counsel also submitted that Liyakat Ali believed that individual applications were limited to 8,000 shares. Counsel commented that the evidence of his authority to sign was that of the plaintiff alone and the 13 individuals were not called. The defendant then argued that in the above circumstances it cannot be assumed, the signatures being written by Liyakat Ali, that the applications were bona fide. It was submitted that what must be assumed is that the applications were signed in those names to obtain the shares which Liyakat Ali thought he was not entitled to if he had merely put in one application for 100,000 shares. It was put that the clear inference to be drawn from that conduct is that he acted deliberately and dishonestly in making the applications.

1693. The defendant argued that, in the above circumstances, the onus shifted to the plaintiff to show that Liyakat Ali had the authority claimed and that the onus has not been satisfied where the plaintiff did not call the 13 applicants as witnesses and gave no explanation as to why they were not called, or as to their unavailability.

1697. The argument of the defendant is that it should be inferred that Liyakat Ali and the plaintiff acted dishonestly in making the applications because at the time of the lodging of the applications;

(a) the applicants had to sign personally, or expressly by their attorneys, this being normal procedure,

(b) the signatures placed on the forms were written by Liyakat Ali using the name of the applicants,

(c) the arrangements between Telstra and Hartley Poynton did not permit a client of the latter to lodge a number of applications using the names of other real persons with the intention at the time that those persons would transfer any issued shares to the client, and

the 13 applicants were not called to give evidence.

1703. As to the first assumption, there is no evidence before me of normal procedures. What is required in each case will be established in the relevant prospectus and application forms. In this case, there is evidence of the application forms. They do not support the degree of formality that the defendant argued was required. I refer to the information on the back of the application form and, in particular, under the heading "Treatment of Applications" where the following appears;

"1. If your application is not completed correctly, including failure to sign the application, or if the accompanying payment is for the wrong amount, it may still be treated as valid. The Commonwealth's decision as to whether to treat your application as valid, and how to construe, amend or complete it, will be final".

1707. In addition, accepting, as defence counsel submitted, that Telstra in issuing shares was dealing with the person named as applicant on the application form, there was nothing on the application form indicating that any applicant must state whether he or she was applying personally or in a representative capacity. That applications might be made by X on behalf of Y was recognised in the provisions relating to foreign persons. In such instances, the form required only that a letter "F" be placed in a box where the applicant was investing on behalf of a foreign person or was under the control of a foreign person or accustomed to act on the wishes or instructions of a foreign person.

1710. As to the second assumption, signing in the name of the principal is lawful.

1713. As to the third assumption, it is inferred as a consequence of the limit of 8,000 shares for each named applicant. While it is clearly an inference reasonably open from the arrangements that appear to have been in place in relation to allocations to Hartley Poynton's clients, it does not necessarily follow that the client was not permitted under those arrangements to arrange for other persons to apply in their names for shares which they would transfer to the client after they were received. I refer firstly to the evidence that the defendant, through Martin, had proposed to use 13 friendly accounts to assist the plaintiff to acquire the shares - an indication that such an approach was permitted. Of course, this may have been another act of deception promoted by Martin but it may have been acceptable within Hartley Poynton and Telstra. The defendant could have but did not lead any direct evidence as to the precise limitations that were in place or their basis. Assuming that the aim of the limit was to achieve a reasonable distribution of the shares, it may have been the case that whoever imposed the limit was prepared to allow clients to apply through others and relied on the practical difficulty of securing a number of people, who were not themselves applicants, to make applications on behalf of the client to limit the number. They may also have relied on the discouragement of the penalty that would be paid on the second instalment by anyone who acquired the shares by transfers after the float. The alternative would have been a major and expensive process requiring the authentication and checking of each application form.

1716. In my view, the matters relied upon by the defendants are not enough to shift tactically the evidentiary onus. If they were, that tactical shifting of the onus was discharged in any event by the plaintiff giving evidence. I have referred above to that evidence and my comments on Rahmat Ali and Barba as witnesses. I refer also to my comments below.

1719. As to the failure to call the 13 individuals, an explanation was proffered. In submissions, counsel for the plaintiff put that the issue did not arise, there being no obligation to call the witnesses because no evidence was tendered by the defendant to contradict the plaintiff's evidence and as to which the 13 individuals might have given evidence. This was the position taken by the plaintiff, presumably on advice given to the plaintiff. Views might differ as to whether it was right or wrong, but it was a view that was open in light of the authorities. The situation was one where the plaintiff had given direct evidence on the issues. There was no direct evidence led by the defendant, for example, in support of its argument that the 13 individuals did not exist. Having regard to the moneys that must have been expended in defending the case, it is reasonable to assume that the defendant had the resources to make whatever enquiries were necessary to establish the existence or otherwise of the 13 individuals. On the other hand, the plaintiff was in financial difficulty and the expense involved in calling the 13 witnesses would have been considerable. In addition, it was unlikely to be sufficient to call some of the 13 because the failure to produce some as witnesses would have given rise to a strong argument that it was significant that the other witnesses were not called. It may fairly be said that the situation for the plaintiff was one where a judgment would have to have been formed, on legal advice, as to whether it was in fact necessary and warranted to call these 13 individuals even if each one of them would have supported the plaintiff's evidence. "There is always a matter of balance in these matters" (Cox, J Packer v Cameron (1989) 54 SASR 246 at 254).

1723. In the alternative, the defendant argued that, if it is not accepted that the onus shifted to the plaintiff "to prove authority", the weight of the evidence was sufficient to establish that Liyakat Ali or the plaintiff acted illegally in that they breached the relevant sections. Counsel for the defendant relied primarily on the allegedly "unreliable evidence" of Rahmat Ali upon whom the plaintiff's defence to illegality depends and the "discredited evidence of Liyakat Ali". A number of issues were raised:

(a) Internal inconsistency. Defence counsel argued that there were inconsistencies in the case and the evidence advanced for the plaintiff. It is put, in particular, that there is an inconsistency between the plaintiff's evidence and Liyakat Ali's evidence about the intention of using Telstra as a nest egg for the plaintiff's retirement and the case that the applications in the 13 names were for those 13 people - the latter thwarted or compromised the former. The defendant also argued that the evidence of the alleged conversations between Liyakat Ali and his father discussing how family members might benefit from the purchase of Telstra with money from Liyakat Ali made little sense unless it was a reconstruction. It was put that they could not have taken place before 28 and 29 October and are inconsistent again with the evidence adduced that the Telstra allocation was to be utilised as a nest egg for Rahmat Ali's retirement.

There are problems with this simplistic argument. The evidence points to the nest egg intention as being the initial intention and to it being put on hold, but remaining a possibility at least to some extent, when it was found that the 8,000 share limit applied to applications. When it emerged that the 13 could not go ahead with the applications, the nest egg plan was revived, transfers signed and the number 2 account was opened - all on about 14 November 1997. The time sequence of which evidence was given was possible.

(b) Challenges to evidence of Rahmat Ali. The defendant challenged the credibility of Rahmat Ali's evidence on a number of grounds. I refer to my earlier consideration of such arguments above in analysing the arguments about the Telstra aspect terms.

(c) Alleged improbability. Next it is submitted that the account should be rejected because it was improbable and it involved money totalling $195,000 being paid with no guarantee that it would be repaid or any firm plan for repayment of the funds. The argument ignores the evidence that there were close ties between the plaintiff and the 13 people and that the possibility remained that some of the 13 might not be able to organise the where-with-all to repay Rahmat Ali, in which case the option remained for the plaintiff to acquire them.

(d) Liyakat Ali's role. Next, the defendant sought to make much of Liyakat Ali's role in the whole process and his control over it and that of Barba's office. My attention has been drawn to the execution of the various documents and the sequence of events in obtaining SRN numbers. I have difficulty attaching any great significance to these matters. In particular, as to Liyakat Ali's actions, if he was acting as agent for all parties, he did what was to be expected of an agent for all parties. The applications were to be made here and the office of Barba was supplying the clerical assistance required including obtaining information.

(e) Liyakat Ali's evidence. The defence also sought to attack the plaintiff's explanation on the basis of its general and specific attacks on the evidence of Liyakat Ali. I have already expressed my views on his credibility. His evidence, however, was consistent in this instance with that of the plaintiff.

Conclusion

1729. Ultimately, the view has to be formed about the credibility of the testimony of the plaintiff on the issues on which the 13 individuals might have given evidence; namely , their existence, whether they were applicants, and whether they instructed Rahmat Ali to instruct Liyakat Ali to execute the documents on their behalf. Plainly the course adopted of the 13 applying for the Telstra shares was the result of the restrictions placed on the numbers of shares a person could apply for in the float. Plainly also, the plaintiff had hoped to obtain 100,000 Telstra shares available through the defendant for himself. In the absence of any more evidence, there were at least two possibilities. One was that the plaintiff used the 13 individuals to apply on his behalf. The other was that the 13 individuals applied on their own behalf.

1732. While the absence of the 13 individuals may be explicable, nonetheless it has caused me to approach the plaintiff's evidence with considerable caution. His account of events appears at one level to be a very convenient response to the illegality issue. In the end, however, I have come to the conclusion that the evidence of Rahmat Ali should be accepted, notwithstanding the absence of the evidence of the 13 individuals. I remain impressed by Rahmat Ali as a witness and accept his evidence about the events that transpired. On the basis of his evidence, the 13 people existed and were applicants, and Liyakat Ali had authority to sign the documents on behalf of the 13 applicants and himself, and to do so using their names. Rahmat Ali was not shaken and was convincing in his evidence on these matters. I can well understand that if he thought he could not take advantage of the wonderful opportunity presented by Martin, he would try to pass it on to persons close to him and, that they being in Fiji and time being short, would authorise Liyakat Ali to handle everything. The arrangement also kept open the opportunity for him to ultimately obtain some or all of the shares in the event that any of the 13 could not or would not reimburse him.

1735. I note two other matters which were not debated. First, there is authority that it would be relevant to consider the presumption of innocence when considering the inferences to be drawn (Re Peatling [1969] VR 214). Secondly, the plaintiff having called direct evidence, it may also be relevant to consider whether any inferences arise from the failure of the defendant to call direct evidence, for example, on the issue of the non-existence of the 13 alleged applicants or their instructions. The former could have been established without their co-operation. As to the latter, if the defendant's hypothesis was correct, the 13 may well not have been in the defendant's camp.

1738. As to the suggestion of a false statement of consideration in the transfer forms, all that is stated in those forms is that there was a consideration of a specified amount. In 12 instances it was $15,600.00. In the 13th it was $7,800.00. The form does not require a statement as to the manner in which the consideration was paid, only the amount is required. Here the consideration passing between the 13 and Rahmat Ali was the release of the obligation to reimburse him in the above amounts that he had put forward on their behalf to acquire the allocations. There was no falsity in the statement of the consideration.

1741. I turn to defences raised to other aspects of the plaintiff's claims.

DEFENCES OF WAIVER, ACQUIESCENCE, ESTOPPEL AND ELECTION

1746. It has proved difficult to identify with precision the defence case in this area. I set out below what I understand that case to be.

1750. In relation to the claims relating to breach of the retainer and duties in the conduct of the trading account, the defence argument appears to be put essentially in two ways - one pleaded and one probably not pleaded.

1753. The first, as pleaded (5A to 5F), assumes that all transactions occurred on specific instructions of Liyakat Ali, that the plaintiff had knowledge of all transactions and that no complaints of breach of the retainer were made by him to "HPL" as he was obliged to do (relying on McKay v Dick (1881) 6 App Cas 251, 263). As pleaded the defence is said to apply to all claims for all alleged breaches of the retainer and duties, including a failure to follow instructions.

1756. It is questionable whether there was an implied obligation to make complaint to HPL. It is true that there was a ultimately a clause in the Discretionary Account Agreement (clause 7) obliging the client to notify the Complaint's Officer of the defendant in writing of any complaints he had concerning the management of the account but that was not executed until August 1998 - by which time the account was in great difficulty. As at 7 August 1998, the debit balance in the trading account was $146,980.42 and unrealised losses exceeded realised profits by $131,951.00.

1759. It is unnecessary, however, to form a concluded view on the nature and extent of the pleaded obligation and its alleged breach. As to the failure to follow instructions issue, assuming there was an obligation to inform "HPL" of complaints, the plaintiff had no basis upon which he could lawfully complain about a failure to follow instructions, because so long as the retainer was on foot and the parties were agreeing to pursue the agreed target, with the defendant, through Martin, responsible for the outcome, Martin had a discretion to ignore instructions. Further having regard to the findings that I have made about the terms of the retainer and Liyakat Ali's and Barba's constant complaining to Martin and their complaints to Whiting and Karlson, all the defendant's agents, the factual basis is not made out. As to other breaches, I am also satisfied that throughout the retainer, Liyakat Ali and Barba made it clear to the defendant, through Martin, both orally and in writing, that they were dissatisfied with his trading and were holding him, and the defendant, responsible for the outcome of the trading.

1762. Finally, for the above alleged conduct to have any legal affect as an estoppel (as pleaded) the defendant must demonstrate that it relied upon the lack of complaint. I am not satisfied that it did so.

1765. In final submissions the defendant relied only on arguments connected to the alleged acceptance of the refusal to follow instructions. It was put that Liyakat Ali, on his evidence, elected to continue utilising the services of the defendant, in particular of Martin, notwithstanding his knowledge of Martin's failure or refusal repeatedly to follow instructions. It was put that that must result in an election extinguishing any wrong or an abandonment of all rights. Alternatively, it was put that he was treating the conduct of Martin which is alleged to have been wrongful as not amounting to wrongful conduct at all. It was put that Liyakat Ali, on his evidence, was at all times aware of numerous and continuing failures by Martin but continued to use his services and that of the defendant knowing that it was in breach of its obligations to him. It was put that in those circumstances the plaintiff cannot now base any claim for damages in the litigation on a failure to follow instructions. It was put, on Liyakat Ali's own evidence, that he was faced with a clear choice. Martin was consistently refusing to perform instructions. Liyakat Ali was not insisting that they be followed. Liyakat Ali was not compelled to continue using Martin's services and should have discontinued Martin's services. It was put that his failure to do so involved an approbation of Martin's conduct and as a result the Plaintiff should be denied relief for any alleged breach of contract.

1768. This argument also assumes a simple contract to act on instructions. As I have indicated I have come to the conclusion that a proper analysis of the evidence is that the agreement was, inter alia, that the defendant, through Martin, would attempt to achieve an agreed target over an agreed period and, in those circumstances, so long as the contract to achieve that target was on foot and the defendant, through Martin, remained responsible for the outcome, Rahmat Ali was obliged to allow him to act without instructions or contrary to instructions. Throughout the period Martin used all his skills to persuade Liyakat Ali, and for that matter Barba, that he was genuinely attempting to achieve the target and would do so.

1771. The end result, however, may be the same as that sought by the defendant in its argument - to the extent that it is based on a failure to follow instructions. The analysis is different, however, in that the result flows simply because there was in fact no breach of the retainer in refusing to follow instructions. If there was a "waiver" by Liyakat Ali it was strictly an election not to terminate the agreement but to allow Martin to proceed to attempt to achieve the agreed target.

1774. But , if I understand the defendant's argument correctly, it goes further and argues that by accepting the non-compliance with instructions and not terminating the retainer, the plaintiff should be denied relief for any breach of contract. This does not follow. If the defendant's arguments be accepted, the legal consequence was loss of the right to terminate the retainer not loss of the right to sue for damages for breach. The contract having been affirmed, the rights and obligations, including the right to damages, continued (Tramways Advertising v Luna Park (1938) 38 SR NSW 632 at 641, 3; Russell Fraser Henderson v Amadio [1995] 1029 FCA (23 November 1995). There was no inconsistency in the sense that the right to claim damages was the right in question. In the present case there was no "waiver" which had the effect of releasing the defendant from liability, for example, for damages for breaches of other obligations. The right to terminate, however, did not arise for any refusal to follow instructions for that refusal did not amount to a breach.

1778. The other aspect of the "waiver" defences relates to the Telstra claim (paras 5G - 5N). Again, it is predicated on the proposition that the Telstra shares were sold on instructions. I have held that they were sold contrary to instructions. Other elements of the argument are that there was no complaint made by the plaintiff about the sales before issue of the writ and that Liyakat Ali instructed Martin to buy securities using the proceeds of the Telstra shares for some 12 months and thereby asserted an entitlement to the benefit of all purchases and sales which utilised the Telstra proceeds and did not instruct Martin to repurchase the Telstra shares (para 5 Jff). Counsel submitted, in particular, that having elected to use the proceeds for trading, the plaintiff lost any right for damages that may then have existed. These matters also appear to be relied upon in the pleadings to support a case that the plaintiff represented that the defendant acted in accordance with the plaintiff's instructions giving rise to an estoppel preventing recovery of damages in respect of the sale of the Telstra shares and the use of the proceeds. The issues may be determined on the facts found.

1781. Accepting that Liyakat Ali was aware that the Telstra proceeds were used for trading in securities and that he accepted that situation, he did so on the basis of promises by Martin, on behalf of the defendant, that he would re-purchase Telstra stock and meet any shortfall. In allowing the proceeds to be so used, the plaintiff may be prevented from arguing that the use of the proceeds as such amounted to a breach of the retainer. Otherwise, the defence argument fails because the factual basis is not made out.

1784. In particular, I am satisfied that on several occasions Liyakat Ali and Barba attempted to have the promise to re-purchase Telstra carried out but Martin declined postponing the purchase. There were three occasions in the first month. The last specific attempt of which there is direct evidence appears to have been in June 1998. If it be assumed that the plaintiff should then have concluded that Martin was not going to honour his promise, the plaintiff could have elected, on proper notice, to terminate the retainer. It does not follow, however, that the plaintiff's conduct in not doing so released the defendant from the consequences of the breach of contract constituted by the sale of the Telstra stock contrary to instructions, or the use of the proceeds, or that any "waiver" or estoppel arises which defeats a claim for damages for breach of the retainer in selling the Telstra shares - particularly when it may be said that, at the insistence of the defendant, the plaintiff extended a further opportunity to the defendant to recover the losses. Throughout the retainer it should have been clear to Martin that the plaintiff was holding him responsible.

1787. Counsel for the defendant also referred to the conduct of Liyakat Ali subsequent to the sale in executing the transfers to Rahmat Ali and pursuing the SRN numbers to enable the completion of those transfers thus enabling the shares to be sold out of the plaintiff's account. Counsel submitted that this involved a perfecting of the sale in circumstances where he had ample opportunity to stop it and that he thereby confirmed its legitimacy.

1790. It is not clear from the submissions how far this argument is taken. Clearly the sale was ratified by the plaintiff in the sense that from the point of view of the third party purchasers of the Telstra shares, the unauthorised sale was ratified. As between the plaintiff and defendant, however, the plaintiff's conduct occurred in the context of the promises of Martin to repurchase the Telstra shares and cover any losses. Thus any acceptance by the plaintiff was conditional. Further, the right to claim damages from the defendant as agent was never lost. Ratification by the principal of the unauthorised sale of the agent does not automatically relieve the agent of his liability to the principal (Bowstead and Reynolds on Agency 16th Edition, 98 and 173 and authorities there cited). Further, and in any event, the ratification was given on a particular basis - that the agent would re-purchase the Telstra stock and make any loss good. Throughout, the plaintiff made it clear to the defendant that he was holding the defendant responsible for the ultimate outcome on the accounts.

1793. The situation may also be analysed on the basis that the plaintiff accepted a proposal from Martin to mitigate any loss from the breach. His proposal was carried out and failed. The plaintiff is entitled to reasonable compensation for the original breach. Viewed as an attempt to mitigate, the plaintiff would also be entitled to any additional loss flowing from the attempt (McGregor on Damages 15 Ed 197 ff and cases cited). In this instance he does not point to any such additional damage.

1796. To the extent that the defendant relies upon estoppel, I am not satisfied that the defendant acted in reliance on any representation that might be said to flow from the plaintiff's conduct.

1799. The plaintiff had by accepting the situation, at worst, from his point of view, elected not to terminate the contract at that time, but on terms. Alternatively, he was indicating that he was not electing either way pending the performance of the agreement to repurchase. Further, he had done nothing to indicate any abandonment of his right to sue for any loss that might flow from the breach. The retainer contract remained on foot. In addition, if the defendant, through Martin, failed to carry out the terms upon which he, the plaintiff, had made any election the right to terminate would also revive (Holland v Wiltshire [1954] HCA 42; (1954) 90 CLR 409; Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41). Martin in fact failed to carry out the agreement. As a result the defendant cannot in my view rely upon the apparent acceptance of the sale as any form of bar to the recovery of damages for the breach of the retainer.

1803. The defendant has pleaded that by his conduct, (5O to 5S) the plaintiff represented to the defendant that the defendant acted in accordance with the plaintiff's instructions in its conduct of the trading and its handling of the Telstra holding and the proceeds of sale. It also alleges that the defendant relied upon that representation and that to allow the plaintiff's claim is to permit a circuitous claim.

1806. On the evidence, the defendant, through its agent, Martin, was fully aware of the plaintiff's concerns. In addition, as to the Telstra sale, the plaintiff only permitted the sale to stand on receiving assurances from Martin that the stock would be re-purchased and that any shortfall would be covered. As to Martin and the other officers of the defendant, I am satisfied that none of them directed their minds to the plaintiff's responses or absence of response and that they were not relying in any way on the client notifying the defendant of any breaches.

1809. The defendant has also pleaded as part of this aspect of the case that the plaintiff represented that he had understood the warrant booklet. It is sufficient to note that I am satisfied that neither the plaintiff nor his agent, Liyakat Ali, made such a representation. The ASX Warrant Client Agreement form signed by the plaintiff represented no more than that he had read the booklet. Further, I am satisfied that the officers of the defendant did not place any reliance on the statement to that effect in the document signed by the plaintiff.

1814. In response to the plaintiff's claim for damages for breach of the terms of the retainer and of the duty of care, (para 6) the defendant has pleaded that, if the defendant "breached its duty of care" the plaintiff was

"negligent or contributorily negligent and thereby caused his own loss and damage (which is denied)"

1818. I note that the defence pleading (para 6) does not refer to a breach of the terms of the retainer but only to breach of a duty of care. The plaintiff has not taken issue about this , however, and I proceed on the basis that the reference to a duty of care is a reference to both the contractual obligations alleged involving exercise of reasonable care and the tortious duty of care alleged to arise from the relationship.

1821. What has been pleaded is that there was negligence or contributory negligence that caused or contributed to the loss and damage which the plaintiff alleges flowed from negligent trading and advice, negligent supervision and from negligence in relation to the Telstra transaction.

1824. The pleading does not contain a plea of contributory negligence in relation to the claims based on negligent misstatement or misleading and deceptive conduct. As to the latter claims, damages are sought under s.82 of the Trade Practices Act 1974. The plaintiff also seeks unspecified relief under s.87 of that Act. The defendant in final submissions raised the question whether contributory negligence can be raised in answer to claims under the Trade Practices Act 1974 (Henville v Walker [2001] HCA 52; 182 ALR 37; I & L Securities Pty.Ltd. v H.T.W. Valuers (Brisbane) Pty.Ltd. [2000] QCA 383; 179 ALR 89). In light of the authorities and the fact that, in substance, the plaintiff was relying on s.82 not s.87, it is understandable that the defendant did not expressly plead contributory negligence in response to the statutory claims. In all the circumstances, the issue of contributory negligence should be considered in relation to the above causes of action in response to which it was pleaded.

1827. As to particulars of contributory negligence, the defendant relies in its pleadings on matters referred to earlier in the Defence (in paragraphs 5A to 5E, 5H and 5J). Those matters are the following:

* that the purchases and sales of securities listed in schedules A and B to the statement of claim were made acting on the instructions of Liyakat Ali (5A).

* each of the transactions listed in schedules A and B was confirmed by the defendant by dispatching to him by ordinary post the contract notes in respect to each transaction (5B)

* in breach of the retainer, at no time prior to the commencement of the proceeding had the plaintiff complained to the defendant that a transaction had been performed in breach of the retainer or in breach of duty or in breach of instructions given by the plaintiff to the defendant (5C)

* in breach of the retainer, at no time prior to the commencement of the proceeding had the plaintiff requested the defendant that it pay the plaintiff the profits in respect to the schedule A transactions or rectify or undo by selling or buying back the loss transactions in schedule B (5D).

These pleadings are consistent with the position that the defendant has consistently taken that all trades were conducted on instructions and approved by the client (with only a few exceptions).

1835. The defendant also relied by way of particulars on earlier pleadings (paras 5H and 5J) which relate to the Telstra issue. There it is alleged that

* at no time prior to commencement of the proceeding had the plaintiff alleged that the defendant had acted in breach of instructions or breach of duty in selling the Telstra shares (5H),

* subsequently, Liyakat Ali instructed the defendant to use the proceeds to make purchases and sales utilising the funds, those purchases being listed (5J).

* the plaintiff did not instruct the defendant to repurchase the Telstra shares.

1842. A number of the allegations in the foregoing pleadings have not been borne out by the evidence. This may explain why counsel for the defendant, when asked to elucidate the defendant's argument, referred only to paragraph 5J of the defence relating to the spending of the Telstra proceeds. He referred to the defendant's written final submissions (Section 16) where the issues sought to be raised by the defendant are identified. Before listing particular matters upon which the defendant relies, its submissions state the following:

"These written submissions and indeed the submissions made by Selimi on behalf of Liyakat contain many examples of conduct by Liyakat which caused or contributed to the damaged claim. Without being exhaustive or extensive, HPL particularly repeats and refers to the following matters".

It is reasonable to proceed on the basis that the matters listed in the written submissions are put forward on behalf of the defendant as being the strongest points that can be made on the issue of contributory negligence. From these submissions I have identified the following allegations of contributory negligence:

(i) Non-completion of forms. The failure to complete the new client account applications supplied by the defendant with personal information and financial details.

(ii) Failure to seek booklets. The decision not to seek a copy of the ASX explanatory book for warrants which, if received, would have explained to the plaintiff the risks attached to warrant trading.

(iii) Refusal to sell securities. A refusal on the part of the plaintiff to sell securities which he was holding at a loss.

(iv) Failure to take action when instructions not followed. The plaintiff, through his agent, was at all times aware that Martin had not followed instructions and yet failed to take any positive steps to address the situation, including complaining and failing to insist on his instructions being followed. (cf defence para 5C).

(v) Failure to terminate the retainer. Aware that his instructions were not being followed and expressing discontent with Martin, the plaintiff, through his agent, failed to terminate the retainer. If, for example, he had gone to another broker, as at 10 July 1998, the loss would have been $64,000 - significantly less.

(vi) Failure to inform himself. If Liyakat Ali's evidence is accepted he chose not to inform himself of the state of the account at any particular time. Reference was also made to the decision to have the contract notes sent to the office of Barba and, thereafter, not to consult them to establish otherwise what had been done. Assuming that to be the case, it is said the plaintiff was negligent.

(vii) Caused losses himself. Losses were suffered on two stocks which Liyakat Ali instructed Martin to purchase - United Energy and Capricorn.

(viii) Failure to prevent closure of accounts. The failure to provide funds in December 1998, or thereabouts, to discharge the indebtedness of the account even though given more time than was strictly required of the defendant. It was also put that he failed to make his complaints known and did not attend meetings as arranged with Karlson.

(i) Completing sale. The plaintiff, through its agent, effected the sale by signing documents rather than insist on the defendant treating the sale as a mistake when it could have been reversed by these actions so the defendant was deprived of the ability to rectify the sale of the Telstra shares. The submission also relied on the allegation that the plaintiff permitted the use of the proceeds to buy and sell stocks.

(ii) Margin lending. The defendant also alleges that the plaintiff, through his agent, failed to take steps to put margin lending in place.

(iii) Failure to report. Reference is made to the failure to report the alleged unauthorised sale to the defendant and failure to follow up on the issue. (compare 5H of defence).

1861. Most of the points identified above from the written submissions of the defendant were not pleaded by the defendant. Having been debated to some extent by both sides, however, and no point having been taken by the plaintiff, I propose to consider them as the issues for determination.

(i) Failure to complete application forms. I am satisfied that it was negligent of the plaintiff, through his agent, not to complete the form. It would have been prudent to do so. I am satisfied, however, that as far as Martin was concerned he would have ignored the details - as he did the oral detail. In addition, the defendant is unable to establish that any such negligence of the plaintiff was a cause of any loss. There is no evidence that anybody at the defendant monitored these documents or perused them. On the other hand, if anyone at the defendant had adequately supervised and controlled Martin, and in doing so, monitored the documents, they would, in exercising reasonable care, have asked the plaintiff to complete them. If asked, the plaintiff would have done so. The monitoring would then have extended to comparing the actual trading with the objectives and Martin's trading would have been stopped.

(ii) Failure to seek a copy of the ASX booklet for warrants. The booklet was not supplied by the defendant and it was sought on the plaintiff's behalf by Barba. It was not pursued then, but at that point, Liyakat Ali and Barba had no reason to distrust Martin and he purported to explain warrants to both men. As a result, it was not negligent to fail to pursue the booklet. In any event, if it had been supplied and they had queried Martin, he would have relied on his superior skills, alleged privileged information and alleged risk strategies to persuade them that they could disregard the risks referred to in the booklet.

(iii) Refusal to sell securities. The defendant, in developing the argument on this point submitted that the loss on several of the securities was well over 10% and that Liyakat Ali instructed Martin, directly through Barba, that simply selling and crystallising the losses was not acceptable. Counsel submitted that it is common sense to sell stocks which have caused loss of capital when the primary purpose of the investment was to trade in shares. I note that, if that proposition is accepted, the proposition that it was negligent on the part of Martin not to sell such stocks must also be accepted. It was then put that Liyakat Ali's refusal to allow Martin to sell and absorb the losses and move on "ultimately caused Liyakat to lose his original investment and the gains made on the way through".

Counsel relied on the evidence of Martin. He also relied on two documents to establish that Liyakat Ali was not prepared to sell the securities. The main document relied upon was the letter written by Barba of 23 March 1998. Relevant statements are, first,

"Anything short of recovering in full, those losses on hand at the present time will not be well received by the client. This I do not need to explain this to you (sic)".

Later it was also stated in the letter:

"Recently you have suggested we sell off all the bad stock and cop the losses.

The disappointment in your strategy of selling all these stocks at significant losses makes it easy to wipe your hands of decisions that you have made. Sure markets have not entirely worked in our favour however if you took on a varied approach, your results I'm sure would have been closer to the mark. I want something better than this from you than taking the easy way out."

Then a little later Barba wrote:

"A wholesale blanket disposal of all these stocks is not an option unless you have an immediate strategy to resurrect the losses. By immediate I mean just that. No long term holding position."

Counsel referred to the weekly report containing the list of stocks held on 27 March 1998. Counsel argued that the list included long held losing stocks which ultimately contributed so much of the loss such as Tectonic, Voicenet, Innovax, Amity, Roebuck and Capricorn.

I have referred in Annexure A to the context in which this letter was written. In his oral evidence, Barba said that Martin was at that time refusing to sell losing stocks. Barba, in fact, in that letter sought the opportunity to discuss the stocks held so that they could "determine what stocks would be disposed of". In other words there was no opposition to selling individual losing stocks where this was appropriate. The letter records the fact that Martin had proposed in conversation with Barba that they sell all the losing stocks and accept the losses and that he would be released from any responsibility for such losses. Again, Martin was relying on the agreement under which he argued that he had to be given the opportunity to achieve the targeted return over a period of 12 months and could not be held responsible for any trades which he did not make but was required to make. Liyakat Ali was, in fact, wanting him to sell losing stocks and Martin was saying that if that is what you want we will sell the lot but the losses will be your responsibility. It was in that context that Liyakat Ali and Barba were responding. They were objecting to a blanket sale and saying that there was to be no blanket sale unless he had a strategy in place to "resurrect the losses".

The issue presented at that time was one of choosing between terminating the special retainer with its agreed target, and accepting the losses, or continuing with the retainer with Martin having control and responsibility for the outcome. Ultimately, it seems to me, that that is the critical question in deciding any issue of contributory negligence - was it negligent either not to insist on the instructions being complied with (and so vary the retainer) or not to terminate the retainer.

The other document relied upon by the defendant (CB 614), contained an instruction from Barba on behalf of the plaintiff to Martin in January 1998 that the Innovax shares had to be sold but with "no loss impact" on the portfolio. This occurred after Martin had been instructed to sell them shortly after they were acquired and there had been opportunities for Martin to sell some of them or all of them at more than the average price of $0.62 prior to 5 December 1997. There were opportunities later to sell for more than the price for which they were sold - although the differential then became quite marginal (see the June and July correspondence - Annexure A). The fact was that instructions from the client to sell were ignored. This conditional instruction also had no effect. Like the other losing stocks mentioned above, Martin held on to Innovax in the hope it would produce the high returns he had said would result on the basis of his privileged information.

Counsel for the defendant alleged that Liyakat Ali refused to allow the Capricorn options to be sold at a loss and, instead, elected to preserve them as a windfall opportunity should the stock rally significantly. Again this is not supported by the evidence. I refer to this below.

Reliance was also placed on evidence of decisions made not to take the account to another broker because a number of the stocks would need to be sold because the brokers approached were not familiar with a large number of the securities, they being securities in which Hartley-Poynton specialised. Counsel put that both Liyakat Ali and Barba regarded such a sale as unacceptable because of the losses that would have been suffered in their sale and that was the reason why they did not go to other brokers.

It appears that in fact in about July 1998, two brokers were consulted and in essence, gave the above response. It is put that the decision not to change reflected an attitude that the stocks were not to be sold if a loss would result.

This argument, like the other arguments based on the documents, is not comparing like with like. A change of broker meant an immediate blanket loss. The issue raised by the defendant is whether the plaintiff prevented sales of losing stocks during the retainer.

Ultimately, I am also satisfied that what Liyakat Ali, or Barba on his behalf, instructed had no effect on whether stocks were sold because Martin always maintained control. In the case of the above stocks, Liyakat Ali had more than once pressed Martin to sell them at times when they were trading at book profit or breaking even or at a minimal loss. I refer again to the letter, dated 30 June 1998, from Barba to Martin (CB 1494) (see Annexure A) where he made that point. Martin's letter in reply of 3 July 1992 either accepted the allegations or did not dispute them (CB 1549). In it he also attempted to justify his refusal to sell in relation to Roebuck, Amity, Growth Resources, Voicenet and Tectonic - usually privileged information about prospects.

If there was contributory negligence, it lay either in not insisting on instructions being followed, and so varying the retainer, or not terminating the retainer.

(iv) Failing to insist on instructions being followed or taking the matter up with the defendant. Accepting the conclusion I have reached as to the nature of the retainer, the agreement negotiated between the defendant and the plaintiff, through Liyakat, Ali was such that there was no basis upon which the plaintiff could officially object to the defendant about a failure to follow instructions when the retainer was under the control of the defendant through Martin, as a discretionary retainer. At best, he had the choice of insisting that Martin in fact follow instructions, and so change the retainer, or terminating the retainer. The issue raised must be considered in the context of the discretionary retainer. I will return to this issue.

(v) Failure to terminate the retainer. The defendant argued that the plaintiff was negligent in not terminating the retainer when he found that his instructions were not being followed and he was generally unhappy with Martin.

The vagueness of the submission as to the time or times referred and the "discontent" make it difficult to analyse the issues raised by the defendant. The reference by the defendant in its argument to the losses that would have been suffered if the account had been terminated as at 10 July 1998 (see above) is the only reference to a date at which this issue might be considered. The point of time is of particular significance because it is relevant to consider the facts as known to the plaintiff and his agent from time to time as to the state of the trading and whether and to what extent persons exercising reasonable care for their own financial interests, would have, in all the circumstances, chosen to terminate the retainer. The time in question is also important because as the account deteriorated, the dilemma facing the plaintiff and his agent became more acute, becoming particularly more acute once the account was in a loss situation and that situation worsened.

The foregoing issues arise for determination in the context in particular of a finding that the retainer was one in which Martin had the responsibility for making trading decisions in the exercise of his discretion. The defendant, however, has maintained throughout the trial that the account was not a discretionary account at any time. Consistently with this position, the specific argument here advanced for the defendant assumes a non-discretionary account in which the dealer was obliged to follow instructions. In that situation, if the dealer persistently refused to follow instructions, the specific argument advanced has force. But accepting, as I do, that the retainer was a discretionary retainer and that it was agreed that Martin was to have up to 12 months in which to attempt to achieve the agreed target return, the plaintiff had no basis for terminating the retainer so long as the retainer was on foot and Martin had responsibility for the outcome. As to that, Martin resolutely maintained that he would achieve the target and, from time to time, did achieve significant profits in trades. The significant losing shares were shares that were held for some time because Martin maintained that despite their poor position they would recover and produce profits. He generally maintained this position through much of 1998.

Counsel for the defendant also submitted that if the plaintiff had transferred to another broker in mid 1998 there may have been losses but, for example, as at 10 July 1998 the loss would have been $64,253 - that is, the difference between the figure for unrealised losses and realised profits, the latter then standing at $74,708. Assuming that is a date at which the defendant argues that the retainer should have been terminated, the argument highlights another factor that by the middle of the year the choice lay between continuing on as Martin was urging them to do with promises of great results or changing the retainer, or terminating it, and taking a significant loss. The plaintiff was faced with a difficult choice as a result of the defendant's own negligence and chose the course which the defendant was advocating.

It may be said that the plaintiff was not faced with the need to make emergency decisions. He and his agent had time and opportunities in which to determine whether to continue or not or take other action. But, as the situation worsened, Martin continued to maintain that he could extricate them from the situation and he may well have been seen by them that is their only hope to do so. Whether that was consistent with the exercise of reasonable care is another issue. I will return to these issues and consider them in the context of the discretionary retainer that I have found existed.

(vi) Failure to inform himself of the state of the account. I am satisfied that Liyakat Ali was aware of the state of the account notwithstanding his evidence to the contrary.

(vii) His own instructions caused losses. It seems that Liyakat Ali asked Martin to buy Capricorn Options and United Energy and Martin agreed to do so.

As to the Capricorn Options, some 300,000 were bought on and between 13 February 1998 and 25 February 1998. They cost $23,240.19. Martin allowed them to expire on 21 September 1998. I accept that Liyakat Ali had instructed Martin to sell the options several times before 30 June 1998 (See letters of 30 June 1998 and 3 July 1998) - including on 27 February 1998, 2 March 1998, 11 March 1998.

As to United Energy, both Liyakat Ali and Barba had been unable to participate in its float. Liyakat Ali and Barba instructed Martin to buy them on the first day. With Liyakat Ali's approval, he purchased 157,000 on the 14 May 1998 for $387,185.62 at $2.46 each. In his diary, Liyakat Ali noted that he would have liked to buy 200,000. He also noted that Martin said they were very weak and that it was decided to sell them at $2.45. As noted by Liyakat Ali in his diary and confirmed by Barba, Martin went to lunch and the shares dropped further and they "quit at $2.39". I note that that was not accurate in that the Plaintiff's statement of account reveals that the stock was sold in two parcels - on the same day (at $2.41) and the balance the next day (at $2.40). The accounts recording the sale show another sale on 14 May 1998 but it was reversed. On the other hand, the actual buy and sell orders reveal only one buy and one sell. It is likely that Liyakat Ali's diary records what Martin told him. In his diary after attributing to Martin a deliberate decision to cause a loss, he recants and records that he should have listened to Martin, that he apologised to Martin and that he knew Martin was only looking after their interests. As Barba noted in his diary, however, it was "very poor duty of care" for Martin to go to lunch when his biggest client has invested almost $350,000 in one stock (1215).

It was reckless trading and the loss would have been less if Martin had done his job. He, however, should have advised Liyakat Ali against the transaction.

I am not persuaded that it has been demonstrated that the losses suffered in these transactions can be linked to negligence on the part of the plaintiff's agent.

(viii) Failure to pay funds in December 1998 and make complaints. There is no evidence that the plaintiff had funds that he could have paid in December 1998, substantial funds having being lost in the trading. Bearing in mind that $195,000 was provided by borrowing money, it is unlikely that the plaintiff himself had additional funds. One could not reasonably expect other members of the family to advance further moneys in the circumstances. Thus, any ability to provide funds had been lost, or significantly compromised by the negligence of the defendant.

As to the failure to make complaints known, I assume that the defendant is referring to the period from December 1998 to February 1999 during which the defendant threatened to and then sold the remaining stock.

On 3 December 1998 the defendant, through Malloch, sent a written demand for payment by 12 noon on 4 December 1998 stating that it would exercise its rights under the ASX Business Rules to sell stock if payment was not made. On 3 December 1998, Barba spoke with Karlson and asserted, inter alia, that payment on T + 5 had never been implemented by Martin or required by him and that they had not been aware that funds were required. He said that they had documents prepared by Martin which he said would clarify the position and that they would be discussing getting a legal opinion. He prepared a letter for Liyakat Ali to sign for the plaintiff in which, inter alia, the above was mentioned . The letter stated also that he was seeking legal advice and asked that action be deferred until they could resolve the issue. Karlson replied in writing questioning, inter alia, the plaintiff's lack of awareness of T + 5 and its application to his account.

On 4 December 1998, Martin wrote a letter to Karlson begging him to hold action saying that "Mr Ali" was threatening legal action, that they shouldn't "mess with" people like him and the people behind him and that the situation was a "can of worms". Martin was then and for a short time afterwards trying to resolve matters and save his job.

The defendant did not exercise its rights on 4 December 1998 under the ASX Rules as threatened. There were conversations between Karlson and Liyakat Ali, the content and extent of which is unclear, although I am satisfied that the issue of a review of Martin's conduct was raised.

On 15 January 1999, the defendant through Malloch fixed a new deadline for payment of 22 January 1999. In response, Barba spoke with Karlson on 19 January 1999, complaining about this action and the unwillingness of the defendant to consider a review of how Martin had run the account. He told Karlson that Liyakat Ali would seek an expert's opinion about the way the account was run and expressed concern about the duty of care and lack of care and the way Martin had operated. He raised the question of how the defendant's management could have allowed this to occur. He asked him not to sell the holding in Burns Philp.

By letter of 25 January 1999, Malloch for the defendant advised the plaintiff of the sale of the remaining stocks. This prompted a further letter from Barba which complained, inter alia, that their "thoughts" had been conveyed to Karlson and Malloch on "numerous occasions" and complained of the refusal of the defendant to do its own investigating. Other complaints were raised about the lack of care for the client and that the sale of Burns Philp demonstrated that deficiency. Barba also asserted that Karlson had said that Martin had not represented the defendant in the manner expected of its employees.

The reply to that letter came from Freehills. It did not address the complaints raised.

While the evidence is lacking in detail, I am satisfied that the defendant was alerted to the fact that the plaintiff believed he was entitled to credit, that the losses were the fault of Martin and his manner of trading, that there were breaches by him of his duty of care and that the handling of the account by Martin should be investigated. Thus, complaints were made of a general nature and, to enable more specific complaints to be made, expert assistance was foreshadowed.

I am also satisfied, however, that it would not have mattered what was said. From Karlson's evidence it is clear that the matter was being controlled by the Debtor's Committee and it was pressing to sell up the stocks and was unsympathetic to the client's position.

As to the alleged failure to attend meetings with Karlson, Karlson's evidence on these matters was unconvincing. If, however, it be accepted that Liyakat Ali did fail to attend meetings, I do not believe that that ultimately had any affect. Whatever meetings he attended, he was not allowed the time to provide the sort of independent material that might have had a chance of persuading Karlson and, more importantly, the Debtors Committee, to hold action. Its failure to do so was unfortunate because Burns Philp and Tectonic, if held, could have been sold later for worthwhile profits.

1902. Most of the allegations pleaded and the additional matters raised in final submissions are not made out. I have noted above, however, that several issues raised by the defendant directly, or ultimately, raised the question whether the plaintiff should have insisted on his agent's instructions being followed, and so varied the discretionary retainer, or terminated the discretionary retainer.

1905. It is necessary to explore these issues in the context of the terms of the retainer that I have found existed. Particulars of contributory negligence have not been pleaded in that context. The general issue was pleaded, however, and the issues have loomed large in the proceedings. Liyakat Ali was challenged in cross-examination on the basis that his evidence should not be believed because, if true, he should have, and would have, terminated the retainer. The parties have had the opportunity to address the issue. The plaintiff has not suggested that the defendant's submissions which raise these issues should be ignored because the precise point has not been expressly pleaded.

1908. We are concerned with the question of whether the plaintiff, acting through his agent, Liyakat Ali, failed to exercise reasonable care in looking after his own financial interests during the operation of the retainer. In considering that issue, it is relevant to recapitulate the terms and objectives of the retainer.

1911. The plaintiff was wanting to build up a fund for his retirement and, therefore, was concerned that any trading that occurred should occur with minimum risk. The plaintiff was also proceeding on the basis of representations made by Martin that the agreed target of 15% to 20% per week compounding could be achieved, that it would take 6 to 8 (later 12 ) months to do so, that Martin had access to privileged information and that there would be no risk, because of the privileged information and the risk minimisation strategies of stop loss and averaging which Martin had said he would employ and Martin's skill and expertise. I am also satisfied that initially, although the retainer was a discretionary retainer, the plaintiff and his agent assumed that they would have control of the situation and had not appreciated the potential conflict within the retainer over control and responsibility. Early on in the retainer, by 15 January 1998, it was agreed, however, that Martin would have responsibility and control during the period of the retainer.

1914. Analysing the issue of contributory negligence in that context is complex and made more difficult by the need to ensure that hindsight does not overwhelm the assessment of the plaintiff's conduct and that of his agent.

1917. The first matter that occurred that needs to be considered in this context is the sale of the Telstra shares. With hindsight, the sale of Telstra against instructions stands out as a very clear warning. Ignoring hindsight, it may be said that a client exercising reasonable care for his own financial interests would have been initially concerned whether this event posed a warning about Martin adhering to plans and about problems in controlling and trusting Martin. A client in that situation, and exercising reasonable care, would have had to consider whether to continue with Martin or to instruct him to repurchase the shares there and then. I can well understand, however, a client, exercising reasonable care, not doing so in the then circumstances.

1920. Martin at the time was making it very clear that, in his view, as the expert, it was strongly in the client's interest to sell Telstra. In effect, he was arguing that Liyakat Ali would be in dereliction of his duty to his father if he did not sell. His argument was that the price was going to fall and they would be able to buy the shares back at a lower price while making a substantial profit. He was able to back this up with market information. At the time his view was shared by others. The plaintiff had no reason at the time to doubt his expertise or bona fides. Moreover, Martin assured the client that should there be any shortfall he would make it up. This was said at a time when it was clear that Martin greatly valued the plaintiff's business and, so, on the face of it, was unlikely to do anything against the client's interests. In my view, it would be imposing too high a standard on the client to suggest that there was at that point a want of reasonable care in continuing the retainer in those circumstances.

1923. As time went on, however, it is clear that Liyakat Ali voiced his concern about a number of things. In particular, he was concerned about:

* the speculative nature of the stocks being held which caused him anxiety about risks, notwithstanding Martin's assurances;

* holding on to losing speculative stocks and the impact of that on trading;

While Martin was for some time achieving excellent net realised profit results (see Annexure A), it was not being translated into book profits. The plaintiff should also, over time, have become increasingly concerned about

* the quality of Martin's privileged information because a number of predictions were not coming true,

* the accuracy of his assertions about the lack of risk in his trading,

* the use of the Telstra proceeds and the increasing unlikelihood of any buy-back of Telstra shares,

* Martin's promises of a change of approach in January and on 16 and 20 March 1998 and his continuing failure to carry them out.

1936. In the chronology of the events set out in Annexure A, it is clear that the plaintiff's anxieties were voiced formally on at least three occasions. I refer to the meetings in January 1998, the correspondence in March and April 1998 and the correspondence in late June and early July 1998. It may be said that on each of these occasions the client was looking at the state of the accounts and recognised that he had a choice of continuing, but insisting that his instructions be followed, or of terminating the retainer. At the same time, it may be said that throughout the period of the retainer that issue was always present for consideration. Termination was threatened or raised on several occasions - for example, November 1997, January 1998, March 1998, 3 July 1998 and 28 July 1998.

1939. The assessment of contributory negligence is complicated by the circumstances of the accounts and changes in those circumstances of which Liyakat Ali was aware through the weekly reports.

1942. For example, in January of 1998, while the plaintiff's agent raised concerns, Martin was, on the face of it, achieving substantial net realised profits and had, credible explanations for holding other stocks and a basis for suggesting that they would make substantial profits on those stocks even though they might have been losing at the time. He also appeared to accept the need to change the type of stock held and proposed to do so as soon as he could make the foreshadowed profits on stocks being held.

1945. As noted in Annexure A, there was a net book profit position (after allowing for funds invested and moneys owed to the defendant) in the plaintiff's account of sizes varying between $38,000.00 and approximately $57,000.00 between 23 January 1998 and 20 February 1998. As at 27 February 1998 the net book profit position shown in the weekly report was approximately $52,000,00. Thus the opportunities were there for the plaintiff at that time to terminate the retainer or change the instructions and in doing so sell up the speculative stocks and recover the funds invested plus some profit. By the some token, of course, while the book position of the account was disappointing, if one accepted Martin's predictions for the stocks held, the account was still in a good position to achieve very substantial gains. I refer to the net realised profits which, for example, were $124,928.00 on 23 January 1998 and $170,3045.25 on 20 February 1998. Martin was at all times strongly backing his predictions. One can understand a client, acting with reasonable care, continuing arrangements in those circumstances. In particular, to terminate involved selling a number of stocks at a loss and the expert was saying that on the information he had they would make substantial profits. It was also relatively early in the 12 month retainer.

1948. On 16 March 1998, Martin wrote setting out a new plan promising changes to address the plaintiff's concerns. (See Annexure A). The weekly report of 20 March 1998 showed a net book profit of $30,664.05. Net realised profits were still substantial. Again one can understand the client continuing and not intervening.

1951. The situation changed over time so that as at 3 April 1998, for example, there was a net book profit of only $1,722.32 although the net realised profit at that point was $201,354.19. By 17 April 1998 the net book position was a deficit of just under $8,000.00 because of long held losing stocks. At the same time the net realised profit was still substantial, $202,081.69. The defendant's reports, up to this time, did not report on the short sale account trading.

1954. In April they were approaching the halfway point in the retainer and the performance on the trading account, so far as the target was concerned, and the representations of lack of risk in trading with Martin were open to question. So too were his predictions about the losing stocks which were held. If the account had been terminated on 17 April 1998, the plaintiff would have recovered the original investment less approximately $8,000.00. But the plaintiff in considering termination was faced then not only with the prospect of selling stock at a loss against the advice of the expert but also losing capital. If he had insisted that from then on his instructions be followed, he would have faced the prospect of accepting responsibility for the ultimate outcome and, arguably, the then state of the account. Also Martin no longer would have had the incentive that attached to bearing the responsibility for the outcome.

1957. There was then a gap in reports. On 4 June 1998 a new system of weekly reports commenced in which there was no reference to the balance outstanding in the trading account. The first of the new weekly reports showed that unrealised losses exceeded realised profits by an amount of $29,828.00. As at 12 June 1998, the position changed marginally for the better in that realised profits exceeded unrealised losses by $5,571.358. The following weekly report of 18 June 1998 showed the position had improved further with net realised profits exceeding unrealised losses by $16,814.428. The client's hopes would have been raised. But matters suddenly changed for the worse in the following week. In the weekly report of 26 June 1998, unrealised losses again exceeded net realised profits, this time by $44,713.932. A week later the unrealised losses exceeded realised profits by $81,858.38. Thereafter, the trend generally worsened. The chances of recovering the position of the account at that point were bleak indeed.

1960. To summarise the above, looking at the situation from January 1998 onwards, it is not possible to point to a particular time or a particular event, act or omission and isolate it in determining whether contributory negligence occurred then or not. Considering the above matters, however, it may be said that a client exercising reasonable care for his own financial interest, should have had real and increasing doubts between April 1998 and the middle of 1998 about whether Martin's expertise and privileged information were what he claimed them to be, whether Martin was likely to deliver on the agreed target and whether Martin was exposing the accounts to too many risks. Throughout that period, a client exercising reasonable care should have given consideration to the question whether he should continue with the retainer as originally agreed or should either insist that his instructions were followed or terminate the retainer.

1963. The choice for the client, however, was very difficult. At any time when the client might have considered terminating the retainer, there were stocks being held in respect of which there were substantial losses and terminating the retainer would involve selling those stocks, stocks which Martin continued to maintain would ultimately realise profits. Later, as doubts about Martin's trading should have increased, the financial situation worsened. By the middle of 1998 following the disastrous trades in June referred in Annexure A, to terminate the retainer would have involved substantial losses. To take over responsibility would also have been a daunting prospect. In judging the plaintiff's inaction, it may fairly be said that the difficult choices presented to the plaintiff were the result of Martin's negligent misrepresentations and his negligent trading and the negligent supervision of him by the other officers of the defendant. The choice was also made difficult by the fact that the plaintiff and Liyakat Ali did not have expertise and from time to time Martin had produced good results - some spectacular like AMP. As matters worsened the client also had to judge whether keeping the retainer alive and relying on Martin was the best hope to extricate him from the situation. Martin certainly claimed that he was and argued strongly for the opportunity to continue. The plaintiff chose the course he advocated. He also took the position that if the plaintiff did intervene the defendant would be relieved of any responsibility. He actively manipulated the situation, using the circumstances for which he was responsible, including the losses created by his negligent trading to keep the retainer alive and remain in control.

1966. Further, in manipulating the situation, Martin withheld vital information which was highly relevant to the plaintiff's choices and would have made them simple. I refer, for example, to Martin's concealment of the true facts relating to Innovax. I refer also to his failure to inform the plaintiff of the changes to the credit arrangements which lay at the heart of the trading plan. If Martin had informed the plaintiff about these matters, the probabilities are that the retainer would have been terminated early in its existence. Martin should have conveyed the information about the credit changes no later than January - in particular at the January meetings. Later in April, when he was required to sell up stock, he did so without telling Liyakat Ali. The trading account as at 4 May 1998 was in credit for $17,070.89. The plaintiff could have acted then. If told on 22 May 1998 of the $100,000.00 credit limit, he could have acted then. The choice would have been made much easier. Martin, whether a fiduciary agent or not, should have conveyed this information to Liyakat Ali immediately. It was vital information and an agent exercising reasonable care would have passed it on immediately.

1969. Finally, in assessing the plaintiff's actions, due allowance must also be made for Martin' persuasive skills.

1972. The relationship began with a substantial reservoir of credibility and good will. Martin had impressed with his knowledge and with his ability to provide large quantities of Telstra shares and substantial interest free credit. The account of events subsequent to November 1997 bears witness to Martin's remarkable persuasive skills and his use of them. He appears to have persuaded Liyakat Ali and Barba that the book losses were not a matter of real concern - they were only holding costs and that with the information that he had they were going to turn into very profitable holdings. While they were obviously anxious about risks associated with speculative stocks, he managed to play down the risks associated with warrants and short selling and he generally played down concerns about risk, again, in part, because of his claim to special information. He was aided in persuading them because of the fact that he did in fact realise substantial net profits for some time. They were achieved, however, by not selling losing positions. That action was justified by him on the basis that the information that he had warranted holding on to losing stocks because the profits would come. Almost to the very end of the retainer, he persuaded Barba and Liyakat Ali that all would be well and continued to impress them.

1975. I have referred in Annexure A to conversations between Barba and Martin in August, October and November 1998 where Barba, even though he himself had decided to sever relations with Martin in about late August and switch to Whiting, (which points to dissatisfaction with Martin) was recording how he was impressed with what Martin had to say and was persuaded by him about the wisdom of holding the stocks that were then being held. I note also that despite the concerns raised by him for the plaintiff in January and March 1998, Barba resumed trading on an account (Barba & Barba Pty.Ltd) (D42) on 10 March 1998 and opened a trading account (Money Talks (Aust) Pty.Ltd) (D43) with Martin on 15 April 1998. During the active trading on these accounts Barba also deposited moneys in the accounts including deposits in April, June, July and August 1998. Barba must have remained impressed despite the issues raised with him by Liyakat Ali and which he discussed with Martin. In October 1998, Barba was unable to contribute more funds so that his trading ceased. It must always be remembered that Barba and Liyakat Ali were unaware of Martin's serious and prolonged deceptions which have subsequently been revealed.

1978. The question to be determined is whether the plaintiff caused or contributed to his loss by his own negligence and, if so, to what extent. I am satisfied that he did contribute to his loss by his own negligence in not taking control or terminating the retainer. His negligence, however, arose in and as a result of circumstances created by gross negligence on the part of the defendant's officers and the choices that he failed to make with reasonable care were difficult choices to make because of the situation in which he was placed by the losses caused by that gross negligence, Martin's deception and the persuasive manipulative pressure of Martin. Throughout he had to deal with the situation of the tortfeasor, the defendant's employee Martin, saying that given the agreed time frame, and leaving him in control, all would be well and that if he did take control or terminate the retainer the losses would no longer be the defendant's responsibility. Notwithstanding these complications, some contributory negligence should be found. They, however, significantly, reduce the plaintiff's responsibility. It would, in my view, be just and equitable, having regard to the plaintiff's share in the responsibility for the losses suffered to reduce the damages otherwise payable by 15%.

1981. It may be said, of course, that the plaintiff, through his agent was foolhardy in entering into the arrangement in the first place. That is not an argument raised by the defendant. Martin, however, offered a package that many people would have found difficult to refuse - a risk free opportunity to make very large profits, extensive interest free credit, 100,000 Telstra shares and a broker with access to privileged information. Martin skilfully manipulated the situation. No doubt greed affected the judgment of the plaintiff and his agent then and subsequently. But, in assessing contributory negligence, it is necessary to consider a person exercising reasonable care for his or her own financial interests. Such a person is assumed to act reasonably and, in particular, not to let such human failings affect the decision making.

1984. Before leaving this aspect, I should refer to an issue that loomed large in Liyakat Ali's cross-examination. He was ridiculed for his suggestion that he maintained his trust of Martin throughout the retainer. He must still have believed in and trusted Martin in April and May 1998 because he would not, otherwise, have lent his father's money, interest free, to Martin's father. I am satisfied also that he did trust Martin in the sense that he put his trust in Martin throughout the retainer. Later, This resulted partly from the continued promises of wealth and, as the losses mounted, he continued to put his trust in Martin because continuing with Martin offered him his only hope of avoiding having to acknowledge the losses to his father and of salvaging the situation - particularly when the account went into deficit - a fact Martin used in his manipulation. He made the wrong choice and I am satisfied, as I have indicated, that that choice amounted to contributory negligence.

1988. The issue of contributory negligence does not arise in law in relation to the breach of contract involved in the deliberate selling of the Telstra shares. Liability does not depend on a breach of a concurrent contractual duty of care (s.25 and s.26 Wrongs Act 1958). I will, however, briefly consider the arguments advanced.

(i) Completing sale and use of proceeds. It is true that Liyakat Ali perfected the sale by signing documents and could have but did not insist that the defendant treat the sales as a mistake and have them reversed. I refer however, to my earlier discussion of the Telstra sale in this context. Again we have a situation where the plaintiff was persuaded to act to his detriment by promises from the defendant. The defendant cannot point to the plaintiff's actions as contributory negligence.

Similar factors come into play in assessing the conduct of initially allowing the proceeds of sale to be used in buying and selling stock. That use continued, however, and becomes relevant to the issue of contributory negligence as the retainer continued; for the money was used to purchase speculative stocks. I have referred to that issue in dealing with the issue of contributory negligence in relation to the trading aspect.

(ii) Margin lending. I am unable to see why a failure to take steps to effect margin lending was contributory negligence on the part of the plaintiff. On the evidence, the moment had not arrived to organise margin lending, Martin had said he could organise it quickly and, once the shares were sold, there was no basis upon which to approach a margin lender.

(iii) Failure to report. I am also not persuaded that there was contributory negligence in failing to report the matter to Martin's superiors at the defendant. Martin was the expert. He was adamant that it was in Rahmat Ali's best interest to do what he had done and he had given assurances, if honoured, that meant that the plaintiff would come to no harm. Bearing in mind that the plaintiff did not, at the time, have the benefit of hindsight, it cannot be said that he was negligent in not reporting the matter to Martin's superiors. To do so would have involved the termination of the relationship with Martin.

DAMAGES

Trading aspect - Damages

Pleadings

1994. The Plaintiff's Statement of Claim sets out alternative pleadings of the claim for damages arising out of the trading aspect claims. In the primary formulation, the Plaintiff claims the following:

"(a) The Plaintiff's initial capital investment of $l0l,818.54....; (b) $267,971.67 being opportunity lost of the trading account (prudently invested and geared)".

1998. The alternative pleading differs in that it does not include a claim for lost opportunity damage but seeks the profits made from the profitable trades and compensation for the losses suffered in the losing trades (Schedules A & B). In my view, the Plaintiff cannot formulate the claim for damages in this way. The Plaintiff, in doing so, is trying to "have his cake and eat it". It is the net result of the defendant's conduct that is relevant.

2001. Both formulations include claims for the lost opportunity to make profits arising from the defendant's alleged failure to act on the Plaintiff's instructions (Schedule C). In light of the conclusion I have reached, on the terms of the retainer and the relevant events, the plaintiff has not established an actionable failure to accept instructions because at no relevant time was the defendant contractually obliged to act on the alleged instructions. There is, in any event, a major problem with the claim in that it assumes that if each instruction had been complied with it would not have affected the giving or carrying out of subsequent instructions.

2006. Counsel for the defendant submitted that the Plaintiff could not demonstrate that he had suffered any loss.

2009. The first argument put was based on the proposition that it was not his money that was lost and that, therefore, he had suffered no loss either of the initial funds or of any opportunity. I have already indicated that I am satisfied on the evidence that, however remarkable it may seem to some, the funds involved, to the extent that they were provided by members of the plaintiff's family, were so provided for the plaintiff for his use and were his monies for that purpose. Reference was made again by the defendant to the claim by Liyakat Ali in his tax return for the cost of the loan. This reflects on him or on those who prepared his tax return or both but does not, in my view, detract from the above conclusion. If the position was that the money lost was not that of the Plaintiff, he has nonetheless lost the opportunities available to him that were provided by those funds and remains obliged, presumably, to repay the money he received, it not being his.

2012. Counsel also submitted that the plaintiff had not demonstrated that he would have acted in any other way, even if due care had been taken by Martin or his superiors at all stages in the relationship. The issue raised here is how the plaintiff would have conducted his investment in the stock market if the defendant, through Martin and its officers, had acted from the outset and throughout the retainer with reasonable care.

2015. There is, in my view, sufficient evidence to describe what on the probabilities would have happened if Liyakat Ali had met with and developed a program with a broker acting with reasonable care, be it Martin so acting or any other broker or Martin supervised with reasonable care. The broker would have been told that the plaintiff was wishing to invest in shares on the stock market with an amount of $100,000 to build up a fund for his retirement. The broker would have obtained details of the client's financial position and objectives and informed Liyakat Ali of the relevant risks. Reasonable and accurate representations would have been made. A conservative approach to investment would have been offered, recommended and undertaken - for example, that suggested by Francis of holdings in the 20 Leaders Index or limited conservative trading with a balance of 60% to 70% in blue chip stocks (stocks in the 100 Leaders Index), 20% to 30% in mid-term stocks (others on All Ordinaries Index) and a very small percentage in speculative stock (5% to 10%). In addition, if Martin had not been negligent in his representations as to risk, as noted above, I am satisfied that the plaintiff would not have embarked upon trading on credit. Throughout, he, his son and Barba, while anxious about risks, did not fully understand the risks associated with the trading conducted by Martin on credit because Martin not only failed to explain them but went further and misrepresented the risk, emphasising, among other things, his superior access to information. I turn to more specific causation issues.

2019. The plaintiff submitted that the misrepresentations induced him to enter into the retainer (and later to continue in it) on the terms identified above and this led to the loss of all the funds invested and the loss of an opportunity to obtain a return on those funds. Defence counsel argued, however, that the plaintiff wished to achieve considerable capital growth through trading and that he wished to trade in shares in the ASX whatever representations Martin made and to trade aggressively on the ASX. It was put that all that Martin's representations did was to secure the plaintiff as a client for the defendant. Counsel for the defendant stated that at best the plaintiff could contend that but for the initial representations (the general) he would have taken his money to another broker and there invested conservatively. On that basis, Counsel submitted that the Court might be able to find that if Liyakat Ali had not relied on Martin `s representations he would have had available to him the funds originally provided plus a net capital gain of something in the vicinity of 10% or less (presumably per annum or for the period for which the retainer continued). Counsel submitted that the evidence about what course the Plaintiff would have adopted through Liyakat Ali, but for the representations of Martin, was particularly scant.

2022. Similar issues arise in relation to the claim for damages based on the allegation of false and misleading conduct.

2025. In my view, the plaintiff did not at the outset intend or wish to be an aggressive high return trader. The plaintiff did not expect that. But the plaintiff was persuaded by Martin to engage the defendant on the basis that Martin, as broker, would trade to obtain the target returns. He did so as a result of the negligent and misleading representations made about return and risk.

2028. It is reasonably clear, on the evidence, what would have happened if due care had been exercised by Martin when making the representations about return and risk. I refer to and repeat my above comments. A conservative approach would have been advanced and adopted.

2031. It may be argued that the initial representations as to return and risk were the most critical ones so far as the ultimate losses are concerned. For they caused the plaintiff to retain the defendant, through Martin, as his broker and to continue to do so under an agreement which, so long as it ran, placed the plaintiff's fate in the hands of Martin and the defendant. Of course, the plaintiff was foolhardy to enter into the retainer. He ignored the fundamental truth that if something is too good to be true, it probably is. But Martin sold a very tempting package and did so by recklessly making these representations. It may fairly be said that they were a cause of the plaintiff's losses.

2035. Martin's recklessness in advice on warrants and short selling was also a cause of the losses alleged. Counsel for the defendant again relied on the argument that exercising reasonable care would have made no difference - Liyakat Ali wanted to trade in a high risk fashion. I again disagree. He did not. I am satisfied that, if properly advised, and thus given an informed choice, Liyakat Ali would not have traded for his father in warrants or engaged in short selling. He would have realised that it was too risky. These losses, relating to warrants and short selling, would have been avoided. They totalled approximately $93,000.00 on warrants and $25,000.00 on short selling. This negligent advice contributed to the loss of the funds invested and, therefore, the lost opportunity.

2039. Counsel for the plaintiff submitted that the negligent trading of Martin also led to the loss of the funds invested and the loss of the opportunity to obtain a profitable return on those funds.

2042. Counsel for the defendant submitted that looking at the losses, the major losses related to stocks held for a long time. He submitted that Liyakat Ali was well aware of their existence and that they had been held for a long time. He submitted, however, that they were not sold because Liyakat Ali did not want them to be sold and he relied, in particular, upon the letter from Barba of 23 March 1998, where reference is made to a refusal to accept Martin's proposal for selling stocks.

2045. Counsel for the defendant also submitted that the risks involved in trading in securities like warrants should have been apparent early. He said by April 1998 especially, substantial losses had been incurred. Early on in trading there were examples of losses. As to the other stocks, they were showing losses although they had not been sold.

2048. The arguments raised by the defendant, at best, raise issues of contributory negligence. I refer to the earlier discussion of that issue. I refer also to my comments about what emerged in trading about risks. Martin was careful, for as long as he could, to quarantine losses by not realising them and asserting that the losses were only book losses and the stocks in question would recover.

2052. For the most part there is insufficient detail to enable a precise quantified connection to be made between the aspects of the negligent trading and the losses - for example, between premature exits from a profitable situation and loss. In addition, a number of the risk minimisation techniques, while reducing the losses, were also likely to have reduced the opportunity for profit if used. It is clear, however, that Martin engaged in trading that could not have been riskier and compounded that risk by using credit - very large amounts of credit. At the same time, he used none of the prudent techniques to minimise losses and maximise profits identified by Jasch and instead used a number of the poor ones. I am satisfied that the negligent failure to use the strategies identified by Jasch and his resultant negligent approach to trading made it probable that the funds would be lost and were a cause of that loss. I am also satisfied that the techniques for controlling losses, if employed, would have significantly reduced and probably avoided the losses suffered.

2055. I refer, first, to holding on to losing trades. The defendant concedes that the securities that resulted in large losses were, in most cases, securities that had been held for a considerable time. Thus, holding on to the losing trades was a significant cause of the loss suffered.

2058. Those losing positions held for lengthy periods included:

The periods for which they were held ranged broadly from about 4 to 12 months.

2063. Thus these trades accounted for approximately $300,00.00 of losses. But it was not just the losses that were significant. The holding of losing positions for months was a cause of the ultimate losses because it denied the plaintiff the opportunity to trade with the funds that were tied up in those trades totalling, over the period of the retainer, approximately $500,000.00. I am satisfied that Liyakat Ali did not agree to the lengthy retention of those securities. In fact, he voiced his concern from time to time. In particular, as to Amity, Roebuck, Voicenet, Innovax, Tectonic and Capricorn he wrote, through Barba, expressing his dissatisfaction and Martin either acknowledged in reply, or did not dispute, that Liyakat Ali had advised their sale on a number of occasions. He had demanded the sale of Tanganyika Gold, following which it did not appear in the few weekly reports that followed. It was mentioned in the e-mail of 16 October as a stock Martin was going to sell. He did not do so and it was not mentioned in the subsequent weekly report. Clearly losses were not well received by Liyakat Ali but he was prepared to accept a loss to control the losses. The decision to hold stocks was that of Martin who maintained throughout his control of the accounts.

2066. Next, I note that some of the above stocks demonstrate losses resulting from other negligent practices criticised by Jasch. Amity and Roebuck were speculative stock purchased at a time when there had already been significant increases in their price. In combination, they being related companies, the investment in them amounted to more than 50% of the funds invested by the plaintiff. Their sale in June 1998 was a severe loss - closely followed by the short selling debacle in Newscorp and the sale of Innovax on 3 July 1998 at a substantial loss. From 12 June 1998 to 3 July 1998 the plaintiff's accounts deteriorated from an excess of realised profits over unrealised losses of $5,571.358 to an excess of unrealised losses over realised profits of $81,858.38. Fortunately, during that period, one of the biggest gambles, the short selling of AMP, was successful securing profits in excess of $40,000.00. That transaction was also inconsistent with the Jasch strategies but, fortunately, was successful. It was insufficient, however, to address the problems associated with the other transactions.

2069. Another aspect is also demonstrated by Amity Oil. As well as being a stock held for a long time, although a losing position, it was added to while in that losing position. The initial 20,000 were purchased at $1.59 on 9 December 1997. Martin then added to them as follows;

Jasch did calculations of the net effect of adding to losing positions. His figure, involving 101 trades, was a net loss of $434,000.00. The defendant has done its own analysis of profitable trades. Some of the calculations suggest some errors in Jasch's calculations. Overall, however, it would appear that, on any view, a substantial loss also flowed from this practice.

2077. In his witness statement Martin gave an explanation for the trades in Amity Oil and Roebuck. Amity Oil, he stated, was exploring for gas reserves in a joint venture in the "Whicher Range" with Penzoil one of the biggest oil companies in the world. In light of alleged heavy expert research by Hartley Poynton, it was anticipated that the project "could propel Amity shares to the $3.00 mark". "Positive information ......from contacts within the industry and the Hartley Poynton research department" caused him to continue holding them and purchase more when the price fell. He was justified in holding them "on the basis of strong and reliable information generated by my firm". The positions were closed in June when "it was clear .........that the anticipated yields .......would not materialise in the short term". Martin acknowledged, in July 1998, that he had been previously instructed to sell the stocks but had refused. If he had followed the instructions, a profit could have been made and the funds would have been available for trading. I note also in his explanation that he states in his witness statement that a trader "does not engage in technical analysis for this type of stock". The clear message from his explanation is that these stocks were stocks that he was buying on the basis of in-house predictions and in the expectation that their price would increase dramatically and that it was his intention to hold the stock and add to it because the profit would not be generated quickly. Thus, it was not, strictly speaking, a trading position that he was seeking to adopt. If he had been trading he would not have held these stocks as long as he did, he would have cashed in on the profit where it was available before the prices began their decline. He was trying to pick winners based on in-house predictions, hearsay and information of variable reliability and certainty.

2080. Next, I note that the holdings in Innovax, Tectonic, Voicenet and Tabcorp each involved significantly more than 10% of the funds invested with the defendant. With Tectonic, Martin also added to a losing trade in accumulating the holding.

2083. As noted above, it is not possible to analyse the issue of the links between particular negligent aspects of the trading and the losses suffered with any detailed precision. I am satisfied, however, that there can be no doubt that the defendant, through Martin, engaged in reckless trading which was a significant cause of the loss of the funds invested and the lost opportunity.

2087. The plaintiff submitted that, if there had been proper supervision and control (including enforcement of the compliance policies) the capital entrusted to the defendant by the plaintiff would not have been lost and the opportunity of profit would not have been lost. Counsel argued that the capital would not have been lost because the initial retainer would have been handled appropriately to reflect the client objectives, needs and finance. The reckless and contradictory proposal of Martin would not have been put forward. On the other hand, if it had been put forward and carried out, the conflict between Martin's trading and the client's profile, objectives, needs and finances would have emerged at a very early stage as supervision and control was exercised. In the alternative, it was put that if there had been proper supervision and control, the capital and opportunity would not have been lost because the failure to complete the requisite forms in the applications for the first two accounts would have been identified and properly addressed with the result that the conflict between Martin's trading and the client's profile, objectives, needs and finances would again have emerged.

2090. It was also put for the plaintiff that whatever one's view might be about the obligation to supervise and control Martin and other brokers, the episode in December,1997 of the closing of the No. 2 Account should have prompted Karlson, or his superior, the then office manager, Parker, to investigate the Rahmat Ali accounts thoroughly. Martin had been unable to give a satisfactory explanation for the existence of the No.2 Account. They had the statement of account. Examination of the contents of the trades on the account would have revealed that the client's proceeds of the Telstra receipts had been placed in that account and then applied to the purchase of highly speculative stocks. If Karlson or Parker had checked the account application documents, they would have found no information recorded as to the client's objectives, needs, risk tolerance and finances. The Plaintiff argues that, at the very least, at that point the paperwork would have been regularised and that would have revealed the conflict between what Martin was doing and what the client profile would justify and what Martin had represented. At the very least, appropriate advice could then have been given to the client. A conversation with Liyakat Ali or Barba would have revealed the agreed target return and the no-risk assurances and the defendant's other officers could have intervened to alert the client to the realities. At that time the capital could have been saved together with a profit of $69,210.00.

2093. I have noted above in discussing supervision and control, other relevant incidents internal to Hartley Poynton.

2096. The defendant argued that the Plaintiff could not establish the necessary causal link between a failure to adequately supervise and control and any loss suffered. It argued, again, that Liyakat Ali wanted to trade in a high risk speculative way pursuing high returns and the loss would have occurred anyway. As I have indicated, I do not accept those propositions. At the outset and throughout low risk was a major concern of the plaintiff. The pursuit of high returns began and continued because of Martin's misrepresentations about returns and about the lack of risk resulting from his privileged information and use of risk strategies.

2099. It further argued that no causal nexus between the acts and omissions complained of and the alleged damage can be established. Counsel for the defendant referred to the plaintiff's submission that if Martin had been supervised properly, credit trading would not have been allowed and the client would not have suffered any loss. Counsel submitted that the evidence did not support the conclusion that credit trading would not have occurred. He argued that the evidence is that when Martin tried to inform Liyakat Ali that trading limits had been imposed, Liyakat Ali insisted that he not be subjected to trading limits and as a result the Khan account was opened.

2102. As to the latter point, it is not supported by the direct evidence. Liyakat Ali's position is that the account was opened by him for Khan in exercise of the power of attorney Khan (D23) had given him. His evidence was that Khan executed the power of attorney before a bank manager on a visit to Melbourne. Trading and short sale accounts were opened in his name and trading occurred. He gave vague evidence that the accounts were opened after Khan visited Melbourne and were to be operated on credit taking advantage solely of the extended settlement facilities. Later he said it was to have the same gearing facility as the plaintiff's account. There appears, however, to have been a tendency to treat the Ali and Khan accounts as related or connected accounts. The plaintiff's schedule to his Statement of Claim also included Khan account transactions.

2105. Martin's evidence, on the other hand, was that the Khan account was opened to enable the plaintiff to withdraw funds - not to avoid trading limits. I note, however, that the account, having been opened on 6 April 1998, no money was withdrawn until 1 May 1998 and then it was only $756.15. There do not appear to have been any other withdrawals even though on 11, 12 and 13 August 1998 the account was in credit for larger amounts. Further details of the initial transactions are contained in Annexure A.

2108. Whiting gave evidence that he used the Khan account when credit limits prevented trade on the plaintiff's accounts. But there was only one purchase on the account between 14 August 1998 and 27 August 1998 - 60,000 AMPWXA bought on 18 August 1998 and sold on 20 August 1998. The next purchase was not made until 27 August 1998.

2111. As to indirect evidence, it is true that the opening of the account coincided with a tightening of credit arrangements and that on 6 April 1998, in particular, Martin was contacted by the Debtor's Committee about the Rahmat Ali trading account coming on the 30 day and over list. It is also true that the first transaction recorded in the Khan account was a crossed trade being a purchase of 100,000 Crown shares at $0.67 and records for the Rahmat Ali trading account records a sale of the same quantity at the same price on the same day in a crossed trade. There was also a similar transaction involving warrants. But neither Martin or Liyakat Ali have been frank in their evidence about the Khan account and the trading in it. While it is reasonable to infer that that result flows from a belief by each of them, that to be, frank would not assist their respective cases, that inference is not particularly helpful.

2114. Martin may have urged the opening of the account because he was concerned about trading limits and was trying to get around them but it does not follow that that was what he told Liyakat Ali. Having opened the account no transactions were carried out on it between 9 April 1998 and 28 April 1998 during which time trading continued on the trading account and its debit balance generally exceeded $200,000.00. He also did not appear to use the Khan account to address the directions of the Debtors Committee of 21 April 1998 or 22 May 1998 (see Annexure A).

2117. Another possible explanation for Liyakat Ali's motivation may lie in the references by Martin to the account as the Telstra account later in August of 1998 (see email - CB1943). Perhaps it was opened to build a fund to re-purchase Telstra? Liyakat Ali does not appear to have commented on the use of that expression at the time. At the same time, I am satisfied that Liyakat Ali was not told that the Telstra account had been closed and he may well have assumed that the reference to the Telstra account in the email was a reference to the Rahmat Ali Number 2 account and not the Khan account as is now asserted by Martin and the defendant (and supported by the statement of account produced for the hearing D21). Liyakat Ali, however, was never provided with reports by Martin which identified what transactions had occurred on what accounts. That information could have been extracted from the contract notes but I am satisfied that they were not read by Barba or Liyakat Ali.

2120. Another possible explanation is that the Khan account was the demonstration account referred to in an e-mail of 16 October 1998 (CB 2223), but it does not fit the description in that email (see Annexure A).

2123. I am satisfied that, throughout, Liyakat Ali and Barba both believed that the original credit arrangements existed (the gearing and extended settlement) and they acted accordingly. I am also satisfied that at no time were either Liyakat Ali or Barba informed of changes to the arrangements. If they had been told about the changes that had occurred and were to occur, there would have been considerable drama and the facts would have been recorded in their respective diary and file notes. It is unlikely, therefore, that Liyakat Ali opened the MA Khan account to deal with the changing limits. This issue is one for which there is no satisfactory answer.

2126. I return to the argument advanced by counsel for the defendant that there was no causal connection between any lack of supervision or control and continued trading on credit and that, therefore, there was no loss suffered. In my view, if reasonable care had been taken in supervision and control, there would have been no credit trading because the concern to minimise risk would have been met. But the critical issue is whether there was a causal connection between lack of supervision and control and the losses.

2129. Counsel for the defendant also directed argument to the failure of the plaintiff to fill out the various forms with full details of objectives and financial position. As for the original applications, it appears the details simply were not filled out. The failure to do so, however, did not have any causal impact so far as Martin's actions and decisions were concerned because he was made aware of the objectives. It had the potential to make it difficult for Martin's superiors if they tried to supervise and control him because there was no record of objectives which would have enabled them to compare the trading with those objectives. In the circumstances of the case, however, there having been no relevant supervision, any failure on the plaintiff's part to complete the documents, did not have any effect. On the other hand, if there had been reasonably adequate supervision and control, steps would have been taken to have the objectives recorded (in part to ensure compliance with the ASX Rules) and the conflict between the trading and objectives would have become apparent. The same analysis applies to the failure to complete the discretionary account agreement.

2132. Counsel for the defendant also submitted that the logical consequence of greater supervision would have been less trading and less ability to make profits and that there is no basis for finding a causal connection between the alleged lack of supervision and the losses alleged. Accepting the first proposition, the logical consequence of the plaintiff's argument is that while there would have been less trading and the level of potential profits would have been less, so would the risk of total loss.

2135. I prefer the arguments advanced for the plaintiff. Supervised and controlled with reasonable care, the probabilities are that a conservative approach would have been taken. On the balance of probabilities, the capital would not have been lost and a profit would have been made.

2138. In the end it is unnecessary to comment in detail on the causal connection between the failure to supervise to ensure compliance with ASX Rules and the Law. I note, however, that I am satisfied that warrant trading would not have occurred because supervision carried out with reasonable care would have revealed the low risk objective and ensured compliance with ASX Rule 8.14.2. On the other hand, compliance with ASX Rule 8.14.1 may not have changed events because of Martin's persuasiveness.

2143. The defendant, has not disputed the inclusion in the assessment of damages of the amount of the initial capital investment of $101,818.54 - if it is found liable and that loss was caused. Those funds were in fact lost as a consequence of the defendant's defaults referred to above. The debate has centred on the claim for damages for the lost opportunity to trade profitably.

2146. As to the plaintiff's claim for damages for lost opportunity, whether for breach of contract, negligence or for breach of s. 52 Trade Practices Act 1974, it appeared to be common ground that the law has been laid down in Sellars v. Adelaide Petroleum (1993-94)179 CLR 332. The defendant cited the following passages as an authoritative analysis of the law:

"....acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s.52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. The principle recognised in Malec was based on the consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation for confining the principle to cases of any particular kind. On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence, the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in the case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities, because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable. The conclusion which we have reached on this question finds support in other considerations. The approach results in fair compensation, whereas the all or nothing outcome produced by the civil standard of proof would result in the vast majority of cases in over-compensation or under-compensation to an applicant who has been deprived of a commercial opportunity. Furthermore, it is an approach which conforms to the long-standing practice of taking into account contingencies in the assessment of damages".

2150. Counsel for the defendant submitted that, if the Court is satisfied that as a result of breach of the retainer the plaintiff suffered a loss of a commercial opportunity, even if there was less than the 50% likelihood that it would be realised, then the Court can compensate for that. It was further put, however, that damages would have to be assessed by reference to the probabilities or possibilities of what would have happened. Those propositions accord with Sellars. Counsel went further and argued that, if the Court is satisfied that there was a less than 50% chance of the plaintiff achieving a trading result of $267,000, then the Court is constrained not to compensate the plaintiff in any sum greater than a reasonable return of the money invested and suggested a 10% to 12% figure (presumably per annum or for the period of the actual retainer) . It appears to me that this argument contradicts the quoted passage. The plaintiff, to succeed, must establish on the balance of probabilities that he was deprived of a commercial opportunity that had some value. The assessment of compensation for the lost opportunity will be affected by the view taken as to the probability or possibility of success of that opportunity.

2153. In assessing lost opportunity damages, however, different issues arise depending on the basis of liability. Thus the opportunity lost because of negligent misrepresentation prior to the retainer differs from the opportunity lost as a result of negligent trading in breach of the retainer. I will return to that issue.

2157. The claim for lost opportunity profits could have been put in a variety of ways. It is implicit in the pleaded reliance on the calculation of Francis, that the plaintiff seeks compensation on the basis of an opportunity to invest from 17 September 1987 to 18 August 2000 but no further. The plaintiff has not sought to widen the period and little detail has been pleaded or otherwise given. While, on the evidence, the retainer agreement committed the parties for 12 months, I am satisfied that the plaintiff's plans to create and build up a fund for his retirement were not limited to that period and were for a longer term and one beyond 20 August 2000. I will, however, treat the claim as relating to the period 17 September 1987 to 18 August 2000.

2160. The figure of $276,971.67 claimed by the plaintiff for the loss of opportunity is the figure that was calculated by Francis, an expert called to give evidence for the plaintiff. Francis had ample qualifications in trading on the stock market and in the setting of policy and was familiar with the Seat system.

2163. In his initial statement of evidence, he assessed the results that might have been achieved if the Telstra shares had been held. This included an estimate of the value of the opportunity lost in relation to Telstra. The result of that analysis was a net return of or greater than 367.97% over the period 17 September,1987 to 18August,2000. He applied the percentage return he had determined for the Telstra claim, to the trading account assuming an investment of approximately $100,000 and stated that the return should be greater than $267,971.67. He concluded with the opinion that a minimum opportunity loss of $267,971.67 was created.

2167. Counsel for the defendant submitted that a figure of $267,000 was ridiculous and that Francis himself effectively conceded that. The figure was arrived at simply by transposing the potential Telstra result which did not involve trading as such but margin lending and acquisition of further Telstra and blue chip stock.

2170. In my view, the figure of $267,971.67 was never satisfactorily explained and should be rejected. Francis gave other evidence, however, on which defence counsel placed some reliance.

2173. Counsel for the defendant referred to and relied, in part, on cross-examination where Francis was asked to assume that $100,000 was traded and that the Telstra aspect had proceeded with a margin lending program. Francis agreed that in that situation he would not have expected borrowing to have occurred in respect of the trading. Put that what was lost was the opportunity to achieve a rate of return equal to one of the indexes, he said that he would have expected the broker to be attempting to achieve a better return than, for example, the All Ordinaries Index. Put that that Index would have been the appropriate figure, he said that if that was all his broker was going to give him he would have been very disappointed. He agreed that you can make a loss or a profit. He agreed that a lot of people lost money in 1998 but also said that a lot of people had made a lot of money in 1998. He said that if he was paying a lot of commission to a broker he would expect to earn a return compatible with that. He said that in one year's trading, it would be a good result to double the All Ordinaries Index rise. Counsel put that the maximum figure for lost opportunity on that basis would be $20,000 on a $100,000. Francis accepted the calculation. I assume that answer related to the period of the retainer.

2176. Counsel for the defendant also referred to evidence- in- chief given by Francis about what sort of return would have been achieved on an investment of $300,000 from 31 October 1997 to 31 January 1999. Francis said that it would depend on the risk the client was willing to bear and that with an elderly client wanting to sustain his capital, you would require a portfolio tolerant to risk. He suggested a blue chip portfolio potentially comprising the top 20 leaders and very little or no trading during the period. Using an accumulation index based on the 20 leaders at different times, he said the index during the period between October 1997 and January 1999 increased from approximately 11,500 to approximately 15,000 points or 40% during the above period. He said that this included dividends. On that basis he said you would expect an increase from $300,000 to about $420,000 or $430,000. He commented that that was a very conservative portfolio. He said that the level of returns depends on the level of risk you are willing to bear and said you could have a return of 25% over 12 months which would not be unusual and that you could have a return of double the money within a period of time. The 25% figure included the accumulation of dividends which would, he suggested, account for 3% to 4% of any accumulation index.

2179. Counsel also referred to a number of matters which would need to be weighed in the balance in determining possible returns.

(a) He noted the difference overall in the returns on the All Ordinaries Index (D39, D40), the 20 Leaders Accumulation Index (P14) and the 100 Leaders Accumulation Index (D48).

(b) It was pointed out that using the tables as a guide to possible returns much would depend upon the dates selected for the periods. Between 3 November 1997 and 30 October 1998, the All Ordinaries Index increased only 3.21% (D40). Between 3 November 1997 and 31 January 1999, it increased 15.58% (D39).

(c) The outcome could also be affected by the extent to which dividends were received or not and that this might depend upon the extent to which the shares held were traded.

(d) Reference was made to concessions by Francis, that the total gain in the 20 Leaders Index between 3 November, 1997 and 30 October,1998, was only 13.53% and that the return could vary depending on which stocks in the 20 leaders were held - if that was the approach taken. He also agreed that during November 1998 it increased by 4%. He agreed that if one of the stocks held was Newscorp, that stock was very volatile and one could lose 5% in a day on it. He also said, however, that it had moved up 10%. Put that it is possible even investing in the 20 leaders to lose your money over 12 months, he said "very rarely". He accepted that one security had lost 46% and that there had been movements of around 50% with securities in the All Ordinaries Index during the period.

2185. Defence counsel also drew attention to the evidence of Jasch that there can be no guarantees of success in trading shares or other securities on the stock market. Counsel also argued that on the basis of Jasch's evidence, the return which could be reasonably expected in a trading account is no more than l% or 2% above any rise in the All Ordinaries Index. Jasch stated that the generally accepted method of judging success was whether you had outperformed the Index. He also said, that he would be happy with a return of 20% where the All Ordinaries Index rose 12% to 15% and to achieve 50% against such a rise would be fantastic. He also said he would be satisfied with 16% to 18% if the All Ordinaries Index rose 12% to 13%.

2188. I note also that Francis prepared a later statement in which he estimated, inter alia, opportunity loss on $100,000 for the period 17 November 1997 to 1 February 1999. He did this simply by looking at the ASX 100 Leaders Accumulation Index which rose from 2561.4 on 17 November 1997 to 3162.5 on 1 February 1999 - 23.47% and suggested an opportunity loss of $23,468.00 (Answer to Q46).

2192. A valuable commercial opportunity to invest $100,000 for several years was lost. It is possible looking back to identify the sorts of returns that could have been achieved by looking at the various indices, but what has to be assessed is the value of the lost opportunity to pursue those returns to 18 August 2000

2195. The general rule is that damages for torts or breach of contract are assessed as at the date of breach or when the cause of action arose (eg Johnson v Perez [1988] HCA 64; (1998) 166 CLR 351, 355, 367, 370, 386). The value of the lost opportunity is to be assessed at the time of its loss.

2198. In assessing damages, however, it is permissible to look at what occurred in the market subsequently in determining the value of that lost opportunity (Ibid, 368, 387). In Willis v The Commonwealth [1946] HCA 22; (1946) 73 CLR 105 at 109, Latham C.J. pointed out;

"........where actual facts are known, speculation as to the probability of those facts occurring is surely an unnecessary second-best. Damages are awarded for injury actually suffered and for prospective injuries. Prospective injury can only be estimated with more or less probability but where the extent and character of what would at one time be described as prospective injury depends upon the happening or non happening of a particular event and that event has in fact happened, it is unnecessary to speculate as to whether or not this event might happen and, if so, when. In such a case prospective damage (or diminution of damage) has become actual."

2202. In all instances, in light of these comments, it is relevant to consider what has occurred, where evidence is available, rather than speculate.

2206. Assuming Martin had acted with reasonable care in his representations as to return and risk in discussing with the plaintiff's agent the appropriate investment of the $100,000, and in carrying out his duties, the plaintiff would have proceeded with a low risk approach either with the defendant or another broker. On the evidence of Francis, the options appear to have included a passive portfolio diversified over the 20 Leaders Index or a portfolio with 60% to 70% in blue chip stock from the 100 Leaders Index, 20% to 30% in the mid category of stocks from remaining stocks in the All Ordinaries Index, and 5% to 10% in speculative stocks (but not warrants). For such a portfolio there would presumably be some limited trading carried out particularly in the speculative stocks. No doubt there would have been other investment opportunities. Accepting this scenario of a broker acting with reasonable care, however, he would not have advised the plaintiff to embark upon extensive trading or the use of credit. Thus, the portfolios to be considered in respect of which the commercial opportunity was lost as a result of misrepresentation, should be treated as confined to that acquired with an initial investment of $100,000.

2209. Another variable is the period for which the opportunity existed. In light of the fact that the funds were exhausted by February 1999, it is possible to determine the opportunity that was lost in light of what occurred up to that date. The investment period, however, was indefinite. It is reasonable to conclude that it was likely that the plaintiff would have continued to invest the monies in his hands as at say 1 February 1999 in a similar way into the future and at least until 18 August 2000 to achieve his objectives, the period for which damages for the lost opportunity is claimed.

2212. In forming a judgment of the value of the opportunity that was lost, a convenient approach is to start with the evidence of stock exchange information about stock price movement. The evidence may be summarised as follows:

(a) 20 Leaders Accumulation Index

* between 31 October 1997 to 31 January 1999 - an increase of about 30% (P14)

* between 1 February 1999 and 18 August 2000 - an increase of about 25% (P14)

* between 30 November 1997 and 30 October 1998, - an increase of 13.53% (D 41)

(b) 100 Leaders Accumulation Index (D 48)

* between 3 November 1997 to 1 February 1999, an increase of 23.6%

* between 1 February 1999 and 18 August 2000 - an increase of 21%

(c) All Ordinaries Index (D 39 & 40)

* between 3 November 1997 and 30 October 1998 - an increase of 3.21%

* between 3 November 1997 and 31 January 1999 - an increase of 15.58%

On the basis of the above figures it may be said that for the period from 31 October 1997 to 18 August 2000, there was a real prospect of achieving a substantial return, depending on the mix of shares acquired and held. In assessing the value of the lost opportunity, however, it must be borne in mind as counsel for the defendant pointed out that, depending upon the mix of shares selected, it cannot be assumed that figures equal to the index figures would have been achieved. Losses could occur as a result of the poor selection of stock, the termination of an investment or unforseen events. Reference was made, as noted above, to shares such as Newscorp, which were volatile. By the same token, of course, depending on the selection of stocks a person could do much better than the indexes. The indexes give the average result from movements in all the stock making up the indexes.

2218. In assessing the value of, and compensation for, the lost opportunity many different scenarios could be considered. In light of the evidence, it is helpful to consider the following scenarios. In this and each scenario, it should be borne in mind that the opportunity lost included the opportunity to re-invest each year's return.

(a) Passive investment in the 20 Leaders. An opportunity lost was the opportunity to participate in a potential average 30% capital gain to 31 January ($30,000.00) and 25% on $130,000.00 to 18 August 2000 ($32,500.00) - a potential average gain of $62,500.00.

(b) Investment in diversified portfolio with some trading. Assuming say, 70% invested in the 100 Leaders Index, 20% in the All Ordinaries Index stocks and 10% in speculative stocks, there was the opportunity of an average gain of $16,500.00 in respect of the stocks in the 100 Leaders and $3,000.00 from the 20% invested in the All Ordinaries Index for the first 14 months. There was the potential for further gains thereafter to 18 August 2000 (e.g., 70% in 100 Leaders Index - 86,500 at 21% = $18,165.00 and 20% in the All Ordinaries Index) and whatever might be achieved with the speculative stock and trading, particularly in speculative stocks.

(c) Trading a diversified portfolio. Assuming the allocation referred to in (b) above, the evidence of the experts points to the real possibility of a return of 25% per annum or, as Jasch put it, he would be happy with a return of 20% per annum. The opportunity was there to achieve that figure - a return of more than $70,000.00 over the pleaded period - or more or less.

2224. The plaintiff had very real prospects of achieving a substantial increase up to 1 February 1999 and further substantial increases from then until 18 August 2000 of a similar order. The probabilities are, I suggest that a dealer in prudently advising the plaintiff would have recommended a predominantly passive blue chip portfolio at the outset with minimal trading and this would have been accepted. In view of the likely preponderance of high quality shares in the portfolio, I would suggest compensation for the loss of the commercial opportunity over the relevant period of nearly three years assessed at $50,000.00 would be reasonable.

2227. A similar analysis may be applied to the assessment of damages flowing from the loss of funds as a result of negligent advice.

Loss of Opportunity from Negligent Supervision

2231. If the defendant had supervised and controlled Martin with reasonable care, an investment program consistent with the plaintiff's profile would have been embarked upon from the outset - or by late 1997, at a time when the initial fund was intact. The plaintiff was denied this opportunity. The probabilities are, however, that there would have been no credit trading. The assessment of the lost commercial opportunity, therefore, is the same as that for the lost opportunity flowing from the representations of Martin.

2235. The plaintiff here seeks compensation for the lost commercial opportunity flowing from the negligent trading conducted pursuant to the agreed retainer. It seems to me that the claim may be divided into two parts. First, there is compensation for the lost opportunity to trade in a reasonable manner during the period of the actual retainer. Secondly, there is the lost opportunity to invest in the market after the conclusion of the retainer with the monies that should have been available if reasonable care had been employed.

2238. An issue arises as to whether the assessment of the lost opportunity should be made on the basis of the credit allowed at the time the agreement was entered into - $200,000 and at least 30 days. The credit was to be interest free. This I have held, was to continue pursuant to the agreement for 12 months. It would be reasonable for the purpose of assessing this lost opportunity, therefore, to assume the availability of the amount of at least $300,000 interest free for trading purposes for that period. It is true that a broker acting with reasonable care would not have advised the plaintiff to embark on credit trading, but that was the agreement and the issue to be determined is compensation for the opportunity lost as a result of the trading being otherwise conducted negligently. One should, therefore, assume trading with an amount of at least $300,000.00 for 12 months to November 1998. In my view, it would be reasonable to assess the opportunity lost on the basis that a net return of 20% per annum was a reasonable expectation. Such a figure should be discounted slightly in assessing the value of the opportunity. An appropriate figure would be $50,000.00. Thereafter, assuming no credit but a fund of $150,000 (initial $100,000 plus $50,000) to be invested appropriately having regard to the profile, for a further 18 months, a further 20% would return $30,000 - again a reasonable expectation. The combined figure, however, should be discounted further for the risks inherent in trading to say $70,000 as representing the reasonable value of the lost opportunity.

2242. It must always be remembered that the possibility of doing much better over the almost three year period remained. There were, however, many variables and obviously considerable risks of losses and the possibility of lesser returns remain. Overall, however, the above figures constitute reasonable assessments of compensation for the lost opportunity flowing from the representations made before entering the retainer and from the negligent trading and supervision of it conducted by the defendant.

2247. Arising out of the alleged original representations and the alleged breaches of the retainer as they affect the Telstra aspect, the Plaintiff claims the sum of $195,000 paid for the Telstra shares and, further or alternatively, the proceeds of the sale of the Telstra shares of $250,723.00. He also claims compensation for the lost opportunity on the Telstra account "invested and prudently geared" as at February, 1999 of between $2,536,125 and $2,689,715 or alternatively $3,433,555.38 as at the date of trial.

2251. The plaintiff relies principally on the evidence of Francis, the expert called on his behalf. Francis provided a very detailed report dealing with a number of aspects of the claim. In the course of his evidence he provided further reports.

2254. In relation to the calculation of the value of the opportunity lost in respect of the Telstra shares, he had made available to him Hartley Poynton statements of the trading account and the short selling account, Liyakat Ali's statement and various tables and indices of securities, prices and interest rates.

2257. He did several analyses. The result of his first analysis was that by 18 August, 2000, the plaintiff would have had a hypothetical share portfolio worth $4,857,226.09 against which he would have borrowed $3,642,919.57. At that point the plaintiff would have had a hypothetical equity in those shares of $1,214,306.52. Deducting from that amount the initial instalment of $195,000.00 and the second instalment of $135,000.00 which had to be paid to complete acquisition of the initial holding, he calculated a lost opportunity of $884,306.52 ($1,214,306.52 minus the Telstra instalments). It should be noted that the holding in Telstra for the purpose of the calculation was built up from 100,000 to 400,000 and profits used to buy blue chip shares (from the 20 Leaders Accumulated Index). The details were set out in Annexures N, O and P. It was subsequently found, however, that Schedule N was flawed (see below).

2260. In making his original analysis he assumed that the client strategy was;

(a) to acquire 100,000 Telstra in the public offer at $1.95 per share;

(b) establish a margin lending account as soon as possible, after the issue, in his experience on the first day of trading;

(c) use the 100,000 shares in Telstra to borrow funds to purchase more Telstra;

(d) that on the first day of trading with Telstra opening at $2.65 the amount that could have been margin lent on 100,000 shares was $795,000.00 or the equivalent of 300,000 shares - resulting in a total holding of 400,000 shares with a market value of $1,060,006.00. In making that assumption he assumed that the margin lending agreement would allow lending bearing the ratio of 75% to the market vale of the 400,000 shares subject to the margin lending agreement;

(e) the lending rate would be 1.5% higher than the 90 day bank bill rate calculated on the opening days rate per quarter, and interest would be paid at the end of each quarter ( by capitalising);

(f) Any increase in the price of Telstra would be used to borrow funds to buy strong blue chip stocks. In calculating that aspect, he assumed;

(i) that the only securities that would have matched the description of strong blue chips were those in the ASX "20 leaders index".

(ii) He used the 20 leaders index as a substitute for any particular security.

(iii) Dividends would be used to buy new shares on a leveraged basis and for that purpose he used the 20 leaders accumulation index which accumulates dividends for all stocks within the index plus increases in the stock prices comprising the index.

(iv) The portfolio would be adjusted at the end of each quarter - that is buying or selling of securities to bring the margin lending requirement back to 75%.

(g) The second instalment in Telstra "could be funded externally of the portfolio".

2266. In the course of his evidence, Francis produced three further analyses which looked at different scenarios. The first of those made some different assumptions;

(a) building a portfolio of 500,000 Telstra shares rather than 400,000 Telstra shares;

(b) a margin lending rate of 70% instead of 75%;

(c) the inclusion of a reserve against adverse movements in the market of 10% of the amount of the margin lending;

(d) re-calculation of the portfolio at the commencement of each week instead of quarterly;

(e) the Telstra holding of 500,000 shares, once achieved, would be used to borrow more funds to buy strong blue chip stocks;

(f) for the calculation relating to the blue chip stocks he used ASX 100 Accumulation Index instead of the 20 Leaders Accumulation Index;

(g) the calculation was in fact taken to 1 February 1999, not the 18 August 2000.

The result of this calculation was that by 1 February 1999, the plaintiff would have had a hypothetical share portfolio of Telstra and other blue chips worth $10,508,506.98c against which he would have borrowed $6,969,951.59c resulting in a hypothetical equity of $3,538,555.38c. Deducting the first instalment of $195,000, the result is a lost opportunity on these calculations of $3,343,555.38c. (see annexures AV, AW, AX to P18). The calculations assume the funding of the second instalment on the Telstra shares from sources other than the margin lending facility.

2272. Subsequently he was asked to recalculate his original annexure N which was the table which calculated the growth in the Telstra holding based on the initial assumptions which had included 75% margin lending and an objective of 400,000 Telstra shares. In performing the re-calculation using a 70% margin lending rate he discovered a flaw in his calculation of the figures for "Total Equity" and the "Increase in Equity". The error in annexure N affected the previous calculations he had made (Annexures O and P).

2275. He also recalculated the annexure AV, AW and AX carried out in the previous revision assuming quarterly calculations (instead of weekly) and making the corrections to the calculations. The conclusion reached was that at 30 November 1998, the plaintiff would have had a hypothetical share portfolio of Telstra and blue chips worth $8,171,840.58c against which was owed $5,545,1056.74c. The resulting hypothetical equity on that calculation would have been $2,626,683.80c. Deducting the first instalment of $195,000 there was a balance of $2,431,683.80c. This figure appears not to take into account the need to pay the second instalments.

2278. Finally, Francis was asked to re-calculate annexures, AV, AW and AX on a weekly basis, using 70% margin lending and a maximum of 400,000 Telstra shares. The result of that calculation was that by 31 January 1999, the plaintiff would have had a hypothetical portfolio worth $8,754,075.71c on which was owed $5,768,740.91c leaving a hypothetical portfolio equity of $2,985,334.80c. The lost opportunity on that calculation after payment of the first instalment of Telstra of $195,000 was $2,790,334.80. This also appears not to take into account payment of the second instalment for the Telstra shares.

2282. The defendant challenged the bona fides of the claim. It also submitted that there was no lost opportunity and challenged the quantum claimed.

2286. The defendant submitted that the margin lending plan is essentially a reconstruction. Counsel referred initially to differences between the way the claim has been put in the past and the way it is now put. In particular reference was made to the original pleading which included a claim for $230,000 alleged to be the loss flowing from the fact that if the Telstra shares had not been sold immediately they would have been sold later just prior to the time for payment of the second instalment. It is submitted that this pleading must have been made on instructions and contradicts the case put in later pleadings and at trial and that the objective and plan was to hold the Telstra shares as a long term investment and use them for borrowing purposes to acquire more Telstra shares and other blue chips.

2289. The argument raises a real question about the bona fides of the claim. I am satisfied, however, on the basis of the evidence, in particular of Barba, that there clearly were discussions which crystallised into an agreed plan prior to the shares coming on to the market to build the holding to 500,000 shares in Telstra, and then blue chips, using margin lending and that steps were taken through O'Halloran to investigate the ways and means of carrying out that plan. At the same time it cannot be said that the plan had been tested and, therefore, that any final decisions had been made at the time of the sale of the Telstra sales about the precise extent of the margin lending and the precise detail of the plan. I am satisfied, however, that the plaintiff intended, if he could, to embark on the above very substantial margin lending program, involving Telstra shares and blue chip shares. The explanation for the pleading is, I suggest, that, prepared in some haste and under considerably difficulty, it did not accurately and completely record the facts.

2293. The defendant referred to its argument that the sale was authorised and agreed to by the plaintiff's agent and that that is confirmed by his participation in and acceptance of subsequent trading using those proceeds. I refer above to the conclusions I have reached in rejecting those arguments.

2296. Otherwise, the principal point raised concerns the margin lending aspect of the claim which was introduced into the pleadings in February, 2000. Counsel submitted that there was no loss of opportunity because there was never any agreement with the defendant that it margin lend and that margin lending as such was not possible.

(a) No margin lending through defendant. Counsel submitted that Martin never on behalf of the defendant agreed to provide margin lending. As to that, I accept the evidence of Barba and Liyakat Ali that Martin did so offer and it may well have been available, although one must approach with caution anything offered by Martin in those early months as an inducement to the plaintiff and his agent. Any margin lending proposal, however, would have run into the problem that it realistically could not have been put in place until mid-December 1997, (see below).

(b) Margin lending not possible. Counsel for the defendant submitted that the plaintiff would not have been able to obtain margin lending. He referred to the evidence of Johnson, from Colonial State Bank, who gave evidence for the plaintiff on margin lending. Counsel said that he gave no evidence that Colonial State Bank would have lent. That is true - he was not asked. He was asked questions, however, which were relevant to the question and his answers shed some light on the probabilities of margin lending being available.

The defence called Hardman, also an expert in the field. The defendant's counsel submitted on the basis of Hardman's evidence, that it was most unlikely that a margin facility of up to 70% of the value of the Telstra shares would have been made available to the plaintiff from any margin lender and that, in fact, the plaintiff would have been rejected as a borrower. I turn to his evidence

(i) No 70% margin loan. Hardman gave evidence that in his experience he had not seen margin lending of the nature set out in Francis's annexures. He said that whether a margin lender would allow a borrower to invest the whole of the loan in shares in one company would depend upon the ability to finance the loan and the spread of investments. He said that a high wealth customer with significant other assets might be permitted to take a single large exposure. On the other hand, he said that an investor with no other assets was extremely unlikely to be allowed to borrow a large amount such as $600,000 against a single security. That assessment was affected by the liquidity of the stock. He accepted that Telstra was very liquid stock in 1997 and 1998. He said that margin lenders encourage clients to spread risk and that the lending ratio is based on the margin lender's assessment of the risk. He said some companies such as BT may reduce the ratio for a single stock - in BT's case always 10% against the loan to value ratio. Others, such as Merrill Lynch, recommend diversification and would also reduce the ratio where the portfolio contained less than three stocks. He agreed that if the plan was to invest initially in Telstra up to a certain level and then to diversify into blue chip stocks that would affect matters because it would spread the risk on equities themselves and the margin lender would look at other aspects of the proposed transaction. To spread the risk over a number of blue chip stocks would be more acceptable to the margin lender**.** He said, however, that as the exposure against one person continued to increase, the margin lender would look very carefully at the ability to meet the obligations. He said it was a question of prudence. He said there was nothing to stop a margin lender lending on one stock which had great hopes for the future. He said it was a question of their prudence. He agreed that a 70% ratio is to allow for a 30% fall in the value of the stock.

(ii) Borrowing on increases in equity. As to increasing margin loans by utilising increases in equity, Hardman said that the margin lender will in appropriate circumstances allow the borrower to increase his loan, it would be subject to the same criteria as the original margin loan but treated as an increased drawing against it. Some margin lenders may insist on a formal application for an increase. In his experience, in that situation, the lender will encourage the borrower to diversify. The percentage allowed will depend on the nominated percentage fixed by the margin lender. If a nominated share has a ratio of 50% that will be the margin initially. Mr Hardman in his statement concluded;

"I believe it very unlikely Mr R. Ali would have been able to obtain a margin loan for $600,000.00".

In cross-examination, however, Hardman confirmed that suitable guarantees might assist but nothing specific was put to him or said by him by way of example.

One must also bear in mid that what was being used for margin lending was the Telstra share holding --a stock to be used for security about which any margin lender was likely to be confident.

(iii) Plaintiff unacceptable as a borrower. Counsel for the defendant also argued that a person in the situation of the plaintiff would have been rejected as a borrower. He relied on Hardman's evidence that the decision whether to margin lend, and the extent of any loan, is affected by the fact that margin lenders often borrow from wholesale lenders pursuant to a facility letter which will set out the criteria as to the persons to whom the margin lender will lend and what stocks may be lent on and the intensity of the concentration of those stocks. His evidence was that typically such facility letters required residency requirements which allow lending to Australian citizens and residents. The facility may allow loans to overseas residents but he said that typically they have to be residents within the OECD and usually only up to in total 5% of the overall loan facility. He mentioned occasions where residents of Papua New Guinea had not been allowed margin loans. His opinion was that a Fijian resident "such as Mr Ali" was "very unlikely" to have been able to obtain finance. In saying this he was also influenced by the fact that it appeared that the plaintiff had no free assets and was otherwise not able to support the loan or meet margin calls. He said that some wholesale lenders see the risk of lending in non-OECD jurisdictions as unattractive because of collectability problems. I note he did not say all.

In cross examination, Hardman was challenged about this evidence. He said that he expressed his opinion on the basis of the information provided to him. It emerged that he had been told that the plaintiff resided in Fiji, was retired, had no other significant assets and was not generating any other income. He was not told of the plaintiff's financial position, the family connections, his religion or the number of children or their financial position. He said that if it emerged in the course of investigating the financial position that the person could not meet interest payments except out of dividends, he would be enquiring as to what other sources of funds the applicant had.

Hardman gave evidence that typically a margin lender would require financial information to make the usual prudential credit check. It will check current income and other funds available to the margin borrower in determining the ability of the borrower to service a debt and margin calls. I note, however, that he agreed that margin lenders varied in the amount of financial information required. Some required very detailed financial information and others did not. Some relied purely on credit references and he said that one margin lender, BT, did not in fact require financial information but introduced other constraints. He also agreed that BT was a prudent margin lender. He agreed that it advertised that it did no credit checks, income and asset liability statements. He said that was the case in 1997 and 1998. He agreed that their marketing documents indicated that approval was generally available within 24 hours. He said that they looked at the size of the loan and their assessment of the client from their own enquiry working through a financial planner or investment adviser who had put the client forward. The margin lender could protect itself by limiting the amount of the loan, choosing not to lend or requiring personal guarantees, additional security, or third party guarantees. Asked to assume the availability of family resources totalling $1 million in assets, he said that would not be relevant unless they were being put forward as guarantors or as additional security. He thought their income was less relevant because the guarantor is there to protect the loan if a margin call occurs.

Johnson presented a slightly more accommodating view of the approach of margin lenders Asked if the financial position of the applicant was relevant to the margin lending, Johnson said that for some industry participants it was, but a number of the longest standing participants did not require any financial data and would usually go to a financial planner or adviser. He said that in 1997, to be told that the applicant was a retired taxi driver living overseas would not have made a big difference. He said it would be an issue of cash flow and assets. Their credit standing would also be relevant. He said there was nothing to stop someone borrowing, say $20,000.00 on the security of the home, during a margin loan's existence and buying CRA shares and lodging them as security. As to the payment of interest, he said that interest would be paid by direct debit facility to the bank account and, if the ratios permitted, could be capitalised to the loan so that it increased over time. Interest would be paid on that capitalised interest.

No lost opportunity - analysis

2302. While Hardman, at times, appeared to me to be arguing the defendant's case, and while much of the material on which he gave evidence was not put to the plaintiff's witnesses, what he said about the approach of margin lenders seemed, on the whole, realistic. His evidence, however, does not lead to the conclusion that margin lending would not have happened. As for his opinion that it was very unlikely that the plaintiff would have been able to obtain a margin loan for $600,000, it is not helpful. He appears to have proceeded on the basis that the plaintiff had no assets other than the shares and no income other than that generated from his shareholdings. In particular, he was not told of the asset position of the plaintiff and was not told about the arrangements with the children and the funding and assets available from them. In addition, his evidence which related to wholesale lenders largely reflected his experience of Westpac, it being the wholesale lender to his company at the relevant time. Nonetheless, the other points he raised and those mentioned by Johnson inject some realism into the assessment of the claim.

2305. In my view, their evidence does not detract from the conclusion that there was a very valuable opportunity at the time the Telstra shares were sold to embark on a margin lending program to build up a substantial Telstra and blue chip portfolio. The issues raised by Hardman and Johnson may have affected the loan to value ratio depending on the mix of shares acquired and the underlying security offered by the borrower. Margin lenders may have dealt with any application differently but it is most unlikely that a margin lender would not have been prepared to lend a very substantial sum on the security of shares in a company such as Telstra. There was also the potential within the plaintiff's family to supply additional funds and security. The trading account portfolio could have been used for that purpose. What was lost was an opportunity to retain Telstra as a long term investment and use it for margin lending to increase the holding in it and to acquire blue chip shares or diversify to blue chip shares. On any view, this was a high quality and very valuable investment opportunity that was lost.

2309. The defendant first submitted that the court has insufficient evidence on which to properly assess any lost opportunity assuming there was one associated with the Telstra shares. That is clearly not so. The matters raised, however, point to a number of uncertainties and possible discounting factors to be considered in assessing the value of the opportunity lost.

Quantum - Items not allowed in Francis' estimates

(a) Timing. The first point submitted by the defendant was that it would not have been possible for a margin lending program to have been commenced on the first day as was claimed by the plaintiff and was assumed by Francis in his calculations. The defendant referred to the evidence of the plaintiff's witness, Johnson, as to the practice then in margin lending in respect of shares not owned by the person obtaining the loan. He said that to obtain a margin lending facility the borrower needed to have a firm allocation from the broker and produce documentary evidence of that. He later said that you did not have to have a Chess statement or a firm allocation to be able to borrow provided the person in whose name the shares were held would guarantee the facility.

This would have been the situation on the first day of trading; for the plaintiff was not registered as the owner of the Telstra shares until mid-December that year. It would have been necessary to obtain guarantees from the person in whose names the shares were held. Accepting that to be the case, it seems to me that, realistically, it would have not have been possible to have margin lending in place until mid-December. If guarantees were needed, it would have been necessary to have them prepared and, probably, to obtain signatures or powers of attorney from the people in Fiji and satisfy any other margin lender requirements. The simplest course would have been to wait until the plaintiff was registered and, in my view, on the probabilities, that is what would have occurred. Thus, I am persuaded that margin lending would have been organised prior to the middle of December but would not have commenced realistically until mid-December.

(b) Impact of the cost of the second instalment. The defendant also argued that Francis's calculations did not take into account the cost associated with the second instalment of $1.35 per share payable in November 1998.

As to the costs of the second instalment, the original calculation assumed funding externally to the portfolio. Later calculations took the calculation up to the time of the second instalment or assumed funding from elsewhere - i.e., thereafter, there was left open the possibility of the sale of some of the holding to fund the second instalment or some other arrangement being made. It was left unclear how this would have been done. It must always be borne in mind, however, that the family were wishing to create a retirement fund for the father and members of the family still had assets available and were resident in Australia.

Francis agreed that it would make a considerable difference to his calculation if the second instalment had to be funded from the account. He said in reality what you would do in that situation is probably go back to the margin lender and work out what would be needed to be done and maybe sell some of the Telstra shares themselves to use in the funding. He said it might depend on the market price of the Telstra shares at the time.

(c) Failure to consider stamp duty and commission. Francis conceded that in his calculations he had made no allowance for stamp duty and commissions on share purchases.

He calculated the brokerage on a 1% basis as $10,600 and at 0.5% at $5,300. As for stamp duty, he suggested 30 cents for every $100.00, so something of the order of $300.00. He agreed that, as a result, to acquire the 300,000 shares in his original calculation (Annexure N) you would have to pay out about $1,070,000.00 not $1,060,00.00 He agreed that there was, therefore, a short fall for stamp duty and commission on the figures in his tables and that this would affect the whole calculation, but he thought the amount could have been borrowed.

(a) Lack of Spread of Risk - less Telstra or lower ratio?. It was put for the defendant that a margin lending facility of up to 70% of the value of the Telstra shares would not have been available for the plaintiff and that a more likely scenario was the acquisition of a more balanced portfolio.

Francis admitted in his evidence that margin lending in the manner used in his calculations was unusual. The defendant relied on this evidence and that of Hardman that he had not in his experience seen margin lending as done in Annexure's AV, AW and AX. In fact Francis said he had seen clients borrow $1 million on margin lending on one stock (clients like National Mutual) and that he normally did not deal with small clients. He agreed, however, that Annexure AV, for example, was a theoretical exercise.

The defendant also relied on Francis' evidence that it was most unusual to have heavy borrowing on one stock and that this increased the risk and he would not have recommended it. He said he would have recommended reducing the Telstra holding to 15%. He agreed that he would not have recommended investing in the way in which he had calculated the Telstra investment. He said it was unusual. He said the risk was that there was one security and that it was too high a risk for the size of the portfolio. He believed in diversification. He agreed, however, that it was a unique opportunity to be offered 100,000 Telstra first instalments. He said that whether or not you sold Telstra to reduce the holding to say 10% depended upon whether there was a good upside at the time. He said that there was and, therefore, he believed that his recommendation would have been to reduce it down to 15% to keep some potential upside there in case. He agreed there were some brokers saying that Telstra was overvalued at $2.50. He said that was part of the normal market. He said some were saying it was undervalued. He said that at $2.53 it was not overvalued compared to international peers. He said Telstra represented about 10% of the 20 Leaders index.

I suggest that the evidence that a prudent broker would not have advised the retention of such a large acquisition and a large margin lending program in the one stock is important. It raises an issue as to how far the plaintiff would or could in fact have gone in executing his plan. It would have required considerable nerve to continue to acquire Telstra stock while incurring a very large debt. Any downward movement in the stock may well have prompted a concern to reduce the Telstra holding and diversify. As to the margin lenders, it is likely that they would have also wanted diversification or greater security. These are contingencies that need to be taken into account. The other possibility was a reduced loan to value ratio. The defendant referred to Hardman's evidence that the 70% lending ratio indicated a low level of risk and that by comparison speculative stock may have a 30% lending ratio. Francis spoke of a range of 50% to 80% depending on the stock. His recollection was that Telstra was in the 75% to 80% range. He said that the margin lending ratio for most blue chip companies was 75% in that cycle of the market. He had not specifically checked these assumptions. Francis said that he had selected the margin lending ratio of 75% on the basis of his knowledge of the market. He said at that time a number of margin lenders would have lent at 75% on blue chip stocks. He agreed that it was not unusual to use a 70% ratio in relation to the Telstra first instalment receipts. This was Johnson's evidence about the ratio employed by Colonial State Bank.

On the evidence, the probabilities are that taking a single stock approach the loan value ratio would not have been 70% unless substantial additional security was provided. Absent such security it would have been reduced.

(b) Margin on Margin - wouldn't occur? Further criticism levelled by the defendant at the Francis calculations is that they assume that it was possible to use the entire margin lending portfolio to make further borrowing as the portfolio increased in value.

As to this point, while it would be surprising if there was, commonly, extensive provision of flexible margin lending on margin lending, it is difficult to understand why the borrower could not go back to the margin lender and re-negotiate new margin lending arrangements when shares which have been accumulated using margin lending have increased in value. One might not expect this to be possible weekly but re-negotiation on a monthly or quarterly basis would not be unreasonable. Hardman effectively conceded this. He said you can have a rolling program where you use stocks bought by margin lending to fund further purchases. But he said that it was not simply a case of continually ramping up the margin loan as long as the lending ratio was satisfied. He said that credit limits are set and when they are reached, the loan has to be looked at again, approvals may be needed from more senior people, the issue of diversification would be raised and the ability to meet interest and margin calls considered as would the collectability of the debt.

(c) Likelihood of margin calls?. Francis assumed that any margin calls would be funded from internal capacity and he had not made any allowance for dealing with margin calls. Counsel for the defendant submitted that it was likely that there would have been a margin call on the Telstra shares either in March 1998 or May/June 1998. Between 1 March and 8 March 1998 the price of Telstra fell by 11.3% ($1.35) (see Francis Annexures). In addition between 15 May 1998 and 11 June 1998 it fell from a $3.95 to $3.45 - a fall of 12.5%. Whether there would have been a margin call would have depended on the loan to value ratio employed and the buffer provided. Hardman said that the less the gearing level relative to the loan limit, the lower the risk of the margin call and that provides a greater safety net.

The defence argument assumes a buffer of 10%. Thus, according to Johnson, assuming a loan to value ratio of 70% a deterioration of that ratio to 80% would be needed before a margin call would be made. The deterioration in 1998 referred to may have caused a margin call if the plaintiff had followed the 500,000 Telstra shares scenario. As I understand the calculation of the 400,000 scenario, the buffer zone would not have been breached. The likelihood of margin calls, however, remains an issue that has to be considered in assessing the value of the margin lending opportunity that was lost. Hardman said that the client would, where a margin call was made, be given 24 hours in which to make the payment required or provide additional security.

Counsel for the defendant also submitted that the calculation did not take into account the recent significant fall in the price of Telstra. This, they argue, would severely affect the calculations if carried forward and would have triggered margin calls if the scheme was still in place.

(d) The length of time Telstra shares would have been held?. Counsel for the defendant also raised the issue of whether, if the intention had been to hold on to Telstra shares for some time, on what date would they have been sold? He submitted a quick turnover was likely, but I disagree. There does remain a possibility, however, of reduction at some stage. There also remains a possibility of the sale of some of the Telstra shares when they had substantially appreciated - most particularly if they appeared to have peaked and shown a downward trend. Counsel submitted that on this scenario it was more probable than not that they would have been sold around about 8 March 1998, when they fell from $3.95 to $3.50 - 11.3% fall. On that basis he argued that the profit lost would have been only $1.00 per share approximately. He submitted another occasion was between 15 May 1998 and 11 June 1998 when there was a fall from $3.95 to $3.40 - 12.6% or a fall of 85cents per share. Counsel also referred to Liyakat Ali's agreement to short sell Telstra shares in July. I accept Liyakat Ali's evidence, however, that he did not agree. In any event if he had at that time agreed to short sell Telstra shares, it did not mean that he would not have held on to them for his father if he then held some. Another possible scenario is the sale of some or all of the shares at or shortly prior to November 1998 when the second instalment was due.

2333. In supplementary submissions, the defendant argued that if a conclusion is reached that the plaintiff was entitled to damages, for example, for misrepresentation, then it should be limited to the money invested, $195,000, plus damages based on a percentage return on blue chip investments - less than 10% per annum. Alternatively it would be the amount invested and the proceeds received on the sale - the stag price - plus a percentage return of less than 10% based upon blue chip investment. It is put that this is what should follow because on the evidence, a prudent broker would not have recommended putting all the eggs in the one basket and would not have used any increase in the price of Telstra to buy further Telstra shares but rather would have put 65% in the 100 leaders group, 20% in the mid category involving the 20 and 100 leaders and the balance of shares from the All Ordinaries group. Alternatively, counsel submitted that because Francis believed that stagging was a real option and that he Francis would have reduced the portfolio to something like 10%, another approach is to simply take the stag price plus the percentage return on blue chip investments.

2337. As I have indicated, I reject the argument of the defendant that there was no plan on the part of the plaintiff to margin lend against the Telstra shares prior to their sale. I am satisfied that there was but it had yet to be implemented. The plan was to hold the Telstra shares and acquire a total 500,000 of them and then to diversify into other blue chip shares. I have observed an absence of a reference to a Telstra margin lending plan in the January documents but I do not see that as significant. In the minds of Liyakat Ali and Dominic Barba, re-purchasing Telstra was then a given and so was the margin lending proposal. The documents were directed to the trading situation then existing and reveal no more than a concern as to what was going to happen in the trading account. The program proposed could have been carried out using the agreed credit and not using the Telstra proceeds.

2340. In the real world, however, the plaintiff would not have been able to carry out a margin lending plan precisely as set out in the calculations done by Francis. That does not mean, however, that a margin lending program with the Telstra holding as its foundation could not have been and would not have been implemented if Martin had not, in breach of his instructions, sold the Telstra shares. Alternatively even if, as originally pleaded, there was no margin lending and the Telstra shares had been sold at $4.80 prior to the second instalment, the plaintiff would have been nearly $300,000.00 better off and still holding the initial funds. The opportunity lost however, was much greater than that.

2343. The number of variables involved in assessing this claim makes the task difficult and dictates a cautious approach. I note, however, that with the resources available at the time through the family of the plaintiff, which resources could have been used if necessary to give additional security, or simply through diversification, the probabilities, in my view, are that the plaintiff would have been able to obtain a very substantial margin lending facility from a margin lender. Even without that support or diversification, I am satisfied that a substantial facility could have been obtained.

2346. Notwithstanding that the proposal to build up a substantial holding in one company only, Telstra, was imprudent, I accept that that was the intention. The impact for the assessment of the lost opportunity, however, is that the imprudence of such a course raises the variables to be taken into account of:

* earlier and greater diversification from Telstra into other blue chip stocks.

* the provision of additional security, or collateral borrowing.

In addition one must consider a number of possibilities that would limit or detract from the value of the opportunity - or increase it:

* the frequency with which the margin lending could be increased and further shares purchased;

* the sale of some or all of the Telstra shares at or before the payment of the second instalment;

* reducing the holding at times when the market price fell;

* not selling and retaining the holding to the present day.

2362. I have been supplied with much information but it does not enable a precise assessment of the possible scenarios that would need to be considered in arriving at a more precise evaluation of compensation for the lost opportunity. Many scenarios could be considered. I suggest it is useful to consider, at least, the following hypothetical cases in exploring the question of the value of the lost opportunity.

(a) No margin lending. Under this scenario, as noted above, if the 100,000 shares in Telstra were held and not used for margin lending, immediately prior to the payment of the second instalment, the shares would have been worth approximately $490,000.00 - a gain of nearly $300,000.00. If they had then been sold the plaintiff would have enjoyed that capital gain. If, however, they were retained beyond the payment of the second instalment, the cost of each share would have gone up to approximately $3.30 per share. Looking at the evidence before me of the movement in the price of Telstra over the succeeding years, it may be said to have ranged between a little below $5.00 and a little under $9.00. Assuming that the plaintiff held the Telstra shares with no margin lending, there were opportunities to the present day to achieve a gross capital gain of between approximately $150,000.00 and $550,000.00 in that period with no margin lending. The funding of the second instalment, however, has to be borne in mind.

(b) Margin Lending Option

(i) Implementation of the proposal but with a reduced loan to value ratio.

If the plaintiff had gone ahead and tried to organise a margin lending proposal along the lines upon which Francis did his calculations, I think it unlikely that a ratio of 70% would have been achievable because of the emphasis on the one stock - without additional security. But I am satisfied, on the evidence, that the plaintiff would have been able to finance a substantial margin lending program which substantially incorporated Telstra. It would have been unusual but ultimately a deal would have been struck. On the evidence, taking a cautious approach, one could explore the value of that opportunity by assuming, for example, that the margin lender would lend the money on the usual terms save and except that the loan to value ratio was to be dropped to say 35%. One can then do a rough calculation by taking Francis' figures other than his very original figures which were erroneous, and adjust the result to reflect a 35% ratio as opposed to a 70% ratio. The result should be approximately half that provided for in his various scenarios and points to an opportunity, even on that cautious basis, to have gathered a net equity in Telstra and blue chip shares in excess of $1 million within the first 12 to 14 months - that is net after deduction of the first instalment. There remained the opportunity thereafter to build up the portfolio but the second instalment has to be borne in mind.

(ii) Blue chip Margin Lending

Let it be assumed that the plaintiff retained the 100,000 Telstra shares and used margin lending not to acquire more Telstra shares but to acquire blue chip shares. Let it also be assumed that $500,000.00 could have been borrowed initially by margin lending to acquire blue chip stocks. This is less than the amounts relied upon by Francis and introduces diversification. If they comprised the 20 Leaders which enjoyed an average gain of 30% as at 31 January 1999, there was the potential to add $150,000.00 to the gain on Telstra shares then trading at $8.80 - a gain of $5.50 over the cost or $550,000.00 - a gross hypothetical total of $700,000.00. Taking the situation forward to 18 August 2000, the 20 Leaders Index had increased another 24% or $120,000.00. If the blue chips were taken from the 100 Leaders, the figures would be less dramatic - approximately $115,000.00 and $105,000.00 respectively. Of course interest and the second instalment have to be borne in mind.

2368. Obviously views will differ and the variables are many including the opportunity for greater profit and the opportunity for significant errors in investment and losses. It seems to me, however, that the opportunity lost on Telstra was an extremely valuable one. In view of the many variables, however, a cautious approach is required. In my view, an award of damages in the sum of $500,000.00 for the loss of the opportunity would be fair and reasonable after making due allowance for the above mentioned variables and discounting factors.

2372. The plaintiff is entitled to compensation in the amount of the funds entrusted to the defendant. They comprised the funds used initially in the trading account totalling $101,818.54 and the funds used to purchase the Telstra shares totalling $195,000.00. As to the claims for compensation for the lost commercial opportunities, the result of the foregoing analysis is that an amount of $50,000.00 should be awarded for that loss where it arose out of negligent misrepresentation, false and misleading conduct and want of care in supervision by the defendant which led to the loss of the original $101,818.54. An amount of $70,000.00 should be awarded for the lost opportunities resulting from the negligent trading.

2375. As to the opportunities lost as result of the breaching of the agreement by the sale of the Telstra shares, I have assessed compensation at $500,000.00.

2378. My finding of contributory negligence requires a reduction in the amounts to be awarded to the plaintiff for damages for negligent misrepresentation and the want of care in trading and supervision on the part of the defendant. It does not require a similar reduction in respect of the compensation which I have found should be awarded to the plaintiff in respect of the false and misleading conduct. The end result, therefore, is that the plaintiff is entitled to an award of damages of $846,818.54 comprising $151,818.54 arising out of the false and misleading conduct and $695,000.00 arising out of the breach of the retainer in selling the Telstra shares.

2382. The defendant has counter-claimed for outstanding brokerage totalling $67,017.10.

2385. Referring to the pleadings, the plaintiff acknowledges receipt of a letter of demand, dated 3 February 1999, demanding payment of the sum of $67,017.10 on or before 5pm on Friday 12 February 1999 but denies any liability to pay that amount. He generally denies the allegations in the counter-claim but does not, as I understand it, in fact dispute the debt. He pleads, however, on the basis of matters raised in the statement of claim, that the defendant is estopped and precluded from claiming any sum pursuant to the retainer. He also pleads that if he is indebted to the defendant then he is entitled to a set off against any sum found due to the defendant in the amount of damages due to him pursuant to the claims made in the Statement of Claim.

2388. The plaintiff has not developed the estoppel argument. The defendant has not argued that a set off is not available. Accordingly, I proceed on the basis that damages having been found payable by the defendant to the plaintiff in respect of its conduct of the retainer and representations made to induce the plaintiff to enter into the retainer, the plaintiff is entitled to set off those damages against the debt otherwise established.

2393. The plaintiff in paragraph 29 of the Statement of Claim sets out the matters relied upon in support of the claim for exemplary damages. They comprise the breaches of the duties of care, alleged breaches of fiduciary duty and the general representations, the Telstra representations, the representations flowing from the demonstration and the continuing representations made in March of 1998. The plaintiff alleges that by reason of those matters

"the defendant, in whom the plaintiff had placed his trust and confidence through the agency of his son, has engaged in reprehensible, unconscionable and deceptive conduct; - (a) in contumelious disregard of the best interest of the plaintiff; and (b) for the purpose of generating excessive and exorbitant brokerage fees for itself during the course of excessive trading..."

The pleading goes on to assert an entitlement to an award of substantial exemplary damages to

"punish the defendant for its wrongful conduct and to deter it from engaging in similar conduct with respect to other unsuspecting investors in the securities industries".

The defendant in its pleading simply denies the allegations as quoted above.

2402. The plaintiff submitted that both Martin and the defendant's other officers acted in contumelious disregard of the rights of the plaintiff.

2405. In relation to Martin that contumelious disregard comprised a number of matters. First, counsel referred to his disregard of the instructions relating to Telstra and his use of the proceeds of the Telstra sale in speculative trading which was grossly reckless. Reference was also made to his conduct generally from the outset. Counsel put that he must have known that his representations as to returns and lack of risk were wrong. Further, it is put that the trading was effectively gambling with the plaintiff's money, there being no systems in place to maximise profit, minimise loss and manage risk. Counsel also referred to what he described as Martin's "big stick" in dealing with Liyakat Ali and Barba when they tried to assert control or terminate the retainer by saying that they could but then the losses would be their responsibility. Counsel also referred to failures to inform the client about important information including the closure of the Number 2 account and changes to credit arrangements. Counsel also submitted that Martin lied to Liyakat Ali about the stocks that were held for lengthy periods, even though they were losing money. Counsel also alleged that he ignored the know your client rule. All these matters in combination, counsel submitted, pointed to reckless conduct which reflected and constituted a contumelious disregard of the rights of the plaintiff.

2408. As to the defendant's other officers, counsel submitted that they showed a reckless indifference to the interests of the client. Counsel argued that there was no compliance system and argued that they adopted a hands off approach even though they were on notice as to the sort of person that Martin was and saw the funds steadily disappearing. Particular reference was made to the failure in August 1998 of the compliance system to take appropriate action when it should have been realised within the defendant that Martin had been conducting a discretionary account without the necessary documentation and without the necessary information recorded as to objectives and financial position. Counsel submitted that plainly the defendant's officers did not enforce the "know your client" rule and the gross recklessness in its lack of supervision and control reflected and constituted a contumelious disregard of the rights of the plaintiff. Counsel submitted that the sell-off of a substantial holding in Burns Philp only hours before the company made a profit announcement which was expected to boost the price, was the final insult. Counsel also relied upon evidence of the statement attributed to Karlson in relation to the sale of Burns Philp that the defendant was not in the business of providing a client with money so the client could sue it. Counsel submitted that the defendant is vicariously liable for exemplary damages in respect of these acts and omissions of Martin and the other officers.

2412. In their submissions, counsel for the defendant submitted that there was nothing on the evidence to warrant an award of damages against the defendant on the basis of deterrence and that the court before making an award would have to find effectively that the defendant had acted fraudulently. Counsel submitted no such case had been alleged or pursued. He said there was no conduct on the part of the defendant which was so egregious as to warrant the making of an award of exemplary damages. It had not acted reprehensibly. Any failure to attend to compliance with guidelines laid down in its own internal rules did not amount to reprehensible conduct. Counsel submitted that exemplary damages awarded in this instance would not operate to deter other stock brokers. Counsel referred also to the documentation showing the activities of the Debtors Committee. Counsel submitted that the memos from that Committee to Martin made it clear that the defendant was exercising appropriate supervision over its employees and their dealings with clients. It could not be said, therefore, that there was any reckless indifference on the part of the defendant to the interests of its clients. There was no evidence for a finding of callous or reckless indifference or malicious conduct on the part of the defendant.

2415. Counsel for the defendant also submitted that in determining whether exemplary damages should be awarded the conduct of the plaintiff's agent, Liyakat Ali, should be taken into account, that that conduct had caused or contributed most significantly to the losses. Counsel relied on the matters raised on the issues of contributory negligence.

2418. Counsel also argued that exemplary damages could not be awarded for breach of contract or breach of fiduciary duty. As to breach of contract this would appear to be correct. As to breach of fiduciary duty, the law in Australia is unclear. (See discussion in P. McDermott, "Exemplary Damages in Equity" (1995) 69 ALJ 773, Darryn Jensen, "Punitive Damages for Breach of Fiduciary Obligation" (1996), 19 UQLJ 125; and Law Commission, Aggravated Exemplary and Restitutionary Damages, para 5.54-5.56; Dr Spry argues that punitive damages may be awarded by a court exercising equitable jurisdiction - Equitable Remedies, 6th Ed, 636 - as does Glover, Commercial Equity, Fiduciary Relationships (1995) 271). In the United States, Canada and New Zealand it appears that exemplary damages have been awarded for breach of fiduciary duty. (In Canada; Norberg v Wynrib (1992) 92 DLR (4th) 440; W. (B.) v Mellor (1989) 16 ACWS (3rd) 260; Szarfer v Chodos (1986) 27 DLR (4th) 388; Ellis, Fiduciary Duties in Canada, 20 - 24: in New Zealand; Aquaculture Corporation v NZ Green Mussel Co Ltd [1990] 3 NZLR 299; Cook v Evatt (No 2) [1992] 1 NZLR 676).

2421. The debate in the fiduciary context appears to turn on whether the plaintiff's claim for exemplary damages is being sought in the relevant court's equitable or common law jurisdictions and, if the former, whether courts of equity have appropriated the common law power or have an inherent power to award exemplary damages (see Jensen, above, 126).

2424. The present case falls into the common law jurisdiction category in that the plaintiff is not pressing the claim for breach of fiduciary duty and is seeking common law and statutory compensation. In considering the claim for exemplary damages, however, the nature of the relationship in question and the rights and duties attaching to the relationship are critical in assessing both the content of the duty of care and whether there has been a contumelious disregard of the plaintiff's rights. Here the relationship was defined by an agreement giving rise to a contractual relationship. It was not, however, an "arms length" commercial relationship. It so happens that the agreement included obligations which placed the defendant in the category of a "fiduciary agent". A central obligation was that undertaken by the defendant to serve the interests of its principal, the plaintiff, at all times. The plaintiff was entitled to expect no less. This, and other aspects, noted above also made the relationship a fiduciary one for the purposes of the laws of equity . Those aspects of the relationship, however, remain relevant to the determination of whether exemplary damages should be awarded and, if so, the amount of those damages. Thus aspects of the relationship relevant to any contractual or fiduciary claims will affect any consideration of the claim for exemplary damages arising out of the tortious conduct of the defendant.

2427. I was referred by the parties to a number of authorities relating to the awarding of exemplary damages.

2431. It is well established (Lamb v Cotogno [1987] HCA 47; (1987) 164 CLR 1, 6-10) that the purpose of awarding exemplary damages is to punish the defendant and to deter the defendant and persons in the like positions from repetition of the conduct in question - "to teach a wrongdoer that tort does not pay" (Lord Diplock in Broome v Cassell & Co [1972] AC at 1130 cited in XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd [1985] HCA 12; (1985) 155 CLR 448 at 471 and Lamb v Cotogno, above, 9). There is also an element of appeasement;

"They serve to assuage any urge for revenge felt by victims and to discourage any temptation to engage in self-help likely to endanger the peace; cf Merest v Harvey. This consideration probably had more force when exemplary damages were in their infancy, but it nevertheless remains an aspect of them" (Lamb v Cotogno, above, at 9).

2435. It is also well established that there is a need for moderation when awarding exemplary damages (XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australasia) Pty Ltd, above, 463; Backwell v AAA [1997] I V.R. 182; Law Commission, op.cit para 4.68, 4.73). It is also accepted that it is necessary to consider whether any compensatory damages awarded are sufficient to serve the purposes for which exemplary damages should otherwise be awarded. (Backwell v AAA above).

2438. As to the circumstances in which exemplary damages may be awarded in a negligence case the analysis of Lamb v Cotogno (above) in the judgement of Fullagar J. in N Midalco Pty Ltd v Rabenalt [1989] V.R. 461 at 476 should be considered. His Honour accepted as correct the proposition that "recklessness" was sufficient to found an award of exemplary damages and that this appeared from a study of the reasons of the High Court in Lamb v Cotogno (above). In determining what the High Court in that case had meant by reference to recklessness, His Honour noted the other authorities referred to in that case and stated that there was a difference between what he called "mere" recklessness in the dictionary sense and on the other hand conduct "displaying a reckless disregard for the welfare of the plaintiff and an indifference to his plight" which the High Court in Lamb v Cotogno said showed that the tort was committed "in circumstances amounting to an insult to the plaintiff". His Honour suggested that the recklessness to which the High Court was referring was "a carelessness of consequences which had the additional characteristic of behaving in a humiliating manner and in wanton disregard of the plaintiff's welfare". He noted the court was not selecting words for a jury charge but rather stating reasons addressed to lawyers. At the same time, His Honour suggested that "recklessness" may convey to a jury "a different and lesser nuance than when used with respect to defamation or trespass, where a failure to take care is not of the essence of the cause of action for damages".

2441. More recently, the High Court considered the circumstances in which an award of exemplary damages may be made where the plaintiff's claim is in negligence in Gray v Motor Accident Commission (1998) 196 CLR 1. In the majority judgment, Gleeson C J and McHugh, Gummow and Hayne JJ said (at 9)

"....., exemplary damages could not properly be awarded in a case of alleged negligence in which there was no conscious wrongdoing by the defendant. Ordinarily, then, questions of exemplary damages will not arise in most negligent cases be they motor accident or other kinds of case. But there can be cases, framed in negligence, in which the defendant can be seen to have acted consciously in contumelious disregard of the rights of the plaintiff or persons in the position of the plaintiff. Cases of an employer's failure to provide a safe system of work for employees in which it is demonstrated that the employer, while knowing of an extreme danger thus created, persisted in employing the unsafe system might, perhaps, be of that latter kind. No doubt other examples can be found".

Kirby J. noted (at 27) that damages have been recovered in actions alleging reckless negligence (Midalco Pty Ltd v Rabenalt [1989] VicRp 45; [1989] VR 461) and that the defendant had conceded the availability of exemplary damages in that situation. His Honour noted that originally the language used in cases where exemplary damages was awarded suggested the need for an intent on the part of the tortfeasor to harm the victim or "some form of conscious wrongdoing in contumelious disregard of the victims rights". He commented that;

"proof that the wrong went beyond mere negligence and could be characterised as wanton, reckless or outrageous would attract exemplary damages (citing Blacquierri's Estate v Canadian Motor Sales Corporation Limited (1975) 10 Nfld and PEIR 178 at 207)".

He went on to refer to the situation in Canada where the argument that the exemplary damages were not available in causes of action in negligence had been rejected (citing Robitaille v Vancouver Hockey Club Pty Ltd (1979) 19 BCLR in 158 at 179). Referring to further authority including Professor Fleming's work, His Honour commented,

"punishment for deliberate wrong doing is certainly a consideration in deciding the applicability of exemplary damages. But it is not the sole reason for the award of such damages. The more recent cases on the subject, including in this court, have accepted that such damages may be recovered whatever the subjective intention of the tortfeasor if, objectively, the conduct involved was high handed, calling for curial disapprobation addressed not only to the tortfeasor but to the world".

2449. The plaintiff is seeking exemplary damages from the employer of Martin and the other officers and may be said to be seeking to establish a vicarious liability on the part of the defendant for such conduct - although so far as those involved in discussions about supervision and control are concerned, they were arguably part of the directing mind and will of the defendant.

2452. It appears to have been assumed that an employer may be vicariously liable for exemplary damages arising out of an employee's conduct. (See Law Commission, op.cit, 161). They have been awarded in asbestos related litigation where the employers' liability is vicarious. I refer also to Thompson v MPC [1997] EWCA Civ 3083; 1997 3 WLR 403 where they were awarded on that basis. XL Petroleum (NSW) Pty Ltd, above, is another example**.** The arguments for and against vicarious liability for exemplary damages have been discussed by Atiyah_, (Vicarious Liability_, 435) and the Law Commission (see abovementioned Report at 161-164 - it was in favour of vicarious liability). Of particular force are the arguments that imposing vicarious liability furthers the underlying policies, particularly deterrence, and to do so is reasonable where the employer benefits from the actions of the employees and has the power to control them.