Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd

BETWEEN: DARTBERG PTY LIMITED (AS TRUSTEE FOR THE POLLARD CHILDREN TRUST) (ACN 007 120 247)

WEALTHCARE FINANCIAL PLANNING PTY LTD (ACN 007 263 621) and GREGORY FLEXMORE ROBERTS

AND: WEALTHCARE FINANCIAL PLANNING PTY LTD (ACN 007 263 621)

INTRODUCTION 1 The remaining dispute in this litigation arises between the cross-claimants Wealthcare Financial Planning Pty Limited and Gregory Flexmore Roberts (collectively referred to as 'Wealthcare') and the cross-respondent Property Investment Research Pty Ltd (now known as ACN 006 425 083 Pty Ltd (in Liquidation)) ('PIR'). 2 The main claims made by the plaintiff Dartberg Pty Limited ('Dartberg') against Wealthcare related to investments made by Dartberg on the recommendation of Wealthcare in promissory notes issued by two companies Market Street Mezzanine Pty Ltd ('Market Street') and York Street Mezzanine Pty Ltd ('York Street'). Each of those companies was within the Westpoint Group of companies which collapsed. A convenient sketch of the background to the raising of monies by way of the promissory notes and the collapse of Westpoint is to be found in the judgment of Finkelstein J in Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358. 3 The primary claim between Dartberg and Wealthcare was settled by a settlement agreement dated 23 June 2008 which provided for payment by Wealthcare of the sum of $350,000 inclusive of interest and costs to Dartberg. 4 Wealthcare now seek damages against PIR in the amount of $350,000 plus costs incurred in defending the claim brought against Wealthcare by Dartberg. 5 Wealthcare relies upon breaches of ss 52(1), 53(aa), 53(c) and 53(g) of the Trade Practices Act 1976 (Cth) ('TPA') and ss 9(1) and 12(n) of the Fair Trading Act 1999 (Vic)('FTA'), and to the extent to which contraventions occurred post 11 March 2002, on similar provisions in the Corporations Act 2001 (Cth) ('Corporations Act') and Australian Securities and Investments Commission Act 2001 (Cth). Wealthcare also relies upon s 23B of the Wrongs Act 1958 (Vic) ('Wrongs Act'). 6 It is not necessary to reproduce all those provisions in these reasons for judgment. The critical questions to be determined are whether the conduct complained of by Wealthcare was misleading and deceptive on the part of PIR, and whether PIR made false representations if s 53 of the TPA and s 12(n) of the FTA otherwise applied, and then whether the conduct or false representations caused the loss and damage alleged by Wealthcare.

BACKGROUND 7 The factual background to the claim between Wealthcare and PIR can be briefly summarised as follows based upon the findings I now make: · Wealthcare was at all relevant times the holder of a dealers' licence issued pursuant to the Corporations Law and its successors. Mr Roberts was at all relevant times a financial planner and the principal of Wealthcare. · Sometime around October 2001, Mr Roberts received from Mr Brian Thomas of Westpoint copies of two reports prepared by PIR namely: (a) PIR's report for York Street dated February 2001 ('York Street Report'); (b) PIR's report for Market Street dated September 2001 ('Market Street Report'). (I interpolate that it was contended by PIR that Mr Roberts did not receive these PIR reports, but as explained later I find that such reports were received by Mr Roberts). · In addition to receiving those PIR reports, Mr Roberts also received other information provided directly by Westpoint in the form of Information Memorandum relating to the York Street investment and the Market Street investment. · In November 2001, Wealthcare determined to place the York Street Promissory Notes and the Market Street Promissory Notes (the 'Promissory Notes') on Wealthcare's notional approved product list and they remained on the approved products list thereafter. · On 24 January 2002, Wealthcare wrote to Trevor and Joyce Pollard of Dartberg, enclosing amongst other things a document headed 'Proposed Investment Plan'. The Proposed Investment Plan contained a recommendation that $300,000 be invested in a fixed interest based Westpoint security. · On 1 February 2002, Wealthcare received a letter from Mr Pollard enclosing a cheque for $300,000 for investment in York Street, an investment made on behalf of Dartberg. · In late May 2002 Dartberg received a letter from York Street. The letter enclosed a copy of an Information Memorandum for Market Street and provided existing York Street noteholders with the opportunity of rolling over their existing York Street promissory notes into a new Westpoint project, Market Street, in return receiving a 2% redemption premium and an entitlement to continue to receive the existing interest of 12% per annum payable monthly. · On or about 29 May 2002 Mr Trevor Pollard telephoned Wealthcare and spoke to Mr Roberts. He informed Mr Roberts that he had received this letter from York Street inviting him to rollover his York Street promissory note. Mr Roberts told him that the rollover was appropriate and that he should take the 2% redemption premium bonus. · Dartberg subsequently redeemed the York Street note and received a promissory note from Market Street. · In August 2002, on the recommendation of Wealthcare, Mr Pollard on behalf of Dartberg decided to invest an additional $300,000 in Market Street, bringing Dartberg's total investment to $600,000. · On 27 October 2003 both Mr Roberts and Mr Pollard received letters from Westpoint referring to the ability to extend the period of the Market Street promissory notes to 30 September 2005. · On 18 November 2003, Mr Mark Hepworth on behalf of Wealthcare spoke with Mr Pollard by telephone. Mr Hepworth advised Mr Pollard that he should agree to the extension of the term for the Market Street note because if he did so he would receive a 2% bonus payment amounting to $12,000 and that he would continue to receive the monthly interest payable until 30 September 2005. · On 20 December 2005 York Street goes into liquidation. · On 6 February 2006 Market Street goes into liquidation.

THE PIR REPORTS AND INFORMATION MEMORANDA 8 It is necessary to say something more about the PIR reports, and the Information Memoranda. 9 The York Street Report stated the following: Promissory Notes with a face value of $50,000 or more are defined in the Bills of Exchange Act 1909 (Cth) and, as such, are not 'securities' as defined in the Corporations Law. Consequently, the offer to investors is made through an Information Memorandum rather than prospectus … 10 Under the heading "PROMISSORY NOTES DEFINED", it was stated that: Promissory Notes are not covered under Corporations Law and so neither Prospectus, Custodian nor Responsible Entity are required as they would be if this offer came under the jurisdiction of the Managed Investments Act (MIA) in the Corporations Law. Scots Church Development Limited has chosen Promissory Notes as a means of second ranking finance because of its cost effectiveness compared with alternatives, such as second mortgages. Investors need to be satisfied that this offer meets all corporate governance and compliance criteria such as those required by the MIA. 11 Under the heading Due Diligence the following appeared: Property Investment Research Pty Ltd (PIR) advises that in the compilation of this report, we have not conducted a full due diligence on this offer. Investors will be advised to consult the Information Memorandum, and conduct their own enquiries, or receive professional advice. This report was not prepared to form part of any offer. PIR has relied upon information contained in the Information Memorandum. PIR has carried out its own independent inquiries. PIR has inspected the property and met representatives of Westpoint Management Ltd. PIR has received a copy of the Information Memorandum offer to prospective investors in the mezzanine finance. We have received a copy of a valuation of the Scots Church Development, 2 York Street, Sydney undertaken by Colliers Jardine Consultancy and Valuation Pty Limited, and dated 31 December 2000. We have also received copies of the Architectural Plans submitted by Tonkin Zulaikha Greer/Jackson Teece Chesterman Willis/Chhada Siembieda for the Scots Church Design Excellence Competition August 2000 and of a Structural Due Diligence Report prepared for Westpoint by Van der Meer Bonser Consulting Engineers dated December 1999. PIR has received copies of the Guarantee and Indemnity of Westpoint Corporation Pty Ltd to York Street Mezzanine Pty Ltd, and the Loan Agreement and Fixed and Floating Charge between York Street Mezzanine Pty Ltd and Scots Church Development Ltd, all prepared by Blake Dawson Waldron Lawyers. We have also received a copy of the Mortgage and of a Deed of Extension of Guarantee between York Street Mezzanine Pty Ltd and Westpoint Corporation and its associated entities, prepared by Williams & Hughes, Barristers and Solicitors. 12 On the final page in the box the following appeared: Research Credentials Under Corporations Law, Property Investment Research Pty Ltd ("PIR") ACN 006 425 083 is a licensed 'investment adviser' and holder of licence No. 1215, dated 3/12/94. Established in 1989, PIR is Australia's leading 'independent' research group on property related investments. PIR is the major supplier of independent research to Investment Managers and Financial Advisers. Under the law all financial advisers are required to properly research the financial products they recommend. PIR's independent research plays a vital compliance role for ASIC in licensed Investment Advisers and Securities dealers in that it: (I) assists in ensuring investment recommendation are appropriate for the client (II) provides adequate knowledge of investment promoters, their track record, the investment market and the risks involved; (III) ensures, where specialised in-house research is not available, reliable research obtained that is impartial and accurate DISCLAIMER Property Investment Research Pty Ltd (PIR) has received fees from Westpoint Corporation Pty Ltd for the preparation of this independent report, however, it was not prepared for inclusion in, or in connection with any prospectus and should not be relied upon to provide all the necessary information for investment decisions. PIR has no vested interest in the success or otherwise of the Investment Offer. Although great care has been taken to ensure the accuracy of this report, Property Investment Research Pty Ltd gives no warranties in relation to the statements and information contained herein and disclaims all liability arising from any persons acting on the information and statements in this report. PIR does not provide personal securities recommendations. All investors are strongly advised to consult professional financial advisers whose role is to provide appropriate investment advice, taking into account investor's individual investment objectives, financial situations and particular needs. For more comprehensive information relating to investment offers, PIR research reports should be studied carefully. 13 The Market Street Report was in similar but not identical terms. 14 On the front page of the Market Street Report the following appeared: Promissory Notes with a face value of $50,000 or more are regulated under the Bills of Exchange Act 1909 (Cth) and are not defined as 'securities' in the Corporations Law. Hence, this investment offer is made through an Information memorandum not a prospectus. 15 Under the heading 'PROMISSORY NOTES DEFINED' it was stated that: An Information Memorandum has been issued in respect of this offer instead of a prospectus. The Westpoint Group has chosen promissory notes as a means of obtaining second ranking finance because of the cost effectiveness compared with alternatives, such as second mortgages. The lower costs mean that higher returns can be offered to investors. However, investors need to be aware that PIR has not conducted a review of the systems and procedures of Market Street Mezzanine Pty Ltd or the borrower and the guarantors behind this offer. PIR is not in a position to advise investors that this offer meets satisfactory corporate governance and compliance criteria such as those required under the Managed Investment provisions. 16 Under the heading 'Conclusion' the following appeared: The track record of the Westpoint Group may alleviate concerns that this offer is not subject to the managed investments type of regulatory requirements. 17 A number of observations may be made at this stage about the PIR reports: (a) the PIR reports were prepared for the purpose of assisting investment advisors such as Wealthcare to fulfil their statutory role of proper researching the financial products which they could recommend to potential investors such as Dartberg; (b) as apparent from the purpose of the reports and their focus on financial risk and the research credentials set out therein, whilst relating to financial advice, the reports were not purporting to give legal advice; (c) the reports contained more than just a disclaimer. Investors were being advised to consult professional financial advisors. The reports made it clear that PIR had not conducted a full due diligence and brought clearly to the attention of the reader that investors would be well advised to consult the Information Memorandum, conduct their own enquiries or receive professional advice; (d) the reports made clear that the PIR has relied upon information contained in the Information Memoranda, itself having received a copy of the Information Memoranda; (e) the reports made clear that investors needed to be satisfied that the offer met all corporate governance and compliance criteria such as those required by the Managed Investments Act 1998 (Cth) (the 'Managed Investments Act'). 18 Turning then to the Information Memoranda. Each Information Memorandum contained important information and there were some material differences between the development schemes contemplated by the two Information Memoranda covering the two investments. There were differences in the finishing time of the construction of the projects, the number of apartments, the cost of the apartments and the amount of Mezzanine funding that was sought. However, each memorandum related to the same identical structure. 19 The Information Memoranda contained their own statements that the promissory notes were exempt from compliance with relevant aspects of the corporations' legislation in very similar terms to the statements in the PIR reports. 20 Looking at York Street, the Information Memorandum stated: The Promissory Note Offer This Information memorandum has been prepared to assist investors considering participating in the $20 million Promissory Notes Issue by York Street Mezzanine Pty Ltd (ACN 090 631 057), ("York Street Mezzanine") a special purpose company specifically established for this purpose. York Street Mezzanine is seeking to raise $20 million to lend Scots Church Development Ltd (ACN 091 686 323), the principal project company, to assist in the funding of the project. The funds raised will be allocated partly towards the purchase of the property as well as pre-construction development expenses which include consultants, marketing, advertising, selling and other project establishment costs. … Each Promissory Note must have a minimum face value of $50,000 and is issued in accordance with the Bills of Exchange Act 1909 (Cth). Promissory Notes are not securities as defined by the Corporations Act (Section 9 "Debentures") and therefore are not covered by the Corporations Act. Promissory Notes by nature are unsecured, however, the lending risk will be mitigated by issuing the Notes from a special purpose company which will have security over the project as noted in the financing structure below.

WEALTHCARE'S CLAIM 21 The essence of Wealthcare's claim is that there were the following representations made in the PIR reports: (a) that the Promissory Notes were not securities as defined in the Corporations Law; (b) the Promissory Notes were exempt from the disclosure and the prospectus requirements set out in the Corporations Law; (c) Prospectuses, Custodians and Responsible Entities were not required, as they would have been if the offer were an offer of an interest in a managed investment scheme; (d) the Promissory Notes were investments of an 'investment grade' quality. 22 It was submitted by Wealthcare that the PIR made absolute statements and representations which were false and misleading. They were submitted to be incorrect because the offering of the Promissory Notes was of an interest in a managed investment scheme and hence fell within the definition of 'securities' in s 92 of the Corporations Law and as such was subject to the registration and other requirements contained in the Corporations Law and the prospectus requirements set out in Pt 7.12 of the Corporations Law. As the registration requirements were not observed, the schemes were liable to be wound up. Accordingly, the investments were not of 'investment grade' quality. 23 I should indicate that no separate argument was made that the investments were not of 'investment grade' quality, other than by reference to the question of the application of the Corporations Law. Therefore, the focus of the submissions of Wealthcare was upon the applicability of the Corporations Law and the statements to that effect. If the attack were independently by reference to the 'investment grade' quality of the offering, this being an opinion based upon information obtained by PIR, different legal considerations would apply to those presented by the parties in this proceeding.

CONSIDERATION 24 I am proceeding on the basis that s 53 does apply, there being a representation in the PIR reports which was in connection with the promotion of the supply of promissory notes, which supply is encompassed by the phrase supply of 'services' as defined in the TPA (see s 4). 25 For the purposes of this proceeding, I will also assume that the investments in the Promissory Notes were subject to the requirements of managed investment schemes under the Corporations Law. There was considerable debate before me as to this question. In light of the view I have come to on other issues, it is unnecessary for me to come to a final view on this question. My own tentative view is that the correct contention is that the issue of the Promissory Notes did not form part of a managed investment scheme. The arguments not accepted by Simmonds J in Australian Securities & Investments Commission v Emu Brewery Mezzanine Ltd [2004] WASC 241 seem to have considerable force. 26 It seems to me that all that is involved here is the issue of promissory notes by a corporation with particular credit worthy characteristics and with a particular financing structure, which included the provision of certain securities for the lending of monies to investors. Each investor was offered and accepted a promissory note. All that was offered and acquired was the entitlement to payment of interest and repayment of capital in accordance with the promissory note, and no more or less. This is not the acquiring of rights to benefits produced by any 'scheme'. 27 As I have said, I do not find it necessary to go further into this matter - it would involve an analysis of the decision in Emu Brewery Mezzanine WASC 241, and possibly, the decisions of Finkelstein J in Financial Industry Complaints Service Ltd v Deakin Financial Services Pty Ltd (2006) 157 FCR 229 and Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358, and the question of the extent to which I should follow those decisions even if I considered any of them to be error.

Characterisation of Representations 28 Whilst contended to the contrary by Wealthcare, in my view it is abundantly clear that the PIR reports in referring to the Information Memoranda and the information contained therein, informed the reader of the PIR report that it was the information in the Information Memoranda that was being relied upon by PIR and passed on to the reader. The PIR reports specifically say that investors would be advised to consult the Information Memorandum and that PIR itself relied upon the information contained in the Information Memorandum. It would be apparent to any reader of the PIR reports and the Information Memoranda that the information about the structure of the investment comes directly from the Information Memoranda. 29 Further, a disclaimer was included in the PIR reports. I accept that disclaimers may not be effective to absolve a maker of a statement from liability for misleading or deceptive conduct or liability under s 53 of the TPA: see eg Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375. However, in this case there is not just the disclaimer. Contrary to the contention of Wealthcare, I do not regard the position as analogist to the attempted reliance upon the disclaimer in John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd 1993 ATPR 41-249. The context of all the statements in the PIR report referred to above indicated the limited basis of the information being put forward by PIR: see Campbell v Backoffice Investments Pty Ltd (2009) HCA 25 at [29]-[30]. 30 It is important to analyse the conduct and statements of PIR as a whole, taking into account disclaimers and other circumstances showing the true character of the conduct and statements themselves: see eg Campbell (2009) HCA 25 at [130] and Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592. 31 I do not accept that Wealthcare did expect, or could have expected, the representations concerning the Corporations Law to be something which would be ordinarily be a matter within the expertise of the financial researcher in the context of the PIR reports. Looking at the Information Memoranda, and the PIR reports themselves, the alleged misrepresentations concerning the Corporations Law are by their very nature no more than a restating of the information in the Information Memorandum. Looking at the subject matter of the representations (legal in character although not purporting to be legal advice), the content of the PIR reports as a whole (including the disclaimers) and the role of PIR in producing the reports and the role of Wealthcare, the conclusion is readily reached as to the character of the statements being made. 32 The characterisation of the alleged misrepresentations is to be seen as merely passing on the information in the Information Memoranda, namely that the issue of the Promissory Notes was not covered by the Corporations Law, and the reader of the PIR should make enquiries and should be satisfied that the offer met all compliance criteria such as required by the Managed Investments Act or the Corporations Law. 33 There has been no adoption of the alleged misrepresentations relating to the Corporations Law by PIR; on the contrary, PIR passes on the statements made in the Information Memoranda (specifically relying upon the Information Memoranda), and disclaims in a number of ways PIR's own adoption of it. 34 It does not matter whether the alleged misrepresentations were statements of fact, law or opinion -whatever they were, it is my view that the alleged misrepresentations had the effect, or likely effect, on Wealthcare of statements taken from or based upon the Information Memoranda: see eg Heydon v NRMA Ltd (2000) 51 NSWLR 1, 148; Gardam v George Wills & Co Ltd (No 1) (1988) 82 ALR 415, 427 (per French J) and Yorke v Lucas (1985) 158 CLR 661, 666. 35 The representation as to the investments being of an 'investment grade' quality may be in a different category, being an assessment or opinion of PIR based upon all the information provided in the Information Memoranda and its own expertise. As I have said, no separate attack was made on this opinion, other than by reference to the other alleged misrepresentations. If I am otherwise correct as to the characterisation of the misrepresentations, then the 'investment grade' quality statement is properly to be seen as the opinion of PIR based upon the Information Memoranda material, which PIR accepted as correct. It was not suggested that the statement as to 'investment grade' quality was not one honestly held, which if based upon the Information Memoranda, would itself involve no falsity or misleading or deceptive conduct. 36 In light of the above, I conclude there is no misleading or deceptive conduct on the part of PIR, nor were the statements made false (or misleading) to make PIR liable under s 53.

Causation 37 Even if I am wrong, and the statements in the PIR reports were false or misleading and deceptive, there was no causal connection between these statements and the actions of Wealthcare and the damage alleged to have been suffered as a consequence. 38 There was a debate before me as to whether Mr Roberts received the PIR reports. I am prepared to accept that Mr Roberts and Wealthcare did receive the PIR reports. Westpoint provided similar reports to various investment advisors, which probably included Wealthcare. It would have been in the interests of Mr Thomas of Westpoint to give to Mr Roberts the PIR reports. These would likely have been given to Mr Roberts along with the Information Memoranda, which as I have said, was referred to and relied upon in the PIR reports. I accept this probably occurred in about October 2001 after Mr Roberts met Mr Thomas at the Financial Planning Association Conference. 39 However, I do not accept that Mr Roberts or anyone else at Wealthcare placed any reliance on the statements now alleged by Wealthcare to be false, misleading or deceptive. 40 Mr Roberts gave the following evidence by reference to York Street (and similar evidence by reference to Market Street): 13. Based upon those parts of the PIR Market Street Report, I formed the opinion that it was permissible to raise funds for the purpose of the promissory note offering by way of information memorandum rather than prospectus and that the substance of the offer (And the associated fund raising document/information memorandum), did not have to meet the requirements mandated under the managed investment provisions of the Corporations Law. ... 15. After considering the PIR report as a whole as well as the content of the York Street Information Memorandum and the KPMG document I approved the York Street promissory notes as appropriate products for Wealthcare to recommend to clients and orally informed Wealthcare's employees of that fact. 16. Had I known that the promissory note offering in fact constituted an interest in a managed investment scheme and that Westpoint (or York Street Mezzanine) was seeking to raise promissory note funding without observing the provisions in the Corporations Law which pertained to managed investment scheme investments, and as such were liable to be wound up, I would not have approved of the York Street promissory notes as appropriate investment products to recommend to clients of Wealthcare. 41 I accept the submission of Wealthcare, that it only has to be shown that PIR's conduct or the falsity of the alleged representations was a cause of its loss: see eg I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at [25] and [55] to [57]; Henville v Walker (2001) 206 CLR 459, [13] and [14] per Gleeson CJ and King v Yurisich (2006) 234 ALR 425 at [90]. However, I have come to the view that the alleged misrepresentations had no impact whatsoever on Mr Roberts' approach to the investments, and he would have made the recommendation to Mr Pollard irrespective of whether the alleged misrepresentations were included in the PIR reports or not. 42 The alleged misrepresentations, and Mr Roberts' reliance on those representations concerning the Corporations Law must be the focus in this case. As such, an assessment of the evidence of Mr Roberts, particularly the evidence of his reliance on the alleged misrepresentations, needs to be made. 43 I found Mr Roberts to be an unsatisfactory witness. He appeared in many instances to be evasive and lack candour. His evidence in cross-examination showed a lack of grasp of any understanding of the significance of a managed investment scheme. His answers under cross-examination also indicated a lack of understanding of the investments upon which he had presumably considered and advised upon. He re-constructed his evidence as he was questioned, and his evidence contained inconsistencies. For example, he gave inconsistent evidence about the number of Wealthcare clients that had invested in Market Street or York Street. 44 Mr Roberts seemed to have little grasp of the differences in the various information documentation he said he received at the same time, and which did contain significant differences in relation to prior ranking debt, number of apartments and project equity. I gained the distinct impression that he had not read the PIR reports and the Information Memoranda carefully, or perhaps at all. He certainly made no enquires about the differences between the contemporaneous documents he received, which I would have expected him to have made as a financial adviser. This suggests that he did not read or rely upon the reports or understand their implications. 45 When questioned on the use of the term prospectus or information memorandum, Mr Roberts showed that he had no real appreciation of the difference between the terms at the time of making the recommendations to Mr Pollard. Mr Roberts' answers in cross-examination undermined the accuracy of his evidence given in chief by affidavit. For instance, when asked whether he distinguished between a document as a prospectus and an information memorandum, Mr Roberts replied that he took it as a "misnomer". This demonstrated that he did not appreciate or attach any significance to whether there was a prospectus or not, although he did apparently understand the legal difference as a result of his application for a security dealer's licence. 46 At the time of making the various recommendations to Mr Pollard, Mr Roberts seemed more concerned with receipt of his own commission upon the investments being made by Mr Pollard. Mr Roberts did not disclose to Mr Pollard (as he was obliged to do) the commissions which Mr Roberts received from Westpoint. He provided no explanation for this in his evidence before the Court. This reflects poorly on Mr Roberts and may indicate the main motivation in making various recommendations to Mr Pollard was the earning of his commission, and a disregard for the information provided to him in the PIR reports. 47 It is also to be recalled that Mr Roberts initially denied giving Mr Pollard advice to rollover his investment in York Street to Market Street, to increase his investment in Market Street or to extend the term of the Market Street Promissory Notes. Mr Robert's denial was shown to be inconsistent with documentary material, and was only withdrawn by him in the face of this documentary material. Again, this reflects poorly on Mr Roberts. 48 When one looks at the events surrounding the extension to the Market Street Promissory Note in November 2003, the evidence further supports the conclusion that reliance by Mr Roberts on the alleged representations did not occur. 49 As a separate matter, this evidence indicates that Wealthcare in November 2003, irrespective of whatever occurred previously, did not rely at all, or attach any significance, to the alleged misrepresentations. 50 If the Market Street Promissory Notes had not been extended, I find on the evidence that they would have expired on 31 January 2004 and would have been paid out. On this view, unless Wealthcare relied upon the alleged representations when Mr Hepworth advised Mr Pollard in November 2003 to extend the term of the Market Street Promissory Notes, Wealthcare cannot demonstrate that its claimed loss and damage was caused by the conduct of PIR. 51 The evidence establishes that Wealthcare did not rely on the representations in the Market Street PIR report when making the recommendation in November 2003, even on the basis of the evidence of Mr Roberts. As I have said, the occurrence of these later events also indicated an approach taken by Mr Roberts to his earlier recommendations to Mr Pollard consistent with there being no reliance on the alleged misrepresentations in the PIR reports. 52 Prior to November 2003, Mr Roberts had received, and apparently read, the Market Street Notes Prospectus and supplementary prospectuses. The supplementary prospectus dated 25 February 2003 expressly stated that Australian Securities Investment Commission ('ASIC') had taken the view that the securities being offered by a similar information memorandum were debentures, and were determining what further steps were necessary or appropriate to secure compliance with the Corporations Act. It stated that if ASIC's view were correct that the securities were debentures, and the offer did not comply with the relevant law, a range of possible outcomes may result, including the return of moneys raised under the offer or an order that investors be informed of the view and given the opportunity to withdraw from their investment. Apparently, Mr Roberts obtained feedback from Westpoint that they could continue to offer a promissory note and he gave evidence that he relied upon what the Westpoint representatives had told him. Mr Roberts' also gave evidence that he was told by Westpoint that they had correspondence from lawyers, and that he knew they had legal advice from their lawyers which gave him a basis for relying on what they told him. Mr Roberts' evidence was that after receiving the supplementary prospectus he knew there was a debate as to whether or not promissory notes had to comply with the requirements of the Corporations Act, the outcome of which would not be known until it was settled in court. Mr Roberts nevertheless was prepared to act upon the feedback from Westpoint, and endorse an investment in the offer of promissory notes. 53 I accept that this evidence does not relate directly to the managed investment scheme issue. It does however indicate an approach taken by Mr Roberts, and one which indicates an endorsement for a product irrespective of a failure to comply with statutory requirements. At this time, Mr Roberts was relying on the advice of the Westpoint representatives. Wealthcare did not rely on the representations made in the PIR reports as to whether or not the Corporations Act applied to the Promissory Notes when making the recommendation to extend in November 2003. 54 Returning then to the decision of Wealthcare to place the York Street and Market Street Promissory Notes on its notional approved product list and to make the various recommendations to Mr Pollard, Mr Roberts' evidence was that he relied on the alleged misrepresentations made in the PIR reports that the Promissory Notes were not required to comply with the Corporations Law requirements. It is my view that this evidence should not be accepted. In my view, even if Mr Roberts did read the PIR reports, he did not appreciate or attach any significance to the statements concerning the Corporations Law. I have come to the view that Mr Roberts' evidence was so unreliable and lacking in credibility that it does not provide a sufficient basis upon which Wealthcare can satisfy its burden of proof to prove reliance upon the alleged misrepresentations in the PIR reports. 55 Therefore, I reach the conclusion that even if the alleged misrepresentations relied upon by Wealthcare were false, or PIR's conduct was misleading or deceptive, such were not a cause of the loss suffered by Wealthcare. The alleged misrepresentations played no part in any of the recommendations made by Wealthcare to Mr Pollard, from 2001 throughout to 2003. I come to this conclusion even accepting that the alleged representations (other than the presentation as to 'investment grade') are taken to be continuing throughout the period in which Wealthcare advised Mr Pollard. 56 The above reasoning disposes of the proceedings in favour of PIR.

OTHER MATTERS 57 Other issues were raised, some of which I mention briefly. 58 I do not need to consider the effect of the terms of settlement and the principles in Unity Insurance Pty Ltd v Rocco Perzzano Pty Ltd (1998) 192 CLR 603. This question would only arise if PIR were otherwise liable to Wealthcare, and the requirements of Wealthcare in establishing its loss or damage needed to be considered. 59 In coming to the view that Mr Roberts did not rely upon the alleged misrepresentations I am mindful of the comments made by the High Court in Campbell(2009) HCA 25 at [143]. The essential question is one of causation. It may be artificial to talk in terms of reliance in determining what would have occurred if the true position were known. Nevertheless causation and reliance are related concepts (see eg Heydon, Trade Practices Law (2008) vol 2 at [11.720]). In this proceeding, I have come to the conclusion that there was no causal connection between the alleged misrepresentations and the actions of Wealthcare, because there was no reliance in fact upon the alleged misrepresentations. 60 Finally, I mention the operation of s 23B of the Wrongs Act relied upon by Wealthcare. Mr Pollard (who gave evidence on behalf of Wealthcare) did not say that he saw or relied upon the PIR Reports. Mr Roberts said he showed them to Mr Pollard. However, I am not satisfied on the balance of probabilities that Mr Pollard did see or rely upon the PIR reports. If he was shown them, Mr Pollard would have remembered that significant fact. I regard Mr Pollard as an honest and forthcoming witness. I do not accept Mr Roberts assertion that he showed Mr Pollard the reports. I have already indicated my assessment of the credibility of Mr Roberts. Therefore, Wealthcare has not established that PIR was directly liable to Dartberg because no reliance by Mr Pollard on the PIR reports has been proved. 61 Wealthcare contended this would not matter, because Dartberg still suffered loss due to PIR's conduct, relying on the 'indirect causation' line of cases: see eg Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 and McCarthy v McIntyre [1999] FCA 784. It was contended that PIR's conduct was a cause of Dartberg's loss. 62 There may be an issue as to the whether there is an inconsistency between the cases relied upon by Wealthcare and Digi Tech (Aust) Ltd v Brand [2004] NSWCA 58 at [147]-[160], but this does not need further consideration. 63 As Wealthcare did not rely on the alleged representations in the PIR report, no 'indirect causation' can arise. Put another way, it cannot be said that Wealthcare's reliance on the PIR reports was 'a cause' of Dartberg's investing because there was no reliance at all by Wealthcare to find any 'indirect causation'.

CONCLUSION 64 For the above reasons, the Court will order: 1. The cross-claim be dismissed. 2. The parties confer as to the appropriate order to make as to costs, and if no agreement can be reached, file and serve within 14 days any submissions as to costs.

I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.

Associate: Dated: 9 October 2009 Counsel for the Cross-Claimants: Mr P Cawthorn SC with Mr M Osborne

Solicitor for the Cross-Claimants: Moray & Agnew

Counsel for the First Cross-Respondent: Mr D Collins SC with Mr J Davis

Solicitor for the First Cross-Respondent: HWL Ebsworth