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.