Did Chambers and Mr Takla breach their duty to exercise reasonable care and skill?
103 Mr Dennis' primary breach allegations: Mr Dennis claims that, in substance, the duty to exercise reasonable care and skill when providing financial services and advice was breached by reason of the following primary failures of the respondents:
(1) The failure to complete a sufficient Fact Find:
(a) that enabled an accurate assessment of Mr Dennis' personal expenses, as they encroached on the ability of Mr Dennis to fund investments;
(b) to enable a comprehensive view of Mr Dennis' goals and objectives.
(2) The failure to note and bear in mind or address Mr Dennis' circumstances, goals and objectives when making recommendations, particularly in light of his stated and repeated goals to retire debt and to provide for retirement by supplementing superannuation.
(3) The failure to consider Mr Dennis' cashflow obligations by always recommending that investments be acquired by finance, without considering the impact of the accumulation of debt at material times.
(4) The failure to consider the concentration of investment recommendations in MISs which, by their inflexible nature, could not be sold prior to the completion of the subject project, and in the interim would not provide returns that helped to pay the debt associated with that investment, or any other investment.
(5) The failure to address the risk to Mr Dennis in holding the investments recommended, in the light of his circumstances, and how having to hold that investment would (or was reasonably likely to) have an impact on the goals and objectives of Mr Dennis. Mr Dennis says this is a failure to address the structure of a MIS, a scheme which is not capable of being sold if needed to retire debt. There was also no analysis of the expected returns from that or any sort of investment. The only outcome canvassed was linear growth but not, as was required and reasonable, the range of outcomes. Some of those outcomes would be adverse to the goals and objectives of Mr Dennis, but he was never advised of them.
(6) The failure to consider the goal of capital protection, as offered by the scheme financed by Macquarie Bank as a GEI. Mr Dennis says this was materially different to the MISs, which offered no capital protection. Chambers and Mr Takla failed to state how the absence of that protection (which was an objective of Mr Dennis) was nonetheless consistent with the overall objectives.
104 While Mr Dennis complains about the adequacy of most, if not all, of the investment advice he received, he particularly complains, as may be seen, about the advice to invest in MISs. In closing oral submissions, counsel for Mr Dennis put the case relating to the MIS investments succinctly. He said Mr Dennis was concerned not with whether advice to invest in MISs disclosed there were agribusiness risks in doing so, but that the advice was inappropriate because it continually recommended the purchase of assets which Mr Dennis could not sell. Accordingly, Mr Dennis argues that it is not enough that he was warned about the risks in the prospectuses and product disclosure information (PDI) for these investments, but that such investments did not meet his goals concerning retirement, superannuation, debt retirement, flexibility and capital protection. This contention is central to Mr Dennis' case.
105 Respondents' position: In response to the allegations set out in [103] above, the respondents say:
(1) There was no contractual, tortious or statutory requirement for them to complete a Fact Find form as asserted in point (1). Instead, the respondents had a duty to ensure that they had sufficient relevant information from Mr Dennis in order to allow them to make appropriate recommendations to him, which duty they discharged on each occasion on which advice was given;
(2) As to point (2), Mr Dennis has not established through evidence that his goals were as there set out. His evidence was in fact quite to the contrary: he did not want to salary sacrifice and plan for his retirement, and was not interested in retiring debt to the sacrifice of his lifestyle and ability to purchase lifestyle assets. Mr Dennis did not give evidence as to his goals throughout the investment period or how they differed from the goals which he discussed with Mr Takla from time to time. The respondents say, however, that they did take into consideration Mr Dennis' circumstances, goals and objectives as advised to them when making recommendations to him: for example, the invitation to enter into the first MIS in AGL timber project 2 1999, which provided him with a tax refund to use as a deposit on the home later jointly purchased with his then wife; and the SOAA dated 23 April 2007, which provided a way in which Mr Dennis could meet the financial obligations arising from his divorce settlement;
(3) In relation to point (3), Mr Dennis' cashflow would have been managed by his making the agreed monthly payments into his buffer account, which he manifestly failed to do throughout the period of the investment, and most particularly following his separation from his former wife;
(4) In relation to point (4), the respondents say they did consider the entry by Mr Dennis into MIS investments in comparison to his overall portfolio, referring to the relative proportions of both set out in written submissions upon opening to the effect that Mr Dennis' total investments placed through the respondents over nine years totalled almost $2.45 million, of which $1.6 million of the investment capital (or 65%) was protected at maturity and approximately $850,000 was not. They say that of the amount which was not protected at maturity, Mr Dennis' exposure to capital loss was reduced by the amount of $370,000 by the immediate obtaining of a taxation refund (or reduced liability to pay tax in 2008). Taking these immediate returns into consideration Mr Dennis' exposure to capital loss was $480,000 or 19.5% of his total portfolio. Further, the respondents say Mr Dennis was expressly advised on numerous occasions of the illiquid and the non-transferable nature of the MIS investments prior to his entry into them. Finally, interim returns, some immediately, were expected, in one respect, on all of the MISs, through a sizeable tax refund, which Mr Dennis could have put towards his investments. A good example, they submit, is the first 1999 MIS, and the important tax benefit received in respect of that tax year - which was used by Mr Dennis to buy the Ardross house jointly with his then wife. In addition, distributions (including interim distributions) were expected on most of the MISs from the year 2007 on;
(5) As to point (5), the respondents say this has been addressed above. In addition, they say the effect of any failure of the investments to meet growth expectations was obvious: Mr Dennis would be unable to achieve the anticipated returns and still be required to meet the debt obligations. There was no need to warn of risks which were obvious. But as pointed out above, they say the risks associated with the investments were explained and the PDSs relating to the MISs all contained detailed and explicit warnings about the risk of these types of investments. In fact, some of the risks warned of in the documents came to eventuate, for example, a high Australian dollar which undermined the export market to which the plantation schemes were directed; and
(6) As to point (6), the respondents say Mr Dennis did not adduce evidence (which he could easily have led if available) of the prior existence and expression, during material times, of his now asserted goal of capital protection with respect to all of his investments - referred to in (6) of [103]. Nor was Mr Takla cross-examined on why this goal was not incorporated in all of the advices given from time to time. The respondents say the goal of capital protection is inconsistent with Mr Dennis' margin lending account held through ABN AMRO Morgans, his continued investment in MISs, and his apparent failure to take out adequate insurances to protect his income in case of sickness. It is further contradicted by Mr Dennis' loss of opportunity claim, the first statement of which revolved around further investment in a margin lending share market investment, and the alternative investment posited by Mr Barber. This "goal", the respondents say, is nothing more than a later construct by Mr Dennis and ought to be seen as such and disregarded.
106 Focussing on the nine MIS investments identified in the above loss table as productive of loss, the respondents submit that essentially three points are raised against them:
(1) that the MIS investments were contrary to the goal of "flexibility" identified for Mr Dennis as an investment goal;
(2) that Mr Takla advised Mr Dennis to buy into the MISs without a proper assessment of his overall risk exposure and financial ability to keep paying interest and administration fees; and
(3) that some purported 5% - 10% industry standard cap on that type of investment as part of an investment portfolio was exceeded.
107 Thus, the respondents consider that a further element of the case put by Mr Dennis is that the advice given by the respondents led him to an over-exposure to interest and administration costs associated with the investments; in other words, that Mr Takla had not properly considered Mr Dennis' financial exposure and risks (such as loss of employment) in giving the investment advice from time to time. The respondents note that this resulted, in accordance with the argument put, in Mr Dennis reaching some point or points in time after June 2008, the date when he received the last advice from the respondents, where he could not keep up with the payments due on the nine MISs. Such defaults, it is said, caused him to be liable for the total debt, including capital and very heavy penalty interest rates which have applied since he stopped paying.
108 As to the first of the three MIS points, the respondents by way of general response submit that "flexibility" of investment was never a material investment "goal" for Mr Dennis. They note the original Fact Find records that he was "slightly concerned" with the flexibility of investments (or with "current income" from the investments). He wanted to invest for five years or longer and was prepared to borrow funds to do this. The respondents say that the alternative investment strategy suggested by Mr Barber in his expert evidence would also lack "flexibility" in the same way as an investment in a long-term MIS.
109 The respondents say the initial plan agreed to by Mr Dennis dealt specifically with a Macquarie GEI, and the acquisition of a home for the applicant and his then wife, and recorded (as was true) that the plan involving a GEI was flexible and that its term was flexible, with illustrative figures supplied in the initial plan.
110 As to the second of the three MIS points, the respondents note the AGL timber project 2 1999 MIS was only released onto the market on 18 June 1999 and it provided an opportunity suited to the needs of the applicant to get a tax benefit in that tax year and so supply the deposit for the required home.
111 As to MIS investments more generally, the respondents say Mr Dennis laboured under a false impression at material times about an alleged secondary market for MIS products, something they did not induce. They say, however, that in regard to Mr Dennis' evidence that, when he initially started taking advice from the respondents, he read all documents carefully, it should be inferred that he knew from the outset that there was no secondary market.
112 The respondents also submit that on the evidence the risk in making these investments was explained to Mr Dennis by Mr Takla both orally and in writing and was contained in the various prospectuses and PDSs, to which the applications for investments were attached.
113 The respondents further submit that Mr Dennis was advised by the respondents at material times to take precautions such as taking out adequate insurance, income protection insurance and the like.
114 The respondents say there was no duty to "record", in writing, the considerations that led to recommendations being made. They say the rules of the Financial Planning Association, to which the respondents belonged, setting out best practice guidelines do not constitute legally binding standards. They say there was no requirement that their inquiries should take the form of a Fact Find document, and that the position at common law in respect of negligence must be the same. Thus, it comes down to what in fact Mr Takla did as to whether he had a reasonable basis for advice given, given Mr Dennis' investor type and his goals and objectives.
115 The respondents (correctly) note that s 945A of the Corporations Act, as it applied at material times, while introduced in the post-FSR period only applied to Chambers when it became the holder of an AFSL on 10 March 2004. Section 945A, the respondents submit, only required that an adviser must make reasonable enquiries of a client of relevant personal circumstances in relation to giving of advice - not to conduct some "investigation", as Mr Dennis would have it; and any enquiry which must be conducted related to products which are sought to be recommended.
116 The respondents say that Mr Takla's evidence was that he made sure he knew and took into account Mr Dennis' financial position and obligations every time he gave advice. They say it was never put to Mr Takla that he did not have adequate information to advise Mr Dennis. He obtained information from and through Mr Dennis and reasonably relied upon such information.
117 The respondents say Mr Takla knew exactly what investments Mr Dennis had in the portfolio in respect of which he advised him and that any omission or mistake in recording any such investment does not translate to a lack of a reasonable basis. Further, Mr Takla cannot be found responsible for any advice based on Mr Dennis' disclosed circumstances if those were ultimately untrue (for example, income estimates provided by Mr Dennis versus the actual income set out in his tax returns).
118 In so far as the third of the three MIS points is concerned, the respondents contend there is or was no industry standard that can translate to some legal norm that MIS investments should only constitute up to 5% - 10% of an overall portfolio. The respondents (while maintaining a primary objection to Mr Barber's qualifications to give expert evidence) say Mr Barber was required in cross-examination to admit that this "rule" was given to him by groups he had worked for and he gave no evidence of its application in the industry more generally. In any event, they submit any such rule would be inherently uncertain and completely unworkable. They submit that the first or series of first investments could never be MISs, on this basis, because they would then form 100% of an investment portfolio. They submit the rule of thumb contended for cannot sensibly be applied across the board without reference to an investor's risk profile and risk appetite.
119 They also note that Mr Manoj Pillai, the expert called by them, rejected the suggested rule of thumb and that the issue was highlighted by the disagreement between the experts regarding the investments which should be considered in the context of weighting Mr Dennis' investment "portfolio".
120 The respondents say it should be noted that the final advice given to Mr Dennis on 7 June 2008 provided him with a detailed cashflow projection and that, while the experts were uncertain where the investment cost of $276,231 for the year 2009 was taken from, they did not suggest it was wrong. It showed a high cost for Mr Dennis, so was conservative advice. The respondents say Mr Takla conceded that the other projection on page 3583 of the Trial Book was nonsensical, but he was never cross-examined to the effect that there was anything wrong with the projection. They also say Mr Dennis did not give any evidence of having been misled by the errors or any specific reliance on that projection and Mr Barber dropped his concerns about negative cashflow for 2009 once his attention was drawn to the explanatory footnote on the same page.
121 The respondents further submit that the submissions made by Mr Dennis in relation to the earlier 9 April 2008 SOA is largely irrelevant given that he did not proceed with the recommendations recorded in the advice, but it does however contain an accurate cashflow.
122 The respondents observe that Mr Dennis did not consult Mr Takla before stopping his payments. They say he admitted during cross-examination that he only expected the respondents to handle his portfolio and not to manage all of his financial affairs. They point to Mr Takla's evidence that, if Mr Dennis had consulted him, he would have assisted him to restructure his affairs, as he had done for a number of other clients, but that is not what Mr Dennis wanted.
123 Objections to expert evidence of Mr Barber: Before proceeding further I should deal with the objection taken by the respondents to Mr Barber's qualifications to give expert opinion evidence in this proceeding. Chambers and Mr Takla object to the reception into evidence of Mr Barber's opinions on the grounds that he is not qualified to give opinion evidence concerning breach and loss in the proceeding at all, as well as on grounds concerning the relevance of his opinions to matters in issue if he is so qualified.
124 While evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion is expressed, as provided for by s 76 of the Evidence Act 1995 (Cth), there are a number of exceptions including, under s 79, where an opinion is based on specialised knowledge. Section 79 provides that if a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person (often called "the expert") that is wholly or substantially based on that knowledge.
125 In that regard, it is understood that under s 79 it is not necessary for an expert witness to be formally qualified and relevant experience will suffice. Nor is there any requirement that the knowledge upon which expert opinion evidence is based must relate to a "recognised field of expertise". In that regard, the relevance discretion in s 135 is considered appropriate to enable courts to exclude expert opinion evidence where its probative value is substantially outweighed by the danger that it might misleading or confusing.
126 There is no dispute in this case that the questions relating to the relevant duty of care and its alleged breach are ones in respect of which specialised knowledge may be relevant. The objection raised by the respondents is that a person who is merely an adviser working for an AFSL holder in the area of financial planning does not necessarily have the special expertise to be able critically to comment on the standards applicable to advisers in various hypothetical situations.
127 The respondents contend there are serious issues concerning the relevant expertise of Mr Barber, particularly in relation to his treatment of MISs and the way he has sought to give evidence about the applicable standards for financial advisers in that at all times he has really operated with a list of permissible investments provided to him by the dealer group (AFSL holder) he was working with from time to time and, unlike both Mr Takla and Mr Pillai, has never been involved in the overview and selection of investments. Also, his view is very much skewed towards superannuation, obviously one of his areas of interest and expertise.
128 This submission is made against an understanding that not every apparent expert will have relevant specialised knowledge. For example, a securities lawyer has been held to lack sufficient expertise to give evidence of investor behaviour (Allstate Life Insurance Co v Australia and New Zealand Banking Group Limited (No 6) (1996) 64 FCR 79 at 85). Similarly a solicitor with no more than usual experience in litigation and conveyancing was not considered to have the requisite specialised knowledge called for to express an opinion about the conduct of another solicitor in that area (O'Brien v Gillespie (1997) 41 NSWLR 549 at 551). But evidence of the content of general practices by competent professionals in particular fields and in particular circumstances, and of what a reasonably competent careful professional would do, has been accepted as admissible (Maronis Holdings Limited v Nippon Credit Australia Limited [2001] NSWSC 448; (2001) 38 ACSR 404 at [380]). However, it has also been accepted that such a witness could not give evidence of what the witness personally would do (Australian Securities and Investments Commission v Vines [2003] NSWSC 1095; (2003) 48 ACSR 291 at [31]).
129 This latter point is tied to the requirement that the opinion expressed must be wholly or substantially based on specialised knowledge. Accordingly, it is usually said that there must be evidence explaining how the opinion stated is said to rest on the specialised knowledge of the witness and how the specialised knowledge is based, wholly or substantially, on the witness' training or study or experience (Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 at [85]; Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 at [30]-[43] and [128]-[130]).
130 Mr Barber is a sole director of a company engaged in the business of providing financial planning and investment advice to members of the public. He is a certified financial planner and an authorised representative and credit representative of a company and licensed to provide advice. He has extensive experience with a Diploma of Financial Planning, an authorisation and authorised representative certificates. He has been engaged in the financial planning industry since 1997. More generally Mr Barber has in the past been engaged by the Financial Planning Association to mark financial plans prepared by financial students from around Australia completing their final unit in a Diploma of Financial Planning. He has also presented course material to the superannuation planning module of the Securities Institute course in Western Australia. He has acted as an expert witness in litigation relating to financial planning as well as litigation support in relation to family dispute resolution. Prior to becoming a financial adviser he was an insolvency practitioner employed by a number of larger chartered accounting practices.
131 In the circumstances, and having regard to the evidence of his training, study and experience, I am satisfied that Mr Barber is a person who has specialised knowledge based on his training, study and experience in relation to financial planning and able to address the duty of care issues that arise in this proceeding. That he may recommend products from a list of permissible investment products does not, in the circumstances of this case and having regard to his relevant background, remove his capacity to express opinions on relevant matters in issue. Whether or not particular aspects of his opinion evidence may be said to fall into the impermissible area of expressing an opinion based on what he would personally do or have done, rather than at a more analytical level as to what professional standards required, is an issue that should be borne in mind when his detailed evidence is considered, but is not something that should immediately disqualify Mr Barber from giving opinion evidence in the proceeding. That he may have a bias or inclination or expertise pertaining to one area of investment, such as superannuation, is a matter for evidence and submission, not, in the circumstances, his qualification to express an expert opinion. In these circumstances, and in light of the findings made in the proceeding, I need not rule on each of the objections made to specific paragraphs of Mr Barber's documentary evidence tendered at trial.
132 Expert conferral, agreed issues, and issues not agreed: Following a meeting of the experts before the trial, Mr Barber and Mr Pillai recorded points of agreement and disagreement as follows:
That the Fact Find completed by Mr Takla dated 30 March 1999 did not identify Mr Dennis' retirement needs in relation to income.
The classification of Mr Dennis as a "balanced investor" set out in the financial plan dated 2 June 1999 was appropriate. The strategy recommended in the plan was, however, more appropriate for a "growth-orientated" investor. The reasons for recommending a growth-orientated strategy to Mr Dennis and why it was appropriate for his situation are not documented in the plan. The classification of Mr Dennis in the plan of being a "balanced investor" was inconsistent with the strategy recommended in the plan.
There was a heavier weighting to MIS products at all relevant times during the course of the advisory relationship.
Mr Takla was not aware of the composition of the other investment portfolios Mr Dennis had, including Mr Dennis' superannuation.
Mr Pillai had not been asked to comment on the accumulation of debt during the course of the advisory relationship.
The capital gain set out in the schedule at para [269.2] in annexure 4 of Mr Pillai's report was incorrect for the year ended 30 June 2009 and should have been recorded as a loss of $44,989.
133 Mr Pillai later made an affidavit that was received into evidence without objection in which he sought to clarify some aspects of the record of their conferral. He explained, and I accept, that he had signed the earlier statement of matters agreed when he was under some personal stress and had been experiencing some serious health issues.
134 As to the stated agreement that the financial plan classified Mr Dennis as a "balanced investor", Mr Pillai said that the experts also agreed that Mr Dennis was not in fact a balanced investor as classified in the plan, but was a "growth investor".
135 As to the agreement concerning the heavier weighting to MIS products, Mr Pillai said that Mr Barber's and his agreement was restricted to the investments under Chambers' advice and without reference to Mr Dennis' entire investment portfolio, inclusion of which may result in a different weighting. They agreed that investments outside of Chambers' advice existed including other investment portfolios and superannuation.
136 Mr Pillai added that products can be classified into one or more "investment sectors", depending on the underlying assets. For example, an investment in a diversified management fund product which has underlying assets in international equities, Australian equities, bonds and property, although there is only one investment. This was the case for a number of investments recommended by Chambers to Mr Dennis. However, MIS products are generally only classified into one "MIS investment sector", even though the underlying assets may be in cattle, vineyards, olives and trees.
137 He said that Mr Barber and he agreed that there was a heavier weighting to the MIS investment sector than to any other single asset class within Mr Dennis' investments under Chambers' advice, because of the potential for non-MIS products to be diversified into a number of asset classes.
138 Mr Pillai also noted that, in relation to the Fact Find, he and Mr Barber agreed that at the start of the advice relationship in 1999, Mr Dennis did not own a home and had minimal savings. However, he had work-related superannuation and a stable job. One of his objectives was to acquire a family home. However, he had no deposit to contribute towards the purchase of the home.
139 Further, Mr Barber was not aware of a further Fact Find completed at the commencement of the advice relationship in relation to Mr Dennis' then wife which disclosed household and other expenses and her income.
140 Additionally, neither of the experts was aware of the composition of Mr Dennis' external portfolios.
141 In relation to investment, Mr Pillai noted that Mr Barber in his report stated that protected equity loans (PELs) were appropriate for Mr Dennis. During conferral they each agreed that GEIs were also an appropriate product for Mr Dennis as he had no initial capital to invest.
142 However, the experts disagreed on whether external portfolios ought to be taken into consideration when considering the appropriateness of advice. Mr Pillai considered the matter was relevant but Mr Barber disagreed.
143 Further, Mr Barber said that the initial MIS placement made in 1999 was not appropriate for Mr Dennis as the placement was not consistent with the initial plan because it was not documented as being part of the strategy; nor was there a document setting out why the investment was suitable to his overall financial plan.
144 Mr Pillai said he agreed there was not any written document providing a basis for the placement of the first MIS product, however he did not agree with Mr Barber that the placement of this product was not appropriate for Mr Dennis. In his view, the placement was consistent with the stated objective of buying a house, as it then provided him with the funding to contribute towards the deposit for the purchase of the family home.
145 Mr Pillai noted that he and Mr Barber disagreed about the suitability and purpose of further MIS products during the course of the relationship. He was of the view, consistent with his earlier express report, that MIS products were generally suitable for recommendation, though Mr Barber disagreed.
146 Further, the experts disagreed with respect to the appropriateness of investments made in Fusion and Rubicon - although I would at this point note that those investments are not directly put in issue by Mr Dennis when it comes to the assessment of loss and damages in the above loss table.
147 Finally, Mr Pillai said that he and Mr Barber disagreed about the relevance of cashflow management to Mr Dennis' position over the relationship period. He was of the view that Mr Dennis' overall position would have been substantially better if he had exercised overall cashflow management and applied available surplus funds to reducing his overall debt. On his brief calculations, a substantial amount of funds were generated through tax refunds and investment returns likely to amount to about $700,000. In addition, Mr Dennis received a substantial inheritance of several hundreds of thousands dollars towards the end of the relationship period and they were not reflected in his overall financial position. Mr Barber indicated it was not part of his brief to review the actual cashflow over the period of the relationship. Instead, he referred to a cashflow estimate he had prepared based on a portfolio that he may have recommended, as set out in his report.
148 I generally accept Mr Pillai's evidence concerning the qualifications of the record of the matters agreed and disagreed at the experts' conference. Mr Barber did not suggest to the contrary.
149 General observations about the duties of a financial planner: The experts, Mr Barber and Mr Pillai, generally speaking, shared a common outlook on the role and responsibilities and duties of an adviser at material times in both the pre-FSR and post-FSR periods with which I generally adopt.
150 To some extent at least, Mr Pillai considered that the duties imposed on an adviser in the post-FSR were higher than in the pre-FSR period. In the result, any difference of opinion in that regard is of no moment as the relevant provisions, discussed below, speak for themselves and must be applied according to their terms.
151 The experts accepted that the statutory duty was reflected in a well understood industry rule for an adviser to "Know your client, know your product". The intent behind that rule, as the experts explained, was that an adviser should always recommend to a client a financial product that suits their circumstances and goals and objectives.
152 It was also explained by the experts that in order to know the client an adviser needs to be possessed of all relevant information concerning the client's financial circumstances and their goals and objectives; and that these circumstances, goals and objectives may change over the course of a professional advisory relationship.
153 To that end, it was agreed that, at all material times, a Fact Find document (or needs questionnaire) was and has been widely used in the industry. A Fact Find was not at material times required by legislation, but was recognised as a convenient way of acquiring the usual sort of primary information that an adviser needs to get to know the client and then to recommend a product suitable to their circumstances, goals and objectives.
154 The evidence of the experts also confirmed that voluntary professional associations, such as the Financial Planning Association and the Association of Financial Advisers by their rules have sought to lay down best practices for licensees and advisers within the financial planning industry.
155 Not surprisingly, given the primary duty of an adviser to make recommendations having a reasonable basis for doing so, the standards of the Financial Planning Association and to which Mr Barber in particular referred, encouraged, if not required, members of the Association to fully document advice given, if not the reasons for doing so.
156 Perhaps the biggest change in the post-FSR period, for present purposes, was the duty imposed on an adviser to give an SOA or an SOAA in relation to advice which outlined the circumstances in which a particular recommendation was made.
157 In this proceeding, a feature of the advice given by the respondents, particularly in the pre-FSR period, before Chambers obtained an AFSL in March 2004, was the apparent lack of detailed accompanying documentation when compared with that provided later in the post-FSR period in an SOA or SOAA. That may be considered, however, a by-product of the differing legislative requirements at material times.
158 At all times in the course of the professional relationship between the parties, Mr Takla was in the habit of meeting with his client, Mr Dennis, usually twice a year - roughly speaking at a six monthly review and then at an annual review - during which he wrote proposed or actual recommendations on a whiteboard, explained their purpose, intent and the outcome they would produce, and then print out the notes and keep them on his file for future reference.
159 One of the complaints made on behalf of Mr Dennis by Mr Barber is that the whiteboard notes do not set out why particular recommendations made or foreshadowed were or were likely to suit Mr Dennis' circumstances, goals and objectives.
160 As a general proposition it might be said that this complaint is a little unfair as an adviser is no doubt entitled to engage with his or her client and generally to represent what they have in mind. A whiteboard presentation may well provide a convenient means of communicating to a client the substance of the advice or proposed advice and what may be complex financial planning ideas.
161 Nonetheless, in the pre-FSR period it was incumbent on an adviser to have a reasonable basis for any recommendations made. While legislation then did not require that the advice be reduced to writing, one can understand that good practice would suggest that that be done, so that through the exercise of doing so the adviser ensures that they take into account the circumstances of the client and go through the mental process of confirming in their own mind that the recommendation will meet the client's goals and objectives. Put another way, a failure to give detailed written advice or to keep detailed notes in relation to recommendations made may support a later suggestion that the adviser did not properly turn his or her mind to the question whether a product recommended actually suited the client.
162 While the rules of the Financial Planners Association at material times, to which Mr Barber referred, may be said to have been reflective of best practice in relation to note keeping and advices, the question falling for determination is not whether those rules were complied with, but whether the statutory reasonable basis requirement and the general duty requirements were met.
163 As noted, here complaint is made about the record keeping habits of Mr Takla. There is some basis for that as his personal notes were not extensive and the records generally constituted the whiteboard notes, bank account information requested by him, emails between the respondents and Mr Dennis requesting information and the like. Letters of advice in the pre-FSR period and SOAs and SOAAs in the post-FSR period constituted the formal account of written advice given to Mr Dennis at material times.
164 In response to the complaint that he did not have a reasonable basis for advice given because he could not point to detailed documentation, apart from such letters of advice, SOAs and SOAAs, Mr Takla said that he not only acquired information of the type just referred to, but also, at the six monthly and annual meetings, discussed with Mr Dennis his financial affairs (and indeed relevant personal matters) so that he was apprised of additional information to what appears in the written record and was able to make judgements as he went along concerning Mr Dennis' current circumstances, goals and objectives.
165 Mr Takla, for example, points to the fact that in 2007 (about the time Mr Dennis was considering a financial settlement with his then wife) he reclassified his assessment of Mr Dennis in the initial plan as a balanced investor to that of a more aggressive investor. (I should interpolate here to say that the experts agreed, as noted above, that, from the outset, on the basis of the strategy recommended in the initial plan, Mr Dennis was properly to be described as a growth-orientated investor - not merely a balanced investor, as Mr Takla initially assessed him to be.)
166 The experts agreed that a primary task for an adviser is to make a proper assessment of the tolerance for risk of a client (whether they are a balanced investor or a more aggressive investor or one or other category usually recognised by a financial planner) and then to ensure that financial products recommended are apt to achieve the goals and objectives of the client from time to time.
167 The experts also agreed that judgement needs to be exercised in the recommendation of products and that there is no single product that a reasonably competent adviser will necessarily recommend; in other words, one adviser acting reasonably and competently might make a recommendation that would differ from the recommendation that another adviser, also acting reasonably and competently, might make in relation to such a client.
168 A primary issue in this case, as noted above, is whether the MIS investments that Mr Takla recommended to Mr Dennis, starting with the first MIS of an agribusiness nature in 1999 was beyond the range of any suitable investment for a growth-orientated investor in Mr Dennis' circumstances. Mr Barber says these particular investment recommendations should never have been made.
169 Mr Barber attacked the MIS recommendations on two fronts: first, that Mr Dennis should not have been put into MISs of an agribusiness nature at all; and, secondly, that having been put into the first MIS, he should never have been put into further MISs because of the concentration such unprotected capital investments represented in his portfolio under Chambers' advice.
170 The experts agreed that it is appropriate when recommendations are made in the course of a professional relationship, that the adviser consider the current financial circumstances of the client at material times, their income, their ability to carry the expenses they personally have and carry in relation to investments and assess whether their cashflow capacity is satisfactory for the liabilities recommended.
171 Similarly, it was agreed by the experts that when recommendations are made, proper consideration is given to how a particular investment suits the then goals and objectives, what the options might be and what the possible risks are.
172 In this case, some of the written advice given, particularly in tables attached to SOAs and SOAAs, was not always complete or accurate. Questions are raised by Mr Barber, for example, as to whether errors in modellings are such that, if not made, there would or should never have been a recommendation made at all. Questions are also asked by Mr Barber as to the currency of Mr Takla's knowledge of his client's personal expenses at material times, especially following Mr Dennis' divorce in 2007. The question of cashflow was thus put in issue by Mr Barber in relation to a number of recommendations.
173 As the trial proceeded, and in the written and oral closing submissions of Mr Dennis, the key submission made by Mr Dennis was that Mr Takla allowed him to invest in too many MISs of an agribusiness nature such that the concentration of MIS investments within his investment portfolio presented a risk too great for an investor with his level of tolerance.
174 In that regard, Mr Barber said that, at material times, at least some licensees operated on the basis that a balanced investor client should not be permitted to have more than a particular percentage, say 5%-10%, of their investment portfolio in MISs. Mr Pillai, on the other hand, while accepting that caution was required, considered that there was no such inflexible industry percentage rule, but that an adviser must endeavour to keep an appropriate balance of MIS investment in an investment portfolio, recognising the unprotected capital nature of MIS investments and exercise judgement in that regard. Mr Pillai's opinion I took to apply in the case of either a balanced or growth-oriented investor. I now turn to the MIS investment cap issue.
175 Duty of adviser in relation to MIS investment recommendations: Mr Barber was of the firm view, in relation to the first MIS investment in AGL timber project 2 1999, and each of the subsequent MIS investments, that any recommendation to invest in an MIS should have been approached with a considerable degree of caution. His opinion (exhibit 8 [96 and following]) was not that MIS investments are, of themselves, inappropriate, but that balanced investors should invest only 5%-10% of portfolio capital in MISs. Mr Barber supported that opinion by reference to a 2003 article concerning agribusiness schemes which set out risks associated with MIS projects, and a report known as ASIC Report 17. In the 2003 article, the statement was made that "most analysts agree that only around 5% to 10% of a portfolio should be allocated to this sector". It was also suggested that investors "should demand a return of 20% to 30% above small cap shares, to compensate for the lack of liquidity and inherent agricultural risk" - that is to say, their unprotected capital nature.
176 Mr Barber expressed the view that "this assessment" was consistent with his experience of competent financial advice in 1999 and consistent with the approach of his own dealer group at material times for recommending entry into agribusiness investments, which restricted the total investment into agricultural investments to 10% of a client's investment portfolio. Mr Barber thereby relied principally on his own experience at material times for structuring the agribusiness MIS component of an investment portfolio for a balanced investor, something he acknowledged in cross-examination.
177 Mr Pillai considered it was difficult to say what a particular growth-orientated investor might appropriately be advised to invest in, in relation to an agribusiness MIS. He said there is a "dynamic quality" to advice given in relation to MIS investments. He did not accept that there were hard and fast rules about the percentage or proportion of investments in agricultural investment although he accepted some licensees had their own guidelines that did not depend on the risk category of the client.
178 Mr Pillai generally noted the tax effective nature of an MIS investment, reducing the level of taxation payable in a given financial year, resulting in a tax refund, if tax was otherwise paid on a PAYG (pay as you go) basis. He said, (something not rejected by Mr Barber) that the underlying investment had the potential to deliver cashflow from the schemes progressively or at the end of the term. This was particularly so where the product has an Australian Taxation Office (ATO) ruling validating the tax deductibility in a given year, as each of the MIS investments made by Mr Dennis had.
179 Mr Pillai said that many of these schemes had lifespans of three to 30 year terms and were generally illiquid, with limited or no secondary markets so far as sale of the investment was concerned. (I should, at this point, note in passing that while Mr Dennis gave some evidence of a belief that there may have been a secondary market for MIS he invested in, any such belief was not attributable to the respondents and I otherwise ignore that evidence as irrelevant.) He also acknowledged that potential returns varied, based on the nature of the underlying asset - in these cases, agribusinesses. Mr Pillai explained that a client investing in an MIS was generally seeking to reduce the level of tax (by increasing cashflow in a given year) linked with an asset/investment that could potentially deliver returns in the medium to longer term.
180 Tax deductions, he explained, were generally two-fold: an up front deduction on the investment amount, or ongoing deductions based on contributions towards lease and management fees. Mr Pillai thus provided an example of a cashflow model for an MIS (including the impact of inflation) which illustrated the net cashflow requirement on an investment of $100,000 is approximately $4,400.50 per annum.
181 Mr Pillai considered that clients such as Mr Dennis, with a high marginal tax rate, seeking tax efficiencies, with an appetite for long term investments and associated risk, had a tendency to select the tax efficient gearing a MIS investment offers.
182 He considered that, given Mr Dennis' financial position, income, stated risk tolerance and desired outcomes as stated, investment in an MIS of an agribusiness type "had the potential to meet his objectives and outcomes". He added that as Mr Dennis had no funds to contribute towards such investments, particularly early on, gearing helped facilitate placement of investments to deliver him short, medium and longer term outcomes.
183 Thus, Mr Pillai expressly considered the first MIS product, and indeed, subsequent MIS investments, were appropriate to the strategy to deliver those outcomes and objectives. The tax savings in the case of the first MIS were, in his view, to be applied to reduce the Ardross home loan, utilising the equity to invest further. Mr Pillai said that this strategy, including the appropriate use of the buffer account, could potentially clear debt by using tax savings and progressively improve the client's equity position, facilitating accumulation of overall wealth outside of superannuation to complement lifestyle and ultimately retirement needs.
184 It followed, in Mr Pillai's view, that having regard to the identification of the risks involved, which he understood from the documentation Mr Dennis was advised of, and then accepted, there was no difficulty in the first MIS product, and indeed each subsequent MIS investment, being recommended and accepted by Mr Dennis.
185 In his initial report that went into evidence Mr Pillai was not asked specifically to address the question of whether the reasonably competent adviser would make a recommendation to keep investing in agribusiness MISs where the proportion of such investments in relation to the whole of the investment portfolio represented a particular percentage of the investment portfolio. However, at the expert conferral and during the experts' concurrent evidence session at trial, he did so. In concurrent evidence Mr Pillai expressed the view that asset delegation and concentration of assets is a "dynamic thing" and moves from year to year, depending on investor markets "and where the client is". He said, for example, that if a client had $400,000 to invest, one could deliver the ideal portfolio on day one, based on a spread of assets between equities, property, fixed interest and so on. He said the starting position may have a concentration of certain assets which is then diluted along the way as the position improves and the market improves or declines. Thus, it varies.
186 Mr Pillai said that, in relation to the concentration of MIS assets in the example just given, at day one there was a concentration of MIS products. He considered that over a period of a relationship, "and that this is where schools of thought differ", one needs to take into consideration all assets the client has to actually balance out what component belongs to MIS and what component belongs to equities, properties and so on. Here I understood Mr Pillai to be referring to the different "schools of thought" between himself and Mr Barber as to whether assets not under Chambers' advice should be taken into account in exercising this judgement. He was of the opinion they should be; Mr Barber considered they should not. I favour and adopt Mr Pillai's opinion (at least to the extent the adviser is aware of the client's external investments).
187 In Mr Pillai's view, the financial planner has an obligation "to be sure that that (the investment portfolio) is balanced along the way". He said that sometimes, even with the skills of a planner, it may not be balanced "because markets go against you or markets go with you, where it means that the concentration of a particular class of investor might actually move up". (Transcript 515.) Mr Pillai added that when the stock market rallied, everybody's portfolio was higher in equities, based on where they were and it is natural for an adviser to actually bring it back or balance it out or take some profits over a period to balance things up.
188 In the course of cross-examination (transcript 561), Mr Pillai was asked about the need for an adviser to take account of changing financial circumstances of the client over the period of the relationship. Mr Pillai accepted that in best practice it would be necessary to look at debt, consider cashflow so far as interest on debt was concerned, and in particular to account for annual contributions made, for example, under MIS schemes.
189 Mr Pillai was then asked whether the competent adviser would also look at the question of concentrating investments in the category of illiquid investments. He indicated that:
It depends because you have asset allocation structures which - you might have a concentration of a certain asset category due to certain circumstances which will naturally change or dilute if other asset categories are brought in such as GEIs to reduce the exposure of any one particular category.
190 When asked whether, if the adviser were accumulating an exposure in investments which were difficult to sell, that would be a relevant consideration in any review of the developing circumstances of the client, Mr Pillai responded:
In relation to liquidity, yes, it would.
191 He added that it depends on the structures and the vesting dates of the investments, or possible vesting dates of the investments coming to fruition. If somebody takes a scheme over ten years, for example, one expects a certain cashflow to come either before that or over that period. He agreed that a financial planner would take that consideration into account.
192 Counsel for the respondents asked Mr Pillai to address the question whether there was a 10% rule that would, in the circumstances, apply to Mr Dennis' investments in MIS investments. Mr Pillai said (at transcript 647):
It's a pretty broad arrangement in relation to where this sits because it also comes down to what is applied by various licensees in their own businesses. It is also very hard to quantify because at certain stages, as I expressed earlier, you may have a client exports to a certain asset structure in a much higher fashion than you would want to and therefore there is no rule of thumb which says, you know, it's got to be between 9 and 10% or 9 and 15%. It is just an opinion.
193 When counsel for the respondents pressed Mr Pillai to say whether he disagreed that there was an "accepted rule", Mr Pillai said "Yes", and then added:
There's - I mean, there has been a lot of research which has been put out of the varying research houses saying what - what an ideal position could be… But they all vary from zero to whatever the percentage is.
194 When Mr Barber was cross-examined about his evidence concerning such a rule of thumb, he accepted (at transcript 652) that the sources upon which he relied could not establish any criteria applicable in 1999, given that the literature he relied on for such a rule post-dated 1999 by some years. Mr Barber indicated he relied on his experience as an adviser with four different dealer groups, as to industry practice in that regard at material times.
195 Mr Barber, in cross-examination (transcript 639), rejected the proposition that an MIS investment could, in effect, always be justified if it was providing taxation benefits. He said that the adviser must consider the investment in terms of the client's long term needs and objectives.
196 In the result, I do not accept that at material times there was an accepted 10% rule along the lines suggested by Mr Barber (whether for a balanced investor or a growth-orientated investor) that was generally applied in the financial planning industry by reasonably competent advisers. I do accept, however, having regard to Mr Pillai's and Mr Barber's evidence, that such advisers were or should have been aware at material times of the need for such illiquid assets as MISs to comprise an appropriate weighting or balance within an investment portfolio and to exercise judgement in this regard as to the spread of investments when making relevant recommendations.
197 The Fact Find: I now turn to each of the events or recommendations identified by Mr Dennis in his closing submissions as involving breach of duty. The first is the Fact Find. A Fact Find document, such as that used here, was designed to assist an adviser in gaining a reasonable basis to give advice in the pre-FSR period (and indeed in the post-FSR period). As noted above, it was regularly used in the financial planning industry at material times, although, as the respondents say, it was not required by statute. Both expert witnesses, Mr Barber, called by Mr Dennis, and Mr Pillai, called by the respondents, recognised the Fact Find document used by the respondents as conforming to the type regularly used by financial planners at material times.
198 Mr Dennis' complains, among other things, that the Fact Find obtained by Mr Takla failed to articulate his household expenses adequately and also failed adequately to record his goals and objectives. Consequently, it is said the respondents never had a reasonable basis on which to advise either early on in the relationship, or later.
199 As observed above, a properly completed Fact Find might be very useful to an adviser. By contrast, a Fact Find that seemed obviously deficient, for instance because it was not completed or was only partially completed, and so lacked key information, may well not permit an adviser to give considered advice if the Fact Find information was all they had to rely on. The obligation of an adviser to enquire further and make further investigations may then arise in order to give content to the statutory, contractual or tortious duty in effect to have a reasonable basis for a recommendation made.
200 In this regard, at material times in 1999 during the pre-FSR period when the Fact Find was completed, s 851(1) of the Corporations Law provided that a securities adviser (such as Mr Takla) would contravene the section when making a securities recommendation to a person who may reasonably be expected to rely on it (such as Mr Dennis) and "does not have a reasonable basis for making the recommendation to the person". Subsection (2) provided that the adviser does not have a reasonable basis unless the recommendation is appropriate having regard to the information the adviser has about the person's investment objectives, financial situation and particular needs and has given consideration to "and conducted such investigation of, the subject matter of the recommendation as is reasonable in all the circumstances". The recommendation was also required to be based on that consideration and investigation.
201 In my view, at material times in the pre-FSR period, the duty to exercise care and skill in a case such as the present was synonymous, at least, with the s 851 requirement.
202 The Fact Find that was largely filled in by Mr Dennis as of 30 March 1999 and completed by Mr Takla in some areas either then or later, occurred in circumstances where Mr Dennis and his then wife had attended upon Mr Takla for the purpose of initiating the provision of financial planning advice. To that point Mr Dennis, who was then 45 years of age, felt that he had not made sufficient financial provision for the future. He had previously been married and had two children from his earlier marriage. He had only relatively recently been married again to his then wife. He had a well paid position as an engineer in a large resources company, and had previously been employed by another. He had employer-funded superannuation and a relatively small share portfolio. He had an interest in gliding and owned a glider which needed repairs estimated in the sum of $8,500. Most importantly, upon seeing Mr Takla, Mr Dennis and his then wife conveyed they were anxious to cease renting and to purchase a home in their joint names, each contributing equally to the purchase price and loan repayments. All of this was disclosed in the Fact Find and was, I infer from the evidence of Mr Dennis and Mr Takla and the terms of the initial plan prepared later the subject of discussion at the initial consultation.
203 Mr Dennis notes that the Fact Find asked for responses as to goals other than those for the immediate future, but they were not completed. He says Mr Barber in his evidence considered that preparation of a plan without a clearer statement of goals was flawed and that a reasonable adviser would have made inquiries to ascertain the client's goals to give definition to the intended outcomes in the long term.
204 He also says the Fact Find sought information on expenses including household expenses that on its face the Fact Find was not completed. Mr Dennis says that, in evidence, Mr Takla suggested it was not necessary for him to inquire into those expenses and he refused to acknowledge the effect of personal expenses on Mr Dennis' ability to finance investments. Mr Dennis relies on Mr Barber's evidence that the failure to get sufficient information on personal expenses resulted in the preparation of a plan that was flawed.
205 Mr Dennis also identifies that part of the Fact Find sought answers to questions about capacity for financial risk taking. He says Mr Takla agreed that this part of the form was completed by him in the light of discussions he had with Mr Dennis and that the responses were based on responses given during discussion.
206 Mr Dennis says that that information, together with the answers to questions about investment preferences that were completed by Mr Takla, were dealt with at a very high level without regard to any specific investment - thereby suggesting another flaw in the information gathering process.
207 Finally, Mr Dennis complains the Fact Find was signed by Mr Dennis acknowledging the recommendations were to be based on information supplied and not, as could have been done, with a form of words that indicated that the advice to be provided would be limited, and without undertaking an investigation of the client's circumstances.
208 It is accepted by Mr Dennis, however, that Mr Takla did have available to him at and after the initial consultation a Fact Find completed by Mr Dennis' then wife, who was present at the initial consultation, and which included household expenses; and that there was a discussion and notes were made on an electronic whiteboard and were later printed and kept on Mr Takla's client file.
209 Mr Dennis submits, however, that the printout of the whiteboard notes, consistent with a number of other such whiteboard notes from later meetings, discloses high level explanations of the way dividends and tax returns from investments could be directed to pay mortgage obligations and do not assist the respondents in showing that they gathered sufficient and adequate information to provide the initial plan and subsequent recommendations.
210 In my view, Mr Dennis' goals and objectives and the financial situation particular to his needs were reasonably conveyed by the Fact Find form. As noted above, I infer from the evidence of Mr Dennis and Mr Takla that the objectives of Mr Dennis were also discussed at the initial consultation and not confined to what appears in the Fact Find or on the whiteboard notes of that first meeting.
211 There is nothing in the evidence or the challenges to the Fact Find or information gathered by Mr Takla at the initial consultation to suggest that he did not have a reasonable basis on which to give advice and to make recommendations of appropriate products to meet the goals or objectives expressed by Mr Dennis in the Fact Find and at the consultation.
212 The immediate goal stated in the Fact Find was to "purchase home 250-300k" and "repair glider $8,500". As discussed below, the purchase of the home was his immediate objective and was directly addressed in the initial plan sent to Mr Dennis under cover of Chambers' letter, dated 2 June 1999.
213 I have no doubt that Chambers, through Mr Takla, understood exactly what Mr Dennis' immediate, and mid-term and longer term objectives were following the initial consultation, even if the Fact Find form lacked some responses or detailed responses to some questions in that regard. I infer subsequent discussion at the first meeting supplied that information, and when Mr Takla completed those parts of the Fact Find he did so on his understanding of such information so conveyed. They were, as discussed further below, to make appropriate investments, not necessarily in superannuation funds, to provide for his later retirement.
214 In my view, properly understood, nothing in the evidence of the expert witnesses should lead to a finding that the deficiencies in the Fact Find complained of by Mr Dennis meant that the respondents lacked a reasonable basis for advancing the initial plan. The experts noted that the assessment in the Fact Find of Mr Dennis as a "Balanced investor" at that point, when one has regard to the risk assessments made and particularly the strategy recommended in the later initial plan, was not appropriate. They considered he should have been assessed as a growth-orientated investor from the start. I accept their opinion.
215 The experts did not criticise the fact that Mr Takla completed certain parts of the Fact Find. Their evidence suggests Mr Takla did what was expected of an adviser, namely, he assessed the investor type and recorded his assessment. I accept their opinion in this regard.
216 The experts agreed that Mr Dennis' retirement needs in relation to income were not set out in any way, however they noted the objective of retirement wealth to supplement any superannuation was plainly referred to. So too was the immediate goal of purchasing a home and repairing a glider. I accept this was so.
217 I do not consider the failure to state retirement needs in a formal way is material in the circumstances, as Mr Takla, in my view, had a realistic understanding of what Mr Dennis was wanting to achieve, by reference to his current means and assets, as disclosed in the subsequent initial plan. The experts did not seriously suggest otherwise.
218 As to the attack made by Mr Dennis on the failure of Mr Takla to quiz him about personal expenses in relation to which he supplied information in the Fact Find form, I find that alleged failure lacks substance. I consider that, taken with the information he obtained from Mrs Dennis, sufficient information was obtained about household expenses, that Mr Takla was entitled to assume that what information he was given was broadly accurate and nothing of significance was not disclosed and that, in the circumstances, no obligation arose to investigate the topic of his expenses any further.
219 I do not doubt that some advisers in 1999 may well have insisted on the provision of a more detailed Fact Find response than Mr Dennis gave in this case, but I do not consider that in the circumstances there was any statutory obligation or contractual or common law duty that required Mr Takla on behalf of the Chambers to make any more inquiries or investigations than he did through the medium of the Fact Find and the discussion he had with Mr Dennis and his then wife at the initial consultation about goals and objectives. He did enough, in my view, to have a reasonable basis to proceed to advise Mr Dennis in this early part of the relationship.
220 In the result, I do not consider Mr Dennis has shown there was anything in the process of obtaining initial information from him that should result in a finding that, from the outset, the respondents were in breach of their duty to have a reasonable basis to advise or to exercise due care and skill in the acquisition of information necessary for the provision of subsequent financial planning advice.
221 This part of Mr Dennis' claim fails.
222 The initial plan: The initial plan has already been touched on. It addressed the immediate goal of Mr Dennis to purchase a home jointly with his then wife, rather than rent. Chambers' covering letter of advice of 2 June 1999, with which the initial plan was enclosed, stated that the program was designed "to achieve early repayment of your home loan and embark upon a Wealth Creation program". I consider it reasonable to infer from that, and from the objectives stated in the Fact Find and what was then explained in more detail in the initial plan (which in fact was described as a "Mortgage Escape & Wealth Creation Program"), that Mr Takla was in no doubt about Mr Dennis' immediate, as well as mid- and longer term investment objectives. All this was made express in the first paragraph of the covering letter: namely, that, based upon information within the financial plan, "we estimate your new borrowings as a home loan can be fully repaid in a shorter period of time and your Wealth Creation Program continued as per the schedule contained in this report" (emphasis in original).
223 Also, the covering letter made clear, in accordance with the more detailed advice set out in the initial plan (and consistent with what was said at the initial consultation about how wealth creation might occur) that Chambers had arranged for Macquarie Bank Limited to provide recommendations in relation to the Macquarie "Geared Equities Investment" (or GEI). Chambers made it clear in the covering letter, however, that those recommendations from Macquarie were provided on the basis that Chambers "has not made any direct share recommendations" (as in original). That statement, in bold type, stood out from other text in the letter.
224 The covering letter also made it clear that Chambers' aim was to provide "professional well founded advice based not only on the financial parameters given but also taking into account your stated Risk/Return profile". The "client profile" provided in the initial plan identified Mr Dennis as a "Balanced" investor type, as did the Fact Find, meaning that he was seeking moderate growth on the capital invested, moderate income stream and moderate level of capital volatility. This was all based on the revealed attitude to investment risk and the client's concerns in the areas of inflation, taxation, safety, liquidity, current income, ease of management and estate planning.
225 In their evidence, as noted above, the expert witnesses, both financial planners, questioned the accuracy of the investor type, given their shared view that the proposed strategy in the plan was in fact for a growth-orientated investor, which indeed they considered Mr Dennis to be from the outset and I accept, for the purpose of this proceeding, he was.
226 Mr Dennis' objectives were stated in the initial plan as follows:
(1) To achieve an accelerated repayment of your home mortgage, rationalise borrowing and to build a tax effective wealth creation program at or about net cash commitments of $800 per month.
(2) To commence a Direct Share Investment Portfolio via Macquarie Bank Limited.
(3) To establish a comprehensive personal financial plan for your immediate and longer term future.
(4) To create a cash reserve for emergencies.
(5) To create some taxation relief during the current and future financial years.
(6) To accumulate wealth to supplement any superannuation entitlements on retirement.
227 While, on the one hand, Mr Dennis complains of a failure to ascertain specified goals in the Fact Find (which I do not accept, as found above), on the other hand he notes that, in the initial plan, these goals and objectives were set out and he seeks to rely on them in the proceeding on the basis they controlled the advice to be given by Chambers at every stage, and were effectively ignored.
228 In his view these goals and objectives were a "comprehensive personal financial plan", including the "repayment" of loans and to "rationalise" borrowings, "accumulate wealth", and "supplement superannuation" for retirement. Mr Dennis says the assessment of the initial plan, and subsequent plans, against those goals lies at the heart of his case.
229 He also says the initial plan identified its major advantage as being its "complete flexibility", which was consistent with his stated goals and with good risk management practice.
230 The stated objectives, it should be said, are stated at a certain level of generality. In this regard, there is, it should also be said, a danger in reading the objectives too narrowly. Take, for example, the objectives in (3) and (6) mentioning a comprehensive financial plan and superannuation. The objective in (3) is "to establish" a comprehensive financial plan - which is not the same thing as saying the initial plan constituted such a plan. Objective (6) is not simply "to supplement superannuation", as Mr Dennis abbreviates it in many of his submissions, but rather is "to accumulate wealth to supplement any superannuation entitlements on retirement" (emphasis added). "Wealth creation" is the primary objective by way of supplementing any superannuation Mr Dennis has on retirement. This is important, as I do not accept a suggestion made on Mr Dennis' behalf that the initial plan - and subsequent recommendations - were necessarily faulty because they did focus on or take greater account of possible superannuation investments. The objectives did not, in my view, exclude such investments but did not emphasise them as a primary means of wealth creation. To the extent that Mr Barber's evidence suggests that more attention could have been given to investment in superannuation funds, I do not consider his evidence necessarily invalidates the investment recommendations made. Rather, the challenged recommendations, particularly those relating to MISs, must be considered individually as to their reasonable basis.
231 Risk management was addressed in the initial plan and it was stated that an integral part of financial plans is to protect the principal source of income against sickness and accident to 75% of usual income. Adequate comprehensive insurance cover was also recommended. Private health cover was recommended, along with current wills and enduring powers of attorney.
232 The strategy recommended in the initial plan was that through a suitable lender Chambers would arrange a line of credit in Mr Dennis' name, secured by a mortgage against his new property which would see the "new position" as follows:
Property value $125,000
Line of credit $100,000
Home loan - new balance (No 1 account) $85,000
Balance available $15,000
New Investment Loan (No 2 account) $10,000
Reserve $5,000
233 The strategy was that the No 2 account (or buffer account) would have fees and charges built into the balance as shown above and in later reports.
234 The reserve amount would serve to cover contingencies.
235 It was further stated that it was essential that tax savings generated by the plan be directed back into the system to maximise benefits, with surplus credits applied in reduction of the housing loan content of the line of credit.
236 The initial plan further stated that the packaging of loans and investments in this way, through the use of modern loan facilities available, enables Chambers to concentrate loan repayments, taxation savings and additional repayments from time to time to reducing the home loan content. It also said that as the home loan section is reduced, funds may be redirected via the No 2 account loan facility, redrawn and added to an investment portfolio created.
237 Ultimately, the wealth creation stage was explained in the initial plan as follows: "Once the home loan component is fully repaid the plan enables you to continue as a purely negatively geared investment arrangement to build up savings for later retirement years" (emphasis added). At that time, it was stated, it may also be necessary to actually increase borrowing to maximise taxation efficiencies. However:
This decision must be left for later reviews and constructed around your then applicable objectives and needs.
238 It should be noted here that later reviews to check on objectives and needs from time to time was explicitly flagged, such a practice according with that of a reasonably competent financial planner, as both experts agreed. As the experts explained in their evidence, during the concurrent evidence session, objectives can develop, as may needs and so too might the tolerance of a client to risk and so the investor type assessment of the client.
239 It was then stated:
The plan's major advantage is its complete flexibility. (Emphasis in original.)
240 This having been stated, the initial plan then made it clear that loans were to be arranged on an interest only repayment basis and repayment volunteered would ensure capital reduction occurs annually.
241 The calculation was made that, at an interest of 7.5% per annum, $9,600 per annum would service borrowings of $128,000, which was stated to be more than enough to cover the facilities proposed after allowing for taxation savings.
242 Thus, it was stated that borrowing will approximate:
Line of credit - No 1 account $85,000
- No 2 account $10,000
Macquarie $200,000
Total $295,000
243 It was stated that income generated by the investment program, even at a conservative rate of 3.5% per annum, would be approximately $578 per month and that that income, with tax savings, would be used to cover the interest costs of the geared investment loan (with Macquarie Bank).
244 The initial plan further explained the strategy:
The new investment and geared loan facility will operate as a self contained unit within the program. In the initial years loan interest may be greater than investment income produced and this may necessitate drawing of a small amount of invested capital to cover. However early in the program, as surplus tax savings etc are added to investment capital this anomaly will be reversed and surplus investment income produced will be added to the investment portfolio.
245 A summary of the plan indicated a continuation of payments at $800 per month which, it was stated, would achieve the following improvements in Mr Dennis' financial position:
Unwinding at the end of year 6. Debt owing under home loan structure $55,194
Value of investments - $305,763
Less line of credit debts - $295,000
$10,763
Improvement in position $65,957
246 It was indicated that a continuation of the wealth creation program could achieve benefits, culminating at age 65 in the sum of $848,384.
247 As it transpires, the immediate strategy under the initial plan of obtaining a home loan and purchasing a home and investing in a Macquarie GEI did not occur immediately. Rather, in June 1999, soon after he received the initial plan, Mr Dennis was invited by the respondents to attend a client seminar in relation to what became his first investment - Forestry Hardwood Project No 2 (or AGL timber project 2 1999), a MIS. This is the first investment in time in respect of which Mr Dennis claims he has suffered loss and damage as set out in the above loss table.
248 Before turning to that first MIS investment, however, Mr Dennis complains that the initial plan, in furtherance of the information provided in the Fact Find and at the initial consultation, recommended a strategy without having a reasonable basis.
249 Mr Dennis acknowledges that the expert witnesses agree that more accurate assessment of Mr Dennis' profile from the Fact Find and especially the initial plan, was as a growth investor rather than as a balanced investor, and they proceeded to assess the plan as expert witnesses on that basis. They, and it seems Mr Dennis in this proceeding, accepts that he was at material times to be more properly described as a growth-orientated investor. Mr Dennis notes, however, that the experts agree that there was a lack of documentation in the initial plan by way of specification of the basis for recommending a growth strategy.
250 It should be noted, however, that there was no statutory requirement at material times to provide a written account of the process by which an adviser concluded that he or she should make a particular recommendation, even if doing so accorded with best practice, as the experts said it would. The only requirement was that they have a reasonable basis when so recommending.
251 The experts also readily agreed, as indeed was the case, that in the post-FSR period record keeping requirements, including for advice given, changed and indeed were then required and more demanding than before. Formal SOAs and SOAAs were then required by statute.
252 Even so, as both experts explained, if "time critical" advice were required, even in in the post-FSR period, advice could initially be given orally and then be confirmed later in a letter of advice or an SOA or SOAA, as the case may be.
253 Mr Dennis says that the initial plan identified possible benefits of the plan, that all money was to be invested in Australia shares and projections on the value of the shares assuming certain growth rates. He says the projections selected a single average income rate and an average capital growth rate. He says that by selecting a single growth rate, Mr Takla agreed in his evidence that the projections only portrayed growth and did not show a range of potential outcomes. Mr Dennis says having selected one growth rate it was not possible to ascertain from the initial plan the effect that less than average growth would have on the initial plan, projected outcomes and consequently the effect on his overall goals.
254 He says that while the initial plan acknowledged that a difficult or adverse economic environment can cause income and capital growth yields to diminish, resulting in lower returns, or in some cases loss of capital, the absence of figures which took into account adverse circumstances meant that the initial plan did not assess the effect that would have on Mr Dennis' stated objectives. Thus, the respondents had no reasonable basis for concluding that the investments would achieve the stated objectives.
255 He also complains that the initial plan provided some calculations based on some assumptions, for example, a comparison of debt proposed with a proposal simply to borrow money to purchase a home.
256 Mr Dennis submits the comparisons show the possibility of paying down the home within four years, but at the same time not paying the loan for the shares at all so that the loan for the shares would remain well after retirement age. The projected value columns assumed a constant growth rate and did not assess the effect of a variable return on the shares or what impact that variable return would have on his debt position and goals.
257 He says of the strategy summary provided that the cashflow analysis compared anticipated income and expenses by Mr Dennis if he did not follow the plan, against what they would be if he did follow the plan. The cashflow projected steadily increasing income and steadily increasing expenses, but a fixed repayment of the proposed home loan. By comparison, if he followed the plan the projections showed steadily increasing income and expenses (other than the bank debt) but the income was supplemented by dividends received from investment in shares. Mr Dennis says Mr Takla agreed in cross-examination that the second cashflow under the plan did not include the cost of borrowed funds to buy the shares that would produce the dividends. He says that without assessing the returns from dividends against the cost of borrowed funds, the initial plan did not provide a rationale explaining the recommendations in light of the circumstances of Mr Dennis, his goals and objectives.
258 He submits the failure of the cashflow projections to allow for the possibility of adverse events means there was no explanation of how Mr Dennis' position would be affected by those events and he was not advised of those risks and he was in no position to consider them.
259 Mr Dennis says that, save to show how a home loan would be paid out if he did not adopt the initial plan, the cashflow projections did not address how the loan to purchase the investment would be repaid. Nor did it address how reasonably expected variations in returns would impact on his goals of repayment, rationalising borrowings, accumulating wealth, supplementing superannuation for retirement or being guided by a comprehensive personal financial plan.
260 Mr Dennis says the initial plan did not address retirement planning or strategies to build retirement income, something a reasonable financial planner would have addressed.
261 In my view, as in the case of the completion of the Fact Find discussed above, I have little doubt that other financial planners in 1999 may well have prepared and presented to a client an initial wealth creation program that provided more detail or analysis than that provided in the initial plan presented to Mr Dennis. That is not the test, however, as to whether or not the initial plan in this case was adequate and as to whether or not there was a reasonable basis for the recommended strategy presented. In my view, as noted above, Mr Takla was possessed of sufficient and adequate information as to the financial circumstances and goals and objectives of Mr Dennis to present the recommended strategy. I also consider the strategy proposed was appropriate to a growth investor such as Mr Dennis at that time. While the strategy selected, and the explanations provided as to how it might work out, could perhaps have addressed more scenarios than they did, does not, in my view, suggest a breach of the duty to advise with care.
262 So far as the Macquarie GEI proposal was concerned, while Mr Barber expressed the view that if one were recommending a balanced portfolio one would not only have Australian shares and international shares in it, but also have cash, fixed interest and bonds, that form of investment nonetheless had a capital protection feature to it, there is nothing in the recommendation to invest in the GEI that suggests it was not an appropriate product for Mr Dennis at that time. Mr Pillai did not suggest otherwise.
263 While there was discussion by the experts as to the split loan strategy in relation to the financing and repayment of the loan for the home purchase, the evidence of the experts concerning reducing the non-deductible debt as efficiently as possible and therefore paying out the loan, and then rechanneling those funds into other investments, was considered an acceptable strategy in the circumstances for a growth investor.
264 As to whether or not there was some primary deficiency in the growth rates represented in the strategies proposed, the evidence discloses, as Mr Pillai observed, that there is always risk in investing in equities. I do not consider it appropriate to accept the effective submission made on behalf of Mr Dennis, that he needed to be told, chapter and verse, that investing in shares might result in a capital loss. It may be taken from all the information he did receive and the fact that he was the holder of a share portfolio at material times, that he was aware that there may be a variation in the value of such shares and that growth was not guaranteed. The indications as to potential growth provided in the strategy summary and other parts of the initial plan were, as Mr Pillai said, merely indications of what might be achieved, it reasonably being understood that growth was not inevitable. The recommendation in relation to GEI No 1 is discussed further below. For the reasons given now and later, I consider there was a reasonable basis for it in the circumstances.
265 In the result, the complaints made about the initial plan in substance are about how it could have been more detailed than it was. The strategy proposed was, however, reasonable to achieve the broadly stated objectives of Mr Dennis as a growth-orientated investor. Mr Dennis has not shown that the initial plan lacked a reasonable basis or that, in preparing it, the respondents breached their duties to him.
266 This part of Mr Dennis' claim fails.
267 AGL timber project 2 1999: The initial plan did not include a recommendation to invest in an MIS, which was in fact the first type of investment Mr Dennis made in June 1999 under Chambers' advice. As noted above, it is the investment in this and subsequent MISs that is central to Mr Dennis' claims.
268 The prospectus for AGL timber project 2 1999 was issued on 18 June 1999. I accept it was typical for agribusiness schemes of its type at the time. In this case it provided that each investor would become a grower, responsible commercially for carrying on a business of tree farming. Under the scheme each investor would pay $5,000 for each woodlot of one hectare and agree to enter a licence to carry on the business of tree farming on that lot, subject to a management agreement that required the care and development of woodlots to be done by the project manager. The project manager would pool the product with like product of all the other woodlots at the conclusion of the project. The product would be sold and after harvest and other fees the process would be divided amongst the investors in proportion to the number of their woodlots compared with the total. In addition to initial fees there were annual management fees and a fee to the manager at the end, calculated on the value of the harvest. The cost of woodlots would be financed; interest would be payable on the finance over the life of the loan. There would be no return in respect of the woodlots until the trees were at sufficient maturity to be harvested. The project was an 8-12 year term project and was subject to risks generally associated with commercial plantation forestry. The licence limited the use of the land to the timber specified in the project and compelled the use of a project manager and the pooling of the harvest. Investment in the project entitled the investor to an immediate tax deduction for the whole of the investment made.
269 The prospectus made it plain that investors could not withdraw from the project or require redemption of the woodlots from the project manager. There was no market for the sale of interest in the project. If the project failed or the trees grew but the project manager was unable to harvest them or complete the project, there was no practical means for an individual investor to complete the project or sell the harvest separately from other investors or outside a co-operative scheme. Having acquired the woodlot the investor was committed to hold the investment to completion and in the meantime to meet the interim fees and costs.
270 General agricultural risks for tree farming were set out in the prospectus. Mr Dennis submits, however, the prospectus did not set out the risks relevant to him, for his goals and objectives while holding and being unable to sell an investment in the project. He says the inability to sell did not meet the goals of "repayment" of loans or "rationalise" borrowings or supplement superannuation in the period prior to completion of the project, as stated in the initial plan.
271 On 24 June 1999, Mr Dennis signed an application to participate as an investor in 20 woodlots. He wrote cheques totalling $10,500 relating to the scheme and signed an acknowledgement to Chambers that he was aware it would receive 10% of the total investments by way of fees. On 28 June 1999, a promissory note issued relating to the finance for Mr Dennis to participate in the scheme and on 30 June 1999, the investment was confirmed. Around 5 July 1999, he made an application to NAB for finance to acquire the interest in the project.
272 On 27 July 1999, Mr Dennis sent an email to Mr Takla asking questions about the initial plan. He noted the borrowing mentioned did not include borrowing contemplated by the investment in the MIS in which he had recently invested. No written response to that email appears to have been made.
273 The next correspondence was of 8 September 1999 when Mr Takla for Chambers wrote to Mr Dennis, noting the absence of written advice in connection with AGL timber project 2 1999. He stated that the "advice to invest into this project was only in regard to providing an efficient investment that provided good prospects of a future return. The tax deductibility of the program was assured…".
274 In essence, Mr Dennis now suggests he did not receive any relevant advice about the appropriateness of the first MIS investment to his circumstances and objectives. He says the September letter did not provide any further analysis of any change in circumstance that made investment in a MIS consistent with his circumstances, goals and objectives as expressed in the Fact Find or the initial plan. Mr Dennis relies on the opinion expressed by Mr Barber that the project recommendation was at odds with the flexible investment proposed in the initial plan and no rationale was given as to why it was suitable for the goals and objectives stated in the plan.
275 Mr Barber's view of the first MIS was that, as of 8 September 1999 when Chambers sent the letter confirming that investment, the investment represented 33% of the recommended portfolio. Indeed, he added, because the Macquarie GEI No 1 was not actually taken out until December 1999, the first MIS investment actually represented 100% of the portfolio at the outset.
276 But even on the basis of an allocation of 33%, Mr Barber considered the recommendation was outside generally accepted industry practice and would not have been recommended by a reasonably competent financial adviser at that material time in June 1999.
277 Mr Barber considered the AGL timber project 2 1999 investment was a long-term commitment to an agricultural product and converted Mr Dennis from being an investor, effectively to becoming a partial primary agricultural producer with the ability to claim tax deductions. He considered that Mr Takla should have put the recommended product into a new statement of advice explaining the reasons why he thought it was appropriate and what were the features and the long term benefits to Mr Dennis. He considered that while there was an upfront taxation deduction, there were long term legacy issues.
278 Mr Pillai noted that he was relying on the documents he had seen and was not privy to any discussions that may have passed between the parties. He considered it looked like an investment made to facilitate the purchase of the home, with a benefit of returns in the long term. He noted that the Fact Find focussed on the desire to purchase a home, which was in fact later purchased in September 1999.
279 Mr Barber, however, was reluctant to accept that the first MIS investment was connected to the strategy to purchase the home. He observed (transcript 510) that the plan incorporated a property being acquired and there would be a buffer of some description and a new investment loan. He considered the introduction of the MIS, however, brought with it a "new paradigm" and, whilst it brought with it the acceleration of the cashflow, there were risks associated with it. If the project failed, Mr Dennis would be responsible not only for the debt that he acquired under the strategy but also the debt he incurred under the MIS project.
280 Mr Pillai agreed that the placement was not captured as part of the strategy but noted that what was done was actually done prior to implementation of the strategy articulated in the plan to purchase a home. Mr Pillai considered that a financial planner at that time could hypothetically discuss a situation and effectually, if the need was there to implement a strategy, then place the product and follow it up with written advice, saying that he had done so based on the circumstances. Mr Pillai said there were several instances where, if there is "time critical advice", this might be done. He added that once the FSR period arrived, from 2002, then an SOA was a fundamental document and any SOAA could also be provided; but it was still possible to give earlier verbal advice in appropriate circumstances.
281 Mr Barber considered what Mr Pillai said in this regard to be correct, but added that in the pre-FSR period the rules of professional conduct of the Financial Planning Association required that any verbal recommendations be documented in writing and that these rules for professional conduct were in force at material times in 1999.
282 In my view, taking account of the overall assessment made by the experts and the evidence of Mr Dennis and Mr Takla, the advice given in relation to investment in AGL timber project 2 1999 did not constitute a breach of the respondents' duty to have a reasonable basis or to exercise due care and skill when providing financial planning advice. While the recommendation to go into that first MIS was made orally in conjunction with the provision of the prospectus and related documents, and only confirmed as a matter of fact by the September 1999 letter, the evidence, fairly weighed, confirms that the investment was placed not only as a tax efficient investment with longer term prospects, but also to create cashflow to assist with the provision of a deposit for the purchase of a home as proposed in the initial plan.
283 Mr Takla said he judged the investment to be suitable for Mr Dennis due to the advantages it offered investors compared to other agri-business product issuers in the market at the time which included a much cheaper unit cost per hectare, access to better land and the cost of insurance was to be paid by the product issuer. Also, Mr Dennis would receive any harvest proceeds from the investment while in his mid-50s and still actively working. Finally, the initial 100% tax deduction would provide him with the much needed deposit to purchase his home and hence achieve his major objective.
284 Mr Takla says he did not provide Mr Dennis with a letter of advice concerning the investment. Rather, Mr Dennis was provided with all the information and documents and he decided to proceed.
285 Mr Dennis accepts that, after attending a seminar given by Chambers about the AGL timber project 2 1999, he in fact completed the necessary documents to apply for and obtain financing for the investment.
286 To the extent that Mr Dennis suggested in his evidence in chief that he did not have a proper understanding of the financial commitment he had made or the nature of the investment that he was making, I am not satisfied that that was the case. Mr Dennis plainly closely read the prospectus. In the event, on 24 June 1999 he signed a client authority and acknowledgement in which he authorised Mr Takla as an authorised representative of Chambers to implement an investment of $100,000 in the project. He acknowledged that he had been advised of the brokerage to be received by Chambers of 10%. He also made an express acknowledgement in the following terms:
I acknowledge that I have read the Brief Summary and Financial Overview of the Project and understand that the project is speculative in nature and is exposed to risks as outlined in the Summary and the prospectus.
287 I do not accept that Mr Dennis was not aware of the speculative nature of the project and indeed the lack of capital protection in the project. In cross-examination Mr Dennis in fact indicated (transcript 95(40)) that in the early years he took prospectuses home and studied them and asked lots of questions. He said that over time it became "pretty clear to me that my questions were naÏve and George (Mr Takla) was right and I was wrong. So I desisted".
288 Mr Dennis confirmed that he read the material relating to MISs, but at some point stopped reading them. While he could not recall the exact date he stopped, he suggested it was in the early 2000s. He explained that at that later point Mr Takla would have the prospectus on his desk, he would explain it to Mr Dennis and then he would go to the page where the applications were and he (Mr Dennis) would then proceed to sign them.
289 Mr Dennis said that he had the opportunity to read these documents but on these later occasions his experience was that he got a better understanding from discussing the documents with Mr Takla than by reading them himself and that he relied on Mr Takla's advice about what was in the documents.
290 All of this goes to confirm that at the time of the first MIS, Mr Dennis in fact read the prospectus and all the accompanying papers and understood the nature of the investment. The fact that in July 1999 Mr Dennis also sent an email to Mr Takla querying a range of things in the initial plan confirms that he was prepared to read materials given to him and did so and understood what he read.
291 I accept that Mr Dennis received all the relevant information concerning the investment including the prospectus before he entered into the investment and appreciated, from his discussions with Mr Takla, it would assist the objective in the initial plan of purchasing a home jointly with his then wife, as well as representing a worthwhile investment in the longer term in its own right. In that regard, he understood the advice was designed to advance the specific house purchase objective and the general "growth" objectives of the initial plan.
292 In those circumstances, even though the investment in the MIS product comprised either 100% or 33% of the investment portfolio respectively at or soon after the time it was placed (on Mr Barber's calculations), I do not consider that in recommending the AGL timber project 2 1999 investment the respondents did not have a reasonable basis or that he failed to exercise reasonable judgement by not considering Mr Dennis' current financial circumstances, income, ability to carry the associated expenses and cashflow capacity, or as to the soundness of the investment.
293 This part of Mr Dennis' claim fails.
294 GEI No 1: Mr Barber was of the view that the recommendation to invest $100,000 in the first MIS and to finance the investment 100% by borrowings, when viewed in conjunction with the recommendation in the initial plan to invest $200,000 in a Macquarie GEI, again using 100% finance, moved the recommended strategy from a growth-orientated one to an aggressive investment strategy. He said this because he considered the level of borrowings recommended for the investment were outside the debt limits recommended in the initial plan, being a total debt commitment of $295,000 comprised, as set out above, of $85,000 private debt (loan account 1), $10,000 (loan account 2), and the Macquarie GEI loan of $200,000.
295 Of course, the investment in AGL timber project 2 1999 actually occurred before the GEI No 1 investment was made. When it came to the establishment of GEI No 1, the purchase of the home jointly by Mr and Mrs Dennis was also in train. A question of the establishment of the split loan facility with NAB resulted in NAB advising that $800 would have to be dropped from one of the loans. Mr Dennis contacted Mr Takla to indicate that "he needed extra money to settle his property" and he asked if he could use some money from the buffer account that had been set up for business investment until he received his tax return. This enquiry was made as of 26 October 1999.
296 A number of observations might be made about the sequence of events. First, it confirms that Mr Dennis well understood the advice he had already received from Mr Takla that it was important to exercise discipline in relation to the operation of the buffer account and could not use it for discretionary expenditure or expenditure not immediately related to the financing of the other agreed investments. It was not anticipated, for example, that it would be needed to supplement the home purchase. Secondly, Mr Dennis understood the MIS investment would produce a sizeable tax refund.
297 In Mr Barber's view, the request from Mr Dennis to use the buffer account to allow settlement of the home to proceed would indicate to a reasonably competent financial adviser that Mr Dennis' disclosed expenses were not accurate. Indeed, Mr Barber considered that, although the cashflow forecasts Mr Takla had made anticipated receipt of a tax refund prior to settlement, in his view a more considered view of Mr Dennis' financial situation should have led a reasonably competent financial adviser to review the initial Fact Find cost of living estimates on the basis that they were probably understated in the initial plan. In these circumstances, Mr Barber considered that a reasonably competent financial adviser would have revisited the forecasts in the initial plan and the cost of living projections before implementing GEI No 1.
298 Against that consideration, it should be said, as Mr Barber acknowledges, and as Mr Dennis understood at the time, that the financial shortfall he was experiencing was intended to be alleviated by a tax refund due imminently.
299 In my view, taking into account the financial planning that had then been engaged in, the fact that a tax refund was expected and would alleviate cashflow issues, and that the amount to be drawn from the buffer account was relatively small, I do not consider that the circumstances were such that the reasonably competent planner necessarily needed to call Mr Dennis in to reconsider his cost of living expenses and either to suspend the recommendation for investment in the GEI or to recommend that there be no such investment made at that time.
300 On behalf of Mr Dennis, it was also contended (although not a submission pressed very far in closing, if at all) that this investment was not appropriate at all. As discussed above, I do not consider the evidence supports a finding to this effect.
301 Mr Takla explained in his evidence that he requested a cashflow analysis from Macquarie in order to allow him to consider how much a $200,000 investment in a GEI was likely to cost Mr Dennis to service, after dividends and tax. He said (exhibit 6([104]) that the cashflow analysis provided by Macquarie was attached to the advice which he subsequently provided to Mr Dennis, so that he could see what his out of pocket expenses on the investment were likely to be and whether they could afford it.
302 Mr Takla added that, having regard to the fact Mr Dennis' income was significantly higher than Mrs Dennis', he recommended a $200,000 investment in a Macquarie GEI. He said he also noted under the heading "Insurance planning" in the initial plan the importance of insurance.
303 He also said that in the initial plan he classified Mr Dennis as being a balanced investor although the plan was suitable for someone with a balanced risk profile, notwithstanding that an investment in shares is more usually considered appropriate with a risk profile of a "growth" investor. This is because the capital protection structure of the GEI makes the investment suitable for someone with a balanced or conservative risk profile.
304 When it was put to him that only one growth rate was provided to Mr Dennis as part of the recommendation, Mr Takla accepted the point and explained that the calculations made were based on the tables used at the time and that they were part of the computer software available to him.
305 In my view, while Mr Barber was critical of the recommendation to invest in GEI No 1 as set out above in relation to the initial plan, he recognised the GEI was a relatively conservative product in that it had the same sort of capital protection features he saw in a product he considered more appropriate, such as a PEL.
306 Indeed, it became clear during the concurrent evidence session at trial that Mr Barber did not seriously challenge the type of investments recommended in the initial plan and the strategy proposed. He may have preferred investment in a PEL to the Macquarie GEI, but in my view that was a matter of detail and more to do with the view he had that insufficient explanation was given in the initial plan as to the exposure to risk that an investor would have in a GEI.
307 As noted above in relation to the criticisms made of the initial plan, Mr Barber considered that the investments selected were probably appropriate for Mr Dennis' circumstances at the time. For him, it was the introduction of other investments later on that, in his view, changed the strategy recommended quite significantly.
308 To the extent it is put that Mr Takla and Chambers were negligent by not telling Mr Dennis that adverse circumstances could affect the value of equities and lead to a reduced profit compared with that indicated in the materials supplied with the initial plan, as noted above there were clear warnings in the initial plan that projected growth was not guaranteed. In my view, the evidence of Mr Pillai to the effect that the projections would reasonably be read as clear indications of what was possible, should be accepted.
309 The fact that Mr Dennis understood what was represented to him is made out in any event, by the fact that he was a little disbelieving of the growth rates indicated in the initial plan and took his own separate advice from an experienced stockbroker he knew.
310 The information provided in the product disclosure information provided to Mr Dennis, so far as GEI No 1 was concerned, also made the "no guarantee" point one would otherwise consider to be obvious and not require any particular explanation by the respondents.
311 I find the respondents did not lack a reasonable basis or breach their duty in relation to the recommendation of GEI No 1, including at the point the first MIS investment recommendation had been made and acted upon.
312 This part of Mr Dennis' claim fails.
313 Australian Blue Gum 2000: This is the second MIS investment made by Mr Dennis. Mr Dennis says the MIS scheme for this project was broadly consistent with that for AGL timber project 2 1999. He says that a "review of position" conducted by Mr Takla and him on 17 April 2000 broadly considered his income and expenses but did not consider either assets or the amounts of debt he had by then assumed, and did not consider his personal expenses, only expenses relating to investments. Mr Takla, nonetheless, considered he should be invited to the product seminar on 17 April. Mr Dennis then signed documents to enter into the investment in woodlots offered.
314 Mr Dennis says that a letter from Mr Takla of 19 April 2000 answered two questions which had arisen at the seminar, and invited further questions, but the letter did not say on what basis Mr Takla had recommended the investment.
315 Mr Dennis notes that he also signed a disclosure statement concerning a commission of 6% that Chambers would receive on the making of the investment.
316 The complaint made by Mr Dennis is that the MIS investment so made was not consistent with the goal of "flexibility" set out in the initial plan and in the absence of any income from the project before harvest it was not consistent with the goals of "repayment" of loans or the objective to "rationalise" borrowings.
317 Further, he says, there was no explanation on the impact of the goal to "accumulate wealth", or "supplement superannuation" for retirement. He says the recommendation was not consistent with the provision of a "comprehensive personal financial plan".
318 Mr Barber's opinion (exhibit 8 [104]) was that, as in the case of AGL timber project 2 1999, he (Mr Barber) was not shown any advice in relation to the investment to indicate how the recommendation was appropriate to the client's circumstances in accordance with s 851 or how the advice complemented the advice in the initial plan. Thus, he was of the view that the recommendation did not satisfy the requirement of having a reasonable basis.
319 Additionally, and in my view more significantly, Mr Barber considered that in recommending Mr Dennis invest a further $84,750 in another MIS project at this point, the allocation of capital in MIS projects came to represent 59% of his portfolio under Chambers' advice, an "extremely aggressive asset allocation" which he considered a reasonably competent financial adviser would not have advised.
320 In this regard, Mr Dennis relies on the opinion of Mr Barber, discussed above, that investments in MISs in a proportion that exceeded 5%-10% of the total portfolio of a balanced investor were not consistent with the advice of a reasonable financial adviser, given Mr Dennis' goals and objectives. As noted above, I do not accept there was such a rule at material times, but do accept that such an adviser was required to exercise judgement in relation to the spread or concentration of MIS products in the overall investment portfolio.
321 In relation to the proposition that Mr Dennis appeared to have read the relevant prospectus, the product disclosure information and signed the application form and applied for finance and whether this weighed in the assessment to be made of the appropriateness of the advice given, Mr Barber said that it still did not show why the recommendation was appropriate to Mr Dennis' circumstances. He said there may have been an argument that it was appropriate in the short term because it provided an up-front tax deduction, but that was only one consideration in the context of the strategy that had been developed by Mr Takla for Mr Dennis, not the implications for Mr Dennis should the project fail.
322 In their opening written submissions, the respondents say that in each instance the respondents outlined the nature of the investment recommended and why it was appropriate to achieve Mr Dennis' goals and objectives, the risks associated with the investment, the forecast returns (if appropriate), the associated fees, and the commissions which they would receive if the investments were implemented.
323 I accept on the evidence that, in the case of this second recommended MIS, as in the case of the first, Mr Dennis closely read the product disclosure information and was fully aware of the nature of the investment recommended to him. On Mr Dennis' own evidence, referred to earlier, he was in the practice of closely reading such information in the early years and only later relied on Mr Takla's exposition of the nature of the scheme to him. I infer he closely read the information supplied about this product.
324 I also accept that Mr Dennis was aware of the risks associated with this, as the first MIS investment, the forecast returns, the associated fees and commissions that the respondents would receive (directly or indirectly) as a result of the investment made.
325 The respondents' submission is that Mr Takla not only advised Mr Dennis of the nature of the investment recommended but also why it was appropriate to achieve his goals and objectives. In this regard, there was discussion about how the MIS investment would be tax efficient and a good longer term investment. The question is whether there are material facts upon which an inference to that effect can be drawn reasonably to the effect that Mr Takla exercised judgement in relation to the balance of MIS investments of an agribusiness nature in the growing portfolio if this investment were made.
326 Mr Takla sought to outline in his evidence how the advice relationship worked after placement of the very first investments. He said that the typical sequence of events was first a meeting to discuss Mr Dennis' financial position and for him to make recommendations about the investment. He then gave Mr Dennis a written advice and advised him to read it carefully. If Mr Dennis wished to proceed he signed the authority to proceed and the relevant associated documents.
327 He said that in some circumstances Mr Dennis signed application forms for entry into investments on the same day as meeting with him to discuss the advice. This was typically when there was some urgency in having the investment implemented, for example due to the need to submit an investment application before the end of the financial year or before it became fully subscribed.
328 He also said that, in the case of MIS investments, Mr Dennis was able to withdraw his application at any time up until 14 days after the investment was purchased.
329 Mr Takla gave additional evidence concerning NAB limit printouts. He said part of his ongoing service to clients included ensuring that they had enough liquidity to continue servicing their investments and to achieve this he asked the bank of a client to provide the limits and balances when he conducted annual or six monthly reviews of their position and investments under Chambers' advice. In Mr Dennis' case he asked NAB to provide him with that information.
330 Mr Takla added that he did not generally provide a copy of these reports to Mr Dennis as they only provided a summary of his NAB loan balances, something of which he should have been aware through receiving bank statements directly from NAB on a periodic basis.
331 He said, however, that he did discuss the information revealed from the NAB limit statements with Mr Dennis from time to time. He said the discussions with Mr Dennis typically centred around Mr Dennis' account management, the liquidity available in his buffer account and whether any of his loan facilities needed to be adjusted for any reason.
332 In relation to the Australian Blue Gum 2000 project, Mr Takla noted that Mr Dennis was invited to attend the seminar on 17 April 2000, and believes he did attend the seminar, although he did not have a specific recollection of him doing so. Mr Takla recalls making a whiteboard presentation at the seminar and confirmed he would have answered questions.
333 He made the point that the investment was offered by Norgard Clohessy (and was later managed by TimberCorp, following the collapse of Norgard Clohessy) and was similar in nature to the Australian Plantation project - the first MIS. He said that in addition to its relatively cheaper costs compared to other available products, it offered investors the opportunity to acquire options that could be converted into shares in the company at a later date for a cheap cost.
334 He added that Australian Blue Gums 2000's underlying investment was also in bluegum trees, however, as it was managed by a different operator he considered it would diversify Mr Dennis' investment within the industry sector.
335 Mr Takla added that he recalled that, at the same time, AGL (Australian Growth Limited), which was partly owned by the Chambers group, had a similar product in the market place, but he decided at the time "that the Australian Bluegum project was more suitable for Mr Dennis".
336 He said finance was available through Australian Agribusiness Finance which was part of the Norgard Clohessy Equity Group.
337 Mr Takla then says, that as a result of attending the seminar, Mr Dennis "decided to subscribe for 15 woodlots" in Australian Blue Gums, thereby implying Mr Dennis was not guided by a recommendation from Mr Takla. As to the latter proposition, there can be no doubt that Mr Dennis relied on Mr Takla's recommendation in making the investment, even if it be so, as I consider it was, that Mr Dennis was influenced by what he heard at the seminar and cast his own eye over the PDI materials. None of that, however, suggests that Mr Dennis thereby assumed the sole obligation to consider whether investing in the MIS product was appropriate for him.
338 Mr Takla says nothing specifically on the question of the concentration of MIS agribusiness investments that Mr Dennis would have as a result of investing in Australian Blue Gums 2000. He simply notes, as set out above, that he recalls that he decided at the time that the Australian Blue Gum 2000 project was "more suitable for Mr Dennis".
339 In cross-examination, however, Mr Takla said that investment in the second MIS was supposed to follow the pattern of the first MIS investment in that the tax refund expected of $35,000 was to have been paid in reduction of the home loan, but as it transpires, according to him, was not.
340 It should be added that, at the time of this recommendation, the Ardross home had been purchased (jointly with debt finance), the first MIS ($100,000) had been placed and GEI No 1 ($100,000) had also been made.
341 I infer from all the evidence that Mr Takla recommended the second MIS investment on the basis that it was tax efficient and a sound longer term investment, and that it continued to serve the early paydown of the home finance.
342 I also consider the evidence shows that Mr Takla took into account Mr Dennis' current financial circumstances, income, ability to carry the expenses associated with the MIS investment and cashflow, when making the recommendation.
343 In these circumstances, I do not consider Mr Dennis has shown Mr Takla's recommendation lacked a reasonable basis or that he failed to exercise reasonable judgement when making it.
344 I note in passing that no loss is claimed in respect of this investment in the above loss table.
345 This part of Mr Dennis' claim fails.
346 Australian Plantation Resources Limited: On 29 March 2000, Mr Dennis invested $10,000 in the acquisition of 25,000 shares in Australian Plantation Resources Limited. The investment was funded by a loan.
347 Mr Dennis relies on the opinion of Mr Barber to the effect that a recommendation to so invest was not consistent with the approach of a financial adviser who had properly addressed Mr Dennis' circumstances, goals and objectives.
348 Mr Barber noted in his expert report (exhibit 8 [106-111]) that he had not been provided with any advisory documentation supporting the investment and did not have any document disclosing to Mr Dennis the interest that Mr Takla had in the company.
349 Further, he had not seen any documents setting out why the recommendation was made.
350 Consequently, he was of the opinion that there was no reasonable basis for the advice to invest. Without evidence of analysis of the appropriateness of the investment to needs and objectives, Mr Barber expressed the view that no reasonably competent financial adviser would make the recommendation.
351 He also said that he had not seen any cashflow analysis as to what impact the loan would have on Mr Dennis' cashflow and so how the recommendation complemented the original investment strategy set out in the initial plan.
352 The respondents note that in his evidence Mr Dennis said he did not recall any conversations in which advice concerning the investment was provided by Mr Takla.
353 Mr Takla's evidence, however, included a print out of various slides in relation to the investment in Australian Plantation Resources Limited in conjunction with Chambers Investment Planners relating to a "year 2000 roll out".
354 Mr Takla identified the share application, a handwritten note from Mrs Dennis on the stationery of Mr and Mrs Dennis enclosing a cheque for $10,000 apparently signed by Mr Dennis. He also produced a disclosure statement signed by Mr Dennis, dated 8 May 2000, acknowledging the disclosure of Chambers' commission and a conflict of interest disclosure regarding the investment in the unlisted shares.
355 He also produced a document entitled "Investors declaration" signed by Mr Dennis.
356 I am not satisfied on the evidence that, in this case, just because there is an absence of documentation recording how, from the respondents' point of view, the investment in the shares related to the circumstances, goals and objectives of Mr Dennis, there was no reasonable basis for giving of the advice or that the recommendation to so invest was in breach of the relevant duty to exercise reasonable care.
357 Mr Dennis was fully aware of the nature of the investment, the inherent risks in buying shares and made the investor's declaration about it. The recommendation was made at a time when the objectives set out in the initial plan were still plainly operative. There is no reason to infer that at this point Mr Takla was not mindful of them or that the relatively small investment in equities did not serve the generally stated objectives in the initial plan.
358 Nor is there any reason to conclude Mr Takla did not continue to be fully cognisant of his client's current financial circumstances when making the recommendation to so invest.
359 In these circumstances, Mr Dennis has not shown the recommendation to invest in Australian Plantation Resources Limited shares as of 29 March 2000 lacked a reasonable basis or was in breach of the duties owed.
360 This part of Mr Dennis' claim fails.
361 AGL timber project 4 plan B 2001: The third MIS investment made by Mr Dennis on the recommendation of the respondents was in the financial year ending 30 June 2001.
362 As a result of the recommendation of the respondents in late May 2001, Mr Dennis applied to invest in AGL timber project 4 plan B 2001 (as it is referred to in the above loss table). The MIS was, in my view not dissimilar to AGL timber project 2 1999. The prospectus for it was issued on or about 14 December 2000.
363 On 26 May 2001, Mr Dennis provided the cheques to pay for the investment and his application was stamped 31 May 2001. The disclosure statement indicated that Chambers would receive a fee of 6% of the value of the investment.
364 On 14 December 2001, Mr Dennis met with Mr Takla who again recorded the elements of the discussion on his whiteboard, the notes of which were later printed out.
365 Mr Dennis makes a number of complaints about the recommendation made including that the finance application incorrectly ascribed the whole of the value of the Ardross home jointly owned by Mr Dennis and his then wife, as belonging to Mr Dennis. Mr Takla admitted this mistake, something that was repeated in a number of subsequent finance application forms and SOAs. In the event, I ascribe no great moment to this error in this instance. It is not relied upon to show a cause of loss claimed. It seems to be relied upon by Mr Dennis to suggest a lack of proper attention generally by Mr Takla in the provision of investment advice to Mr Dennis and, in that respect, it is of some relevance.
366 More significantly, Mr Dennis complains, based on Mr Barber's opinion, that:
the whiteboard notes, consistent with other printed whiteboard notes, contain no reference to the reasons for the investment or the suitability of the investments to Mr Dennis' circumstances;
the notes did address income and investment related expenses, but not in order to show how Mr Dennis' debts could be repaid or how his investments would supplement his superannuation for retirement;
the respondents did not provide Mr Dennis with a cashflow projection as a result of taking on this loan;
the advice did not warn him of the risks of the investment or the risks of him being unable to achieve his goals when taking out a loan to finance an investment that could not be sold until the end of the scheme;
the approach was not consistent with that of a reasonable financial planner and there was nothing that reasonably linked the recommended investment to his goals and objectives.
367 The complaints made about the AGL timber project 4 plan B 2001 are, in substance, the same as those set out above in relation to the Australian Blue Gums 2000 investment made in the preceding financial year.
368 Mr Takla was cross-examined at length concerning his reasonable basis for this recommendation and the accuracy of information in the finance application to fund the $20,000 investment in AGL timber project 4 Plan B 2001.
369 The same question arises, as considered above in relation to the first and second MIS, whether at this point the respondents in recommending this additional $22,000 MIS agribusiness investment, the weighting or balance of MIS of an agribusiness nature as a proportion of the investment portfolio as a whole was considered appropriate.
370 The facts are that, consistent with the usual practice of Mr Takla, Chambers wrote to Mr Dennis by letter dated 27 November 2000 regarding his annual review and requesting copies of information including recent income tax returns and the previous six months' bank statements.
371 Later, by letter dated 28 May 2001, Mr Dennis provided Mr Takla with Telstra share certificates, his 2000 group certificate, superannuation statement, shire rates for the Ardross home, a home loan statement and also cheques for Australian Growth Managers and Australian Growth Finance. The letter also confirmed that he had requested the sale of Woodside shares to realise approximately $20,000, which was to be used to pay down the further mortgage over the Ardross home.
372 All of this in my judgement serves to amplify the nature of the relationship and the degree of information that was requested and supplied and, I infer, considered by Mr Takla in the course of providing the relevant recommendations in that financial year (as indeed in other financial years) to Mr Dennis. It also emphasises the extent to which the goal in the initial plan, of purchasing and quickly paying down the loan on the home finance, was still being pursued.
373 On 9 June 2001, Chambers requested Mr Dennis, in relation to his six monthly review, to provide recent financial information referred to in the previous review letters.
374 While on behalf of Mr Dennis complaint is made that very detailed personal expenses and the like were not requested and considered by Mr Takla at these material times, I do not consider there was any particular reason why he should have made more inquiries than he did at the time of making the recommendation in respect of this third MIS.
375 The question remains, however, whether the concentration of MIS investments of an agribusiness nature in the portfolio was regarded by Mr Takla when making the recommendation to invest in this third MIS investment.
376 In my view, as in the case of the Australian Blue Gums 2000 MIS investment, it may reasonably be inferred from the evidence that Mr Takla exercised judgement and considered this third MIS investment would be tax efficient and worthwhile as a longer term investment, at a time when the short term house purchase and loan repayment objective of the initial plan was being pursued.
377 The evidence also shows, in my view, that Mr Takla did consider his client's current financial circumstances, his income, ability to carry the associated expenses and cashflow capacity.
378 In my view, in these circumstances, Mr Dennis has failed to show that Mr Takla did not have a reasonable basis for the recommendation to invest in this third MIS investment or failed to exercise reasonable judgement when doing so.
379 I again note in passing that, as in the case of the second MIS, no loss is claimed in respect of this investment in the above loss table.
380 This part of Mr Dennis' claim fails.
381 AGL timber project 4 plan C 2002: This fourth MIS investment of an agribusiness nature in the sum of $25,000 fully financed, was made by Mr Dennis in the financial year ending 30 June 2002.
382 Mr Dennis met with Mr Takla on 17 May 2002 and again a record of the meeting appears in a printout from the whiteboard. On the same day, Mr Dennis signed an application for lots in AGL timber project 4 plan C 2002 (as it is referred to in the above loss table) and provided a cheque in part payment for the investment and also signed a disclosure statement acknowledging Chambers would receive up to 13% of the investment value as its fee.
383 On the same day he also signed an application for finance to Australian Growth Managers Limited, which was prepared in part by Mr Takla and his employees.
384 Mr Dennis makes a number of complaints similar to those concerning the preceding MIS investments including:
the notes of the 17 May 2002 meeting contained no reference to the reasons for the investment or the suitability of the investment to his circumstances and did not address the need to retire debt or supplement superannuation;
there was an error in the value he had in the house jointly owned with his then wife in Ardross in the finance application; nor did the application record the debt on investments in other agribusiness MISs, although the value was noted;
that, on 31 May 2002, when Chambers wrote to Mr Dennis concerning the investment no mention was made of the basis of the recommendation to invest or the suitability of the investment to Mr Dennis' financial circumstances, goals and objectives.
385 I make the same findings in respect of the complaints about the error in the finance application as made above and do not in the circumstances consider it material.
386 In this case, Mr Takla received a range of information from Mr Dennis all relating to his financial position, including the print out from NAB dated 4 October 2001 showing his NAB limits.
387 On 30 November 2001, Chambers requested Mr Dennis to update financial information and invited him to meet Mr Takla for his six monthly review.
388 Mr Takla received from NAB a document showing NAB limits, which was dated 13 December 2001.
389 The meeting for the six monthly review occurred on 14 December 2001. The whiteboard presentation, according to Mr Takla, was aimed at projecting Mr Dennis' cashflow for that year and list of investments to date, as well as anticipated income from the GEI and investment costs, which were $64,000. It then showed how Mr Dennis would be paying for those costs.
390 Mr Takla says he also considered Mr Dennis' banking position which confirmed that the buffer account had more than $50,000 in liquidity and indicated Mr Dennis' ability to meet his future investment costs.
391 I accept that, while there are no detailed notes or statements made in letters of advice at this point, Mr Takla nonetheless on this occasion considered Mr Dennis' general financial circumstances and ability to accommodate further expenses.
392 Then on 17 May 2002, the recommendation to invest in AGL timber project 4 plan C 2002 was made, and acted upon.
393 As in the case of the previous, third MIS investment, this recommendation appears to have been driven mainly by the up-front tax deduction and the longer term benefits of the investment, but at a time when the home purchase and loan repayment objective of the initial plan was about to be, or had just been satisfied. To the extent it was no longer relevant, the objective of creating cashflow for other investments was then achieved, in accordance with the strategy of the initial plan following pay out of the home loan.
394 At this point, in June 2002, Mr Dennis placed a further investment of $100,000 in a Macquarie GEI.
395 In all these circumstances, I do not consider that Mr Dennis has shown that Mr Takla did not have a reasonable basis for the recommendation to invest in this fourth MIS or that he failed to exercise reasonable judgement when doing so.
396 I again note in passing that, as in the case of the second and third MISs, no loss is claimed in respect of this fourth MIS investment in the above loss table.
397 I also consider on the basis of Mr Takla's evidence, that Mr Takla did consider his client's financial circumstances, income, personal ability to carry the expenses associated with the investment and his cashflow capacity.
398 This part of Mr Dennis' claim fails.
399 Macquarie GEI 2: As just mentioned, in June 2002, Mr Dennis also completed an application for a further $100,000 finance to acquire further shares under a Macquarie GEI, similar to that previously made. Mr Takla confirmed the recommendation by letter dated 10 July 2002, disclosing the fees that would be paid to Chambers including a trailing fee.
400 The letter enclosed a "strategy summary" in terms not dissimilar to the summary provided with the initial plan in June 1999.
401 Mr Dennis, based on Mr Barber's opinion, makes a number of complaints about the recommendation and matters related to it including:
the application for finance included a statement suggesting Mr Dennis' circumstances had not changed, which was not correct given the further debts he had incurred in MISs;
the table which was part of a strategy summary, which was headed "Investment and borrowing against equity analysis" incorrectly suggested that annual capital gains could be used to pay the debt each year but did not then deduct that used gain from the total value of the investment listed in the table for the following year;
the growth shown in the investment column showed a linear improvement over the years and did not contemplate the possibility of adverse events;
further the table did not consider the repayment of the NAB debt associated with the initial AGL timber project 2 1999 or the debt on the other MIS schemes;
the documents provided no rationale for the further investment and its associated debt and there was no explanation of how the investment fitted with the initial plan and any amendment to it;
in particular, there was no explanation of risk to Mr Dennis' goals and objectives and what would happen if the investment failed to perform as predicted;
the table that followed was a "tax and cashflow analysis" which, like the initial table compared income and expenses if Mr Dennis did not make the recommended investment, with the position if he did make the recommended investment and was not complete in that it did not address the debt associated with MISs. Nor were adverse events taken into account. Without that information Mr Dennis said it was not possible for the respondents to demonstrate the risks to his goals and objectives in the event of reasonably expected adverse circumstances;
that the recommendation was not consistent with the approach of a reasonable financial planner.
402 As noted above, in May 2002, just before this advice was given, Mr Dennis had paid out the loan on his share of the Ardross home facility with NAB. He was then, on the face of it, in a position to consider fresh investment commitments in accordance with the strategy described in the initial plan.
403 So far as the GEI recommendation was concerned, Mr Takla points out that he provided with it a Macquarie GEI information booklet entitled "The zero capital risk share market investment" dated about 2002.
404 Mr Takla says this was the second GEI recommendation he made to Mr Dennis and was made to assist him to achieve his main objectives of creating wealth and tax planning. He points out that Mr Dennis signed the agreement to proceed with GEI No 2 on 15 July 2002. It may be noted in passing that GEI No 2 remained in place until instructions were given to unwind the investment in July 2007.
405 While I accept that more may possibly have been done to represent all investment expenses and indeed personal expenses that Mr Dennis had at that time, nothing is identified in the evidence to suggest that these deficiencies in relation to the advice given were material or causative of any loss suffered. Mr Takla's record keeping may be described as sub-optimal, but this does not cause me to consider he did not have a reasonable appreciation of Mr Dennis' overall expenses.
406 Ultimately, I accept the evidence given by Mr Pillai, that Macquarie GEI No 2 was a fundamentally sound product backed up by good research ratings and recognised operators in the sector and that generally, clients with high marginal tax rates seeking tax efficiencies, with an appetite for long term investments and associated risk, have a tendency to suit tax efficient gearing.
407 Mr Pillai considered, contrary to the view of Mr Barber, that the recommendation to invest in GEI No 2 was appropriate, as the benefits favoured Mr Dennis with high marginal tax rates and seeking medium to longer term diversified equity investment with a potential for sound capital returns and protection of downside risk with minimal initial capital investment, as Macquarie provided the credit facility.
408 I also accept Mr Pillai's assessment that this investment would have placed minimal demand in relation to cashflow, particularly having regard to the amount recommended to be invested and given the Ardross home loan had just been cleared.
409 Mr Takla in cross-examination, in the face of criticisms about what was not disclosed in the strategy summary, explained that the document only disclosed part of the investment position because the computer software he was using at that time could not include the plantation investments, which were handled separately. In the post-FSR period the software enabled inclusion of such debts.
410 When challenged that Mr Dennis, reading the strategy summary, "would not be informed about his debt position" on those plantation investments, Mr Takla, reasonably in my view, said that Mr Dennis was at that point a "three year old client with me". He pointed out, evidence which I accept, that, Mr Dennis was a client who took extensive notes and received answers to many questions. He said that the only two times in the previous 13 years that he had seen Mr Dennis without his notebook, was at a dinner that he took him to with his family to celebrate his coming out of his difficulties (following the matrimonial settlement) and at the trial in this proceeding in the courtroom. Mr Takla added that Mr Dennis was an experienced project manager who handled huge projects and was a consultant in his own right. Mr Dennis understood, Mr Takla asserted:
that he will be referring to the effect in his National Bank account, how his debts will pan out there and his capital protected investments. But he also aware of his other obligations being discussed and being put on the presentations.
(Transcript 345.)
411 I generally accept the evidence given by Mr Takla in the course of cross-examination about Mr Dennis' financial position at this time and the information that he received in the course of meetings and discussions about it.
412 In my view, Mr Dennis has not shown that in making the recommendation to invest in GEI No 2, Mr Takla lacked a reasonable basis or breached his duties.
413 This part of Mr Dennis' claim fails.
414 Sylvatech 2003: The recommendation to invest in this further, fifth MIS arose out of a meeting between Mr Takla and Mr Dennis on 17 June 2003. That meeting followed Chambers' letter of 29 May 2003 requesting information from Mr Dennis to prepare a review (a similar request having been made by email the same day). Mr Dennis responded by referring to information provided at an earlier meeting of 23 April 2003.
415 On 3 June 2003, Mr Takla replied with some questions including about investments Mr Dennis held under advice from others. Mr Dennis confirmed Mr Takla's understanding and noted also that his income was declining, which would have an impact on his ability to make monthly payments as required by the initial plan.
416 The email from Mr Dennis of 3 June 2003, noted that at this point monthly repayments of $2,500 were being made by him into a buffer account (indeed he had "reinstated" them and also paid in a lump sum of $14,000). It might be observed, this evidence confirms discussion and earlier agreement about the level of commitment to outgoings on investments Mr Dennis had undertaken, and also Mr Takla's appreciation of those issues.
417 That was the background to the 17 June 2003 meeting where whiteboard notes again recorded elements of the discussion and the further MIS investment made in Sylvatech.
418 Mr Dennis makes the following complaints in connection with the subsequent Sylvatech 2003 investment recommendation:
the notes of the 17 June 2003 meeting, while noting the discussion about income and dividends in rounded estimates, and also about interest and other costs, was not associated with a further Fact Find or a detailed analysis of cashflow or personal expenses;
Mr Barber considered that the reference in the earlier email to cashflow difficulties should have prompted a reasonable adviser to review more carefully the cashflow before advising on further investments to be acquired by further debt;
the application for finance did not provide information on Mr Dennis' total liabilities, total assets or net assets and the basis for values ascribed to various MISs was not disclosed;
the recommendation to invest was not explained and it is not possible to say it was posed on reasonable grounds and there was no consideration given to Mr Dennis' goals and objectives and how they would be affected by reasonably foreseeable adverse circumstances;
the notes relating to the investment do not show any discussion of the general risks of tree farming or the risks to goals and objectives by borrowing money to finance an investment that was not liquid, which had a long time to complete;
the now very high proportion of the portfolio which was concentrated on managed investments was aggressive, according to Mr Barber's evidence and that would not be the approach of a reasonably competent adviser who had considered Mr Dennis' position.
419 Mr Barber had a number of concerns with the making of such a tax efficient MIS investment at this point:
That while Mr Takla's file note of 17 June 2003 suggested an estimated tax liability of $30,000, he considered a pay advice slip from 20 June suggested a tax refund, not liability was due.
That the existing level of Mr Dennis' debt and ongoing commitments suggested he was close to the limit.
The 17 June 2003 notes of Mr Takla did not comply with post-FSR s 945A and replacement policy P5 175 (as of 30 June 2003) and the "Suitability Rule".
The MIS represented an aggressive investment and tax minimisation strategy.
420 Mr Takla says that this MIS was for a different species of timber than earlier projects, being Acacia trees on the Tiwi Islands in the Northern Territory, which required only eight years to mature, compared with 11 in the case of bluegums.
421 He says he recommended the investment to Mr Dennis because:
the investment would provide the same tax benefits as previous MISs as well as further diversity, shorter duration and cheaper cost;
although the finance was relatively more expensive, the added features of the investment and the small amount invested suggested that this was unlikely to be problematic to his cashflow.
422 It may be noted that at this point the objective of acquiring a home and paying down the finance associated with that purchase had been met in May 2002, a year earlier. Thus, the recommendation to invest in another MIS of an agribusiness nature could no longer be justified by reference to that objective. It could only be judged on the grounds of a tax efficient investment with good longer term prospects (with a different tree species).
423 In the result, Mr Barber's reliance on P5 175 was misplaced as s 945A did not come to apply to the respondents until early 2004, when Chambers received its AFSL. Of course, the general issue of reasonable basis under s 851 continued to apply.
424 I do not accept that Mr Takla should have considered a tax refund, not liability, was appropriate at material times.
425 I also consider that, following consideration of Mr Dennis' capacity to meet loan expenses, Mr Takla adjudged he could afford to meet this tax efficient MIS investment
426 In those circumstances, I do not consider Mr Dennis has shown that Mr Takla did not have a reasonable basis for the recommendation to invest in this MIS or that he failed to exercise reasonable judgement when doing so.
427 I also note, in passing, that this fifth MIS investment is not the subject of a claimed loss in the above loss table.
428 This part of Mr Dennis' claim fails.
429 Macquarie Bank GEI No 3: While Mr Dennis and Mr Takla met in December 2003 and February 2004, no investments under Chambers' advice appear to have been made in the financial year ending 30 June 2004.
430 In March 2004, Chambers commenced holding an AFSL under the new FSR regime, which brought them under a duty to comply with s 945A and s 946B of the Corporations Act at that time.
431 At material times s 945A(1) required a "providing entity" (such as Chambers) only to provide advice to a client if:
they determine the relevant personal circumstances in relation to giving the advice;
they make reasonable enquiries in relation to those personal circumstances;
having regard to the information obtained from the client in relation to those personal circumstances, and given such consideration to and conducted such investigation of the subject matter of the advice "as is reasonable in all of the circumstances";
the advice is appropriate to the client, having regard to that consideration and investigation.
432 Section 946A at material times required that providing entity to give a client an SOA. By subs (2) the SOA could be either the means by which the advice is provided or a separate record of the advice.
433 It might be said that s 945A tightened up the "reasonable basis" requirement when compared with the earlier s 851, in that it placed emphasis on the need to both determine relevant personal circumstances of a client in relation to the giving of advice and the making of "reasonable enquiries" in relation to those personal circumstances. In my view, the "reasonable enquiries" requirement does not necessarily mean that there had to be enquiries made every time a recommendation or advice was given under that provision, as it may be that the earlier determination of the relevant personal circumstances and necessary enquiries made in relation to them would remain sufficient to meet the statutory requirement. The point is that a reasonable basis to advice was required both before and after the FSR period commenced with renewed emphasis on the SOA or SOAA.
434 By SOA dated 6 October 2004, the respondents recommended that Mr Dennis invest $200,000 in a further Macquarie Bank GEI - GEI No 3. The recommendation had earlier been made and acted upon and finance approval given by Macquarie Bank dated 6 October 2004.
435 At that time, Mr Dennis' annual income had fallen from what it had been previously, to about $120,000. In the letter of 6 October 2004, the risk tolerance of Mr Dennis was also changed by Chambers from "balanced", as assessed in the initial plan, to "moderately aggressive", as set out in the letter of 6 October 2004. It may be observed that, in this regard, Mr Takla came to assess Mr Dennis along the lines the experts consider he should have been assessed from the outset - as a growth-orientated investor.
436 Mr Dennis complains, however, that there was no further Fact Find prepared at this point which prefaced the recommendation and assessments made of his investor type and says there was no record of Mr Takla discussing with Mr Dennis the significance of the changed risk assessment status. I do not accept the criticism, as Mr Takla had at this point been advising Mr Dennis for some five years and, in my view, had a developed appreciation of his client's circumstances and appetite for risk. As the experts said, and as set out above, the adviser's responsibility includes making continuing assessments about precisely these sorts of things.
437 The advice of 6 October 2004 also included a section dealing with "strategy implementation" that contained two tables. One set out investments recommended which had been implemented by Mr Takla. Mr Dennis says the amounts subscribed to the investments were incorrect. He says for the MISs the full values were allocated even though the investments could not be sold prior to completion and were always subject to agricultural and commercial risks. The second table set out debts associated with the investments. He submits that even before correcting for the error for the value of investments it was apparent from the two tables that the level of investment debt was broadly equivalent to the value ascribed to the investments.
438 Mr Dennis also complains that before making the GEI recommendation, Mr Takla did not undertake a cashflow analysis to review his ability to pay the additional debt associated with the investment. He acknowledges, however, that in the letter there was reference to Mr Dennis' ability "to service the new borrowings from your existing investment account (the Buffer)". A reference was also made to the need to restructure the limit on the account in order to allow further expansion of the buffer to meet further investment commitments.
439 Mr Dennis further complains that the advice of 6 October 2004 did not set out why his goals and objectives together with his financial circumstances meant GEI No 3 was suitable for him.
440 Mr Dennis also notes that the letter of 6 October 2004 listed two alternative strategies, one of which was that Mr Dennis could borrow to invest in shares, without protection for capital. However, that strategy was said not to be consistent with the recorded desire to protect capital. Mr Dennis says there was no explanation of how MISs, which also do not protect capital, were consistent with this desire. Further, there was no explanation provided of how the recorded intention was consistent with the new risk assessment of Mr Dennis being moderately aggressive. The only other alternative considered was investment in property, but that was ruled out as it was said (incorrectly) that he already had other investment properties, when he only owned a house jointly with his then wife.
441 Mr Takla says of the SOA of 6 October 2004, that the letter records him having provided Mr Dennis at that time with a copy of Chambers' financial services guide version number 3, and Macquarie Bank's combined PDS and financial services guide dated 4 June 2004, that document being entitled, "The flexible share market investment with zero capital risk".
442 Mr Takla says that in addition to achieving Mr Dennis' objective of creating wealth and tax planning, the recommendation to enter into GEI No 3 was in order to replace GEI No 1 which was anticipated to mature in December 2004, which Mr Dennis told him that he wished to sell. Mr Dennis intended to use the capital gains to reduce his debt.
443 Mr Takla says the SOA also noted the alternative strategies mentioned, that were considered by Chambers and disregarded for the reasons given.
444 In cross-examination Mr Takla was pressed concerning the fact that the statement of position he prepared at that time did not include the Macquarie Bank loans. Mr Takla pointed out (transcript 350), in my view reasonably, that at this point Mr Dennis' GEI No 1 was to mature in about two months' time and he had indicated his desire to sell the investment on maturity. Mr Takla said that, in those circumstances, the only debt that Macquarie then would have would be the $100,000 the subject of GEI No 2.
445 Mr Takla accepted, however, as he had before, that he had mistakenly shown the entire value of the jointly owned Ardross property as belonging to Mr Dennis.
446 In my view, notwithstanding the deficiencies in the accounts of some of the financial information, they are not ultimately relevant to the question of whether there was a reasonable basis or a breach of contractual or tortious duty by recommending investment in the GEI No 3. In my view, in the circumstances, on the basis of Mr Takla's evidence, there was a reasonable basis to the SOA of 6 October 2004.
447 I accept the opinion of Mr Pillai, to the effect that the investment in this product was appropriate as the benefits favour investors with high marginal tax rates, seeking medium to longer term diversified equity investment, with a potential of sound capital returns and protection of downside risk, with minimal initial capital investment as Macquarie provided the credit facility. Mr Pillai said that generally clients such as Mr Dennis with a high marginal tax rate, seeking tax efficiencies with an appetite for long term investments and its associated risk have a tendency to suit tax efficient gearing. He considered the GEI a fundamentally sound product, the PDS for which he had viewed, backed up by good research ratings and recognised operators in the sector. He noted, as did Mr Takla, that the GEI No 3 appeared to be intended replace the first GEI, which was maturing.
448 Mr Pillai also considered, and I accept this view, that in consideration of the market outlook at the given time, a new investment in a Macquarie GEI was appropriate for someone in Mr Dennis' position, having regard to his income and his objectives of accumulating assets outside of superannuation with tax efficiencies and the capital protected nature of the product which he had reasonable experience in.
449 As a result of these findings, I do not consider that Mr Dennis has shown that the respondents lacked a reasonable basis for making the recommendation or breached their contractual or tortious duties of care owed to Mr Dennis in doing so.
450 The fact that the SOA did not discuss the unprotected capital nature of MISs, which Mr Dennis draws attention to, is not, in my view, relevant to the reasonable basis issue under s 945A or the duty issue raised in relation to GEI No 3 - although it is clear evidence of Mr Takla's awareness of this as an issue. Nor do I consider the observations made by Mr Dennis as to the valuation/debt equivalence of MISs recorded in the SOA, affect the reasonable basis issue.
451 This part of Mr Dennis' claim fails.
452 Equinox, Fusion and Rubicon: In November 2004, relatively soon after the 6 October 2004 SOA, Mr Takla provided Mr Dennis with a SOAA recommending a $200,000 investment in shares financed by Macquarie Bank in Equinox, $200,000 financed by Macquarie Bank in Fusion Fund, and $200,000 in Rubicon's capital protected international leaders fund. The combined debt in relation to these investments was therefore $600,000.
453 Mr Takla says the 2004 year marked a major development in the geared capital protected investments market and for the first time Macquarie offered a new generation of products allowing diversification of investments outside Australian shares and at a much cheaper interest rate. He says that Chambers, after conducting due diligence on these investments, decided to offer them to its clients including Mr Dennis, noting 100% finance was available.
454 Mr Takla points out that, in the SOAA, Chambers provided details of alternative strategies that he had considered but which he did not recommend, and the reasons why he did not recommend the alternative strategies.
455 Mr Takla says the recommendation he did make was made having regard to the same factors which prompted his recommendation to invest in GEI No 3, when, however, the new generation investments were not available.
456 Mr Takla said the three investments put together would provide Mr Dennis with substantial exposure to investments outside the Australian share market and the combination of low interest rates and capacity to generate income above the local share market dividends would allow him to service a higher level of borrowing to the GEI investments and without putting pressure on his NAB facilities.
457 He says the SOAA explained the reason for expanding his portfolio under the heading "Strategy Implementation".
458 Mr Takla further notes that the NAB banking position in February 2005 shows that Mr Dennis had a total debt of $78,000 against a limit of $140,000 indicating he had adequate ability to meet the commitment of the new investment.
459 He also notes in passing that Mrs Dennis also signed the authority to proceed with the recommendations contained in the SOAA, notwithstanding that she was not a recipient of the advice. He believes that happened because the advice may have had some effect on the family home. Thus, this was done as a matter of courtesy to the non-client spouse.
460 Mr Barber noted certain errors in the SOAA as to the recording of existing investments and said that in his experience most licenced dealer groups have an approved level of gearing an adviser can recommend to a client and, although it can vary between dealer groups in his experience, the limit is typically set at a maximum of 50% of the portfolio value.
461 Mr Barber accepted the reasons in the SOAA provide for the recommendation and the investments selected had merit in that the recommendations would diversify the asset composition of the portfolio, providing diversification benefits, and would be more representative of a diversified growth orientated portfolio. However, he considered that the SOAA did not address how the cost of servicing the new investments would affect Mr Dennis given his existing loan commitments or how he would service the new debt from his existing income, which had recently declined.
462 Additionally, he said the SOAA did not provide any forecasts showing how the new investments would complement the original strategy in the initial plan or would be suitable to meet his needs and objectives. It simply attached a number of research reports on the recommended products.
463 Mr Barber separately completed an analysis which led him to the view that by implementing the new recommendations, Mr Dennis would be reliant on drawing against his loan facilities to meet his investment commitments, as well as funding his cost of living expenses, and that while he would be able to claim the expenses in his tax return, it could not be done immediately and would require his tax return to be prepared and the refund received and so there would be a time lag for cashflow purposes.
464 Mr Barber ultimately concluded that the SOAA failed to show the recommendations were appropriate to Mr Dennis' needs and objectives, given the level of debt he had at the time and the additional risk of doubling the amount of the debt he had to service and so failed to meet the requirements of s 945A.
465 Mr Pillai said he would have preferred to have seen more updated information in relation to Mr Dennis' earnings in the current financial year July 2004 to 7 October 2004 in relation to the provision of this SOAA. But as to whether or not he considered the three recommended investments as appropriate he noted that Mr Dennis' taxable income disclosed in his taxation return for the financial year ending 30 June 2005, was in fact higher than the previous year and, assuming this to be correct, and Mr Dennis' stated risk tolerance and desired outcomes remained the same, the recommendation to invest was appropriate. Mr Pillai said, in forming that view he had regard to the associated PDS relating to the investments and the independent research review which showed that all funds recommended had reasonable ratings.
466 Mr Pillai's view, expressed above in relation to other investments, was that generally clients with a high marginal tax rate seeking tax efficiencies with an appetite for long term investments and associated risks have a tendency to suit tax efficient gearing and MIS investments. In his view Mr Dennis fitted that description.
467 Mr Takla, in cross-examination, said at the time he made this recommendation he also knew that Mr Dennis was about to receive $55,000 in capital gains and he also knew that those investments were a breakthrough in the marketplace where, for the first time in Australia, one had diversified capital protected investments outside Australian shares. He calculated on the basis of a simple calculation of the dividends plus tax less interest that there would not be undue pressure on Mr Dennis' cashflow by the fact that he would not be required to find any out of pocket expenses on an annual basis.
468 Mr Takla accepted that he did not do an analysis of cashflow in order to make the recommendation, at least not in that SOAA. He said, however, that the cashflow had been addressed. He had consulted the bank statements of Mr Dennis. He had also consulted his investments that were ready to be liquidated at the time, when he would get $55,000 in the next month or so. He found that he would still be maintaining a good level of liquidity bearing in mind that the three recommended investments were not going to cause any pressure on cashflow.
469 In all the circumstances, while there were errors to be found in the description of the investments in the SOAA that already existed, and, as Mr Pillai suggested, more information about earnings in the current financial year 2004 might have been provided, I do not consider that the respondents did not have a reasonable basis for the advice provided to Mr Dennis to invest in those three investments. I accept a fresh cashflow analysis would have been desirable, but accept that Mr Takla gave consideration to cashflow in the manner he described.
470 At that stage I accept that Mr Dennis remained a growth-orientated investor (or a moderately aggressive investor as Mr Takla has reassessed him) having regard to investments he had made to that point and his apparent capacity for risk.
471 In the result, Mr Dennis has not shown that the respondents did not have a reasonable basis to make the recommendation to invest in the $600,000 worth of new investments or that they breached their contractual or tortious duties owed to Mr Dennis in making the recommendation.
472 This part of Mr Dennis' claim fails.
473 Great Southern Plantation 2005: On 16 February 2005, Mr Takla met with Mr Dennis. The meeting followed the familiar approach of notes being recorded on a whiteboard and later printed out and held on Mr Takla's file. As a result of the meeting Mr Dennis applied to invest $99,000 in Great Southern Plantations 2005 (as it is referred to in the above loss table), the sixth MIS investment.
474 The SOAA concerning the Great Southern Plantations 2005 was issued on 6 March 2005.
475 Mr Dennis makes a number of complaints, based on Mr Barber's opinion, about the advice he received in relation to this MIS investment, including:
The application for finance again showed he held the whole value in the Ardross home, rather than half.
The whiteboard discussions were at a high level of generality with no reference to reasoning for any particular investment.
There was no discussion or analysis of cashflow or of Mr Dennis' goals of retiring debt or supplementing superannuation.
476 Mr Takla says of the 16 February 2005 meeting that Mr Dennis had informed him of his voluntary redundancy from Woodside at that point and his accepting of an offer from the same employer to work in the same position, but as a consultant. He recalls him joking that he would be working from the same desk and would be paid more. He expected to receive a redundancy payment of $153,000. At that time, Mr Takla said that as a result of selling GEI No 1, Mr Dennis had made about $65,000 in capital gains in that financial year.
477 As a result, Mr Takla said, the presentation at the meeting calculated the investment cashflow and resultant tax position on the white board and projected investment costs at $94,000 with an income of $120,000 for the first seven months and an additional $153,000 from the anticipated redundancy package. The presentation also recorded $64,000 capital gains from selling the GEI No 1.
478 Mr Takla says the whiteboard presentation also records that he recommended investment in another $300,000 GEI, but Mr Dennis told him he would prefer to invest in another MIS, and it was on that basis he recommended Great Southern Plantations 2005.
479 Mr Dennis generally recalls the meeting on 16 February 2005, "but not the detail" [see [107] of exhibit 2]. He says, however, that to the best of his recollection at that time he was aware he would receive a redundancy payment, but not the precise amount, and considers his conversation with Mr Takla was not based on an actual payout figure.
480 Also he does not believe that as of February 2005 he would have been confident that he would be re-employed as a consultant, as that did not occur until about April or May 2005, and so doubts he indicated this at the meeting.
481 He says that if he had estimated the redundancy payment, as a matter of caution he believes he would have proposed a smaller part of the redundancy payment to be paid back into the loans. This was because moving to self-employment was for him a significant step.
482 He also says that, as he understood Mr Takla's explanation, the early retirement of debt was useful and desirable but not critical to the success of the plan.
483 Mr Dennis rejects this latter evidence concerning his preference for an MIS investment.
484 It should be said there was considerable reconstruction in Mr Dennis' evidence about this meeting, given his admitted overall lack of recall of detail.
485 In the course of cross-examination, Mr Takla repeated his evidence that he recalled initially advising Mr Dennis to invest in a third GEI but Mr Dennis declined the offer and said he was more comfortable investing in plantations. Counsel for Mr Dennis put it to Mr Takla that he had made up that evidence "today". Mr Takla denied that, saying it was documented. He referred to pg 2190 of the trial book. Indeed, Mr Takla had earlier made the same allegation in his initial witness statement at [477] (exhibit 6). Thus, it is not correct to suggest that Mr Takla had invented the allegation as of the day he was sitting in the witness box being cross-examined.
486 Given the investments subsequently made by Mr Dennis, which included further MISs of an agribusiness nature, I am far from convinced that he did not at some point disclose a degree of comfort in such an MIS on this occasion, although it may have been later. As discussed below, I am satisfied Mr Dennis certainly did say such things on a later occasion.
487 I accept, however, that on this occasion there was some discussion or estimates made as to the likely redundancy payout, even though the matter was the subject of formal advice by Mr Dennis later. The fact that the SOAA of 6 March 2005 made express reference to the estimated taxable income lends support to Mr Takla's recollection that it was mentioned on 16 February.
488 Mr Barber made a number of observations in respect of the SOAA of March 2005, including that the investment proposed in April that Mr Dennis was to receive a substantial tax refund. However, Mr Barber considered that given the MIS recommended was for a minimum of ten years and funds had to be borrowed outside the NAB loan facility to finance the transaction, it was necessary for Mr Takla to demonstrate how the recommendation was appropriate to Mr Dennis' long term needs and objectives, something which he considered was not demonstrated.
489 Mr Barber said that while he had not been able to verify the valuations given in the SOAA on individual investments in the table provided with it, if the values were accepted as presented, the recommendation to invest $99,000 into the new MIS would lift Mr Dennis' investment in MIS projects from 21.07% of the total portfolio value, to 27.10% under Chambers' advice. He considered that would be considered aggressive from a portfolio construction perspective and not consistent with the documents that identified Mr Dennis' circumstances, goals and risk profile and the recommendation should not have been made by a reasonably competent financial adviser.
490 Mr Pillai's view, consistent with the earlier expression of his view in relation to other MISs, was that generally clients with high marginal tax rates seeking tax efficiencies with an appetite for long term investments and associated risks have a tendency to suit tax efficient gearing and MIS investments, such as Great Southern Plantations 2005.
491 Mr Pillai had viewed the PDS and independent research reports, although he was unable to attach the report or provide specific comment on rating due to reasons of confidentiality.
492 He considered the PDS relating to the investment described the main features of the product, any significant benefits or risks in holding it, the costs of the product, any investment return from it and any significant taxation implications as well as any relevant commission arrangements that may affect an investor's return.
493 In his view, Great Southern Plantations 2005 was a fundamentally sound product backed up by sound research ratings and at that managed by well regarded operators in the sector.
494 Mr Pillai added that tax efficiencies and asset accumulation from tax savings appeared to be the agreed strategy between Mr Dennis and his adviser at that point. He considered a strategy embedding tax efficiencies was appropriate for Mr Dennis, given his financial circumstances as revealed in the materials given to him.
495 Mr Pillai considered that having reviewed the information provided relating to the advice, and given the strategy for Mr Dennis, the investment in Great Southern Plantations 2005 was appropriate, as the benefits were tax related with potential long term investment returns via forestry.
496 In forming that view, he considered Mr Dennis' financial position, income in the given year, including his termination payment from Woodside and consulting income, his stated risk tolerance, stated desired outcomes and funding requirement for vesting Woodside options.
497 In my view, the evidence, including that of the 6 October 2004 SOA that recognised the differences between capital protected investments and those lacking that feature, supports the inference, that I draw, that Mr Takla exercised judgement in relation to the balance that MIS investment of an agribusiness nature would represent in the investment portfolio.
498 Further meetings in April and May, however, relate to the March SOAA. On 22 April 2005, a meeting occurred where, having regard to the whiteboard notes, there was discussion of a redundancy payment of $150,000.
499 At the 22 April meeting, which Mr Takla says was at Mr Dennis' request in order to discuss restructuring his bank facilities with NAB and the chain of emails on 12 April 2005 relating to a credit application that Mr Dennis had made, there was relevant discussion.
500 The whiteboard notes of the meeting are referred to by Mr Takla. He says they show that Mr Dennis wished to increase his banking facilities limit to $360,000 in order to consolidate his present debts and to give him additional liquidity of $100,000.
501 Mr Takla notes that on 6 May 2005 he received a NAB service report, which enabled him to review Mr Dennis' funds and liquidity.
502 From his review of that document he believes that the handwritten notes on it are those of Mrs Dennis.
503 On 9 May 2005, Mr Takla met Mr and Mrs Dennis together. They were at that time in the process of finalising a divorce financial settlement. Mr Takla recorded in a file note of the meeting that Mr Dennis was contemplating increasing his NAB loan by $50,000 and Mrs Dennis needed the comfort that he would be able to meet the repayment.
504 In cross-examination, Mr Takla was asked why Mrs Dennis was asking him to check the ability of Mr Dennis to meet his financial obligations. Mr Takla said he was not being instructed to do that. Mr Dennis also says this should have caused Mr Takla to complete a new Fact Find.
505 I do not accept that by reason of the meeting with Mr and Mrs Dennis there was any particular need for a new Fact Find. The position was that there was an understanding reached that Mr Dennis would be obliged by a financial settlement with his wife to transfer his interest in the Ardross property to her unencumbered together with cash. Obviously financing needed to be considered in order to achieve that. Mr Takla was plainly possessed of sufficient information to consider the implications of additional finance from what he already knew of his client's circumstances.
506 Counsel for Mr Dennis, however, also notes that two weeks later, on 24 May 2005, Mr Dennis emailed Mr Takla referring to a meeting the day before in which Mr Takla had offered to assist Mr Dennis purchase a home, which offer Mr Dennis declined. Mr Dennis indicated his reluctance to increase his outgoings, his desire to prepare for retirement in the next three to five years and discomfort with extending his obligations to NAB. Mr Takla responded by an email of the same day and recorded the following further goals of Mr Dennis:
To use redundancy funds to reduce debts with NAB but leave sufficient funds to service investments.
To not extend the NAB debt.
To retain the current monthly commitment of $2,500 for the foreseeable future.
To reduce overall debts.
507 In cross-examination it was put to Mr Takla that he made the offer to assist Mr Dennis with the purchase of a home, as such an asset was required for Mr Dennis' to maintain an entitlement to participate in Macquarie GEI loans. He denied this was a motive for his suggestion. Counsel for Mr Dennis suggests that this denial ought to be ignored. Even if the denial is rejected, it does not directly or necessarily bear on the reasonable basis or duty issue here under consideration.
508 Overall, it appears to me that Mr Takla responded adequately to the changing circumstances of Mr Dennis in light of his impending divorce and this was not an occasion calling for further investigation of Mr Dennis' financial circumstances. As I said above, they were then known to Mr Takla.
509 Mr Barber, in relation to the email of 24 May 2005 in which Mr Dennis expressed his reservation about taking on more debt, given the uncertain nature of his earning capacity, said that a reasonably competent financial adviser would understand Mr Dennis to have changed the degree to which he was comfortable with investment recommendations that carried risk or compromised his financial circumstances. But, despite that, the subsequent recommendations made by Mr Takla involved taking on additional debt.
510 In my view, the position at that point was not as stark as Mr Barber suggests. Plainly Mr Takla took account of the changing circumstances. The immediate concern was to ensure that the financial settlement agreed between Mr and Mrs Dennis could be achieved.
511 In the result, I do not consider that Mr Dennis has shown that there was a lack of a reasonable basis in respect of the Great Southern Plantations 2005 recommendation or the late May exchange of emails and advice given in relation to the impending financial settlement between Mr Dennis and his then wife, or that Mr Takla failed to exercise reasonable judgement in respect of those matters.
512 This part of Mr Dennis' claim fails.
513 Great Southern Beef 2006, Great Southern Vineyards 2006 and Great Southern Olives 2006: On 14 June 2006, Mr Takla and Mr Dennis met and Mr Dennis signed applications to invest in these three further MISs: Great Southern Beef 2006, Great Southern Vineyards 2006 and Great Southern Olives 2006, as they are referred to in the above loss table.
514 On 20 June 2006, an SOAA relating to the recommendations was provided to Mr Dennis.
515 Mr Dennis' complaints concerning the meeting on 14 June are similar to those made in respect of previous such meetings involving notes made on the whiteboard, in that he says the notes do not address his goals and objectives and ability to meet debt obligations.
516 As to the 20 June 2006 SOAA, Mr Dennis notes the advice stated it was based on information in the SOA dated 6 October 2004 and made no reference to objectives expressed in the exchange of emails dated 24 May 2005.
517 Mr Dennis complains, having regard to Mr Barber's opinion, that:
the advice indicated it was based on previous information (which was not otherwise identified), a personal taxable income of $200,000, capital gains of $230,000 (not detailed) and an ability to maintain monthly repayments of $2,500 (which it may be noted was the repayment commitment mentioned in the 24 May email);
the advice failed to consider goals and objectives stated in the initial plan or the exchange of emails of 24 May 2005;
while consistent with the previous two advices, it set out investments current and proposed splitting investments between Australian equity, international equity, alternative and opportunistic investments but omitted reference to the Rubicon investment and that while $300,000 was borrowed to invest in that fund it was, at around this date, worth less than the purchase price, according to a note of the investment;
did not consider the debt owing on investments made;
did not consider the proportion of investments held in MISs compared to other forms of investment;
did set out risks to agricultural schemes involving olives, vineyards and cattle but did not address the risk to goals and objectives to reduce or rationalise debt or invest to supplement superannuation or address the concerns in the exchange of emails dated 24 May 2005;
did not set out fees and commissions payable to Chambers on the investments;
while it set out a table of current liabilities, it referred only to the debt to NAB and did not set out debt to financiers for MISs or Macquarie Bank;
while a table setting out loan repayment schedules for the olives, vineyards and cattle MISs was provided it was flawed for reasons similar to those put forward in relation to earlier tables, with linear growth depicted and a failure to evaluate the effect of accumulating debt in circumstances where the investment did not return those projected figures and did not note the effect of adverse circumstances on goals and objectives or a reason to invest that was consistent with goals and objectives of debt retirement and supplementing superannuation.
518 On Mr Barber's analysis, Mr Dennis' net asset position at this point had not improved and he considered that if the annual management fees and interest paid by Mr Dennis were taken into account, his net portfolio position may have deteriorated. He considered this was certainly the case in the SOA of 6 October 2004, which was the last time an advice presented Mr Dennis' liability position in the portfolio.
519 In Mr Barber's opinion, Mr Takla should have presented Mr Dennis' liability position at the time of making the recommendations to invest in these three new MISs and should have reviewed the original and subsequent advice and projections to determine if the strategy was working in the manner recommended and whether it was still appropriate for Mr Dennis' needs, objectives and personal circumstances. In addition, Mr Barber considered that the recommendation to invest a further $203,300 in these MIS projects would increase the exposure to the agribusiness sector to 39% of the total portfolio under Chambers' advice, something a reasonably competent financial adviser would not have recommended in the circumstances.
520 Mr Barber also considered that the cost of living expenses referred to in the SOAA were understated, having regard to the recent divorce settlement and so the SOAA projections were based on incorrect assumptions and projected asset values were overstated.
521 Mr Takla notes that on 27 February 2006 he had a six monthly meeting with Mr Dennis. He refers to the whiteboard notes made at that meeting and says that Mr Dennis informed him that he expected his income to increase to $200,000 and to make a capital gain of $230,000 from the sale of his Woodside shares, which he obtained as a result of his redundancy. All of that is recorded on the whiteboard presentation.
522 He says Mr Dennis also disclosed for the first time other investments that were not under Chambers' advice. They included two superannuation funds totalling $700,000, other investments worth $200,000 and a yacht worth $60,000.
523 Mr Takla says that he subsequently obtained reports from NAB in April and May. He also referred to a document showing Mr Dennis' investment position as at 8 May 2006. He said the format was used by Chambers for internal purposes, such as calculating the annual fees. He said where there were problems with investments, such as Equinox and Rubicon, Chambers showed no value and no fees were charged. Thus, he said, the investment position statement was prepared in order to allow Chambers to calculate its annual fees. It was not intended to be a valuation of his investments. He did not discuss the document with Mr Dennis and it was not provided to him.
524 On 9 May, Mr Takla met with Mr Dennis, again. He referred to the whiteboard notes in relation to the discussion. Mr Takla says that presentation updated the previous presentation of 27 February 2006, reflecting no change in position.
525 Mr Takla said that in June he then obtained further statements from NAB and prepared a summary of Mr Dennis' investment position as of 14 June 2006, when he met Mr Dennis again.
526 He says the presentation then made was a continuation of the previous presentation and Mr Dennis was advised to invest a total of $206,000 in the three Great Southern beef, vineyard and olive projects. The projection showed that he would pay tax on a taxable income of $60,000 and not pay any taxes on the capital gains for that year. He said he discussed Mr Dennis' investment options with him and Mr Dennis told him that he was in favour of more agribusiness, particularly the vineyard project as, in his words, his family had always operated vineyards.
527 Thus, Mr Takla said, the SOAA dated 20 June 2006 recommended the $72,000 investment in Great Southern Olives 2006, $66,300 in Great Southern Vineyards 2006 and $65,000 in Great Southern Beef 2006 (as each of those MISs are referred to in the above loss table), all using finance from Great Southern Finance.
528 He says the SOAA disclosed brokerage and ongoing fees. He also provided Chambers' financial services guide version number 5, dated 1 March 2006, a PDS for each of the MISs and a supplementary PDS for Great Southern Forests, although Mr Dennis decided not to invest in that project.
529 Mr Takla said the investments were recommended in order to provide significant diversification to the existing tree-based MIS investments. He said they were significant in the context of the overall portfolio as they were all anticipated to provide Mr Dennis with an annual income for the duration of the projects, which ranged from seven years in the case of Great Southern Beef 2006 and 20 years in the case of Great Southern Olives 2006 and Great Southern Vineyards 2006. He said Mr Dennis' tax returns show that he did receive returns on all these projects prior to the collapse of Great Southern during the GFC.
530 Mr Takla also said the funds generated from the sale of Woodside shares were not used to reduce debts. He notes this all coincided with the difficult family issues that led to the divorce.
531 Mr Takla acknowledged Mr Dennis borrowed the capital required to invest in these Great Southern investments.
532 In cross-examination, when pressed about circumstances in which Mr Dennis needed to complete a financial settlement on the divorce from his wife, Mr Takla insisted he had taken those circumstances into account. He said the divorce, however, had not happened at that point. He was aware then that Mr Dennis would require $100,000 to pay his wife. He knew what the wife would be requiring. The limits with NAB were never increased and stayed at $140,000 until December 2007.
533 When asked whether the focus at that point had become debt reduction in order to deliver the house unencumbered to Mr Dennis' wife and the matters mentioned in the 24 May email exchange Mr Takla indicated it was both things. He said there was debt reduction which was managed and Mr Dennis had $153,000 plus the tax - $220,000; which he kept somewhere. Mr Dennis had told him that he was keeping funds aside until he finished those issues with his wife. He said Mr Dennis told him that was one of the reasons for reaching the limit in Macquarie Bank, because he kept the accounts there hovering at their maximum. Mr Takla complained in the course of cross-examination (transcript 394) that if Mr Dennis had put his tax refunds into the buffer account it would have reduced his debt by something like $125,000, but he did not and kept his money somewhere else.
534 When challenged that none of that information appeared in the SOAA, Mr Takla said that was because one would not know at that time. To say that all investment benefits must be used to reduce debt was simply stating the obvious, something that Mr Dennis always knew.
535 Mr Pillai expressed the opinion in relation to these further three MIS recommendations, consistent with his expression of opinion in relation to earlier MISs, that they were appropriate for a client, such as Mr Dennis with high marginal tax rates seeking tax efficiencies with an appetite for long term investments and associated risk, having a tendency to suit tax efficient gearing and MIS investments. He considered each investment fundamentally sound, backed up by good research ratings and managed by recognised operators in the sector.
536 Mr Pillai expressed the opinion that after considering information provided relating to the advice including Mr Dennis' financial position, income, adjusted CGT (capital gains tax) of $117,049 in the financial year ended 30 June 2006, stated risk tolerance and desired outcomes as stated, the recommended investments were appropriate as the benefits were tax related with potential long term investment returns and were likely to deliver Mr Dennis' objectives at that time.
537 He also noted that the information reviewed stated that the projected cashflows from the schemes was anticipated to commence from about 15 months up to seven years following entry into the scheme. He said taking into consideration the one year interest free period across the projects it was reasonable to expect the proposed cashflow would ease ongoing holding costs across the three schemes.
538 Mr Pillai considered that various risks relating to the product placement in each case were adequately explained, particularly having regard to Mr Dennis' prior exposure to this asset class.
539 In the result, I consider that, while the change in financial circumstances of Mr Dennis reflected in the obligations he was soon to undertake through the financial settlement with his wife added complications to his circumstances, Mr Takla was both aware of these circumstances and factored them into the advice he gave. I accept his evidence that he considered the financial circumstances of Mr Dennis at the time he made the recommendations in the SOAA of 20 June 2006 and considered the MISs to be tax efficient and offering longer term prospects and, in this case, a degree of diversification from the existing tree based MIS investments. I accept his evidence that Mr Dennis indicated to him that his family had always operated vineyards. I am uncertain, on the evidence, whether I should accept that Mr Dennis also told him that he was "in favour of more agribusiness", but I do infer from the evidence and I accept that Mr Dennis was not opposed to investing in these three further agribusiness MISs. He plainly was aware of the nature of the investments, the risks associated with them and in an informed way decided to invest in them.
540 I infer that, in all the circumstances, as in the case of the previous MIS, Mr Takla exercised judgement that these MISs served Mr Dennis' stated objectives and his investor type, having regard to their tax efficient nature, the longer term prospects of the investment, the spread of agribusiness MISs that they then provided, as well as the overall balance - albeit that it was now higher - that MIS investments represented as a proportion of the total investment portfolio of Mr Dennis. In that regard, I accept, as I said above, that the respondents were entitled to regard the total investment portfolio of Mr Dennis, not just that under Chambers' advice. At this point, from February 2006, I accept that Mr Takla had become aware for the first time of other investments that were not under Chambers' advice, including two superannuation funds totalling $700,000, other investments worth $200,000 and a yacht worth $60,000.
541 In all of these circumstances, I do not consider Mr Dennis has shown that Mr Takla did not have a reasonable basis for the three Great Southern MIS recommendations or that Mr Takla failed to exercise reasonable judgement in that regard.
542 This part of Mr Dennis' claim fails.
543 Great Southern Olives 2007 and Great Southern Vineyards 2007: Mr Takla and Mr Dennis met on 14 March 2007 for a six monthly review. As before, aspects of the discussion were recorded on a whiteboard and the notes were printed and held on file by Mr Takla and Chambers.
544 That same day Mr Dennis completed the application to Great Southern Finance for a loan of $130,000 to fund investments including $72,000 in Great Southern Olives 2007 and another in Great Southern Vineyards 2007, as those MISs are referred to in the above loss table.
545 On the same date, Mr Takla recorded in an email to his staff a discussion with Mr Dennis to the effect that his objective was to transfer the home he jointly owned to Mrs Dennis unencumbered. The email recorded the adjustments to Mr Dennis' investments which would be required to discharge the debt to NAB to clear the mortgage. Those adjustments involved selling the Fusion and GEI No 2 investments and to invest in MISs to generate a tax return in order to provide the balance of the needed funds to retire the bank's debt.
546 Mr Dennis complains that the email does not record a reason for selling saleable investments and then acquiring more investments, in the form of MISs, that were not capable of being sold.
547 He also complains, as in relation to earlier such investments, that there is no mention of the wider goals and objectives or for supplementing superannuation.
548 He says that the respondents' advice increased his exposure to MISs which was not consistent with the advice of a reasonable financial planner.
549 The email also recorded the completion of applications for the MISs in Great Southern Olives 2007 of $72,000 and Great Southern Vineyards 2007 of $62,400.
550 Again, Mr Dennis complains that there was no consideration given at the meeting of debt obligations arising from those investments and that, contrary to the initial plan, the income tax return was to be used to pay the debt to the bank or meet part of the settlement with Mr Dennis' wife, rather than giving consideration of the consequences for Mr Dennis, his goals and objectives and the remainder of his investments.
551 The advice was formally recorded in an SOAA on 23 April 2007. It set out the basis of the recommendations, being the earlier information provided (which was not there otherwise identified) Mr Dennis' personal taxable income of $230,000, the ability to maintain monthly payments of $2,500, capital gains from the sale of the Fusion investment of $60,000 and the need to come to a marital settlement which would require $200,000.
552 Mr Dennis says the tables supplied with the SOAA incorrectly omitted the earlier Great Southern Olives 2006 investment of $63,000.
553 Further, it gave no consideration to the concentration of investments in MISs and the inflexibility that resulted from that.
554 Again, Mr Dennis complains that, while the SOAA addressed the risks of olives and vineyard agriculture, it did not address the risk to his goals and objectives by entering into such investments.
555 As to the table attached, containing financial information, Mr Dennis complains that it set out only the liability to NAB and omitted entirely the debts owing on the MISs.
556 For the same reasons advanced in respect of similar tables attached to earlier SOAs, Mr Dennis says the tables in this case were also flawed.
557 While Mr Barber felt unable to express an opinion about this SOAA because of insufficient information, he considered the addition of two new MIS projects and the sale of the GEI and Fusion investments would, most likely, have lifted the percentage of capital invested in MIS projects substantially above the 39% identified by him in relation to the SOAA of 20 June 2006, and for that reason he considered the recommendation was not consistent with the advice anticipated from a reasonably competent financial adviser.
558 Mr Takla said that, in the same way as he had previously, he obtained updated information from NAB during the course of the financial year in September 2006 and in November requested from Mr Dennis updated financial information for the purposes of the annual review.
559 On 14 March 2007, he says he recommended that Mr Dennis invest a further $130,000 in the two MISs. He says that during the meeting, Mr Dennis advised him that he wished to raise $280,000 for his expected divorce financial settlement and also said his income had increased to $230,000 and he expected to receive about $58,000 in capital gains from the sale of the Fusion investment.
560 Mr Takla said that the presentation as evidenced by the whiteboard notes refers to a property worth $700,000. He says that for him to have used that figure Mr Dennis must have told him the amount. Although he could not recall whether that was because he had found a property to purchase for that amount or because he wanted to consider whether he could afford such an investment, the question of a purchase of a property was, he considered, the issue. (The purchase of the South Perth unit, to which Mr Dennis says this evidence is relevant, is discussed separately below.)
561 Mr Takla also noted that after the 14 March 2007 meeting he received a letter from Mr Dennis' accountant concerning his income.
562 After the meeting he received further information from NAB concerning NAB limits. On 4 April, Mr Dennis emailed him an estimate of his annual income for that year, together with a letter from Mr Hawke, Mr Dennis' accountant, regarding an income estimate for the year ended 30 June 2007.
563 He also referred to an email string starting 30 March 2006 and ending 7 April 2007 between Mr Hawke, Mr Dennis and himself in relation to income.
564 Mr Takla confirmed that the SOAA of 23 April 2007 recommended investments of:
$72,000 in Great Southern Organic Olives Project 2007, using finance from Great Southern Finance on a three year interest only and then seven year principal and interest basis;
$62,400 in Great Southern Vineyards 2007, using finance of a similar nature;
sell his existing Fusion investment before the end of June 2007;
sell the maturing GEI investment in July 2007.
565 He notes the SOAA disclosed Chambers brokerage and ongoing fees.
566 As in other cases, he notes the SOAA attached the financial services guide of Chambers and a PDS for the two MIS projects.
567 In respect of the Great Southern Vineyards 2007 project, Mr Takla recalls Mr Dennis advising him of his family's interests in vineyards when he recommended the vineyards project and Mr Takla said Mr Dennis told him he was comfortable investing in that project for that reason.
568 Mr Pillai was of the view, consistent with his view concerning earlier MISs that, given Mr Dennis' financial position, income and anticipated capital gains tax as a result of unwinding existing investments to fund financial obligations, stated risk tolerance and desired outcomes, the recommended investments were likely to deliver Mr Dennis' objectives at that time.
569 Similarly, as in the case of the most recent MIS investments, Mr Pillai considered the projected cashflow from the schemes was estimated to commence from about seven years following entry into the scheme. Taking into consideration the one year interest free period across the projects he considered it reasonable to expect the proposed cashflow would ease ongoing holding costs across the two schemes. Therefore, considering this and the information provided to him, he considered it reasonable to make the recommendation to invest in the schemes.
570 Mr Pillai said tax efficiency and asset accumulation from tax savings appear to have been the agreed strategy between Mr Dennis and the adviser as stated in Mr Dennis' objectives.
571 He also considered that the risks of entering into the two MISs were sufficiently explained to Mr Dennis.
572 There was also a question raised by Mr Barber, in relation to this and later recommendations, as to whether or not annual child maintenance had been factored into personal expenses by Mr Takla. Mr Barber agreed with the proposition put to him in cross-examination, however, that if Mr Dennis was aware child maintenance figures set out in documents he signed off on were not accurate, he should have brought that to the attention of Mr Takla; or if he had just started paying maintenance he should have told Mr Takla. Mr Barber could not say when any maintenance payments commenced or was due to commence.
573 In the result, while Mr Dennis' financial settlement with his former wife added to the complexity of his financial circumstances, I am not satisfied by the evidence that Mr Takla failed to consider all relevant information. He was, in my view, not only aware of what the divorce settlement encompassed, but also its financial implications.
574 I do not consider Mr Barber's identification of child maintenance payments falsify Mr Takla's position. On the one hand, if they were a new expense, as Mr Barber agreed, the adviser could reasonably expect the client to disclose the information at the material time. On the other hand, the evidence suggests that the child maintenance of $1,700 per month was mentioned in the tax information supplied by Mr Dennis' tax accountant, Mr Hawke, to Chambers. There is no reason to conclude that Mr Dennis was not aware of it.
575 The level of MISs in the investment portfolio under Chambers' advice no doubt increased at this point, but having regard to the evidence overall, including in relation to previous, recent MIS investments, and the nature of other investments then in or recommended for Mr Dennis' investment portfolio, there is no basis to conclude that Mr Takla failed to exercise judgement as to the appropriateness of the MIS on this occasion.
576 In all of the circumstances, as they then prevailed, including where Mr Dennis was aware of the nature of the investments recommended and consented to them being made (and, I accept, expressed some comfort with them, his family having been in vineyards), Mr Dennis has not shown that Mr Takla's recommendations lacked a reasonable basis or that he failed to exercise reasonable judgement in respect of them.
577 This part of Mr Dennis' claim fails.
578 Macquarie Bank GEI No 4, Gunns Plantation 2008 and Willmotts 2008: On 20 March 2008 Mr Takla and Mr Dennis met and again Mr Takla made notes on the whiteboard which were printed out and kept. The discussion particularly concerned an $80,000 investment in Gunns Plantation.
579 On 9 April 2008, Mr Takla wrote to Mr Dennis to record his advice recommending an investment of $500,000 in a further Macquarie Bank GEI and $88,660 in a MIS operated by Gunns Limited.
580 The SOAA of 9 April recorded the basis for the recommendations, being earlier information (not otherwise identified), personal taxable income of $250,000, capital gains from an earlier GEI of $64,828, increased monthly payments of $5,000 and all future income increases. It also referred to sale of other shares, the expectation of a tax refund and the receipt of $200,000 from family assets.
581 The SOAA also contained a table setting out what was said to be investments at that date, categorised in a manner similar to earlier advices.
582 Mr Dennis, based on Mr Barber's opinion, makes a range of complaints including:
The notes of the 20 March 2008 meeting provide no information on how the Gunns Plantation 2008 investment was consistent with Mr Dennis' circumstances, goals or objectives.
The SOAA of 9 April in the table of investments did not include Great Southern woodlot investments in the sum of $99,000 or Great Southern Vineyards of $63,000 and there was no reference to the debt on any of the MISs.
There was a failure to address obligations including the debt owed to Mr Takla from the purchase of the South Perth unit, which had then occurred (and is dealt with separately below).
While the SOAA referred to the risks inherent in share investments and woodlots no reference was made to the specific risks by reason of the investments and the way they could impact on goals and objectives.
The SOAA identified liabilities to NAB but not Mr Dennis' liabilities on the MISs.
The tables which were similar to earlier tables about cashflow did not show MIS debt, did not say how debt was to be retired, did not specify what would happen if returns on investments were (and could reasonably be expected to be) adverse and so did not demonstrate a reason why the investment was recommended or explain the risks to goals by reason of making the investment.
583 Mr Barber considered (exhibit 8[208]) that the most significant statement Mr Takla made in the SOAA of 9 April 2008, concerned the use of funds to reduce overall debt and thereby easing the cashflow position. Mr Barber said his opinion was that it was apparent right from the beginning of the advisory relationship that Mr Dennis was finding it difficult to meet his obligations under the strategy recommended, and that by continuing to recommend further debt "the position only became exacerbated". He says this SOAA highlights the issue.
584 In particular, Mr Barber identified the following deficiencies:
Mr Dennis' personal expenses of $22,012 did not take into account his ongoing child maintenance payments of $20,400.
No account was made for Mr Dennis' ongoing principal and interest payments under the MISs, or for the repayment of the loan to Mr Takla on the South Perth unit.
585 I have already dealt with and rejected above, the child maintenance issue.
586 In June 2008 the recommendations made in the 9 April 2008 SOAA were, in fact revised and a new SOAA dated 11 June 2008 was issued which recommended that Mr Dennis invest only $200,000 in a further GEI (not $500,000), $68,200 into Gunns Plantation 2008 (not $88,660) and $74,100 into Willmotts 2008 (a new recommendation), as those MISs are referred to in the above loss table, these projects financed by borrowing from the promoters.
587 In the result, Mr Dennis invested $68,200 in Gunns Plantation 2008 and $81,510 in Willmotts 2008 (although Mr Barber says there appears to be no revised recommendation for the increased Willmotts 2008 investment).
588 Mr Dennis also complains about the revised SOAA of 11 June 2008 but also about the finance application completed on 11 June 2008 in respect of the Willmotts 2008 investment, which he says included a figure for the debt owed to NAB less than the amount reported by the bank to Mr Takla as being owed and understating the debt owed to Great Southern and there was no reference to the investments made which had been acquired by finance as set out in the letter dated 9 April 2008. Additionally the application increased Mr Dennis' salary to $280,000 and reported an increase in the value of the South Perth unit to $750,000.
589 Mr Barber had a number of serious criticisms of the 11 June 2008 SOAA. As to the revised estimated monthly repayments to the loan account from $5,000 to $8,000 per month, which was proposed in the 11 June 2008 SOAA, Mr Barber says the SOAA does not indicate the reason for the increase and, in addition, it increases the amount of available funds to reduce debt from $200,000 to $300,000 without identifying the reason why.
590 Further, he says Mr Dennis' personal expenses continue to be understated.
591 Mr Barber says that according to his analysis of the table at page 19 of the SOAA dated 11 June 2008, by the year ending 2011 Mr Dennis was forecast not to have any further equity in his home and in fact was projected to have a negative equity position of minus $73,424, compared to the SOAA of 9 April 2008, where available liquidity was forecast at $271,761. Mr Barber notes the liquidity position in the SOAA dated 11 June 2008 was forecast to continue to deteriorate after that point as shown by the negative liquidity position in 2033 of minus $1,320,734, compared to a positive position of $3,207,055 in the SOAA dated 9 April 2008.
592 Mr Barber says that a reasonably competent financial adviser after reviewing the results of the projections would have recognised that the projections in the SOAA dated 11 June 2008 would not achieve Mr Dennis' short or long term investment objectives, and would in fact see him fall into bankruptcy.
593 In Mr Barber's opinion, a reasonably competent adviser at this point would have assessed as poor the performance of the previous recommended investments and, considering the well publicised volatile nature of the investment market in 2008, would have considered the assumption of a minimum compound rate of return of 12%, that he considered would be required to achieve the strategy, as not supported by viable evidence and as optimistic.
594 In addition, Mr Barber said the model used assumes that Mr Dennis would continue to earn $250,000 per annum and that a competent adviser would also have recognised that by 2033, Mr Dennis would be aged 80 and not likely to be working and not have that income.
595 Thus, in Mr Barber's opinion, the respondents should have or ought to have known that the results from the projections in the 11 June 2008 SOAA meant, for Mr Dennis' financial situation, that the recommended strategy was faulty and did not disclose a reasonable basis on which to recommend investments of $200,000 in another GEI, $68,200 in Gunns Plantation 2008 and $74,100 in Willmotts 2008, all financed by borrowings. Rather, the competent adviser would have sought to reduce Mr Dennis' debt obligations.
596 Mr Barber also says that in late 2007, the ATO prohibited up-front tax deductions on non-forestry agribusiness schemes and even though that decision was overturned by the courts in 2008, it created significant regulatory uncertainty in the sector, something that should have been taken into account in the SOAA, but was not.
597 On their face, the figures shown in the 11 June 2008 SOAA require explanation, especially in light of those provided in the April SOAA and in circumstances where Mr Dennis' circumstances did not appear to have changed in the ensuing two months.
598 Mr Takla accepted the modelling in the relevant cashflow table in the 11 June 2008 SOAA was wrong. His evidence was that the recommendations in the SOA nevertheless had a reasonable basis going. He says that on 1 July 2007, at the beginning of the 2008 financial year, he received a request from Mr Dennis regarding an SOA and Mr Dennis' reconciliation of that advice to other investments, to which he responded on 2 July 2007.
599 He refers to a printout from NAB showing NAB limits of 9 July 2007.
600 He also refers to an investment position summary as of 3 September 2007, an internal document which allowed Chambers to calculate annual fees but not given to Mr Dennis.
601 On 24 September 2007, Mr Takla requested updated financial information for his regular review with Mr Dennis.
602 Soon after that he obtained a further printout of NAB limits dated 9 October 2007.
603 In November 2007, he received a statement from Merrill Lynch to Mr Dennis, of October 2007, in relation to Mr Dennis' external equity margin loan account.
604 On 20 November 2007, Mr Takla received a further NAB limit statement.
605 Then on 4 December 2007, he met with Mr Dennis. He refers to his email dated 5 December 2007 in that regard.
606 An application was then compiled for a Macquarie GEI, for $500,000 in December 2007, though this was not sent until 31 January 2008. This is the GEI referred to in the SOAA of 9 April 2008.
607 In February 2008, Macquarie requested further evidence of Mr Dennis' income.
608 Mr Takla says that Mr Dennis provided the following documents in support of that application:
a letter dated 15 February 2008 estimating income;
a copy of an unsigned agreement concerning the performing of engineering services.
609 The letter from the company handling the consultancy agreement for Gigajoule stated that Mr Dennis' year to date gross income from July 2007 to March 2008 was $144,490 and estimated he would earn a further $140,000 by the end of the year, which would bring his total income through his company to $285,000.
610 Mr Takla said he did not take this to mean that this was the entire income for that year, as Mr Dennis had previously told him that he expected other sources of income, such as money from his family. Mr Takla said, however, he did not take the funds, which Mr Dennis told him he anticipated receiving, into consideration when preparing the advice. This was because Mr Dennis was unable to say just when he would receive those family funds.
611 Mr Takla said he was also aware at this point that Mr Dennis had other dividend income from his existing capital protected investments.
612 On 9 April 2008, Mr Takla provided the SOAA recommending the $500,000 GEI investment and $88,660 investment in Gunns Plantation 2008.
613 Mr Takla said he recommended those investments on the following basis:
Mr Dennis expected to earn between $250,000 and $300,000 for the financial year, and he took the lower figure.
Mr Dennis had a capital gain of $65,000 from GEI No 2.
Mr Dennis would sell his existing managed funds with ABN AMRO Morgans and reduce his debts with NAB.
Mr Dennis intended to roll part of his shares through ABN AMRO Morgans (not under Chambers' advice) into a new GEI which would reduce his margin loan debt by $100,000 and also reduce the overall cost of a new GEI.
Mr Dennis said he would sell the balance of his margin loan account which would result in realisation of approximately $90,000, which he would use to reduce the NAB debts.
Mr Dennis told him that he had at his discretion $200,000 from the sale of the family vineyard, which he intended to use to reduce his debt with NAB.
Mr Dennis said that he would increase his monthly payment into the buffer account towards investments from $2,500 to $5,000 and in addition would also contribute all future income increases over $250,000 for the same purpose.
The Gunns Plantation 2008 investment would assist with tax planning, having regard to his high income and capital gains.
The underlying investment in Gunns Plantation was in bluegum trees similar to earlier MISs and the investment would allow Mr Dennis to enjoy any harvest proceeds before 65 years of age.
614 Mr Takla says that in May 2008, Mr Dennis met with him to discuss recent government changes regarding the tax deductibility of capital protected investments, such as the GEI which would cause an increase in the net cost of the GEI in the short term. At the meeting, he said he suggested to Mr Dennis that he split the $500,000 facility, which Macquarie had approved, to purchase two investments: $200,000 in a GEI, along the lines originally advised, and $300,000 in a newly released capital protected investment named GP100.
615 Mr Dennis then signed the application for the new investments at that meeting although at a later date he instructed the respondents that he did not wish to proceed with the GP100 but preferred to continue to invest the entire facility in a GEI. Mr Takla says this was one of a number of occasions on which Mr Dennis did not follow his advice.
616 Mr Takla says part of the facility, in the amount of $200,000, was drawn down to purchase GEI No 4 in July 2008. The remaining $300,000 that had been approved was drawn down in September 2008 to purchase GEI No 5, as Mr Dennis had instructed Chambers to do.
617 The 11 June 2008 SOAA was then issued revising the earlier SOAA and reflecting the position arrived at, in that it was then recommended that Mr Dennis only invest:
$200,000 in a further GEI No 4;
$68,200 in Gunns Plantation 2008;
$74,100 in Willmotts 2008.
618 The Chambers' financial services guide was provided together with PDSs for the two MISs, namely, Gunns Plantation 2008 and Willmotts 2008.
619 Mr Takla received an email from Macquarie the next day, 12 June, in relation to the split of the previous GEI approval for $500,000 over a GEI and a GP100 and requiring updated financial information.
620 Also, on 12 June 2008, Chambers received information about Mr Dennis' subcontracting income suggesting an estimated income of $285,000 for that financial year.
621 On 10 July 2008, Macquarie confirmed Mr Dennis' investment in Facility 2142116 and enclosed a confirmation letter to Mr Dennis.
622 After 10 July 2008, Mr Takla notes he was also given authority by Mr Dennis to deal with NAB with a view to changing the limits between the different NAB accounts.
623 On 10 September 2008 he met with Mr Dennis for a follow up where they discussed the GEI recommended in the SOAA of 11 June. He says Mr Dennis asked whether he could increase his investment but he advised against him doing so until he had retired more debt. He says Mr Dennis then told him he was expecting to receive significant funds of approximately $500,000 from his family. He noted the file note dated 10 September 2008 to that effect.
624 In September 2008, various documents were generated relating to Facility 2142116.
625 Lehmann Brothers also sought bankruptcy protection in the United States in September 2008.
626 Mr Takla says that it now appears from the 2008 tax returns, that Mr Dennis had already received about $421,000 from his family inheritance that financial year towards his share of $500,000 - although he knew nothing of this at the time.
627 In December 2008 Mr Takla and Mr Dennis met again to discuss cashflow. Mr Takla says Mr Dennis told him he expected his overall debts to remain the same but Mr Dennis did not disclose to him that he had already received substantial funds from his family. Nor did he repay any of the money which Mr Takla had loaned to him in relation to the South Perth property purchase, which is discussed further below.
628 Mr Takla says that on 11 November 2008, he received an email from Mr Dennis in relation to that personal loan for the South Perth unit purchase (which is discussed further below) requesting a reduction in interest. He says this was not a matter they had previously agreed or discussed and he was not prepared to consider it as he considered the interest rate was agreed and reasonable, being less than market for an unsecured personal loan.
629 Also, Mr Dennis raised queries in relation to some of his investments.
630 On 11 December 2008, Chambers sent Mr Dennis an email attaching an update to all of his clients which relevantly provided that Mr Dennis review his personal budget with a fine toothed comb and cut down on any discretionary or extraneous expenses, strictly apply all investment income and tax refunds as per usual practice to reducing debt and suggesting he call if there were any issues.
631 As to why debts owed on the MIS schemes was not shown as current liabilities in the SOAA, only an "Investment loan" of $270,000, Mr Takla said that the $270,000 assumed Mr Dennis had already paid in $200,000 from his proposed inheritance. That should therefore be seen as a proposed new liability at that point.
632 When asked in cross-examination whether, by reference to the cashflow table, the debt started out at minus $246,000 in 2008 and gradually crept up to minus $1.06 million by 2018, Mr Takla agreed that is what it showed. It was then noted that the net capital gains on the cashflow prediction at that time was minus $181,716. Mr Takla said that it effectively meant that Mr Dennis' debts would go down from minus $246,738 in 2008 to minus $180,000 in 2018, before it turned into substantially positive sums, as shown on the chart.
633 When it was put to Mr Takla that in 2018 Mr Dennis, who was born in 1953, would be 65 - retirement age - he responded by saying that there was an element in Mr Dennis' financials:
that is not reflected in this calculation and to be on the more conservative side. That is all his projected incomes from all his agribusiness. So if we are talking only about projections, by 2018 Mr Dennis might have something like $1.5 million to $2 million in agribusiness.
634 Mr Takla added that that item was completely on the conservative side. He further added (transcript 439) that the cattle, olives and vineyards, which came to something like $400,000 as gross investments, provided actual annual income from year one up to the next 23 years. Mr Takla acknowledged all this was not reflected in the SOAA, but said that if they were notionally incorporated, Mr Dennis' position would have been better off on a projected basis by something like at least the $1.5 million.
635 Mr Takla also admitted that some investments were not included in the SOAA, such as Sylvatech 2003 and the AGL investments, but insisted (transcript 442) that that did not affect the calculation of Mr Dennis' financial position, "because the financial projection picks all this up". He said this was an unfortunate omission but, in effect, that was all it was.
636 Mr Takla also acknowledged that the cashflow table was totally wrong in suggesting that by 2033, Mr Dennis would be in debt to the extent of $1,618,242. Mr Takla said that did not represent Mr Dennis' position at the time.
637 When it was suggested to Mr Takla that Mr Dennis was finding it difficult to meet ongoing payments at that point, Mr Takla challenged that view. Mr Takla said he recalled that in about March 2009, Mr Dennis had mentioned something about his debts and he did respond at that time, telling him effectively that his concerns could be addressed. But he did not think he heard from Mr Dennis about that too many times after that.
638 When it was put to Mr Takla that Mr Dennis had "tried to contact" him for information about his MIS investments, Mr Takla rejected the suggestion that Mr Dennis had tried to contact him unsuccessfully and said that Mr Dennis always had access to him and there was never a single complaint on that front.
639 In relation to a proposition that, when Mr Dennis' inheritance arrived, Mr Dennis had offered to pay out Mr Takla's loan in relation to the South Perth unit, Mr Takla rejected that entirely. He said at first he was not told that Mr Dennis had received his inheritance. He thought that in about July 2008, he was advised that Mr Dennis had received $170,000, and he had then spent $70,000 on a car, and was going to put $100,000 into reduction of debt. He said that was the extent to which he heard from Mr Dennis about his inheritance. It was not until later, when he saw the tax return, that he came to understand Mr Dennis had received more than $500,000 in inheritance, but he did not previously know about that.
640 Mr Takla bluntly rejected the proposition that he had told Mr Dennis that he should not pay out Mr Takla's personal loan to him on the South Perth unit, but should pay NAB instead. He said the loan was all about helping out a friend who had temporary difficulties, but he never proposed to Mr Dennis that he should keep his debts until the end.
641 Mr Takla also rejected the proposition that he extended more time to pay monies owing on rent and on the loan. Rather, he said, when Mr Dennis came to him and said, "George, I'm going to the university, I'm out of a job, can I hold on the rent and the interest for a while", he agreed. Mr Takla said he did not lose confidence in human beings and that is why he agreed to those arrangements.
642 Mr Pillai, in relation to the SOAA of 11 June 2008, expressed an opinion consistent with his earlier opinions about other such MIS and GEI recommendations that, given Mr Dennis' financial position, income in the given year of $261,000, an anticipated distribution from an estate trust of $313,000, stated risk tolerance and desired outcomes, an agreed strategy of tax minimisation and asset accumulation from tax savings, the investments were appropriate. Further, given Mr Dennis' capital gains tax of $120,728 as a result of an unwind of investments and existing Macquarie GEI investment to fund financial obligations, stated risk tolerance and desired outcomes, the recommended investments were likely to deliver Mr Dennis' objectives at that time. He also considered Mr Dennis had sufficient cashflow to fund the recommended level of borrowings and be in a position to retire debt.
643 Mr Pillai also considered that the risks of entering into the investments were sufficiently explained and in particular noted the acknowledgement made to that effect by Mr Dennis.
644 The question remains, however, whether Mr Dennis has shown that Mr Takla and Chambers did not have a reasonable basis for the recommendation made in the SOAA of 11 June 2008 and failed to exercise reasonable judgement in that regard. While it is true the SOAA of 9 April 2008 was not acted upon, the fact is that it was not greatly revised compared with the 11 June 2008 SOAA, so far as the investment recommendations were concerned. However, as noted, the cashflow projections incorporated into the 11 June SOAA were remarkably different from the April version. Mr Takla, as noted, accepted the figures were wrong.
645 Some time was spent at trial interrogating the cashflow analysis at pg 24 of the 11 June 2008 SOAA and the earlier cashflow analysis at pg 19 of the 9 April 2008 SOAA. The root of the calculation difficulties seemed to be the minus $322,400 figure for 2008 shown at pg 23 of the June SOAA. As Mr Barber said in his evidence, there was nothing in that SOAA which suggested there was going to be such a "massive further investment".
646 The cashflow analysis at pg 24 of the SOAA of June 2008, commencing with the year 2009, showed investment costs of minus $276,231. The experts, following overnight conferral, agreed that they were not able to provide the source of that figure. Indeed it provided something of a conundrum and remained inexplicable. One can only conclude that the modelling, based on inputs not explained, has produced an entirely incorrect scenario.
647 In cross-examination, Mr Barber was referred to the Note appearing at the foot of pg 24 of the 11 June 2008 cashflow analysis that states:
This cashflow extrapolates year projected tax position. It assumes that your disposable income pays for your investments. In reality, your Reserve Account finances your investment commitments as explained by your adviser. As such, please ignore the negative cashflow years.
Counsel observed this meant that the buffer account would finance the investment commitments and so the negative cashflow years could be ignored. When counsel asked Mr Barber whether that made sense, he agreed that it did.
648 On the face of it, the Note does direct the client to ignore the modelling on this basis and it seems to me that the error, for which explanation could not be provided by the experts, is inexplicable. In the result, I ignore the error in the cashflow analysis. There is no evidence, as the respondents submit, that Mr Dennis actually placed any reliance on it.
649 While it may be said there were misstatements in the finance application and some plain omissions in the advice of 11 June 2008, in the result I accept that the basis upon which Mr Takla recommended the investments in GEI No 4 as well as Gunns Plantation 2008 and Willmotts 2008 were as set out above. GEI No 4, as noted above, was in the sum of $200,000. The two MISs were in a total of $142,300. I note in passing an additional GEI was also planned to be taken out later in 2008.
650 In my view, the evidence supports the view that Mr Takla did regard Mr Dennis' current financial circumstances, his income, ability to carry associated expenses and cashflow capacity (notwithstanding the inexplicable cashflow table in the SOAA) when he made these recommendations. While hindsight may suggest Mr Dennis was not as well placed to carry the associated expenses at this point, hindsight is a wonderful thing. I consider Mr Takla had a reasonable basis for the advice then given.
651 In those circumstances, I do not consider that Mr Dennis has shown that the 11 June 2008 SOAA lacked a reasonable basis or that Mr Takla failed to exercise reasonable judgement when making the recommendations, including the MIS recommendation, that he did.
652 This part of Mr Dennis' claim fails.