Eric Preston Pty Ltd v Euroz Securities Limited

Federal Court of Australia (Full Court)|2011-02-04|Before: Barker JJ

The appeal be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 47 of 2010

AND: EUROZ SECURITIES LIMITED (ACN 089 314 983)

Introduction and overview 1 From about January 2004, Eric Preston Pty Limited (Preston) conducted very substantial share trading activities using a margin lending facility to finance its trading. Preston's margin lender at that time was Leveraged Equities Limited (Leveraged Equities), a company associated with Adelaide Bank Limited. Preston carried out its share trading activities through its stockbroker, Euroz Securities Limited (Euroz). 2 The Leveraged Equities facility was a standard margin lending agreement. It provided for the shares acquired with funds advanced by Leveraged Equities to be held as security for the advances. Legal title in the shares was transferred to Leveraged Equities but the beneficial ownership remained with Preston. 3 In May 2007, Preston terminated the Leveraged Equities facility and entered into a new facility conducted by Opes Prime Stockbroking Limited (Opes Prime). The Opes Prime facility was not a standard margin lending agreement. Rather, it was a securities lending agreement under which Preston transferred the legal and beneficial ownership of the shares to Opes Prime in return for the funds advanced pursuant to the facility. 4 The effect of the Opes Prime facility was, therefore, that Preston was exposed to the risk of insolvency of Opes Prime. The risk was a real one because Opes Prime pooled the shares transferred to it by Preston with shares transferred to Opes Prime under similar facilities. Opes Prime then used all of the shares as security for loans made by banks which financed Opes Prime's business. 5 The risk of insolvency of Opes Prime came to pass on 27 March 2008 when administrators were appointed. Preston suffered substantial losses as an unsecured creditor of Opes Prime. 6 Preston sought to recover its losses from Euroz. The gravamen of Preston's claim was that, on 14 May 2007, Mr Richard Caldow, an Executive Director of Euroz, introduced Mr Bruce Drummond, the principal of Preston, to the Opes Prime facility and that when doing so, Mr Caldow told Mr Drummond that the Opes Prime facility was the same as the Leveraged Equities facility. 7 It was central to Preston's case at the trial that if Mr Drummond had been advised that Preston would be no more than an unsecured creditor of Opes Prime, and would be at risk of losing its portfolio in the event of the insolvency of Opes Prime, Preston would have remained with Leveraged Equities. 8 The primary judge (Siopis J) found that Mr Caldow did not make the statement that Mr Drummond alleged. His Honour preferred the evidence of Mr Caldow to the evidence of Mr Drummond as to what was said in the conversation. This finding was based principally upon his Honour's assessment of the credit of the witnesses. 9 His Honour also found that even if Mr Drummond had been advised of the risk which was contained in the Opes Prime facility, Preston would still have terminated the Leveraged Equities facility and entered into the Opes Prime facility. 10 This finding was based not only on his Honour's assessment of Mr Drummond's credibility, but also on a number of objective facts. Three of those facts were critical to the outcome of the proceeding. 11 First, Mr Drummond was very much attracted to the shares of a company known as Sundance Energy Australia Ltd (Sundance). He wished to build up a large portfolio of shares in that company. However, shortly before Preston terminated the Leveraged Equities facility, Leveraged Equities declined to advance funds sought by Mr Drummond for the purchase of Sundance shares. 12 By contrast, Opes Prime was prepared to offer a margin on Sundance shares and Mr Drummond proceeded to acquire shares in Sundance immediately upon the entry into the Opes Prime facility. Ultimately, Preston acquired in excess of 5% of the issued share capital of Sundance using the Opes Prime facility to finance the acquisition. 13 Second, on 1 February 2008, Mr Caldow sent Mr Drummond an email "highlighting the fundamental differences" in the facilities provided by securities lenders such as Opes Prime as against those provided by traditional margin lenders such as Leveraged Equities. The email included the following statement: The risk associated with this structure is that if the securities lender was to become insolvent then the clients would become unsecured creditors of the lender … 14 This email was received by Mr Drummond eight weeks before the collapse of Opes Prime. The primary judge observed that, notwithstanding the receipt of the email and, indeed, advice from his business adviser, Mr Graham Anderson (which was endorsed by Mr Caldow), that Preston should terminate the Opes Prime facility, Mr Drummond continued to use the facility to engage in share trading, including the acquisition of further shares in Sundance. 15 Third, his Honour observed that in February 2008, when Mr Drummond was aware of the risks associated with the Opes Prime facility, he had the opportunity to refinance with Leveraged Equities by making adjustments to his share portfolio so as to meet the requirements of that margin lender. Nevertheless, he failed to do so. 16 The primary judge found that, by 6 February 2008, Mr Drummond was fully apprised of the risks associated with the Opes Prime facility but he was prepared to take those risks. In particular, he failed to take steps to sell sufficient shares to be able to refinance the facility with Leveraged Equities, and he was unwilling to take up the opportunity to refinance with the National Australia Bank. 17 His Honour therefore went on to find that the chain of causation between any breach of duty complained of by Preston, and the loss which it claimed, was broken by the advice given by Euroz to Preston in the email of 1 February 2008. 18 In coming to the view that the chain of causation was broken, his Honour also took into account conversations between Mr Drummond and Mr Caldow which occurred between 1 February 2008 and 27 March 2008. The issue in relation to those conversations turned on the question of whether Mr Caldow was merely passing on information received by Mr Caldow from an officer of Opes Prime, Mr Mark Rice, as to the financial position of Opes Prime, or whether Mr Caldow expressly stated that Preston's share portfolio was safe. 19 That issue raised for consideration a claim that Euroz, by Mr Caldow, made a misrepresentation on or shortly after 1 February 2008 that Preston's portfolio was safe. His Honour found, consistently with the authority of the High Court in Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 ("Butcher v Lachlan Elder"), that Mr Caldow passed on information from Mr Rice and made no representation that the portfolio was safe. That finding was, as we have said, also relevant to his Honour's view that any loss did not have the requisite causal nexus. 20 Notwithstanding the factual findings made by the primary judge against Mr Drummond on all of the critical issues in the case, Preston appeals against his Honour's decision. 21 The Notice of Appeal is a long and complex document which purports to raise 24 grounds of appeal. Senior counsel for Preston endeavoured to distil the grounds into five discrete issues. We have considered the appeal, largely on the basis of the five issues identified in the written and oral submissions.

The issues on the appeal 22 The first issue was described in argument as "the retainer issue". 23 The retainer issue arose at the trial because Preston pleaded its case, inter alia, in contract. In particular, it pleaded that in 2000, Preston retained Euroz to be its stockbroker and financial adviser. Preston also pleaded that there were certain implied terms of the retainer, including a term that Euroz would advise Preston as to the true nature of the financial products that Preston would acquire and/or use on the advice of Euroz. 24 The primary judge considered that Preston had not sought to limit the scope of the financial matters in respect of which Euroz agreed to advise Preston. He therefore treated the pleading as a claim that Euroz agreed to give general financial advice to Preston, including advice in relation to financial credit products offered by third parties, which may be used to provide financial assistance to Preston to purchase shares. 25 His Honour found that Preston had failed to prove that Euroz agreed to act as Preston's stockbroker and financial adviser. He also found that the retainer did not contain the implied terms as to the scope of the retainer for which Preston contended. That is to say, his Honour rejected the claim that the retainer extended to an obligation on Euroz to advise Preston as to the nature of the Opes Prime facility. 26 Preston challenges this finding on the appeal. Preston contends that the primary judge should have decided that Euroz was retained by Preston to act as its stockbroker and financial adviser in relation to third party financial products such as those supplied by Opes Prime. 27 Preston puts this claim in both contract and tort but senior counsel for Preston, Mr Bick QC, made it clear in his argument, that the claim in tort was co-extensive with the claim in contract. What was therefore said was that the retainer gave rise to a duty, whether expressed in contract or in tort, to advise Preston as to the nature and risks attached to the Opes Prime facility. 28 There is a subsidiary question on the retainer issue. This question concerns the primary judge's decision not to accept the expert evidence of a stockbroker, Mr McKimm, who was called by Preston to give evidence as to what advice a reasonable and prudent stockbroker would give to a client contemplating entry into a margin lending agreement. 29 Preston submits that the primary judge was in error in rejecting the "uncontradicted" expert evidence of Mr McKimm. 30 The second issue is breach of the retainer. The primary judge found against Preston on this issue because his Honour found that Mr Caldow did not state that the Opes Prime facility was the same as the Leveraged Equities facility. 31 Preston challenges this finding. It contends that the primary judge ought to have found that Mr Caldow made the statement attributed to him by Mr Drummond in the 14 May 2007 conversation. 32 Importantly, the primary judge observed that, at the trial, Preston's case was based on the central contention that Mr Caldow made a positive statement as to the characteristics of the Opes Prime facility, namely that it was the same as the Leveraged Equities facility (save for a lower interest rate and better loan to value ratios which enabled finance for a wider range of share purchases). 33 However, Preston also sought to put its case at the trial on an alternative basis. This was that, if the primary judge found that Mr Caldow did not make out the positive statement alleged against him, Preston was nevertheless permitted to contend for a "negative case" based on a failure to advise. Preston's contention was therefore that if Mr Caldow failed to state that the Opes Prime facility was the same as the Leveraged Equities facility, Preston was permitted to advance an alternative case, namely that Euroz failed to disclose the differences between the two facilities. 34 The primary judge rejected the contention that Preston was entitled to pursue the alternative case. His Honour observed that Mr Drummond had specifically deposed that positive advice was given by Mr Caldow which induced Mr Drummond to believe that the Opes Prime facility was of the same character as the Leverage Equities facility. His Honour went on to say that it was therefore not open to Preston to contend that the crucial belief was induced by different factual circumstances. 35 Preston submits that his Honour was wrong to determine that Preston was precluded from running the alternative case. 36 There was a further limb of Preston's claim of breach of retainer. This turned upon the terms of the email of 1 February 2008 and the subsequent conversations between Mr Drummond and Mr Caldow. 37 The claim of breach arising out of the events of February and March 2008 was put in a number of ways. The substance of the claim was that the email was not sufficient to comply with Euroz's duty to advise in accordance with the terms of the retainer, that Euroz failed to advise Preston to terminate the Euroz facility urgently and that Euroz advised that the portfolio was safe. 38 Each of the various claims of breach was pursued on appeal. 39 The third issue concerns Preston's claim that Euroz engaged in misleading and deceptive conduct. This was argued at the trial upon the basis of two alleged misrepresentations. 40 The first misrepresentation was said to be that Mr Caldow represented to Mr Drummond that the Opes Prime facility was, in nature, and substance, and in risk, the same as the Leveraged Equities facility. 41 The second misrepresentation was said to be that on or about 1 February 2008 Euroz represented to Preston that: it would be necessary for the stock market to fall 20% in one day, and for no client of Opes Prime to pay its margin calls, for Opes Prime to become insolvent; and Preston's share portfolio was safe under the Opes Prime facility. 42 The issue on the appeal in relation to the first misrepresentation mirrors the claim of breach of contract. That is to say it raises the question of whether the primary judge's finding as the credibility of Mr Drummond's evidence ought to be set aside, and whether his Honour was in error in refusing to entertain the alternative claim of misrepresentation by silence. 43 The principal issue in relation to the second misrepresentation is whether his Honour was in error in finding, upon the basis of Butcher v Lachlan Elder, that Mr Caldow merely passed on information received from Opes Prime. 44 The effect of Preston's contention on the appeal was that his Honour ought to have concluded that Euroz's conduct, viewed as a whole, had the tendency to lead Preston into error. In particular, Preston contended that Mr Caldow endorsed statements made by Mr Rice of Opes Prime which were allegedly to the effect that Opes Prime was unlikely to fail and Preston's portfolio was safe. 45 The fourth issue consisted of an attack on the primary judge's finding against Preston on the questions of reliance and causation. 46 As to reliance, Preston contends that his Honour's findings that Preston would still have entered into the Opes Prime facility even if the risks had been fully explained, should be set aside. 47 The substance of Preston's submission on the issue of causation is that Euroz ought to have advised, not merely that it was important for Preston to refinance, but that it was urgent to do so. 48 The fifth issue addresses the question of what finding the primary judge ought to have made as to Preston's loss and damage and whether that should be set off against Preston's liability for the sum of approximately $93,000 due to Euroz under the retainer.

Structure of the judgment 49 In order to address the issues raised on the appeal, it is necessary to set out in some detail the factual material. Much of it is drawn from the judgment of the primary judge but certain matters require detailed consideration. 50 There are two critical periods. The first is from 14 May 2007, when Euroz "introduced" Preston to the Opes Prime facility, to the end of May 2007 when Preston terminated the Leveraged Equities facility and replaced it with the Opes Prime facility. 51 The second is from 1 February 2008, when Euroz sent an email to Mr Drummond adverting to the risks inherent in the Opes Prime facility, to 27 March 2008 when administrators were appointed to Opes Prime. 52 We will approach the judgment by first addressing the background facts with particular attention to the two critical periods mentioned above. 53 We will then set out the salient parts of the primary judge's reasons before addressing each of the issues raised on the appeal.

Background facts: establishment of stockbroking relationship 54 The stockbroking relationship between Mr Drummond and Mr Caldow commenced in about 1995. At the time, Mr Caldow was an employee of Paterson Ord Minnett Limited (Ords) and Mr Drummond was a client of that firm. Mr Drummond "followed" Mr Caldow to Euroz in about November 2000 when Mr Caldow left Ords to join the newly established firm. 55 Euroz was established in November 2000 by a number of former directors of Ords. Mr Caldow became an executive director of Euroz and a shareholder in its parent company, Euroz Limited. He was a member of Euroz's private client team which was headed by Mr Simon Yeo, a former colleague of Mr Caldow at Ords. 56 At the time when Mr Drummond moved to Euroz, he had a share portfolio valued at about $100,000. In about July 2000, that is to say approximately five months before he moved to Euroz, Mr Drummond entered into a margin loan agreement with Leveraged Equities. Thereafter, he used the margin loan account with Leveraged Equities for his share trading activities. The application form for the original Leveraged Equities margin loan was sent to Mr Drummond by Mr Caldow when he was at Ords.

Incorporation of Preston 57 Mr Drummond established Preston in 2003 on the advice of a number of persons, including his accountant, Mr Graham Anderson. Mr Preston had, for many years, carried on business as a car dealer and Mr Anderson had been his accountant and adviser. 58 From early 2004, Mr Drummond used Preston as the vehicle for his share trading activities. Preston opened a share trading account with Euroz on 6 January 2004. Preston also entered into a margin lending agreement with Leveraged Equities at about the same time. 59 Euroz had a research department which specialised in researching low capitalisation emerging mining and exploration stocks. That was the area of the stock market in which Mr Drummond was interested and Preston traded in a number of speculative mining stocks. Usually, although not always, Preston's trading was carried out on the advice of Mr Caldow. 60 Euroz was the broker to the initial public offering of Sundance. Preston took up a parcel of shares in the IPO and, over time, acquired a large parcel of Sundance shares. 61 In 2006 Preston increased substantially the volume of its share trading activities. In April 2007, Mr Drummond began to conduct Preston's share trading activities on a full time basis.

April/May 2007: Opes Prime presentation to Euroz 62 In late April or early May 2007, Mr Mark Rice of Opes Prime made a presentation to representatives of Euroz, including Mr Yeo, about the Opes Prime securities lending facility. Mr Rice was the Head of Sales and Marketing at Opes Prime. 63 On 10 May 2007, Mr Yeo sent an email to Mr Rice enquiring about the security of Opes Prime and asking, in particular, what level of security clients would have in the event of a major downturn. 64 Mr Rice responded on the same day to Mr Yeo. Mr Rice's email stated, inter alia, that Opes Prime operated under a "securities lending and borrowing arrangement" and that: … to get the funds to lend to the end client we "on lend" the securities to our funders, primarily ANZ. 65 Mr Rice's email of 10 May 2007 to Mr Yeo also stated: In the absolute highly unlikely worst case scenario, if Opes was to become insolvent, clients would end up as creditors to our funders, which is primarily ANZ, and they would have to repay their loan in exchange for the securities.

May 2007: introduction of Opes Prime to Preston 66 As at May 2007, Preston had a very substantial share portfolio in its margin loan account with Leveraged Equities. Some of the stocks had a margin attached to them but there were approximately $1.6 million worth of shares in other companies on which Leveraged Equities had not extended a margin. Those stocks included Sundance. 67 One of the consequences of the composition of Preston's portfolio, which included stocks to which Leveraged Equities did not extend a margin, was that at the commencement of each of the three months preceding May 2007 (that is to say January 2007 to April 2007), Preston was in a shortfall position on its margin loan account with Leveraged Equities. 68 As the primary judge observed, the critical conversation between Mr Drummond and Mr Caldow, on which much of the case turned, took place on 14 May 2007. His Honour recorded the salient points of the competing versions of the conversation, in particular at [256], [260] and [278] of his judgment. 69 It was common ground between Mr Drummond and Mr Caldow that the conversation of 14 May 2007 took place on the telephone and that Mr Drummond overheard Mr Yeo, (who had a desk very near to Mr Caldow) call out to Mr Caldow to tell Mr Drummond about Opes Prime. 70 There were two important differences between the competing versions of the conversation. The first was that, initially, Mr Drummond said he told Mr Caldow that he (Mr Drummond) had a good history with Leveraged Equities and did not want to change to Opes Prime unless there was a good reason. By contrast, Mr Caldow said that Mr Drummond complained that Leveraged Equities did not give a margin against stocks he wanted to buy. 71 The second crucial difference was that Mr Drummond said he asked Mr Caldow whether the Opes Prime facility was exactly the same as the Leveraged Equities facility, save for three specific advantages in the Opes Prime facility. The advantages were a lower interest rate, a better loan to valuation ratio and the ability to borrow against a wider range of stocks. 72 Mr Caldow's version of the conversation was that although Mr Yeo had heard of the Opes Prime product, Mr Caldow had not looked at it. He said he told Mr Drummond: … evidently they can give you a better margin on stock but I haven't looked at it. 73 In their respective versions of the conversation of 14 May 2007, Mr Drummond and Mr Caldow agreed that Mr Caldow was to send Mr Drummond some information about the Opes Prime facility. On 14 May 2007, shortly after the conversation took place, Mr Caldow sent Mr Drummond an email which attached, without comment from Mr Caldow, a pdf file containing the Opes Prime Financial Services Guide (FSG). 74 On 15 May 2007, Mr Drummond sent an email to Ms Danielle Jones of Leveraged Equities. The email stated that Mr Drummond had a large shareholding in Sundance without any margin attached to it. He said it was his intention to buy more Sundance shares and wanted to know whether Leveraged Equities would extend a margin of "say 35%" on the stock. Ms Jones replied about five minutes later stating that she could not get credit for any margin loan on Sundance because it had a market capitalisation of only $45 million. 75 Mr Drummond acknowledged in cross-examination, that after the email from Ms Jones, he knew he was "going nowhere with Leveraged". He also agreed that after he received Ms Jones' email, he telephoned Mr Caldow and told Mr Caldow that Leveraged Equities would not give him a margin on Sundance. Mr Drummond also agreed that he then said to Mr Caldow: Well that's the end of them 76 On 17 May 2007 there were a number of communications between Mr Drummond and Mr Caldow about Preston opening a margin loan account with Opes Prime. Mr Drummond also spoke directly with Mr Rice. In addition, there were email communications between Mr Caldow and Mr Rice relating mainly to loan to value ratios offered by Opes Prime, interest rates and trailing commissions. 77 Most of the relevant communications which occurred on 17 May 2007 are recorded by the primary judge at [264] - [270]. 78 On 22 May and 23 May 2007, Mr and Mrs Drummond completed and sent to Mr Rice application forms for the Opes Prime margin lending facility and there were communications between them. On the following day, 24 May 2007, Mr Drummond sent the Opes Prime FSG to Mr Anderson about matters such as loan to value ratios and interest rates. 79 Preston entered into the Opes Prime margin lending facility in late May 2007. The exact date of the document does not appear in the evidence but it is clear that the facility was entered into no later than 31 May 2007 because on that date Preston commenced trading using the Opes Prime facility. Significantly, the first transaction undertaken by Preston with the new facility was the purchase of 239,000 shares in Sundance. 80 The relevant terms of the Opes Prime facility entered into between Preston and Opes Prime are recorded in the primary judge's reasons at [70] - [74]. It is unnecessary to refer to the terms of the facility agreement other than to say that it was not expressed in clear language and that it provided for the title in "borrowed" securities to pass absolutely to Opes Prime.

Transfer of Preston's securities to Opes Prime 81 On 1 June 2007, Opes Prime paid to Leveraged Equities the balance then outstanding on Preston's account. The securities held by Leveraged Equities were transferred to Opes Prime between 1 June 2007 and 4 June 2007. 82 As at 1 June 2007 the market value of Preston's share portfolio was over $5.5 million. Preston had an outstanding balance owing to Leveraged Equities of just in excess of $1.8 million. The margin value of the portfolio was approximately $1.6 million due to the fact that Leveraged Equities would not extend a margin to some of Preston's stocks. This left a shortfall on the margin loan to Leveraged Equities of just over $200,000. 83 The shares which were transferred by Leveraged Equities to Opes Prime included 5,236,763 shares in Sundance.

The email of 1 February 2008 84 The catalyst for the email of 1 February 2008 from Euroz was an article which appeared in The Australian newspaper on 31 January 2008. The article appeared under the caption "Banks put squeeze on Tricom." 85 The article outlined the difficulties being experienced by another margin lender, Tricom Equities Limited (Tricom). The article explained in clear terms the difficulties faced by clients who took out margin loans under the "Tricom model". It explained that they signed over their beneficial ownership in the stocks to Tricom, that they took on Tricom's credit risk and that they could rank as unsecured creditors behind the banks which extended the necessary loan facilities to Tricom. 86 The article included the following statements: Tricom's bankers, ANZ, Merrill Lynch and Credit Suisse, have contracts with Tricom, not with Tricom's clients. That is how they have the power to freeze Tricom's accounts and force Tricom to sell shares when there is a margin call. The common perception among many of Tricom's clients is that the shares belong to them, but when they take out a securities lending agreement with Tricom they sign the beneficial ownership of those shares to Tricom. It is this that makes Tricom different to most other margin lenders. They don't own shares on trust for the client. In most cases margin lenders hold shares in a separate account in the client's name. In Tricom's case, the shares get mixed in with Tricom's and everyone else's shares, providing securities to the banks that provide margin loans to Tricom. 87 The Tricom article no doubt caused some concern both within Euroz and Opes Prime. Mr Anthony Mark Brittain, who was the chief operating officer of Euroz, read the article on 31 January 2008 and discussed it with Mr Yeo and another Euroz executive, Mr Anthony Hewett. 88 Mr Yeo and Mr Hewett then spoke to Mr Rice at Opes Prime about the nature of the Opes Prime facility. Mr Rice then sent an email to Mr Yeo and Mr Hewett on 31 January 2008 purporting to explain the facility. The email included an acknowledgment that the risk of the facility was that if Opes Prime became insolvent, borrowers would become unsecured creditors of that company. However, the email went on to set out a list of matters which put Opes Prime: .. in a strong position and more than capable of managing market volatility. 89 Later on 31 January 2008, Mr Brittain arranged for an email to be sent by Mr Hewett to all Euroz brokers attaching a statement about Opes Prime and Tricom. Mr Yeo instructed all Euroz brokers, including Mr Caldow, to send the email to their clients. The email, which Mr Drummond received on 1 February 2008 was in the same terms as that which was sent to all other Euroz clients. 90 The email of 1 February 2008 referred to recent media articles concerning settlement difficulties experienced by Tricom and the potential exposure of their clients. It highlighted the "fundamental differences" in the borrowing arrangements between a securities lender such as Tricom and Opes Prime, as against traditional margin lenders such as Leveraged Equities. 91 The email of 1 February 2008 went on to say that a "significant point" was that the "securities lending model" required legal ownership in the stocks to pass from the client to the securities lender which often held the stocks in a pooled account which was used as security by the banks that provided the loans to the securities lender. 92 The email of 1 February 2008 concluded with the following two paragraphs: The risk associated with this structure is that if the securities lender was to become insolvent then the clients would become unsecured creditors of the lender for the difference between the market value of their securities and the amount they have borrowed. Please note that the securities lending market is not specifically regulated and there are no rights relating to the securities loan under any stock exchange market rules. There are obviously some benefits in the securities lending arrangements, however, equally you need to consider the additional risks. In the light of the recent issues, these risks may warrant reassessment.

Communications between Messrs Drummond, Caldow, Rice and others after the 1 February 2008 email 93 On 1 February 2008, Mr Caldow told Mr Drummond that there would be a meeting of officers of Euroz and Opes Prime shortly after 1 February 2008. 94 On 5 or 6 February 2008, Mr Rice met with a number of representatives of Euroz, including Mr Caldow, in Perth. Mr Rice made a number of statements at the meeting which were apparently intended to allay fears about the financial position of Opes Prime. One of the statements was: For Opes to have an issue the Australian Stock Market would need to fall by 20% in a day; and [for] none of its clients [to pay] their margin calls. 95 Following the meeting, Mr Caldow telephoned Mr Drummond to report on what Mr Rice had said. As the primary judge observed at [99], it was accepted that during the telephone conversation Mr Caldow said he was passing on information which he had heard from Mr Rice and that if Mr Drummond wanted to discuss the information further, Mr Drummond should telephone Mr Rice. 96 One of the statements of Mr Rice that Mr Caldow passed on to Mr Drummond was the statement we have set out above about the need for the market to fall 20% for Opes Prime to have "an issue". It is clear from cross-examination of Mr Drummond at T326 - 327 that he accepted that Mr Caldow was "just passing on" to Mr Drummond information that he had received from Mr Rice. 97 Mr Drummond also accepted at T327 that Mr Caldow suggested he call Mr Rice directly. Mr Drummond agreed that he then rang Mr Rice. In the course of that conversation, Mr Drummond discussed the financial position of Opes Prime with Mr Rice. Mr Drummond heard "exactly the same" from Mr Rice as he was told by Mr Caldow. 98 On 6 February 2008, after he had spoken to Mr Rice, Mr Drummond spoke to Mr Anderson. Mr Anderson told Mr Drummond that he (Mr Drummond) had worked too hard and too long to take any risk with the Opes Prime facility. Mr Drummond then related that advice to Mr Caldow who told Mr Drummond that he could not agree more with Mr Anderson's advice. 99 Mr Drummond accepted in cross-examination at T329 that he agreed with Mr Anderson that any risk with Preston's share portfolio should be avoided and that he would take steps to refinance "along with Mr Caldow." 100 Mr Drummond also accepted in cross-examination that Mr Anderson said that if what Mr Rice told him was correct: … it was important but not urgent that the refinancing occur 101 Also, on 6 February 2008, or a few days later, Mr Drummond had a telephone conversation with Mr Caldow. Mr Drummond asked Mr Caldow how he could get out of the Opes Prime facility. Mr Caldow said that Mr Drummond could sell down some stock and pay out the loan, or he could refinance the facility.

Mr Drummond continues to trade and rejects opportunities to refinance 102 Notwithstanding the email of 1 February 2008 and the advice he received from Mr Anderson, Mr Drummond continued to trade on the Opes Prime facility between 1 February 2008 and 27 March 2008. During that period, he made 68 trades using the Opes Prime facility. 103 In particular, Mr Drummond continued to increase Mr Preston's holding of Sundance shares using the Opes Prime facility. During the period between 1 February 2008 and 27 March 2008, Preston bought a total of 1,165,000 Sundance shares in a series of 22 separate trades on 18 separate days during that period. 104 On 7 February 2008, Mr Caldow received an email from Leveraged Equities which was sent to all "Euroz advisors". The email stated that Leveraged Equities' credit team was currently looking at requests to refinance portfolios which were financed by securities lenders. The email emphasised that the Leveraged Equities credit team was "being inundated with requests" to refinance these portfolios. Mr Caldow sent a copy of the email to Mr Drummond. 105 On or shortly before 11 February 2008, Mr Caldow applied on Mr Drummond's behalf to Leveraged Equities to refinance Preston's portfolio. Ms Nicola Thiel of Leveraged Equities replied to Mr Caldow's application on 11 February 2008 rejecting it and stating: Most of the bigger margin lenders will struggle with this portfolio. 106 Ms Thiel also suggested that Preston may need to get a bank, such as the National Australia Bank (NAB), to offer a line of credit secured against the borrower's house or investment property. 107 At or around the same time, that is to say 11 February 2008, Mr Drummond approached CommSec enquiring about a margin loan account with that company. He enquired whether CommSec would extend a margin on a number of specified stocks including Sundance. CommSec was not prepared to provide a margin loan on those stocks. 108 Also, on or around 11 February 2008, Mr Caldow suggested to Mr Drummond that he approach the NAB to seek refinancing of the portfolio. Mr Drummond and Mr Anderson were responsible for the co-ordination of Preston's application to the NAB. Mr Caldow was not involved in it. 109 Preston's application for finance to the NAB was made in late February 2008. Mr Drummond recognised that there was "a degree of urgency" in his application to the NAB. He recorded this in an email to Mr Anderson on 4 March 2008 and accepted the degree of urgency came about because he wanted to refinance his share portfolio to avoid the risks attached to the Opes Prime facility. 110 In early March 2008, the NAB declined to extend a margin loan facility to Preston because it did not wish to lend solely against the share portfolio. However, the NAB indicated that it was prepared to refinance the Opes Prime facility if Mr Drummond provided security over the family home which he owned jointly with his wife. 111 The effect of Mr Drummond's evidence was that he was not prepared to provide security over the family home to the NAB. 112 Mr Drummond gave evidence that he could not have taken out a bank loan because he had insufficient equity or ability to service the loan. However, that statement was in contrast with the statement of assets and liabilities provided to the NAB in support of the loan application. That document recorded a healthy surplus of assets over liabilities and the assets included the family home which was shown as free from encumbrances. 113 On or about 19 March 2008, Mr Drummond told Mr Caldow that he wanted to purchase 30,000 shares in BHP using the Opes Prime facility. Mr Caldow indicated opposition to that course because he was concerned about the adverse impact this may have on Mr Drummond's ability to refinance the margin loan facility. 114 Notwithstanding Mr Caldow's reservations, Mr Drummond proceeded with the purchase of the BHP shares. The total cost of the shares was approximately $1 million. It was funded by an increase in the Opes Prime facility of $330,000 and the sale of some shares in other stocks held by Preston. The stocks which were sold did not include any of Preston's shares in Sundance. 115 The composition of Preston's share portfolio on the date of appointment of the administrators of Opes Prime, that is to say 27 March 2008, is recorded at [113] of the judgment of the primary judge. It included 11,400,000 shares in Sundance, of which over one million shares were acquired by Preston after 1 February 2008. 116 The total value of Preston's portfolio on 27 March 2008 was $7,822,957.15. The amount outstanding under the Opes Prime facility on that date was $3,075,143.

Events following administration of Opes Prime 117 It is unnecessary to refer to the events which followed the appointment of administrators to Opes Prime on 27 March 2008 save to say that, on 28 March 2008, a director of Euroz, Mr Russell Kane, sent an email to one of his co-directors in the following terms: How the f#$#$K can we have a client with $5-6m exposure to OPES prime. I am sorry but that is dumb.

The primary judge's reasons 118 The primary judge found at [126] that the evidence of Mr Drummond was unsatisfactory and must be approached with caution. His Honour considered this to be particularly so in Mr Drummond's affidavit evidence in relation to his dealings with Mr Caldow. In his Honour's view, significant aspects of Mr Drummond's evidence, particularly his affidavit evidence, was tailored to meet the case which he and his lawyers sought to advance. 119 His Honour went on to give a number of examples drawn from the affidavits, and from cross-examination which led to his adverse view of Mr Drummond's testimony. He concluded at [132] by stating that he preferred the evidence of Mr Caldow to that of Mr Drummond where their evidence conflicted. 120 The primary judge addressed the evidence of the stockbroker, Mr McKimm at [142]ff. Mr McKimm's evidence was that a reasonable and prudent securities adviser in the position of Mr Caldow would have explained the Opes Prime facility to Mr Drummond and pointed out the differences between that product and a conventional margin loan. 121 Mr McKimm also considered that, in February 2009, Euroz should have tried to reliably ascertain Opes Prime's exposure to the market, in particular the relative exposure of major clients of Opes Prime to margin calls. 122 However, the primary judge found at [152] that Mr McKimm's opinions were expressed upon the basis of an assumption which was not established. The assumption was that the retainer of Euroz extended to giving financial advice in relation to third party financial products. 123 His Honour went on to say at [153] that the opinions expressed by Mr McKimm were irrelevant or were, alternatively, to be accorded no weight. 124 We referred above to his Honour's reasons for rejecting Preston's claim that the retainer extended to an obligation upon Euroz to advise Preston as to the nature of the Opes Prime facility: see [24] - [25] above. 125 We also referred earlier to his Honour's rejection of Mr Drummond's evidence as to the advice said to have been given to him by Mr Caldow that the Opes Prime facility was the same as the Leveraged Equities facility and to his Honour's rejection of the claim of reliance: see [6] - [9] above. 126 His Honour's conclusions as to the content of the critical conversation between Mr Drummond and Mr Caldow on 14 May 2007 were as follows: [289] It follows that I find that Mr Caldow did not state that the Opes Prime facility was the same as the Leveraged Equities facility other than it had a lower rate of interest and a better loan to value ratio, and that he did not advise Mr Drummond on behalf of Eric Preston, to terminate the Leveraged Equities facility. [290] I find that Mr Caldow made no representation as to the characteristics of the Opes Prime facility. I find that Mr Caldow told Mr Drummond that he did not know about the Opes Prime facility. I find that following the conversation with Mr Caldow, Mr Drummond then approached and dealt directly with Mr Rice of Opes Prime about entry into the Opes Prime facility, save for the respects deposed to by Mr Caldow. 127 In rejecting Preston's contentions that it was entitled to pursue an alternative case based upon failure to advise, the primary judge referred to the observations of Callinan J in Suvaal v Cessnock City Council (2003) 200 ALR 1 at [139], [144]. The primary judge then said: [299] These observations are apposite to this case. Accordingly, Eric Preston having failed to prove occurrence of the event which it was said actually induced the crucial belief that the Opes Prime facility was the same as the Leveraged Equities facility, it is not open to Eric Preston to contend, nor for the Court to find, that that the crucial belief was induced by a different factual scenario. 128 The primary judge observed at [300] that it was a central element of Preston's case that if Mr Drummond had been advised that Preston would be no more than an unsecured creditor of Opes Prime in the event of insolvency, Preston would have stayed with Leveraged Equities. His Honour rejected Mr Drummond's evidence that Preston would have done so. He said: [304] I reject Mr Drummond's evidence set out at [300] above. I am of the view, that even if Mr Drummond had been advised of the risk which subsequently led to Eric Preston's loss, Mr Drummond, on behalf of Eric Preston, would still have terminated the Leveraged Equities facility and entered into the Opes Prime facility. 129 We referred in the Introduction to the objective facts which his Honour took into account in coming to that view. Those facts are set out in the primary judgment at [306]ff and it is unnecessary to repeat them save to reproduce the following observation: [310] However, notwithstanding the receipt of the email of 1 February 2008, and the advice from Mr Anderson, Mr Drummond continued to use the Opes Prime facility to engage in share trading. Thus, fully aware that, in the event that Opes Prime became insolvent, Eric Preston would stand only as an unsecured creditor for the difference between the value of its share portfolio and the balance of the loan, Mr Drummond, nevertheless, continued to use the Opes Prime facility to purchase shares which were not eligible for a margin under the Leveraged Equities facility. In particular, Mr Drummond continued to increase Eric Preston's holding of Sundance Energy shares. During the period 1 February to 28 March 2008, Eric Preston bought a total of 1,165,000 Sundance Energy shares in a series of 22 separate trades on 18 separate days during that period. 130 Although it was unnecessary for him to do so, his Honour addressed Preston's claim that the email of 1 February 2008 constituted a breach of the implied terms of the retainer. 131 In doing so, his Honour rejected Mr Drummond's evidence that, had he been advised to terminate the Opes Prime facility "as a matter of urgency", he would have rearranged Preston's portfolio so as to be able to pay out the facility. His Honour said: [325] In my view, it was open to Mr Drummond to sell down some of the shares in Eric Preston's share portfolio but he chose not to do so. That was a personal choice that Mr Drummond made. Mr Drummond was aware that there were risks involved in the course that he adopted, but he chose to accept the risk. It cannot, therefore, be said that Mr Drummond did not have a "reasonable opportunity" to avoid the loss of Eric Preston's share portfolio. Mr Drummond said that he did not believe that it was urgent to take steps to get out of the Opes Prime facility, but it does not follow, therefrom, that he did not have a reasonable opportunity to avoid the loss by selling down sufficient shares in Eric Preston's portfolio to pay out the facility. The reason he did not sell down the shares is because he did not want to. 132 His Honour also rejected Preston's claim that the financial position of Opes Prime was so parlous as at 1 February 2008 that Euroz should have advised Mr Drummond to terminate the Opes Prime facility immediately. His Honour did so because Preston did not seek to establish the financial position of Opes Prime as at 1 February 2008 or in the period up to 27 March 2008. 133 His Honour went on to say: [329] Further, in any event, Mr Drummond did receive advice to terminate the Opes Prime facility from Mr Anderson, endorsed by Mr Caldow, but declined to do so, notwithstanding that he had a reasonable opportunity to do so. 134 The primary judge observed at [343] that the parties treated the claim in tort for negligent misrepresentation as co-extensive with the duty of care under the retainer. It followed from his Honour's view of the claim in contract that the claim in tort also failed. 135 Preston's claim of misleading and deceptive conduct failed because of the primary judge's factual findings. 136 The first misrepresentation alleged by Preston turned entirely upon the primary judge's finding that Mr Caldow did not tell Mr Drummond in the conversation on 14 May 2007 that the Opes Prime facility was in substance the same as the Leveraged Equities facility. 137 His Honour also rejected the possibility of a claim of misrepresentation by silence. He said: [363] Eric Preston's claim is not enhanced by seeking to include Mr Caldow's silence as part of the impugned representation. In this case, it was alleged that Mr Caldow gave positive advice which was wrong. It was not a case where it is necessary to view the conduct as a whole to discern the misleading impression, which it is said, was relied upon by Mr Drummond. In this case, the alleged words themselves created the misleading impression because they conveyed wrong information. Silence adds nothing. [364] It follows that once Eric Preston failed to prove that the impugned statement was made, then Eric Preston's contention, that it suffered loss by reason of Mr Caldow's making of the statement, also fails. 138 In rejecting the second misrepresentation alleged by Preston, the primary judge made a number of critical factual findings adverse to Preston's case. 139 First, he did not accept Mr Drummond's evidence that Mr Caldow expressly stated that Preston's portfolio was safe. He gave a number of reasons for this finding which included his assessment of the "unsatisfactory" nature of Mr Drummond's evidence in the witness box. 140 Second, his Honour found that at the end of the conversation with Mr Caldow in February 2008 about the need for the stock market to fall 20% that Mr Caldow was not the source of the information. His Honour said at [409]: Mr Drummond knew and understood that Mr Caldow was passing on information from Mr Rice, and that Mr Rice was the source of that information. 141 Third, his Honour said at [416]: I find that a reasonable person in Mr Drummond's position would have understood that Mr Caldow was not the source of the information and was merely passing on the information he had received from Mr Rice. That reasonable person would also have understood Mr Caldow was not in a position to verify or adopt Mr Rice's statements about Opes Prime's financial position. It would have been evident to a reasonable person that in suggesting that Mr Drummond telephone Mr Rice to learn more about Opes Prime's financial position, Mr Caldow was disavowing any ability or capacity to express an opinion on the accuracy or otherwise of the information provided by Mr Rice. 142 Fourth, his Honour found that the opinions expressed by Mr Caldow as to the likelihood of the stock market falling 20% in one day did not amount to an endorsement by Mr Caldow of that standard as being an accurate or appropriate measure of the financial stability of Opes Prime. 143 His Honour also made critical factual findings against Mr Drummond in coming to the view that the chain of causation between any breach of duty complained of by Preston, and any loss, was broken by the advice given by Euroz in the 1 February 2008 email and the subsequent conversations between Mr Drummond and Mr Caldow. 144 In his Honour's view, the question of causation did not turn upon how a reasonable reader might construe the email of 1 February 2008 but upon how Mr Drummond understood the content of the email. 145 His Honour then said: [449] I find that by 6 February 2008, at the latest, Mr Drummond knew and understood that the Opes Prime facility was not the same as a margin lending facility and that Eric Preston did not own the shares in its portfolio which had become "pooled" with other shares and were owned by ANZ. Further, Mr Drummond knew and understood that under the Opes Prime facility, Eric Preston would, in the event of the insolvency of Opes Prime, rank as an unsecured creditor for the difference between the value of its portfolio and the amount outstanding to Opes Prime. I find that, by 6 February 2008, Mr Drummond was fully apprised of the risk under the Opes Prime facility, that in the worse case scenario, Eric Preston would lose all of its portfolio. 146 His Honour gave a number of reasons for reaching these findings, including admissions made by Mr Drummond in cross-examination. His Honour also took into account Mr Drummond's actions during the period from 1 February 2008 to 27 March 2008 in coming to the view that Mr Drummond did not want to pursue the option of selling down sufficient stock to pay out the Opes Prime facility. 147 His Honour also said: [461] Mr Drummond may have made the assessment that it was not urgent for him to terminate the Opes Prime facility, but that does not mean that selling down a sufficient number of shares to pay out the facility was not a course of action which was open to him as a means of terminating the Opes Prime facility and avoiding the loss. I find that Mr Drummond was aware from early February 2008, that there were risks arising from the characteristics of the Opes Prime facility including that Eric Preston's whole portfolio could be lost, but he was prepared to take those risks. As I have mentioned above, the reason Mr Drummond did not sell down sufficient shares to pay out the Opes Prime facility is because he did not want to do so.

The short answer to the appeal 148 However one approaches this appeal, there is no escape from the proposition that the trial judge's findings of fact are fatal to Preston's claims. His Honour's critical findings were not limited to his rejection of Mr Drummond's version of the conversation on which most of the issues in the case turned. It is his Honour's findings on the issues of reliance and causation which make the appeal an almost unarguable one for the appellant. 149 The two most critical findings were that if Mr Drummond had been advised of the risk in May 2007, Preston would still have entered into the Opes Prime facility and, perhaps even more importantly, that the chain of causation was broken by the events on and from 1 February 2008. 150 As a Full Court (Keane CJ, Moore and Perram JJ) recently observed, it is not open to a Court hearing an appeal to determine issues of fact as if the findings of the trial judge had not been made; error must be demonstrated and the principle in Fox v Percy (2003) 214 CLR 118 must be applied in challenging findings of fact which depend upon the trial judge's assessment of the credit of witnesses: Whittaker v Child Support Registrar [2010] FCAFC 112 at [2]. 151 In our view, no error was demonstrated in the primary judge's comprehensive rejection of Preston's claim on the issues of reliance and causation. That is an end to the matter but in deference to the arguments put to us by counsel, we will address the issues which arise in the order in which we outlined them in the Introduction.

The retainer issue 152 There may be some force in the proposition that the primary judge approached the issue of the scope of the retainer on too narrow a basis. However, even if that is so, we see no error in his Honour's ultimate conclusion as to the limit of the retainer, having regard to the way in which the case was pleaded and conducted. 153 His Honour focused closely upon the pleading. He pointed out that the retainer was said to have been made in 2000, some three years before Preston was incorporated, but adopted the sensible approach of treating the retainer as having been made initially with Mr Drummond. 154 His Honour observed that Mr Drummond gave no evidence of a conversation between Mr Caldow and himself in the terms alleged in the particulars to the statement of claim, namely that Mr Caldow said he would be happy to act as stockbroker and financial adviser to Preston. That observation was not challenged on the appeal. It follows that in considering the scope of the retainer, it is necessary to proceed on the basis that there was no express agreement that Euroz would provide financial advice in any form. 155 It also follows from the absence of any conversation between Mr Drummond and Mr Caldow as to the scope of the retainer that the question of its scope or content turns upon whether there was an implied term to the effect of that for which Preston contended. 156 The primary judge proceeded on the basis that the pleading was one of an agreement by Euroz to give general financial advice to Preston. Whether or not this was an unduly narrow reading of the pleading is not to the point. This is because his Honour recognised at [195] that the effect of Preston's claim was that the retainer included a duty to advise in relation to financial credit products offered by third parties which may be used by Preston to assist in the purchase of shares. 157 There was no express agreement to that effect. Nor was there any implied agreement. 158 Senior counsel for Preston sought to persuade us that the term for which he contended ought to be implied as a matter of law by reason of the observations made in various authorities as to the duties of stockbrokers. However, the authorities to which he referred us, and the statements made in them, were concerned with the question of the fiduciary duties of a broker to his or her client: Daly v Sydney Stock Exchange Limited (1986) 160 CLR 371 at 385 per Brennan J; Bonds and Securities (Trading) Pty Limited v Glomex Mines NL [1971] 1 NSWLR 879 at 891 per Street J. 159 The correct approach to the principle applicable in the present case was stated in an authority to which we were not referred in argument. The authority is the decision of Lush J in Option Investments (Aust) Pty Limited v Martin [1981] VR 138 ("Martin"); affirmed on appeal, see Martin v Option Investments (Aust) Pty Limited (No 2) [1982] VR 464. 160 As Lush J observed in Martin at 142, the duty of a stockbroker is to execute the client's orders. Stockbrokers are not duty bound in law to give advice, but if they do so, they must of course provide the advice in a competent and honest way. The duties of a stockbroker at general law may be added to or varied by special agreement or by the circumstances of the case. 161 It follows from this that absent some evidentiary basis for inferring the voluntary undertaking by the stockbroker of a duty to advise, there is no duty to do so. Importantly, any duty to advise does not arise from the relationship alone but may arise from the circumstances of a particular case. The circumstances may consist of an express undertaking or facts and circumstances which give rise to an implied obligation to advise the client. 162 In the present case, there was no express undertaking, as was effectively conceded by Preston. Moreover, any facts and circumstances upon which Preston relied to give rise to an implied duty were insufficient to do so. The primary judge dealt with this at [223] and [224] and concluded that the facts and circumstances did not establish that the retainer included an agreement to provide financial advice. 163 Although his Honour did not specifically say that the facts and circumstances were insufficient to give rise to an implied obligation to advise Preston as to third party financial products, we think it is sufficiently clear from his approach to the scope of the retainer that his remarks incorporated that conclusion. 164 What must be borne in mind in the present case is that the duty for which Preston contends is a duty to provide advice on a matter which does not ordinarily relate to the nature or subject matter of the orders which a broker is required to undertake for its client. This is not a case in which it is said that the broker was under a duty to advise as to the wisdom of the purchase of a particular stock or share on the ASX. Rather, the duty is said to be to advise the client about the nature of a financial product which the client was considering using in order to facilitate the purchase of stocks or shares. 165 It may be that in the circumstances of a particular case such a duty will arise either as a matter of contract or as a tortious duty. However, we see no appellable error in the conclusion reached by his Honour that there was no such contractual duty in the present case. 166 The concession made by Preston that the claim in tort was co-extensive with the claim in contract is sufficient to dispose of any tortious duty in the present case. 167 We should add that no case was conducted either before the primary judge or on appeal of any duty to advise in accordance with the principles stated in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. Nor was the evidence directed at such a case. 168 It follows that Preston has failed to establish error in the primary judge's conclusion as to the scope of the retainer.

Rejection of Mr McKimm's evidence 169 The primary judge's conclusion that Mr McKimm's opinions were irrelevant followed from his finding that Preston had failed to establish the assumption upon which the opinions were based. 170 There was no error in this. Nor did the submission urged upon us on behalf of Preston, namely that the evidence was uncontradicted, meet the essential point which underlay his Honour's rejection of Mr McKimm's opinions. 171 The proposition that an expert's opinion based upon certain assumptions which are not ultimately proved in evidence is irrelevant is a fundamental principle of the law: Ramsay v Watson (1961) 108 CLR 642; Paric v John Holland (Constructions) Pty Ltd (1985) 62 ALR 85. 172 His Honour's statement that the opinions were "irrelevant", or were "to be accorded no weight" was no more than a statement of his conclusion that he could not take Mr McKimm's evidence into account in light of his finding as to the terms of the retainer. 173 In our view, this conclusion follows as a matter of course from the principles stated by Lush J to which we referred above. Once the primary judge had reached the conclusion that it was not an express or implied term of the retainer that Euroz had agreed to provide advice as to the nature of third party financial products, Mr McKimm's opinions were irrelevant to the case. 174 Moreover, there were serious deficiencies in Mr McKimm's evidence. For example, in his "Further Supplementary Statement", Mr McKimm stated that when Euroz became aware that the Opes Prime facility was similar to the Tricom facility, it was incumbent on Euroz to investigate with due diligence the credit worthiness of Opes Prime. Mr McKimm did not explain how Euroz could go about carrying out this task which would have required Euroz to be given access to confidential information about the Opes Prime loan book and the credit-worthiness of that company's clients. 175 Further, Mr McKimm did not state the basis upon which this opinion was expressed other than perhaps to point to media speculation about the problems faced by Tricom and its clients. 176 Counsel for Preston sought to meet this difficulty by pointing to the fact that Euroz did communicate with its clients on 1 February 2008 when the media speculation about Tricom came to the fore and to the contents of Mr Kane's email set out at [117] above. However, the effect of this submission is to rely upon post-contractual events to construe the terms of the retainer. That approach is contrary to well-established authority; see Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310; Franklins Pty Ltd v Metcash Trading Ltd (2009) 264 ALR 15.

No retainer to advise, therefore no breach 177 Since we have come to the view that there was no error in the primary judge's finding that the retainer did not include a duty to advise Preston as to third party financial products, no question of breach arises in the appeal. 178 This applies to the primary case advanced by Preston, namely that Mr Caldow advised Mr Drummond that the two facilities were substantially the same, as well as to the alternative case of failure to advise. 179 It is therefore unnecessary for us to address the submissions raised by senior counsel for Preston in relation to the primary and alternative cases but we will do so briefly. 180 In order for the primary case to succeed, it was necessary for the trial judge to find in favour of Preston on the retainer issue as well as on the factual question of whether Mr Caldow made the impugned statement. His Honour found against Preston on both issues. 181 Even if there was error in his Honour's finding on the retainer issue (which in our view there was not), his Honour's finding on the question of fact, namely that Mr Caldow did not make the statement, is unassailable in accordance with the principles stated by the High Court in Fox v Percy. 182 His Honour's rejection of Mr Drummond's version of the critical conversation of 14 May 2007 turned upon his assessment of Mr Drummond's evidence in the witness box. Quite apart from matters of impression, his Honour pointed to matters of objective fact in coming to the conclusion that Mr Caldow's evidence was to be preferred to that of Mr Drummond. 183 It is to be noted that his Honour's reasons included the observation that Mr Drummond accepted, in cross-examination, a critical part of Mr Caldow's version of the conversation. This was that Mr Caldow told Mr Drummond that he (Mr Caldow) did not know anything about the Opes Prime facility. The relevant passage from Mr Drummond's cross-examination was reproduced by the trial judge at [278] and his Honour's observation about the significance of that conversation was made at [281]. 184 Nothing turns, at least on the primary case, on the failure to call Mr Yeo. The failure of Mr Yeo to give evidence gives rise to an inference that his evidence would not have assisted but it cannot detract from the force of Mr Drummond's acceptance of Mr Caldow's version of the conversation. 185 The failure of Mr Yeo to testify may have had some limited significance in relation to the alternative case sought to be advanced by Preston. This was because Mr Yeo knew that the Opes Prime facility was a securities lending arrangement and he knew something of the consequences which the insolvency of Opes Prime may have on the position of borrowers. Mr Rice told him this in an email dated 10 May 2007. We have reproduced the relevant parts of the email at [64] - [65] above. 186 However, ultimately, Mr Yeo's knowledge was of no relevance to the issues in the case because of the way in which the case was conducted at the trial. As we have said, the claims in contract and tort were treated by the parties as co-extensive and Preston's case was based on the central contention that Mr Caldow made a positive statement to Mr Drummond that the Opes Prime facility was in substance the same as the Leveraged Equities facility. 187 In these circumstances, it seems to us therefore that the primary judge was correct in declining to permit Preston to advance a negative case of failure to advise. This is because the essence of Preston's case was that Mr Drummond relied on Mr Caldow's statement. Mr Drummond's evidence of a positive mis-statement by Mr Caldow informed and defined the ambit of the issue of reliance. It was not open to Preston to say that reliance turned on other factors. 188 Even if we are wrong in the view that the negative case was not open, Preston cannot succeed on this basis on the appeal in any event because of his Honour's findings on the issues of reliance and causation. Those findings are not open to attack. 189 His Honour's finding of lack of reliance was made in plain terms. He found that even if Mr Drummond had been advised of the very risk which subsequently led to Preston's loss, Mr Drummond would still have caused Preston to terminate the Leveraged Equities facility and to have entered into the Opes Prime facility. 190 As with his Honour's finding in relation to the 14 May 2007 conversation, the finding of lack of reliance is immune from attack on appeal. It turned not only upon his Honour's assessment of Mr Drummond as a witness of truth but also upon the objective facts upon which his Honour based the finding. 191 There is no answer to those objective facts which included Mr Drummond's desire to increase his shareholding in Sundance, a stock on which Leveraged Equities would not extend a margin, but upon which Opes Prime was prepared to (and did) lend. 192 Nothing put forward by Preston in the argument on the appeal met the test required by Fox v Percy that the primary judge's finding be glaringly improbable or contrary to incontrovertible facts. Indeed, in our view, the opposite is the case and no other finding is open. 193 Moreover, the primary judge correctly took into account the need for caution when scrutinising evidence that, if a person had been warned of a particular risk, he or she would have acted differently, when the evidence is given after the person has incurred loss or damage by reason of the occurrence of the risk: Clambake Pty Limited v Tipperary Projects Pty Limited (No 3) [2009] WASC 52 at [778]; Rosenberg v Percival (2000) 205 CLR 434. 194 We will deal later with the reasons why, in our view, the primary judge was correct in finding the absence of a causal link between the loss which Preston claimed and any breach of duty. 195 We will also deal later with the alternative claim of breach of retainer which was based upon the terms of the email of 1 February 2008 and the subsequent conversations between Mr Drummond and Mr Caldow.

The misrepresentation case 196 The first misrepresentation case mirrored the claim of breach of contract. It failed before the primary judge because of his Honour's finding that Mr Caldow did not make the alleged misrepresentation as to the nature of the Opes Prime facility. 197 As we said above, his Honour's finding of fact was not open to attack on the appeal. The first misrepresentation case falls with it. 198 The arguments on the appeal in relation to the second misrepresentation case turn not so much on the proper application of the principles stated in Butcher v Lachlan Elder as upon his Honour's findings of fact about the discussions between Mr Drummond and Mr Caldow in February 2008. 199 The primary judge set out the salient passages from the majority judgment in Butcher v Lachlan Elder and it is unnecessary to repeat them. 200 His Honour also referred to the decision of the New South Wales Court of Appeal in Ingot Capital Investments Pty Limited v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653. He reproduced a number of passages from the judgment of Ipp JA in that case which appear to suggest a slightly different approach to the question of principle from that which was adopted by the High Court in Butcher v Lachlan Elder. 201 Both of those authorities proceed upon the principle that where a corporation merely purports to pass on information supplied by another without adopting or endorsing it, either expressly or impliedly, the corporation cannot be said to engage in misleading or deceptive conduct. 202 The difference between the High Court and the Court of Appeal appears to be that the majority of the High Court adopted an objective test whereas Ipp JA applied a subjective test. 203 The majority of the High Court said at [40] that the conclusion that the corporation did no more than pass on what the third party was representing, without adopting or endorsing it, followed from the nature of the parties, the character of the proposed transaction and the contents of written document. Their Honours went on to say at [51] that it would have been plain to a reasonable purchaser that the agent was not the source of the information which was said to be misleading. 204 However, in Ingot at [276], Ipp JA focussed upon the subject belief of the recipient of the alleged misrepresentation. His Honour said that if the individual recipient believes a disclaimer to mean that the agent is not the source of the information, and is merely passing on information supplied by others, that will be decisive. 205 In the present case, the appeal fails both upon an application of a subjective test and an objective one. There are three reasons for this. 206 First, the primary judge found at [398] that Mr Caldow did not state expressly that Preston's portfolio was safe. His Honour's reasons for this finding included the unsatisfactory nature of Mr Drummond's evidence under cross-examination. For reasons given in relation to the other findings of fact which were based upon Mr Drummond's credibility, this finding is also unassailable. 207 Second, his Honour found at [409] that at the end of the relevant conversation between Mr Drummond and Mr Caldow, Mr Drummond understood that Mr Caldow was not the source of the information as to the financial position of Opes Prime and he knew and understood that Mr Caldow was passing on information from Mr Rice as the source of that information. His Honour also found that Mr Caldow did not adopt the information either expressly or impliedly. 208 His Honour's finding as to Mr Drummond's subjective belief was yet another finding of fact that could not be attacked on appeal. It was amply supported by concessions made in cross-examination of Mr Drummond. The relevant passages are reproduced at [395] - [396] of the primary judge's reasons for judgment. 209 His Honour's finding that Mr Caldow did not endorse Mr Rice's remarks may be open to argument. His Honour appears to have accepted at [419] that Mr Caldow did express opinions as to the likelihood of the stock market falling 20% in one day. However, nothing turns on this because the primary judge went on to say that Mr Caldow's expressions of the likelihood of that event did not amount to an endorsement by Mr Caldow of that standard as an appropriate measure of the financial stability of Opes Prime. 210 We see no error in this because the statement of the need for the stock market to fall 20% in one day was only part of the stated measure of the vulnerability of Opes Prime. The full measure was a fall of 20% and no client of Opes Prime to meet its margin calls. Mr Caldow did not endorse this. The relevant finding of fact made by his Honour was that Mr Caldow disavowed any ability or capacity to express an opinion on the accuracy of that information. 211 Third, the primary judge found at [416] that a reasonable person in the position of Mr Drummond would have understood that Mr Caldow was not the source of the information and was merely passing on information he had received from Mr Rice. 212 We see no error in this finding. The primary judge observed, in our view correctly, that the hypothetical reasonable person would have understood that Mr Caldow was not in a position to verify or adopt Mr Rice's statements about the financial position of Opes Prime. As we said earlier, to do so, Mr Caldow would have needed to enquire as to confidential details of the Opes Prime loan book. We do not see how the hypothetical reasonable person could have understood that Mr Caldow was in a position to obtain that information. 213 Senior counsel for Preston sought to meet these difficulties by submitting that, viewed as a whole, Euroz's conduct in the period from February to March 2008 had the tendency to lead Preston into error as to the financial position of Opes Prime. However, this submission rests upon the proposition that Mr Caldow endorsed Mr Rice's statements as to the need for the stock market to fall by 20% in a day and for all of Opes Prime's clients to default before Opes Prime had "an issue". 214 His Honour's rejection of that finding, which turned ultimately on findings of fact, is a complete answer to Preston's contention. Nevertheless, we should add that the finding for which Preston contended was not entirely without merit as can be seen from his Honour's observation that Mr Caldow conceded in cross-examination that he told Mr Drummond that the stock market was unlikely to fall 20% in one day based on past history. 215 As we said earlier, there was no error in his Honour's conclusion that Mr Caldow's statement did not go far enough to constitute an endorsement of Mr Rice's representation. Mr Caldow's statement may have provided Mr Drummond with some unwarranted level of comfort but it did not go far enough to constitute an adoption or endorsement of the full gravamen of Mr Rice's statement. 216 In any event, whatever the immediate effect on Mr Drummond's state of mind of Mr Caldow's comments, those comments were overtaken by other events which were fatal to Preston's case. We will deal with them in more detail when addressing the issue of causation.

Reliance and Causation 217 At the risk of repetition, his Honour's findings on the issues of reliance and causation were fatal to Preston's case and no appellable error is disclosed in those findings. We dealt earlier with the immunity from attack of his Honour's finding on the issue of reliance. We turn finally to his Honour's finding of the absence of the necessary causal nexus. 218 There was no real attack made on the primary judge's finding at [449] that by 6 February 2008 Mr Drummond was fully apprised of the risk under the Opes Prime facility. Nor could there be. His Honour's finding was fully supported by the evidence. 219 In short, Mr Drummond read the email of 1 February 2008 and understood what it conveyed. He conceded in cross-examination that he understood the email to mean that the Opes Prime facility was a securities lending arrangement which was riskier than a margin lending facility. He also understood that if Opes Prime were to become insolvent, Preston would lose all of its stock and become an unsecured creditor of Opes Prime. 220 This information was conveyed to Mr Drummond in the email of 1 February 2008 and was confirmed by Mr Caldow in a conversation on the same day. 221 The email of 1 February 2008 was therefore sufficient to break the causal nexus between any breach of duty by Euroz and any loss suffered by Preston provided that it was open to Mr Drummond in the time available to him, to take the necessary steps to avoid the loss. 222 The primary judge found that it was open to Mr Drummond to take those steps but he failed to do so. Indeed, as the primary judge found, Mr Drummond had a reasonable opportunity to avoid the loss, yet with knowledge of the risks involved in the Opes Prime facility, he was prepared to take those risks. 223 Those findings are fully supported by the evidence. In particular, Mr Drummond failed to follow the advice given to him by Mr Anderson, and confirmed by Mr Caldow, that he had worked too long and hard to take the risk. He effectively ignored their advice that he should refinance. 224 Mr Drummond's share trading in the period from 1 February 2008 to late March 2008 is testimony to the fact that he was prepared to accept the risks inherent in the Opes Prime facility. 225 It is no answer to say that Mr Drummond was merely seeking to rearrange the composition of his portfolio by selling some stocks and buying $1 million worth of BHP shares. The short answer to this is that Mr Drummond continued to increase his indebtedness under the facility and, in particular, to increase Preston's shareholding in Sundance, even though he knew that margin lenders would not extend a margin on Sundance shares. 226 Nor is it any answer to say that Mr Caldow ought to have informed Mr Drummond that he should refinance urgently. Mr Drummond accepted that there was a degree of urgency in the application to NAB. In any event, there is no error in the primary judge's finding that Mr Drummond had a reasonable opportunity to refinance. The steps he took to approach various institutions amply bear this out. 227 Those steps show Mr Drummond's unwillingness to sell sufficient shares to pay out Opes Prime, or to rearrange his portfolio to be able to refinance. The dealings with the NAB also show that Mr Drummond lost the opportunity to refinance with NAB because he was unwilling to provide a mortgage over the family home, notwithstanding the advice given to him to refinance and notwithstanding that the evidence discloses that he had more than sufficient assets available to support such a loan. 228 Mr Drummond's own evidence demonstrates the futility of any argument that he did not have a reasonable opportunity to avoid the loss. He admitted in cross-examination that it was open to Preston to terminate the Opes Prime facility by selling a sufficient number of shares to pay out the debt. What is more, he said that he did not want to do so because he wanted to use the proceeds of the shares to build a new home. 229 Reliance and causation were always at the heart of this case. Preston failed on both those issues because of the comprehensive findings made by the primary judge. Those findings were more than amply supported by the evidence.

Damages 230 In view of the conclusions we have reached as stated above, it is unnecessary for us to address the question of Preston's loss.

Orders 231 The appeal must be dismissed with costs. I certify that the preceding two hundred and thirty-one (231) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson, Foster and Barker.

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Cases Cited (14)