Evans & Ors v Brannelly & Ors [2008] QDC 269

District Court of Queensland|2008-11-21

NEGLIGENCE - Economic Loss - careless advice - failure to warn - financial adviser selling investment - whether duty of care - breach - loss

TRADE AND COMMERCE - Financial Services - provision of financial product advice - misleading and deceptive conduct - false statements about investment in promissory note - causation - damages

Australian Securities and Investment Commission Act 2001 s 12DA, s 12EP, s 12GR

Atkins v Interprac Financial Planning Pty Ltd [2007] VSC 445 - followed.

Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 - applied.

Delmenico v Brannelly [2008] QCA 74 - applied.

Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 - applied.

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 - applied.

Prestia v Aknar (1996) 40 NSWLR 165 - applied.

San Sebastian Pty Ltd v The Minister [1986] HCA 68; (1986) 162 CLR 340 - applied.

Shrimp v Landmark Operations Ltd [2007] FCA 1468 - followed.

State Superannuation Board (NSW) v Federal Commissioner of Taxation (1988) 82 ALR 63 - considered.

RA Perry SC and J Chapple for the first and second defendants

Quinn and Scattini lawyers, later Slater and Gordon Lawyers for the plaintiffs

**[1] These six actions were heard together before me. The plaintiffs, separately, invested various sums of money to a company Bayshore Mezzanine Pty Ltd which was part of the Westpoint group of companies and lost their money when that company went into liquidation with the collapse of the Westpoint group. The plaintiffs came to do so following contact they had with the first defendant, a natural person who was relevantly a director and agent of the second defendant, which in turn was an authorised agent of the third defendant. The third defendant is currently subject to a deed of company arrangement under Part 5.3A of the Corporations Act,[1] and the actions did not proceed against the third defendant. The second defendant is the same company in each of the six actions; the first defendant is the same agent of the second defendant in five of the six actions, and a different agent of the second defendant in the sixth action.[2]

[2] On the face of the pleadings the claims were advanced in negligence, for breach of contract, for breach of the Corporations Act 2001, and for misleading and deceptive conduct in breach of the Trade Practices Act, the Australian Securities and Investment Commission Act ("ASIC Act"), and the Fair Trading Act. At the trial, however, only the causes of action in negligence and for misleading and deceptive conduct under the ASIC Act were advanced, although at one stage the plaintiffs did submit that if the ASIC Act did not apply to the transactions then the plaintiffs were entitled to recover under the Trade Practices Act, which was made inapplicable only because the ASIC Act applied.

[3] The pleadings in the six cases were strikingly similar, to an extent which in the light of the evidence at the trial was shown to have been unjustified.[3] Although there are substantial common issues involved, what passed between the individual plaintiffs and the first defendants was subject to variation to a greater extent than one might have expected from the pleadings. As a result there were numerous objections to evidence on the ground that the evidence was not consistent with the pleadings. These I dealt with by receiving the evidence subject to relevance, and eventually I decided that in order to avoid constant disruption to the flow of the trial I would treat all evidence in the trial as being received subject to relevance (p 163), and work out at the end of the trial just what was relevant to the various allegations in the pleadings.[4] The rest of the evidence was received simply as background evidence.

[4] Because of the differences in the factual situations, it is going to be necessary to some extent to deal separately with the six different actions, at least so far as the facts are concerned. Because of this approach, it is convenient to set out an account of what happened as disclosed by the evidence of the various plaintiffs, but on the basis that not everything that is referred to in the account is necessarily relevant to the determination of the issues on the pleadings.

[5] Mr Evans was born in February 1952 in England. He was educated there, and obtained a law degree from the University of London. He spent some time in various activities before he obtained employment in the insurance industry, in which he stayed, in England or in Australia, until about 2006: p 306. After some brief experience with a marine insurer, he obtained employment with a Lloyds' broker, and came to Australia when the opportunity arose to work for an insurance broker in Australia who was associated with the Lloyds' broker.[5] In England he was involved in the process of placing risk for the brokers with various Lloyds syndicates; in Australia, he was involved in both placing risk and processing claims. Although this involved some business activity, it does not sound to me like the sort of experience which would assist him in assessing effectively the appropriateness of investing in promissory notes issued by Bayshore Mezzanine Pty Ltd.[6]

[6] In 2003, after he and his wife sold a house in Sydney, he had surplus funds of about $200,000 to invest: p 306. The money sat in the bank for some time, because he was very cautious about how to deal with it. Eventually, he began to purchase shares over the internet using a Commonwealth Securities account and he ultimately invested about $40,000 in this way: p 307. He saw an advertisement in the newspaper for investing in the retirement and aged care industry through the second defendant, and either telephoned for more information or cut out a coupon and sent it in. In response he received some information in relation to the Prime Retirement and Aged Care Fund: Exhibit 45. With this were copies of documents headed "Your Rights to Privacy", "Financial Services Guide Deakin", and "Brannelly The Professional Perspective".

[7] In respect of this, Mr Evans said he was impressed by the logo which identified the second defendant as "advisers to the professions", and by the statement "this investment has been approved by a research team and is available for new investments", which suggested that there were more than one person involved in vetting and analysing opportunities as they arose: p 309. He was not, however, attracted to that particular investment, being concerned by the references to tax advantages and deferred tax, which suggested to him that it might cause problems in relation to income tax. Because he was not particularly attracted to the investment he only skimmed through the various documents forwarded with the letter: p 709. He received some follow up calls from Mr Paul Brannelly, in which he asked for time to consider it further, essentially to be polite: p 310.

[8] Mr Evans subsequently received a further letter from the defendant dated 18 July 2005: Exhibit 46. This was the first reference to an investment in Bayshore Mezzanine Pty Ltd, which he ultimately did make. He said he was immediately attracted by the relatively high return, and the fact that it was a fairly short-term investment: p 310. The reference to the "limited opportunity to introduce investors" suggested that there was some sense of urgency about this, and he noted that it was described as an "excellent opportunity to invest". He said he had not heard of high yielding promissory notes before, but assumed they were an established way of raising capital in the property development industry. The minimum investment of $50,000 struck him as very high. He noted that the company had an established record of over 20 years, which impressed him.[7] The fact that $6.5 million had already been raised suggested that there was a sense of urgency about the investment, and he was impressed by the various favourable things said about the Westpoint group: p 311. It suggested that that group had a formula by which they were able to offer relatively attractive rates of return.[8]

[9] Mr Evans understood the letter as saying that the company had a second ranking mortgage, which he understood was over specific property, and a second-ranking charge over the assets of the company: p 311. He knew what a mortgage was, and understood that a second ranking mortgage was probably just as good security, but perhaps there was someone else taking priority: p 312. He had no clear understanding of what a charge was. He read the letter as indicating that he would be holding the second ranking mortgage as the lender,[9] and that he would have the benefit of the second ranking charge. He understood the reference to Westpoint Corporation providing a guarantee of the company's obligations under the loan as suggesting a second layer of safety. He knew what a guarantee was. He took from the letter that he would be getting the benefit of the guarantee himself: p 313. He noted the reference to this being the most appealing project at present, as indicating that the second defendant was giving this a ringing endorsement.

[10] He took from the second page that the building was already substantially completed and that these funds were just required to build some additional floors to complete the project, and noted that the Westpoint group had net tangible assets of $80 million, that the return was attractive, that there were no fees, that pre-sales covered 80% of senior debt and mezzanine debt, which he thought would minimise his risk, and the guarantee from Westpoint group and the charge over the Bayshore Port Melbourne Trust referred to as one of the "Investment Highlights": p 313. Again he thought that he as an investor would be getting the benefit of the guarantee and the charge. The reference to the opportunity being open for a limited period suggested some sense of urgency. He could not recall whether there was anything else attached with the letter, but he did not think that he had the information memorandum at that stage: p 314.

[11] Subsequently Mr Evans spoke to Mr Brannelly on the telephone[10] and told him that it looked a better opportunity than the Prime investment, and more suited to his purposes; Mr Brannelly responded that it was an excellent opportunity: p 314. Mr Evans next received from the defendant a letter dated 27 July 2005 which had attached to it a copy of the information memorandum: Exhibit 47.[11] Mr Evans noted that the letter was similar to the letter of 18 July, although the amount that had already been raised had increased to $10 million, which he thought was significant given the short time: p 317. This implied some urgency in the matter: p 318. He thought it was consistent with the earlier letter. He had a look at the information memorandum but did not read it in any great detail: p 319, p 350. He said he paid very little attention to the diagram on p 2 of the information memorandum: p 320. He did not notice anything which was inconsistent with what had been said in either of the letters from the defendant. Sent with the letter was a newsletter "Westpoint On Point" from the Westpoint group, which also said something about the Bayshore Port Melbourne project; he looked at it but he did not notice anything which was contrary to what he understood Mr Brannelly had told him: p 319.

[12] There then followed a couple of telephone conversations, after which he had a meeting with Mr Brannelly since he wanted to ask him a few more questions: p 321. He met him one day in the period 5-9 August, he could not clearly remember just when, in Mr Brannelly's office.[12] Mr Evans said that he wanted to make sure that there were no down-sides to the risk he was taking before committing any funds, and Mr Brannelly talked generally about the Westpoint group. He emphasised they were a substantial company, and had been in business for 20 years, and he had been dealing with them for some time. He said that his clients were happy to roll their investments over into other Westpoint projects. Mr Evans asked Mr Brannelly whether, if the money were used for some project other than the Bayshore project, that would affect the security that he was supposed to have in the current Bayshore project, and how that related to his mortgage over the Bayshore project: p 322. He said that the response was an assurance that there was 100% cover over the Bayshore project. Mr Brannelly said not to worry, your investment will be secure. Mr Evans also asked what the chances were of the remaining apartments not being sold, and Mr Brannelly replied that 80% had been sold and there would be no problem in selling the remainder: p 323.

[13] Mr Evans recalled saying to Mr Brannelly that he could not afford to lose the money: p 324. He said that of the two emotions involved in investing, greed and fear, he had a minimum of greed and a maximum of fear of losing money, and said specifically he was more concerned about the return of his principal than the return on his principal. He said that in response Mr Brannelly was at all times confident and authoritative about the Westpoint group, and did emphasise the guarantee again. He said in 20 years Westpoint had not reneged on any obligation. Mr Evans detected a bit of irritation from Mr Brannelly at this point, and said that he was sorry, he was just trying to get his head around the risk involved, to which Mr Brannelly replied "There is risk in everything we do."[13]

[14] Mr Evans said he thought of the guarantee and felt comfortable in making the investment, and he completed the application form and handed over a cheque for $50,000: p 325.[14] He subsequently received a letter dated 9 August 2005 from the defendant: Exhibit 48. Part of it, asserting that he had been provided with general information only and that he had decided to make an investment based on his own research, struck him as being a bit odd, but he did not take the matter up with Mr Brannelly: p 327. Mr Evans was subsequently sent by Bayshore Mezzanine Pty Ltd a letter enclosing a promissory note and a schedule of interest payments he was to receive on it: Exhibit 49. He said that what he had received, and what he had not received, including the principal, were as set out in the document Exhibit 50.

[15] Mr Evans said that he was not told prior to investing in Bayshore that the investment was a high-risk investment: p 331. Had he been told that it was a risky investment, or particularly a high risk investment, or that the investment was with a company incorporated only in 2001, or that a promissory note was really nothing more than an unsecured IOU, or that there was no mortgage securing the investment, or that he did not have the benefit of a guarantee from Westpoint and associated entities, he would not have invested as he did: p 332. He was not aware of the contents of Exhibit 17, a press release from ASIC in 2004 advising that ASIC was investigating the practice of Westpoint Corporation raising money by the issue of unsecured promissory notes in this way. Had he been, he would not have made the investment, nor if he had been told that this was a scheme which ought to have been registered under the Corporations Act but was not registered: p 333. He did not receive a mortgage securing his investment or a charge of any sort, or a guarantee from Westpoint or any related companies: p 333.

[16] Mr Courtney was the first plaintiff to give evidence. He is a pharmacist born in 1954: p 19. Apart from practicing as a pharmacist, he had to some extent invested in shares through a broker using funds in a self-managed superannuation fund: p 20. This it seems was done very much on the broker's advice. He had also contributed from the fund to a small property development on the Sunshine Coast, which he went into with two other people: p 21. He had heard of the second defendant as financial advisers, because it had been commonly involved in presentations organised by a professional body of community pharmacists, giving information about superannuation and investment: p 22.

[17] In May 2004 Mr Courtney arranged to meet the first defendant, Mr Matthew Brannelly, seeking some advice (p 23) which was ultimately not acted on. In connection with this the defendant provided the plaintiff with written advice dated 24 May 2004: Exhibit 9.[15] Following that written document there was a meeting in which it was explained, and Matthew Brannelly recommended particular investments[16] which ultimately Mr Courtney did not make: p 36-7. In the process of assessment of his financial position he was asked to sign, and did sign, an agreement with the second defendant: Exhibit 10.[17] He said he received a number of brochures from the defendant over a 12-month period.

[18] In about July 2005 Mr Courtney attended a couple of seminars, at one of which a representative of Kebble was introduced, who referred, apparently in fairly general terms, to Westpoint: p 42, p 66. He received some promotional material, a copy of which became Exhibit 11. Subsequently he telephoned Matthew Brannelly's office (p 43), but spoke to another man who offered to send out some information (p 44) and who subsequently forwarded an information memorandum apparently produced by Westpoint dealing with the Bayshore project (Exhibit 1) under cover of a letter: Exhibit 12. Mr Courtney said he read the information memorandum: p 45.[18] He identified a number of attractive features, but did not know what a promissory note or a charge was, or just what a second ranking mortgage was.

[19] There was later a telephone conversation when Matthew Brannelly rang.[19] Mr Courtney told him that a business he had an interest in had recently been sold and as a result he had some funds to invest, that he had heard of an investment he thought might be appropriate for him at a recent seminar and that what he really wanted was Mr Brannelly's opinion about Westpoint as a corporation and about the security of the particular investment: p 48, p 110. Mr Brannelly provided him with some information about Westpoint and also about this specific investment. He said that they were a well-established group with a 20-year track record of success. They had completed a large number of projects and currently managed about $300 million worth of commercial property, and had substantial net assets of the order of $80 million. He said the investment would be through promissory notes of a company Bayshore Mezzanine and that company would in turn lend the funds to Westpoint to develop the project: p 48. Mr Courtney did not ask what a promissory note was, nor was he told.

[20] Mr Brannelly said the investment had a couple of forms of security, a mortgage and a charge: p 49.[20] Mr Courtney knew what a mortgage was; Mr Brannelly did not explain a charge: p 50. He said that both were to Bayshore Mezzanine in which Mr Courtney was to be an investor. He was also told that the Westpoint guarantor group would guarantee the loan obligation owed to Bayshore Mezzanine. Mr Brannelly said his investment was secured by that guarantee: p 51, p 76.[21] He said the project was scheduled to complete that year and was 95% pre-sold, and the pre-sales covered both the senior debt and the mezzanine debt. There were going to be additional units as part of the project to make it more attractive. Construction progress was good. Those factors substantially reduced any capital risk associated with the investment.

[21] Mr Courtney then said a number of things to Mr Brannelly which indicated approval of the investment, and Mr Brannelly ended by saying that he would recommend the investment to Mr Courtney: p 52, p 99. Risk really was not mentioned. Not long after the conversation he received a letter dated 18 August 2005: Exhibit 13. He read the letter and noticed various things about it. He subsequently completed the promissory note application form and sent it together with his cheque under cover of a letter dated 23 August 2005: Exhibit 14. He subsequently received a further letter from the defendant dated 29 August 2005 (Exhibit 15) and a letter from Bayshore Mezzanine Pty Ltd dated 31 August 2005 enclosing the promissory note issued 29 August and a payment schedule: Exhibit 16.

[22] Mr Courtney said that he was never told that an investment in a promissory note issued by that company was a high risk investment, or that Bayshore Mezzanine Pty Ltd would not have a second ranking mortgage over the property or a second ranking charge over the development company, or that apart from the commission being paid to the second defendant there was an extra 13% in commission being paid to others. Had he been told any of these things, or not been told that Mr Brannelly recommended the investment, he would not have made the investment: pp 61-2. He was not told of the contents of an ASIC media release of 25 May 2004 (Exhibit 17); had he been, he would not have made the investment: p 63. Mr Courtney received two monthly payments from Bayshore Mezzanine Pty Ltd and has not received anything else from that company; the payments were $2,104.11 on 30 September 2005, and $2,038.36 on 31 October 2005: p 64.

[23] Mr and Mrs Summergreene both gave evidence. Mr Summergreene was born in 1940 and after being educated to year 10 completed an apprenticeship as a builder, working in that industry until 1984, when they moved to Queensland and purchased a school bus business: p 501. He was the driver and mechanic for the business. They disposed of that business in 2002, although he continued to drive for the business for some time thereafter: p 502. They had purchased three rental properties over a period of time, and made some modest investments in shares, generally on the advice of Mrs Summergreene's father, although they purchased some Telstra shares on their own initiative: p 472, p 502. Mrs Summergreene was born in 1943, educated to year 11 and then did secretarial work until her first child was born, after which she did some part-time secretarial work: p 471.

[24] Mr Summergreene saw an advertisement in the paper. In response he made contact with Mr Paul Brannelly in January 2005: p 502, p 473. Mr Summergreene told Mr Brannelly that they were interested in investing funds down the track; he said they were going to sell an investment property and that would produce the funds they wanted to invest: p 503. He said that they were looking for a safe, secure investment for the funds.[22] Security was a matter of importance to Mrs Summergreene, because she expected to have a capital gains tax liability as a result of the sale of the property which would have to be paid after the end of the financial year: p 474. She also preferred monthly payments on the investment.

[25] Subsequently they received a letter dated 14 January 2005 from the defendant: Exhibit 66. Mr Summergreene noted that the investment referred to in the letter (the Prime Trust) was said to have been approved by a research team, but otherwise he left it to Mrs Summergreene to look at it: p 504. She also noted that part, which she treated as a recommendation, the return and that the investment had tax advantages, and involved monthly payments, but it appeared to be a longer-term investment than they were interested in: p 475. Thereafter the defendant rang on a number of occasions inquiring as to whether they were ready to invest money, but at that stage they had not sold the property: p 504.

[26] The next event was receipt of a letter from the defendant dated 28 February 2005: Exhibit 67. Mr Summergreene recalled that they discussed it, but essentially he left it to his wife to take care of: p 504. She took from the first paragraph of the letter that this was a recommendation (p 475, p 477), and noted that they were recommending only funds in which risk factors were minimised. She noted what was said in that letter about the Westpoint group, which she said made it sound like a worthwhile company: p 477. She also noted that there were no fees associated with the investment, and that there were substantial pre-sales in place, that it had a registered second mortgage over the property and a second ranking charge over the developer, and that it was supported by a guarantee from Westpoint itself, so that it sounded like a very safe investment: p 478. She did not at the time appreciate the significance of a second ranking mortgage, and did not know what a second ranking charge was. At that stage they still did not have the money available to invest.

[27] They received a further letter from the defendant dated 18 July 2005: Exhibit 68. Both of them noted the reference to an excellent opportunity to invest in high yielding promissory notes offering 14%, which Mrs Summergreene said she took as a recommendation: p 481, p 505. Neither knew at the time what promissory notes were. They noted the favourable things said about Westpoint, which sounded like a successful company (p 481, p 505), and noted that it was providing a guarantee for the company's obligations under the loan and securities. Mr Summergreene said that he understood that this was a reference to Westpoint guaranteeing the loan that an investor would make: p 505. Mrs Summergreene put the same interpretation on the guarantee: p 484, p 583. She though that a promissory note was something like shares, and that the guarantee meant that it would be a safe investment: p 482. She also thought that they would get the benefit of the mortgage referred to in the letter, she knew what a mortgage was, and she noted that the purpose of the additional funding was to build additional floors which she took as an indication that the project was doing well: p 483. They noted the favourable things that were said about Westpoint (p 484, p 505), the absence of entry fee, exit fee or management fee, and the high level of pre-sales of the property, and again the reference to the guarantee from the Westpoint group and a charge over Bayshore Port Melbourne Trust: p 484 and p 505. The reference to the limited period of time indicated to them that something needed to be done fairly quickly: p 484.

[28] Mrs Summergreene also noted a disclaimer which referred to the defendant's not giving financial advice and that it was for information purposes only, but she thought that he was in the letter giving advice, which was why they contacted him: p 485. Mr Summergreene did not know what an unsecured promissory note was (p 505) but knew what a mortgage was, though not a second ranking mortgage, or a charge: p 506. He thought the letter suggested that this development was the most appealing to an investor. He noted much the same things as his wife had noted, and was also attracted by the short term, by the absence of entry and exit fees, by the pre-sales and by the guarantee from the Westpoint group: pp 506-7.

[29] Mrs Summergreene said that she subsequently had a telephone conversation with Mr Brannelly in which she asked what was meant by a second rank mortgage and a second rank charge because, she said, she told him that if it was anything like a second or third mortgage they wanted nothing to do with it: p 485. She said his response was that it was fully backed by Westpoint and that there was no problem: p 486.[23] It was only in hindsight that she realised that he had not actually answered her question. She said that she also asked him how secure it was, because she said they could not afford to lose money and that they were not going to put it in something that was risky; he replied that he had been dealing with Westpoint for nine years and he had had no trouble with them and they had never not fulfilled their obligation during that time, and that it was fully guaranteed by Westpoint: p 486. She asked what the term of the promissory notes was, because they needed to pay capital gains tax and he said that it was to June 2006: p 486.[24] She said she also asked him about whether there were monthly returns, and he said that he had been dealing with them for nine years and they had never reneged on paying. He also said that they would send a notification of when the money would be paid, and that they were still taking money because some of the others were coming out of the scheme and the money was being repaid.

[30] The investment property was sold, with settlement around 20 September: p 488. Prior to then, Mrs Summergreene again telephoned Mr Brannelly and asked him what he would recommend that they put the money into because the money was due then within a short space of time, and asked him to send out what he then recommended: p 488.[25] She said that it had to be something safe and secure. Subsequently they received from the defendant a letter of 20 September 2005: Exhibit 69. This was consistent with what Mr Brannelly said, that he would send some information in the mail: p 489. This letter was very similar to the letter in July and Mrs Summergreene said the same things stood out: p 491. Mr Summergreene said that he relied on the statement in the letter that it was an excellent opportunity to invest with a company with an established record, and noted the favourable things said about the Westpoint group, which he said sounded like Mr Brannelly was guiding them towards a secure investment: p 507. He noted the comment that "we consider [Bayshore] to be the most appealing [Westpoint project] at present": p 508. He also noted that they were adding additional floors and sourcing more capital to fund this additional expense. He interpreted the letter as a statement that Westpoint was the place to put their investment money. He also noted the reference to the absence of fees, that pre-sales were 80%, that the construction was underway for completion, and the guarantee from Westpoint and the charge over Bayshore was the security: p 509.

[31] With the letter came a copy of the information memorandum, Exhibit 1. Mr Summergreene said that he looked at it but did not understand it, and he cannot work a balance sheet: p 509.[26] He did not see anything in there inconsistent with what had been said in the letters from the defendant. Mrs Summergreene also said she did not understand that document, and just relied on what the defendant had said in his letter: p 491, p 644. After considering this letter, Mr and Mrs Summergreene decided to go and see Mr Brannelly, because they wanted to see Mr Brannelly face to face before deciding to invest: p 510. Mr Brannelly's notes record a meeting on 23 September 2005: Exhibit 117, p 1114.

[32] Mrs Summergreene said that they said to him they were not prepared to hand over $100,000 without knowing that their money was going to be safe; the defendant replied that Westpoint was fully guaranteeing Bayshore and he had been associated with them for nine years, but the company had been going for 25 years and had never missed a payment: p 492. One of them asked what was meant by a second ranking mortgage, and was it something like a second or third mortgage, and he just told them in response that there was a mortgage over Bayshore and it was all fully backed by Westpoint: p 493.[27] Mrs Summergreene said she told him that she hoped their money was safe because they could not afford to lose it: p 493. They checked when the money would be repaid and were told June 2006, and that they would get a letter with the promissory note giving dates on which payments were to be made. There was some conversation about additional floors being added to the building and the defendant said that pre-sales had done really well and that that was why they had found it necessary to add additional floors.

[33] Mr Summergreene said that they also mentioned that they wanted a short term because of the possibility that they would have to pay capital gains tax on the sale of the investment property: p 510.[28] He recalled his wife saying that it must be secure, and Mr Brannelly saying that it was secure and that he recommended the investment. He did not recall any elaboration on how it was secured: p 510. His wife had said that they could not afford to lose this money and it had to be secure: p 511. The defendant made a phone call during the meeting to see whether they were still accepting funds, and then said they were and that some investors' money was coming out because their terms were finishing and they were still looking for new investors to put money into the project: p 511. Mr Summergreene said that Mr Brannelly had said that the company was secure, he had dealt with the company for nine years and never had any problems: p 511.[29] They then decided that they would invest, and Mrs Summergreene took out the cheque that had already been written out and the application form and they handed it over: p 494, p 512, p 633. They were given a receipt and told interest would be paid monthly into an account and they provided the relevant account details.

[34] They subsequently received a letter dated 23 September 2005: Exhibit 70. Mrs Summergreene was concerned about the assertion in the letter that the investment was based on their own research, which she described as a load of rubbish: p 494. She also did not understand what Deakins had to do with the matter because at that stage she was not dealing with Deakins: p 496. However, she did not then follow this up with Mr Brannelly, on the basis that the money had already been paid over. She had not in fact done any research herself, or told Mr Brannelly that. They subsequently received a letter with the promissory note: Exhibit 71. They received one payment of interest, but nothing else: p 512. Details of what was received and not received are set out in Exhibit 72. In May 2006, after problems had arisen, they wrote to the defendant: Exhibit 73. The reply from the defendant became Exhibit 74.

[35] Mr and Mrs Summergreene said that they were not told that it was a high risk investment, and if they had been told that, or that it was a risky investment, they would not have made the investment: p 498, pp 512-3. They said that if they had been told the promissory note was nothing more than an IOU, or that there was no guarantee to the investors from the Westpoint group, or if the investment had not been recommended by the defendant, they would not have made the investment: pp 498-9, pp 513-4. Neither had been told the content of Exhibit 17, and would not have made the investment if they had: p 500, p 514. If they had been told that it was something that ought to have been registered under the Corporations Act but was not they would not have made the investment: p 500, p 514.

[36] Mr Andrew was born in 1931; he is currently retired, after a lifetime in the gas supply industry: p 121. He had some investment experience, at a fairly basic level; he had put some money in a bank in Jersey to obtain a tax benefit, he had invested in shares through an investment program promoted by a company, and he had invested some money on the stock market, essentially by focusing on new companies being floated and selling on the basis of a formula: p 122. Mr Paul Brannelly's name was given to him by a friend[30] and he telephoned Mr Brannelly and asked him if he had any investments that he might be interested in: p 123. He said that he wanted an investment which was secure and short term: p 129. He said he had about $200,000 to invest, and Mr Brannelly said he would look into it and get back later: p 123.[31]

[37] Mr Andrew subsequently received two letters from Mr Brannelly; one dealing with the Prime Retirement and Aged Care Property Trust (Exhibit 21) and one in relation to Bayshore Port Melbourne: Exhibit 22. The latter had attached to it a copy of the information memorandum[32] and Mr Andrew read both the letter and the information memorandum: p 128. Mr Andrew identified a number of things in the letter which he said caught his eye and on which he said he relied when making his decision to invest $97,000 in Bayshore Mezzanine Pty Ltd: p 128. He said that as a result of the letter he had the impression that he would be getting the benefit of the guarantee referred to under the heading "Investment Highlights": p 131.[33]

[38] Having read this material he decided to invest in Bayshore, and rang Mr Brannelly and told him that he probably would be investing: p 132.[34] On 5 August 2005 he sent off a form together with his cheque for $97,000: Exhibit 23. He received in reply a letter from the defendant: Exhibit 24. Some time later he received a further letter dated 12 October 2005 from the defendant in relation to the investment in Bayshore Mezzanine Pty Ltd: Exhibit 25. This related to what was to happen to the investment after it had matured, and after that letter and after (he thought) a telephone discussion with Mr Brannelly he decided to roll the investment into the Westpoint Investment Fund: p 134. Before that could happen, however, Bayshore Mezzanine Pty Ltd went into liquidation; he received three payments in respect of interest but he has not received anything else. The details of the amount invested and the payments received are set out in Exhibit 26.

[39] Mr Andrew said that if had have been told the investment was a high risk investment, or that it was with a company which did not have 20 years experience, or if Mr Brannelly had not described the investment as an excellent opportunity, or if Mr Brannelly had told him that the promissory note was really just an IOU, or that he was not getting a guarantee to support his investment, he would not have made the investment in Bayshore Mezzanine Pty Ltd: p 135. If he had been told about the contents of Exhibit 17, he would not have invested, nor if he had been told that in 2004 the Supreme Court of Western Australia decided that the Bayshore information memorandum did not comply with the requirements of the Corporations Act: p 136. He said he did not remember Mr Brannelly ever saying anything about the risk involved in the investment: p 137.

[40] Mr Radcliffe was born in August 1939: p 419. He trained as a teacher and spent most of his working life as a primary school teacher, rising to become principal of a State primary school before he resigned in 1993 to set up as a writer and publisher of primary school textbooks, including both workbooks for students and preparation books for teachers: p 420. He does most of the writing himself for the books that are published. When he retired in 1993 he received a superannuation payout which he put into a self-managed superannuation fund. With some of the money he has purchased real estate, but the balance was put in the bank or a credit union until around 2000 when he obtained some financial advice from the Commonwealth Bank, as a result of which he invested money in the Bank's super bonds: p 421. He then obtained advice from a financial adviser, as a result of which he invested money in Navigator and Colonial First State. He has also invested in another investment vehicle, as a result of seeing an advertisement.

[41] In October 2004 he saw an advertisement in a newspaper placed by the second defendant, as a result of which he contacted a Mr Paul Brannelly: p 422. Mr Radcliffe telephoned and said that he was putting $100,000 into his super fund, he was looking for secure investments that paid monthly or quarterly distributions that he could reinvest, and he wanted some financial advice on where would be the best place to park the money: p 422. He said Mr Brannelly mentioned Prime Retirement and Aged Care Property Trust, which he said was a strong performing trust, and that he had a research team and recommended this particular investment, and asked if Mr Radcliffe would like to see the PDS for the investment: p 423. Mr Radcliffe said he would.[35]

[42] Following this, Mr Radcliffe received a letter from the defendant dated 22 October 2004 concerning the Prime Trust: Exhibit 51.[36] The letter also referred to a research team,[37] which Mr Radcliffe regarded as of some significance, as was the reference towards the end of the letter to a well-regarded national independent research organisation, together with a number of things specifically about the Prime Trust. He did not at that time make any investment, but on 14 March 2005 he again telephoned Mr Brannelly, identified himself again and explained that he was looking for secure investments that provided a regular distribution, and asked him some questions about the Prime Trust: p 424.

[43] Mr Radcliffe subsequently received another letter from the defendant, dated 8 March 2005: Exhibit 52. He noted in the letter the reference to the defendant having been in operation for 40 years[38] providing financial services to a select clientele of executives and self-employed business people. He also noted a statement that "we endeavour to recommend only those funds in which risk factors are minimised as much as possible." The letter contained some general things about the Westpoint group, which Mr Radcliffe read and which he was impressed by.[39] He also noted the general statement that investments were secured by a second ranking mortgage and a second ranking charge, and a guarantee from Westpoint which he described as the clincher for him: p 425.[40] He also noted a statement towards the end that it was increasingly difficult for the average person to make fully informed investment decisions, and he took from that that the second defendant were experts.

[44] Mr Radcliffe was offered another copy of the PDS for Prime and he asked for it, and shortly afterwards he received a letter dated 14 March 2005 from the defendant which did enclose a further copy: Exhibit 53. He noticed again the reference to the research team, and a number of things which were specific to Prime. On 22 March he invested $100,000 in the Prime trust: p 425. He subsequently received a letter from the defendant dated 26 April 2005: Exhibit 54. This letter was similar to Exhibit 52, and Mr Radcliffe noted much the same things about it: p 46.

[45] On 27 June he again telephoned Mr Brannelly saying he had additional funds to invest, and Mr Brannelly referred to Prime again, and then brought up the subject of Bayshore which was part of Westpoint, which he said had a great track record in property development: p 538.[41] He said it was a very solid investment and offered an information memorandum: p 427. Subsequently, Mr Radcliffe received a letter dated 28 June 2005: Exhibit 55. An information memorandum, a copy of Exhibit 1, was either sent with that letter or sent separately; he said he received one: p 427.[42]

[46] Mr Radcliffe identified a number of things in the letter on which he relied when making his decision to invest, in particular the excellent return, and the guarantee from the Westpoint group and Westpoint's record of success: pp 427-430. He did not understand what a second ranking charge was, and did not place any great significance on that or the reference to a second ranking mortgage: p 429, p 522. He read a copy of Exhibit 1, and it seemed to him to support what the defendants had said about the investment: p 431. He decided to invest in Bayshore (p 546), and telephoned the defendant on 4 July[43] to confirm that the investment was still available, and then invested $100,000 through his superannuation fund: p 431.[44] He received a promissory note for the investment from the company: Exhibit 58.

[47] Mr Radcliffe went to see Mr Brannelly in his office on 25 July 2005 and provided him with a short summary of his financial situation: p 434, Exhibit 75.[45] He declined a full financial review of his circumstances, since he had already obtained that elsewhere not long before.[46] He said that he was looking to put more money into a super fund and looking for secure investments providing a quarterly and monthly distribution which could be reinvested. The defendant referred to Prime trust, and said that Bayshore was looking for some more funds: p 463. Following the meeting he received a further letter from the defendant: Exhibit 59. The letter was similar to earlier letters sent to him by the defendant.

[48] Mr Radcliffe subsequently invested a further $100,000 in each of the Prime trust and Bayshore Mezzanine: p 464.[47] He received further correspondence in relation to the investment: a letter from the defendant Exhibit 62, a letter from Bayshore Mezzanine Pty Ltd of 1 November 2005 - Exhibit 63 - and a further letter from the defendant suggesting rolling over the Bayshore investment into the Westpoint income fund: Exhibit 64. Mr Radcliffe was interested in rolling over that investment, and adding a further $50,000 (p 467), but ultimately that did not proceed.

[49] Mr Radcliffe was never told that the investment in Bayshore Mezzanine Pty Ltd was a risky investment or a high-risk investment, or that a promissory note was no more than a simple IOU; if he had been told any of these things he would not have made the investment: p 468.[48] He would not have made the investment if he had not been told that his investment was guaranteed,[49] or if it had not been recommended by the defendant. He would not have invested had he known the contents of the ASIC press release Exhibit 17, or if he had been told that the investment ought to have been registered under the Corporations Act but was not: p 469. The amount he invested and the four payments received in relation to the investments were set out in a schedule: Exhibit 65.

[50] Mr Pegg, who was born in 1951 and has retired following a career as a Telecom technician, gave evidence that he was one of the directors of this company which was the trustee of the CEP Superannuation Fund: p 153. He gave some investment history. He had bought a house in Ipswich which he sold five years later, and then together with a friend and his wife purchased a block of shops at Geebung which were done up and sold, and they purchased a block of eight two-bedroom units in South Brisbane. Then his friend's marriage broke up, and he ended up owning the flats with his friend's ex-wife, whom he ultimately bought out; the flats were later sold: p 153. He had some shares which he inherited from his father's estate, which essentially he just left as investments. He obtained some shares in the float of the Commonwealth Bank, and because of an account initially with a building society he ended up with shares in Bendigo Bank: p 154.

[51] Mr Pegg had set up a self-managed superannuation fund into which he paid his redundancy money when he left Telstra, and he purchased shares with the money in that fund acting on the advice of a stockbroker,[50] up until 2005 when the stockbroker he had been dealing with left: p 154. He went to a seminar run by Atlantic Three Financial, which impressed him and he made some investments with that company, some of which were successful and some of which were not: pp 155-7. He had also made an investment with a property syndicate in Canberra, which was successful (pp 155-6). Overall, although there were a range of investments made at different times,[51] it does not strike me as a particularly sophisticated investment approach. Investments in the stock market were conducted simply on the basis of following advice given to him by a stockbroker,[52] but otherwise essentially he was persuaded to invest in various ways by people who were trying to sell the investments. This did not show that he was willing to take risks but only that he was not sufficiently astute to avoid them.

[52] Mr Pegg first made contact with the defendant after seeing an advertisement in a paper in March 2005 relating to the Prime Retirement and Aged Care Trust: p 158. He spoke by telephone to Paul Brannelly[53] and asked for information about it, and that turned up in a letter dated 24 March 2005: Exhibit 27.[54] Ultimately an investment was made in that as well. The defendant sent Mr Pegg a letter concerning the Bayshore Port Melbourne investment dated 18 July 2005: p 162, Exhibit 28.[55] He had not previously heard of Westpoint or of Bayshore Port Melbourne: p 164. He understood the letter as saying that the company that his money would be going into was the company which had a second ranking mortgage over the development property: p 165. He was aware that attached to the letter was a document headed "Disclosure"; he did not read it in detail but did note that it referred to a product disclosure statement: pp 167-8.

[53] After reading the letter Mr Pegg had some questions for Mr Brannelly, and he made notes of these on a sheet of paper: Exhibit 29, pp 168-170. On 22 July 2005 he telephoned Mr Brannelly's office on his mobile and spoke to a receptionist and said he wanted a PDS, and asked Mr Brannelly to call him back on his mobile after 3 pm: p 168.[56] He said that later the same day, Mr Brannelly did call him back: p 220. He had a conversation with Mr Brannelly, in which he asked him the various questions, and made notes of his answers on Exhibit 29.[57] That document was not disclosed until just before the trial, but Mr Pegg gave an explanation as to how that came about.

[54] He had that day been with a friend at a social function, and after the function at the friend's house a number of digital photographs taken at the function were printed, presumably using a colour printer: p 246. He took these photographs when he went home, and the sheet with the questions and answers on it was put with the photographs and taken home with them. Although he had a file in relation to this investment (p 221), at this stage he had not received much documentation in relation to Bayshore, and it may be the file had not yet been started; in any event, this sheet was not then put into that file, but left with the photographs which were filed separately, and ultimately put away in an archive box. It was only recently, when thinking about the impending trial, that he realised that the social function had been on the same day as this conversation, and he dug out the photographs and found the sheet with his notes of the questions and answers with them: p 247.

[55] That strikes me as a plausible explanation. My impression of Mr Pegg in the witness box was that he was an honest witness, and, notwithstanding a challenge by the defendant to the provenance of these notes (pp 221-2), I accept that Exhibit 29 represents his contemporaneous note of the conversation, and that the conversation on that day between Mr Pegg and Mr Paul Brannelly occurred as recorded in Exhibit 29. For reasons given later, I do not generally accept Mr Paul Brannelly as a reliable witness. Some conversation between them that day is consistent with the opening paragraph of the defendant's letter of 22 July, Exhibit 30: "Further to our recent telephone conversation ..." (emphasis added). What was attributed to the defendant was the same as what he was saying in the letters. Mr Brannelly's notes Exhibit 114 record a conversation said to be on 26 July 2005, "CP phoned PB. Had queries on Bayshore and Prime. All OK. CP will send in application forms for both funds." That suggests that at some time the plaintiff asked some questions about Bayshore and received answers which satisfied him. These notes may have been written up later, for the wrong date.

[56] That exhibit lists the questions and answers as follows:**

"1. What exactly is the $20 mill being raised for - was the original finance not sufficient.

20 mill to mainly cover costs for addit[ional] floors approved for Twes A & B and to finish off.

Has there been any contractor or industrial problems causing additional costs.

Westpoint have their construction group - they do not have those sort of problems.

How good are the guarantees for the security of an investment in Bayshore.

Very secure - W/Point group guarantee the investment - they have assets of 80 mill and Bayshore Mezz has a 2nd Mortgage over the property.

* If you are sure it is secure then send me the Info Mem, any info you have on the interview with Carey referred to in the letter.

**[57] At that stage Mr Pegg said he had not finally made a decision about the investment: p 176. He received on 25 July 2005 a letter dated 22 July 2005 from the defendant: Exhibit 30.[58] Mr Pegg said that he relied on the fact that the amount which had already been taken up had increased in a matter of a few days as suggesting to him that it was an attractive investment; the reference to the high ratio of pre-sales; the fact that the group was not dependent on others which he said fitted with what he had been told on 22 July by Mr Brannelly; the fact that the company in which he would be investment would have a second ranking mortgage; that this was said to be the most appealing project available at present; that the capital was being raised for the construction of additional floors; that the group had net tangible assets of $80 million; and the reference to Kebble being a boutique merchant investment bank: pp 177-8.

[58] Mr Pegg read the information memorandum and noted that there was no reference in that to the additional floors, but decided that the explanation was that the letters from the defendant contained more recent information than was available at the time the information memorandum was published: p 179, p 226. Otherwise, he did not detect any inconsistency.[59] He then signed application forms both for Prime (Exhibit 31, dated 26 July 2005) and Bayshore: Exhibit 32, undated. These were sent with his cheques to the defendant[60] who sent a letter acknowledging receipt of them: Exhibit 33. Mr Pegg was concerned about the evidence making statements in that letter, but did not do anything about it: p 181. He subsequently received a letter from Bayshore Mezzanine Pty Ltd enclosing the promissory note dated 1 August 2005 and an interest schedule: Exhibit 34. Later he received correspondence from the defendant (Exhibit 39) and from Bayshore Mezzanine about rolling his investment over into the Westpoint Income Fund, and signed on 23 November 2005 the forms to do this, but again there was no evidence they were ever acted on.

[59] Mr Pegg said that if Mr Brannelly had told him that the promissory note was really nothing more than an IOU, or that there was no second ranking mortgage in place, or any second ranking charge in place, or if he had been told about the risks associated with the investment, or that it was a high risk investment, he would not have made the investment: pp 182-3. If he had been told of the content of the ASIC media release Exhibit 17, or if he had been told that there was in 2004 a decision of the Western Australian Supreme Court that the issue of the promissory notes required registration under the Corporations Act but had not been registered, he would not have made the investment: p 184. He received three payments of interest but otherwise received nothing back in relation to his investment, as set out in the schedule Exhibit 35.

[60] I should make some general remarks on the question of credibility, although generally where there is need to resolve a specific inconsistency between different oral testimony I have made a specific finding which is recorded or reflected in my reasons elsewhere. My overall impression of the plaintiffs were that they were honest witnesses though some of them obviously had difficulty in recalling matters of details. I am conscious of the fact that it is likely that they were going to be recalling, and particularly going to be emphasising in the course of their oral evidence, those matters which could be said to be favourable to them, and would be less likely to recall or emphasise matters which may not be favourable to them, possibly because they were not matters to which they attributed any great significance at the time. Nevertheless, my overall impression of them was that they were honest and reasonably reliable, though not necessarily so in matters of detail.

[61] Their evidence-in-chief was generally more reliable than their cross-examination. I often had the impression that the witnesses did not really understand the questions asked in cross-examination, which was conducted in a badgering, pressured way, attempting to force the witnesses to say particular things. The questions were often difficult to follow, and put the witnesses under considerable pressure.[61] Mrs Summergreene in particular seemed to become quite upset at times under cross-examination. In these circumstances, if there are differences I generally prefer what was said in evidence-in-chief, and do not necessarily accept everything said under cross-examination.

[62] With regard to the defendants, Mr Matthew Brannelly struck me as particularly nervous in the witness box. Although he seemed at times to be trying to give honest evidence to the best of his recollection, he was very defensive and self-justifying in a way which suggested that much of his evidence was reconstructed. I found some of the things he said inherently implausible, such as the assertion that he was told by Deakins not to investigate products himself: p 901.[62] Mr Martinovic, who used to work for Deakins, was not aware of any such policy: p 931. There is also the consideration that he denied (p 779) having a telephone conversation with Mr Courtney which was admitted in the amended defence, both as to the occurrence of "a discussion" (para 9(a)) and as to his having made the statements alleged in paragraph 7(c), most of what was alleged to have been said in the conversation. In the circumstances, I reject his evidence as to this. There was I think little else in the way of direct conflict between his evidence and that of Mr Courtney; insofar as there was any specific conflict with which I have not otherwise dealt, I prefer the evidence of Mr Courtney.

[63] The one witness of whom I formed a distinctly unfavourable impression was Mr Paul Brannelly. That was particularly because of one piece of evidence that he gave, his assertion that he told all the plaintiffs with whom he dealt that the investment was a high risk investment. This emerged almost incidentally during cross-examination on p 1089, when he had accepted that an investment in Bayshore Mezzanine promissory notes was a high risk investment. In answer to a question as to whether he ever advised any of the plaintiffs that it was in fact high risk, he replied "As I mentioned before, I always stated that mezzanine funding is high risk initially but there are factors which reduce that risk." He repeated the proposition that he had said that to the plaintiffs at p 1090, claiming that it was the very first comment when the Westpoint products were mentioned to them. He conceded that this was not set out in any of his letters, nor was it recorded in the notes that he made of his dealings with the plaintiffs, though he said that this was because he was not recording everything that was said (and see p 956), and continued:**

"I'm saying again that the very first thing I said to anybody when the Westpoint mezzanine funds were mentioned was that it was high risk but there are factors which mitigate against that risk. And that was repeated at other times."[63]

**He said that he had made that statement to everybody he dealt with, and that he had told his solicitors and barristers that that was his practice: p 1090.

[64] The proposition that the plaintiffs were expressly warned that this was a high risk investment was plainly material to the plaintiffs' cases as pleaded. But it was not raised in any of the defences, nor was it put to any of the plaintiffs that any such thing had been said.[64] The proposition that such a warning had been given was not led in evidence-in-chief, despite the fact that all of the plaintiffs were asked whether they were told that it was a high risk investment, and all said they were not, and all said that if they had been told that they would not have invested in these promissory notes. From what I saw and heard of the various plaintiffs, I had the distinct impression that in particular Mr and Mrs Summergreene and Mr Evans would have definitely not invested in the promissory notes had they been told expressly that they were a high risk investment; indeed I think it unlikely that any of the plaintiffs would have done so. I simply cannot accept the proposition that they all did so notwithstanding that they had been expressly warned of this. In all the circumstances I find that this warning was not given by Mr Brannelly, and that his statements to that effect were false. That reflects adversely on his credibility overall. The fact that Mr Brannelly claimed to have said these things was, however, in effect an admission that they were warnings which ought to have been given.

[65] Another matter which was unsatisfactory was the preparation of the typewritten versions of his handwritten notes, which form part of the respective exhibits. They do not correspond exactly. Mr Brannelly said that the reason for this was that the notes were prepared to inform others of what had happened with these (and other) investors, with a view to his handing them over when he left the company: p 906. But in Exhibit 116 the typewritten version for the meeting on 25 July 2005 includes: "PB explained he was only giving general advice not personal advice". That did not appear in the handwritten notes. Mr Brannelly said this was an inference from what was in the handwritten notes (p 1119) and it was necessary so the rest of the notes would make sense: p 1120. These are not plausible explanations for what looks very like an exercise in manufacturing evidence.[65]

[66] There were some other matters about his evidence which I thought were unsatisfactory. At one point he appeared to be saying that the letters sent out to the various plaintiffs were all individually submitted to the third defendant and approved by it before they were sent: p 910. However, under cross-examination he conceded that all that had been approved by the third defendant were form letters, not each individual letter sent out: p 1071.[66] Some things that he said particularly under cross-examination amounted to concessions which I am prepared to accept, partly because they were against interest and partly because they were generally speaking concessions about matters which were fairly obvious anyway. Overall, however, I was not impressed by his reliability, and as a general proposition where there is any conflict between his evidence and the evidence of another witness, particularly the plaintiffs, I prefer the evidence of the other witness. Indeed, I am wary about accepting his evidence even if it was not directly contradicted.

[67] Mr Johnston's[67] evidence suffered from two difficulties. It seemed to me that he was hardly objective in relation to a matter of this nature, because of the position that he occupied; he was in effect the person in charge of a professional association of investment advisers (p 972), so that ordinarily he would be concerned in advancing the interests of investment advisers and defending them if they came under attack: Exhibit 120. Despite this, it seemed to me that much of his evidence was quite frank. His evidence also suffered from the difficulty that he gave it by telephone in circumstances which were scarcely conducive to calm deliberation. To begin with, he was speaking from a hotel room he was supposed to be checking out of (p 1011), and ultimately I adjourned so as to give him time to vacate the room and relocate. Then he was giving his evidence from an airport, where he was initially waiting for, and subsequently missed, an aeroplane: p 1058. In these circumstances I suspect that at times he did not give questions that he was asked the careful consideration that they really required. I am overall wary about Mr Johnston's evidence, but am prepared to accept quite a bit of it; essentially where I have referred to his evidence or cited it without indicating that it is rejected, I accept that evidence.

[68] Mr Child's evidence I thought was generally honest and reliable, although much of it suffered from the difficulty that it was not directly relevant to the matters actually in issue in the action, for one reason or another. There were I thought not very many matters of importance where there was a direct divergence between Mr Child and Mr Johnston; a number of apparent inconsistencies seem to me to be better characterised as differences in emphasis. As a general proposition, particularly bearing in mind concerns that I had about Mr Johnston's evidence, where there is a direct conflict I prefer the evidence of Mr Child, subject to any specific findings that I have made elsewhere. There was I think no occasion for me to be concerned about the credibility of any of the other witnesses.

[69] It is necessary then to work through the current statements of claim and identify those matters which are either admitted or proved, dealing with issues raised in that pleading and the current defence as they arise. I will deal first with the Evans action. A second further amended statement of claim in this matter was filed on 3 December 2007. This includes amendments which were made by leave given on 15 October 2007. A notice of intention to defend and defence was filed on 2 October 2006; an amended defence was filed on 3 October 2007, and a further amended defence filed 26 November 2007. That document was responsive to the statement of claim filed on behalf of the plaintiff on 3 December 2007, though it was in fact filed earlier, since the amendments were known from 15 October 2007. Then on 13 December 2003 there was a further amendment allowed, in terms of para 60 in Exhibit H: p 1023.

[70] At all material times the first defendant engaged in the provision of financial and investment advice for reward, and acted as a director and agent of the second defendant.[68] The second defendant was an authorised agent of the third defendant.[69] At all material times the first defendant held himself and the second defendant out as being competent or qualified to give financial and investment advice.[70] The second defendant was a company duly incorporated according to law, a business providing financial and investment advice, a corporation within the meaning of that term as used in the Trade Practices Act 1974, liable for the actions of the first defendant, and a financial corporation within the meaning of that term as used in the ASIC Act.[71]

[71] The third defendant was a company duly incorporated according to law, a business providing financial and investment advice, the holder of an Australian Financial Services licence issued by the Australian Securities and Investment Commission on 1 October 2003 being licence number 231159, conducting business via an advisory network, an Australian Financial Services licence holder that authorised the second defendant and the first defendant to provide investment advice under the third defendant's licence, a corporation within the meaning of that term as used in the Trade Practices Act 1974, liable for the actions of the first defendant and liable for the actions of the second defendant.[72]

[72] The third defendant issued or published to the general public, including the plaintiff, a document described as a financial services guide version 4 February 2005 in which the third defendant made or authorised the following express representations to be made:

(i) Deakin Financial Services conducts business via an advisory network. Each advisor is authorised under Deakin's licence;

(ii) Where Deakin has appointed a corporate entity as an authorised representative, employees of that company who give advice will also be authorised by Deakin;

(iii) Deakin is ultimately responsible for any advisory services the advisor provides.[73]

[73] The first, second and third defendants' conduct was conduct in trade or commerce within the meaning of those words as used in the Trade Practices Act 1974 and the Fair Trading Act 1989 and the Australian Securities and Investment Commission Act 2001.[74] Insofar as the first or second defendants did anything as alleged in paragraphs 7 to 11, or omitted to give the advice referred to in paragraph 20, of the statement of claim they were acting as agents for the third defendant.[75] The plaintiff was a consumer within the meaning of that term as defined in s 6 of the Fair Trading Act and s 4B of the Trade Practices Act and s 12BC of the ASIC Act.[76] Paragraph 1(i) was proved by the evidence of the plaintiff and the first defendant.

[74] Paragraphs 2, 3 and 4 related to an alleged agreement for reward to provide financial and investment advice to the plaintiff. I am not persuaded that there was ever any such agreement. Ultimately the plaintiff did not press the case on the basis of contract, so it is not necessary for me to say anything very much about this. In relation to the matters alleged in paragraph 3 of the statement of claim, a letter dated 18 July 2005 enclosing a document entitled "Brannelly - the professional perspective" was sent.[77]

[75] It was admitted that the first and second defendants sent a letter dated 27 July 2005 with a promissory note application form for Bayshore Mezzanine Pty Ltd, which was included in a copy of the information memorandum: Exhibit 47. I find that on 9 August 2005 the plaintiff completed the promissory note application form and handed it, together with a cheque for $50,000, to the first defendant at the office of the second defendant.[78]

[76] It is in issue on the pleadings whether the first and second defendants forwarded the application form to the third defendant or to Bayshore Mezzanine Pty Ltd, and there was no evidence on the basis of which I could make a finding about this matter;[79] the allegation that they dealt with the sum of $50,000 in the same way was not pleaded to and was therefore deemed to be admitted. There was no evidence that the first and third defendants received a payment from Bayshore Mezzanine Pty Ltd in respect of the plaintiff's investment of $50,000; it was admitted that the second defendant received a payment from the third defendant in respect of that investment: para 10(j). There was no evidence the first defendant received a payment from the second defendant. It was admitted by the defendant during evidence that the third defendant had authorised the first and second defendants to recommend at least some Westpoint products to investors, including relevantly this one: p 778.

[77] I find that at the time the various communications from the first and second defendants were made to the plaintiff the first defendant was aware that the plaintiff was seeking advice on serious financial matters, and that, from the time of the telephone conversation between the plaintiff and the first defendant following the receipt by the plaintiff of Exhibit 46,[80] the plaintiff was giving consideration to investing in Bayshore Port Melbourne development. This finding is based on my acceptance of the evidence of the plaintiff as to the communications that he had with the defendant, as summarised earlier. From the point of view of the plaintiff these were serious financial matters, I accept that he was seeking advice on them, and I accept that he communicated that to the defendant. I find that in the visit when the decision was made to invest, the plaintiff sought advice from the defendant in relation to investing in Bayshore Mezzanine and said things which indicated that he was worried about making the investment and concerned about security, and that he was seeking the defendant's advice as to whether he should invest in that way.

[78] I am not prepared to find that the first and second defendants knew or should have known that the plaintiff believed that they had expertise in promissory notes and the property industry, or were experienced and knowledgeable about trade in promissory notes or property, but I find that they should have known that the plaintiff believed that they had expertise in property investment and were experienced and knowledgeable about property investment. That follows from the facts that they were engaged in the provision of financial and investment advice, and that they had held themselves out to the plaintiff as having expertise in the provision of financial and investment advice, and that the plaintiff had sought advice and assistance from them in relation to the proposed investment.

[79] I find that the first and second defendants ought to have known that the plaintiff would rely or was likely to rely on any representations made by them as to the quality of the promissory notes as an investment, the value of the promissory notes in comparison to other investments and securities, and the price, safety and reliability of the promissory notes in comparison to other investments. That follows from what had passed between them. It must have been apparent to the defendant during the visit that the plaintiff was hesitant and uncertain about the investment,[81] and was being influenced favourably towards it by the advice that was being given. In addition, the advice both written and oral was couched in terms which encouraged reliance, the advice and representations were obviously intended to be relied on, and in those circumstances it is a reasonable inference that the defendants should have known that the plaintiff would rely or was likely to rely on that advice in making an investment in the promissory notes recommended.

[80] I also find that the first and second defendants should have known that the plaintiff would rely on the advice and the representations and would thereby be induced to make the investment in Bayshore Mezzanine Pty Ltd. This is on the basis that the terms of the advice and representations were likely to induce the plaintiff to make the investment referred to, as is apparent from their content.

[81] In relation to the matters raised in paragraph 9 of the defence, I am not prepared to find that the plaintiff chose to invest in Bayshore Mezzanine Pty Ltd based on his own analysis and assessment. I find that the plaintiff made no analysis or assessment of the proposed investment, and that his decision to invest was based entirely upon what was communicated to him by the defendants.[82] With regard to the matters referred to in paragraph 9(d), I find that the letters of 18 July 2005 and 27 July 2005 (but not 9 August 2005) did have attached to them a document which included the passage pleaded. Insofar as the document stated that the plaintiff had not sought advice and was not given advice the document was false. In other respects the passage was irrelevant. It does not demonstrate that advice was not sought and was not given; it merely confirms that the defendant was economical with the truth. Advice does not cease to be advice as a result of having tacked on to it a false statement that it is not advice.

[82] As to paragraph 9(e) of the defence, I find that there was attached to the letters of 18 July 2005 and 27 July 2005 a document containing the statement referred to in this paragraph of the defence. The comments I just made apply to that paragraph as well.[83] The letter of 9 August 2005 contained the statement alleged in paragraph 9(f) of the pleading. The proposition that Mr Evans had decided to make the investment based on his own research was a lie. It was obvious from the plaintiff's evidence that he did not do any research himself, and he did not say that he told the defendant that he had done any research himself, nor was it suggested in cross-examination or alleged by Mr Brannelly in evidence that he did. In those circumstances the defendant must have known that the plaintiff had not done any research himself, and therefore must have known that a statement to that effect was false. The only effect of this document is that, as an attempt to pretend that the facts were other than they were, it shows guilty knowledge on the part of the defendant, and arguably amounts to an implied admission that his prior communications had been misleading and deceptive.

[83] The letter went on to refer to transactions being "made without personal advice ie advice relating to your personal situation". The defendant had been provided during the visit with some information about the personal situation of the plaintiff. The defence proceeded on the basis that advice was given only if it was personal advice, and only personal advice if it was given as a result of a specific retainer to give advice after a full consideration of the plaintiff's financial situation. There may be a legislative context in which that is a relevant consideration,[84] but it is irrelevant to liability at common law, and irrelevant to the question of whether conduct was misleading or deceptive.

[84] Whether or not there has been some detailed consideration of the whole financial position of a person, if a financial adviser purporting to act as a financial adviser says to a person, in substance, "you should invest in X", that adviser is giving advice to that person, and it is advice about the suitability of that investment for that person. If an investment adviser purporting to act as such says to a person in substance "people should invest in X" or "X is a good investment" then that is advice as to the suitability of that investment as a general proposition, though it is not necessarily advice as to the suitability of that investment for the particular person in question. However, where such advice is given in circumstances where there is nothing said to suggest that a general suitability of X as an investment is inapplicable to the particular person addressed, and where the investment adviser knows that that person is contemplating making an investment, in my opinion that is in substance also advice that "you should invest in X". I find the arguments in favour of a much more limited concept of advice advanced on behalf of the defendants wholly unpersuasive and I reject them.

[85] It was alleged in paragraph 6 of the statement of claim and I find that the first and second defendants owed a duty to the plaintiff to exercise reasonable care and skill in the provision of advice and the making of representations. It was recognised in Hedley Byrne and Co Ltd v Heller and Partners Ltd [1963] UKHL 4; [1964] AC 465 that when a party seeking information from a party possessed of a special skill trusts him to exercise due care and that party knew or ought to have known that reliance was being placed on his skill and judgment, there was a duty of care owed by that party. That approach was adopted by the judgment of the High Court in Mutual Life and Citizens Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556.

[86] Barwick CJ at p 571 said that there would be a duty of care if the person giving the advice or information realised, or a reasonable person in that position would have realised, that he was being trusted to give information which the recipient believed the speaker to possess or to which the recipient believed the speaker to have access, or to give advice about a matter upon or in respect of which the recipient believed the speaker to possess a capacity or opportunity for judgment, in either case the subject matter of the information or advice being of a serious or business nature. The speaker must realise or ought to have realised that the recipient intended to act upon the information in connection with some matter or business of serious consequence and the circumstances must be such that it is reasonable for the recipient to seek or accept or rely upon the utterance of the speaker. All of those requirements were present here.

[87] In San Sebastian Pty Ltd v The Minister [1986] HCA 68; (1986) 162 CLR 340, the majority said at p 357:**

"The maker of a statement may come under a duty to take care through a combination of circumstances or in various ways, in the absence of a request by the recipient. The author, though volunteering information or advice, may be known to possess, or profess to possess, skill and competence in the area which is the subject of the communication. He may warrant the correctness of what he says or assume responsibility for its correctness. He may invite the recipient to act on the basis of the information or advice, or intend to induce the recipient to act in a particular way. He may actually have an interest in the recipient so acting."

**[88] In the present case the defendants had and held themselves out as having skill and competence as financial and investment advisers, and were in their correspondence and in the oral statements to the plaintiff inviting the plaintiff to act on the basis of the information and advice provided, and intending to induce the plaintiff to act on that information, by investing in Bayshore Mezzanine promissory notes. They had an interest in such an investment being made, because as admitted the second defendant received a payment from the third defendant as a consequence of the investment.

[89] In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241, Brennan CJ said at p 252:**

"It is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound."

[90] In the same case McHugh J said at p 275:

"The position in Australia to date with respect to liability for pure economic loss caused by negligent misstatement is that, absent a statement to a particular person in response to a particular request for information or advice or an assumption of responsibility to the plaintiff for that statement, it will be difficulty to establish the requisite duty of care unless there is an intention to induce the recipient of the information or advice, or a class to which the recipient belongs, to act or refrain from acting on it."

**[91] In the present case of course there was a statement to a particular person, all statements except the first were in response to a request for information or advice, and there was an intention to induce the plaintiff to act on the information or advice provided by making an investment in the promissory notes. These principles were reaffirmed by the High Court in Tepko Pty Ltd v Water Board (2001) 206 CLR 1. There have been no subsequent changes in the law in Australia in relation to negligent advice which would be of assistance to the defendants, and no subsequent authorities were referred to by the defendants' counsel. They were applied to a financial planner who was remunerated through commissions in Paige v FPI Ltd (2001) Aust Torts Reports 81-625.[85]

[92] The submissions on behalf of the defendants in relation to the question of duty were based on two propositions: that the plaintiff's claim was predicated on the allegation of their status as clients of the defendants, so that it would fail if they were not clients, and that the existence of a statutory regime in the form of the Corporations Act and the ASIC Act dealing with misleading and deceptive conduct of defendants negated the idea that the plaintiff suffered from any vulnerability and militates against the imposition of any common law duty of care.

[93] As for the former, paragraph 2 of the statement of claim was surplusage, and the duty was largely based on the propositions pleaded in paragraph 5 which I have found made out on the evidence. There were references to the plaintiff being a client of the defendant, or to the obligation to a client, in the statement of claim, for example in paragraph 3(a), which was pleaded in support of the allegation in paragraph 2 that there was a contract between the plaintiff and the defendant, which allegation has not been made out. The statement of claim pleaded a case for damages for breach of contract, in the alternative to a claim for negligence, but that claim has not been made out and was not pressed at the trial. That, however, does not mean that a claim in negligence cannot succeed, if the facts were such as to give rise to a duty of care.

[94] A contract, or a client relationship, is not a prerequisite to the existence of a duty of care, although no doubt if either had existed it would have been relevant to the existence of a duty of care and its content. It is clear from the authorities referred to that a duty of care can exist without a client relationship, in the sense that that was used in the submissions on behalf of the defendants. Of course, in a sense the plaintiff was in the position of a client in that he was the recipient of the advice as to investment, and as a result of his having accepted the advice and making the investments the defendant received remuneration. Whether or not he was regarded as a client really depends on whether the concept of being a client extends that far,[86] but that is not helpful in determining whether there was a duty of care.

[95] As to the question of whether the existence of the other statutory regime was relevant to a duty of care, again I am unable to see why the existence of a parallel statutory remedy would impact on the existence of a common law duty. It is well recognised that a duty of care can arise notwithstanding that there is a contractual obligation to take care, so that there can be parallel remedies in tort and contract, and it seems to me that there is no reason in principle why there could not equally be parallel remedies in tort and under the Corporations Act or the ASIC Act. The Court of Appeal upheld the existence of parallel liabilities in negligence and under the ASIC Act in Delmenico v Brannelly [2008] QCA 74. I reject this submission.

[96] It was not disputed that the second defendant sent the letter dated 18 July 2005 to the plaintiff: Exhibit 46. I find that in that letter the first and second defendants provided advice to the plaintiff with respect to investment in the Bayshore Port Melbourne development by investing in promissory notes to be issued by Bayshore Mezzanine Pty Ltd. For reasons given earlier I reject the defendant's submissions that that letter did not amount to giving advice. I find and it is obvious that the letter contained the express representations alleged in paragraph 7(b).[87] As to paragraph 13(d) of the defence, this was not made out; most of the express representations alleged in paragraph 7(b) were not contained in the information memorandum and did not accurately repeat what was contained in the information memorandum. There was otherwise no express pleading to the proposition that these were representations, which is therefore taken to have been admitted.

[97] I find that there was a conversation between the plaintiff and the first defendant between 18 July and 27 July 2005, but I am unable to find that the matters referred to in paragraph 8 were said by the plaintiff and the first defendant as alleged.[88] Accordingly I am not able to find that the representations alleged in paragraph 9 were made. As to paragraph 10, it was admitted that the second defendant sent a letter to the plaintiff dated 27 July 2005: Exhibit 47. For the reasons given earlier concerning Exhibit 46, I find that this letter provided written advice to the plaintiff with respect to investment in the Bayshore Port Melbourne development by investing in promissory notes, and made the express representations pleaded in paragraph 10(b) of the statement of claim, except for para 19(b)(i) where the letter concluded this passage with the words "in the next few months" rather than "in the next month or so"; (ii) where the letter began the passage with the words "Bayshore Port Melbourne" rather than "this" and used the word "have" instead of the word "has"; and (viii) with regard to the project term, since the project was said to be due for completion at the end of 2005, and the word "the" has been omitted before "Westpoint" in the security highlights. These errors of transcription are of no consequence, except for the date for completion.

[98] As to paragraph 10A, I accept that there was a meeting between the plaintiff and the first defendant at the first defendant's office on 9 August 2005.[89] I find that the plaintiff informed the defendant that he wanted to make sure that there was no downside risk in an investment in Bayshore Mezzanine before he committed any funds: 10A(a). It was admitted that the first defendant made the statements alleged in paragraph (b)(i), (ii) and (iv): para 16A(b). I accept the plaintiff's evidence that the first defendant informed him that there was security over the Bayshore project in respect of the whole of the investment even if some of the money were used for some other project: p 322. I accept the plaintiff's evidence that the first defendant said that 80% of the apartments had already been sold, and there would be no problem in selling the remainder (p 323), and that he should not worry his investment would be secure (p 322); insofar as paragraphs (v) and (vi) go further than this, I do not so find. I accept the plaintiff's evidence that at the conclusion of the meeting he handed the first defendant a completed promissory note application form together with his cheque for $50,000: p 325.

[99] It was then alleged in paragraph 11 that the defendant made a number of implied representations. These were pleaded as having been made impliedly by the making of the express representations referred to in paragraphs 7, 8, 10, and 10A, and to the extent that I have not found that such express representations were made they cannot be relied upon as a basis for alleged implied representations.[90] Paragraph (a) was withdrawn by the plaintiff. I am not prepared to find that the implied representation in paragraph (b) was made; the express representations referred to the promissory notes as being unsecured. I am not prepared to find the representations in paragraph (c)(i), (ii) and (iii) were made; although some of the passages relied on were ambiguous, when all of the representations relied on are taken together it is I think reasonably clear that these statements were made not in relation to Bayshore Mezzanine Pty Ltd, but in relation to the Westpoint Group. I find that the implied representation in paragraph (c)(iv) was made.

[100] As to the implied representations in paragraph (d) I find that it was represented that the capital raising would be limited to $20 million, had as at 18 July 2005 raised $6.5 million, had as at 22 July 2005 raised in excess of $10 million, and would be likely to be fully raised by the end of September 2005 or thereabouts. I find there was an implied representation that the Westpoint Group had net assets to the value of an amount in excess of $80 million. I find there was an implied representation that for each project undertaken by the Westpoint Group promissory notes would be issued by a company, and the company issuing the promissory notes had a second ranking mortgage over the development property for which the money was lent.[91]

[101] I am not prepared to find that there was an implied representation that the company issuing the promissory notes granted the noteholders a second ranking charge. There is necessarily ambiguity in the latter part of the sentence in the two letters:**

"In each project, this company has a second ranking mortgage over the development property and a second ranking charge over the special purpose company."

**However, I do not think that a natural inference to be drawn from that expression is that the second ranking charge was granted over Bayshore Mezzanine Pty Ltd in favour of the noteholders.[92] The other reference to a charge in both letters was to "a charge over the Bayshore Port Melbourne Trust" referred to as one aspect of the security under the "Investment Highlights". That suggested that the noteholders received the benefit of a charge but not over the company issuing the promissory notes, rather over the assets of the Bayshore Port Melbourne Trust.[93]

[102] I find that there was an implied representation that the loan from the plaintiff was to the company issuing the promissory notes and the performance of that company's obligations to the plaintiff was further secured by a guarantee by Westpoint Corporation and associated entities. That is the natural reading of the express statements under the heading "Investment Highlights": "Security: guarantee from Westpoint Group ...", and of the express statement "Westpoint Corporation and associated entities provide a guarantee for the company's obligation under the loan ...". That supports the inference that such a representation would have been understood by a reasonable person in the position of the plaintiff.[94] I also find that the five representations in paragraphs (h)(i) and (iii), (i), (k)(A), (l)(A), and part of (m) were made, the last of these to the extent that the repayment of the plaintiff's investments and interest was to be secured by a guarantee from the Westpoint Group, and a charge over the Bayshore Port Melbourne Trust. That is the reading of the statement headed "Security" under the heading "Investment Highlights" which would have been made by a reasonable person in the position of the plaintiff. There was no implied representation that the investor obtained a second ranking mortgage.

[103] As to paragraph 12, the plaintiff handed over his money and an application form on 9 August 2005, as a result of which Bayshore Mezzanine Pty Ltd issued a promissory note in his favour on 12 August 2005: Exhibit 49. I find that the plaintiff invested in the promissory note issued by Bayshore Mezzanine Pty Ltd in reliance on the advice and representations referred in paragraphs 7 to 11,[95] insofar as I have found that those representations were made,[96] on 9 August 2005. The exception to this is the representation in paragraph 11(f)(ii), which was not relied on as the plaintiff thought that he obtained the benefit of the second ranking mortgage. I have set out already Mr Evans' evidence as to what he relied on, which was fairly comprehensive. The whole tenor of Mr Evans' evidence was that he was relying on what the defendants were saying in relation to the investment in deciding to make it.[97] It is true that some of the matters that he referred to as matters he relied on were matters which were not specifically included in those paragraphs of the pleading, but most of them were, and it is not necessary to show that the only matters relied on were those matters pleaded and found to have occurred. In particular, I find that he relied on his obtaining the benefit of a guarantee from Westpoint and associated entities; without it he would not have made the investment. He attained the idea that there was a guarantee in his favour from those companies solely from the representations made by the defendant. The defendant's representations were the sort of thing that would naturally induce reliance, and in those circumstances it is not difficult to infer that there was reliance on them when the decision to invest was made.

[104] It is clear from the authorities referred to earlier that it is necessary to consider whether it was reasonable for the plaintiff to rely on the advice and the representations of the defendant, in order to determine whether there was a duty to take reasonable care in giving advice and making representations. I find that it was reasonable for the plaintiff to rely on those representations. The defendant had held itself out as being competent and qualified to give financial and investment advice. The second defendant's letterhead described itself as "Advisers to the Professions". Exhibit 45, the letter in relation to the Prime Retirement Trust, included a document headed "Brannelly the professional perspective" which stated "Brannelly has been providing exclusive and specialised financial services to small businesses, professionals and individuals for over four decades. ... Brannelly has forged a reputation as a leader in the financial services field and the company's expertise is reflected in the broad range of services it is able to offer. ... At Brannelly our focus has always been on achieving an even greater understanding of the specialised nature of our client's businesses and personal ambitions. The expanding scope of our services is directed at further meeting our clients' needs. It seems this philosophy to our service has been welcomed by our clients throughout Australia ... clients who value our professional perspective." There was also a statement in relation to the defendant's privacy policy, and there was the document from the third defendant which among other things said "Deakin Financial Services conducts business via an advisory network. Each adviser is authorised under Deakin's licence. ... When one or more of Deakin's authorised representatives ("your adviser") provides a financial service to you, your adviser will be acting for you and not for any financial institution." The third page of this document identified "your adviser Paul Brannelly ... is authorised to provide financial product advice and deal in financial products as a representative of Deakin ... ." The defendant by forwarding that document with the letter to the plaintiff was adopting that statement of its position or representing that those remarks applied to it. The whole tenor of Exhibit 46, and indeed the following letter Exhibit 47, was that the investment was recommended by the defendant. In the circumstances, in my opinion it was plainly reasonable for the plaintiff to rely on what he was being told by the defendant.

[105] It was admitted that it was a term of the promissory note that Bayshore Mezzanine Pty Ltd would pay to the plaintiff the sum of $50,000 on 30 June 2006 plus any outstanding interest at the rate of 12% per annum on a monthly basis in arrears plus 2% on the expiry date.[98] I accept that the plaintiff received three payments of interest but has otherwise received nothing from Bayshore Mezzanine Pty Ltd: Exhibit 50.

[106] As to paragraph 15, I find that at all material times Bayshore Mezzanine Pty Ltd was a company duly incorporated according to law,[99] it did not have an established record financial or otherwise over 20 years,[100] did not have a second ranking mortgage or second ranking charge over the development property known as Bayshore Port Melbourne situated at 45 Bay Street, Port Melbourne,[101] and that the directors of Bayshore Mezzanine Pty Ltd were not independent of Bayshore Port Melbourne Pty Ltd, Bayshore Port Melbourne Trust, the Westpoint Group of companies, and the Westpoint Guarantor Group of companies.[102]

[107] I am not prepared to find that Bayshore Mezzanine Pty Ltd did not generate or earn income and that its only assets were funds that it had borrowed from investors; the evidence suggests that money obtained from investors was relent, at interest, to other companies in the Westpoint Group of companies, and that that process generated income.[103] Its assets consisted of loans to other companies, and any income that happened to be in its hands from time to time. The evidence was to the effect that at least for a time Bayshore Mezzanine Pty Ltd was paying interest and repaying principal when that fell due and was not rolled over.[104] I find that commissions were paid on money invested with Bayshore Mezzanine Pty Ltd, 6% to the second defendant,[105] 10% to Kebbel (NSW) Pty Ltd or an associated company,[106] and 3% to Needlers End Nominees Pty Ltd.[107] There was also an allegation lurking in paragraph 15(g), which I think should have been in a separate paragraph, that Bayshore Mezzanine Pty Ltd was insolvent. Without more information as to the financial arrangements between Bayshore Mezzanine Pty Ltd and the other companies in the Westpoint Group, it is really not possible for me to make a finding about this one way or the other. On the evidence presently available I am not prepared to make this finding.

[108] As to paragraph 16, it was not disputed that the Bayshore Port Melbourne project had been the subject of earlier fundraising efforts.[108] I find that the project was initially to be completed in June 2003.[109] I am not prepared to find on the material presently available that by mid-2005 the Bayshore Development had raised more than $20 million by issuing promissory notes,[110] nor that Westpoint Constructions did not provide financial accounts for the financial year 2003/2004.[111] I have already found that Kebbel received 10% commission and Needlers End received 3% commission on all investments. I find that ASIC issued a warning about promissory notes as a form of investment in May 2004 (Exhibit 17), and that in 2005 there was unresolved action before the Western Australian Supreme Court between ASIC and Bayshore Mezzanine Pty Ltd. [112] However, there is no evidence before me that in the proceedings involving that company ASIC asked the court to find that investors were being misled.[113] There is no point to this allegation without this aspect, so it is not found. I am not prepared to find on the evidence that it was common knowledge within the financial advisory industry that in 2004 many financial planners including Bongiorno had removed the Westpoint products from their listings. Accordingly paragraphs 16(a) in part, (b), (e), (f), and (i) were proved.

[109] It was then alleged in paragraph 17 of the statement of claim that the various representations were false, misleading or deceptive because of certain facts which were then alleged. This really involves two propositions; first, that the true facts were as alleged in that paragraph, and second, that as a result the representations were misleading or deceptive. The defendants merely denied the allegations on the basis that the first and second defendants did not give any advice or make any representations to the plaintiff as alleged. To some extent I have found to the contrary. In those circumstances, strictly speaking they are to be taken to have admitted the factual allegations in paragraph 17. In any case, I am prepared to find on the evidence the facts alleged in paragraphs (a), (b), (c), (d), (f), (g),[114] (h), (i), (j)(i) as to the first and second defendants, (k)(ii), and (l). This follows from the actual structure of the Bayshore Mezzanine scheme, as set out in Exhibit 8 and the other exhibits, and was not contentious at the trial. The promissory notes did on the face of it offer a 14% return, though in the event that was not paid; indeed, for those plaintiffs who invested for a period of less than 12 months the return was actually slightly higher than 14% on a per annum basis.[115]

[110] I find that the first and second defendants did not apply their expertise as financial advisers to the question of whether people should invest in promissory notes issued by Bayshore Mezzanine Pty Ltd;[116] the evidence suggests that the third defendant did do so,[117] though not very well, since a careful consideration of the documentation from Westpoint in relation to the project reveals that there were difficulties with it which ought to have alerted a financial adviser to serious hazards with this investment. I shall deal with these later. I cannot find that the Bayshore Port Melbourne development was not completed by the due date because the pleading does not identify the due date. I find that Bayshore Mezzanine Pty Ltd does not have the money lent to it by the plaintiff, but it does not follow that money invested by the plaintiff and others was not used to complete the Bayshore project in the sense that it was put towards the construction costs for that project. There is no evidence as to what happened to the money,[118] but it may have been used for that purpose.

[111] There was a loan agreement in place between Bayshore Mezzanine Pty Ltd and Bayshore Port Melbourne Pty Ltd under which the money lent to that company was supposed to be used only for completing the Bayshore Port Melbourne development project, in the sense that it was put towards that end.[119] There was, however, no evidence of any mechanism or binding agreement requiring Bayshore Mezzanine to apply the money raised from investors in this way. I cannot find that the money was used other than for completing the project, or that any of the money was used for anything else, in circumstances where there was simply no evidence as to how the money was used.

[112] The question then becomes whether any of the representations which I have found to have been made were false, misleading or deceptive. In relation to the express representation in the letters of 18 July 2005 and 27 July 2005 that the investment highlights included "security: guarantee from the Westpoint Group and a charge over the Bayshore Port Melbourne Trust", that statement was obviously false, misleading and deceptive because there was no such security as part of the investment which Mr Evans was being offered. In relation to the letters, the natural reading of the words "Westpoint Corporation and associated entities provide a guarantee for the company's obligation under the loan ..." was that Westpoint Corporation and associated entities were guaranteeing the obligation of Bayshore Mezzanine Pty Ltd to the investors under the loan the subject of the promissory note, which was false, misleading and deceptive. The evidence showed that there was no such guarantee available or offered.

[113] Strictly speaking, of course, there was no loan between the plaintiff and Bayshore Mezzanine; the plaintiff paid to purchase an item of property, a promissory note, which conferred an enforceable obligation to pay a particular sum, with interest and premium, at a particular time. I accept that there was no collateral obligation to repay the money paid as a debt: Emu Brewery Mezzanine Ltd v ASIC [2006] WASCA 105; (2006) 32 WAR 204 at 215, 228. But the letter spoke in this passage of the promissory notes being "repaid", and the Investment Highlights spoke of "the repayment of the capital", and to an unsophisticated investor like the plaintiff the obvious interpretation of the expression "the company's obligations under the loan" was the obligation to pay under the promissory note, particularly as "the company" was a clear reference to the "special purpose company", here Bayshore Mezzanine, and that was the only obligation it had.

[114] The proposition in each of the letters that Westpoint group has substantial net assets in excess of $80 million was false, misleading and deceptive in view of my earlier finding. The same applies to the statement about the value of the group's assets in paragraph 10A(b)(iv). The evidence indicates that at no relevant time was that true. This was not a statement as to a future matter, and therefore it is not a question of whether the defendants had reasonable grounds for making the representation;[120] on its face it purported to be a statement of the situation at the time the representation was made, and it was not true at that time. It was therefore false, misleading and deceptive. These representations are in effect pleaded again as implied representations (para 11(e), (g), (m)); to the extent that that adds anything, I find that those implied representations were also misleading and deceptive.

[115] I also find that it was misleading and deceptive to represent that the opportunity was limited[121] (paras 7(b)(i), 10(b)(x)), that it was an excellent opportunity to invest[122] (paras 7(b)(ii), 10(b)(ii)), that the special purpose company had a second ranking mortgage and a second ranking charge in each project (paras 7(b)(v), 10(b)(iv)), that the first and second defendants had applied their expertise as financial advisers to the recommendation of investment in promissory notes issued by Bayshore Mezzanine Pty Ltd (para 11(h)), and that Bayshore Mezzanine Pty Ltd had a second mortgage over the land used for the Bayshore Port Melbourne project (para 11(f)(ii)). Overall, the representations in paragraphs 7(b)(i), (ii), (iv), (v), (vi), and (x) re security, 10(b)(ii), (iii), (iv), (v), (viii) re security, and (x), 10A(b)(iv) and (vi) that there was noting to worry about, and 11(e), (f)(ii), (g), (h)(i) concerning the first and second defendants, and (m) except in respect of the mortgage, were false, misleading and deceptive.

[116] Paragraph 18 alleged that a financial adviser exercising reasonable care and skill in relation to the relevant investments would have advised clients of various things. This paragraph was put in issue in the amended defence in paragraph 20(b). In circumstances where, for reasons that I have given earlier, the plaintiff was not a client of the defendant in the ordinary sense, these factual allegations are of no direct relevance, but I will deal with them quickly.[123] The facts in paragraph 18(a) to (e) and (g) to (i) were alleged as facts in paragraph 21A(a) to (e) and (h) to (j), and if the fact alleged in paragraph 21A(f) was true, that alleged in paragraph 18(f) was necessarily true. Paragraph 21A alleged a number of facts about Bayshore Mezzanine Pty Ltd, and its relationship with the development property and the holders of promissory notes. The only reference to paragraph 21A in the current defence of the defendants was in paragraph 20 where various things were said in respect of that and a number of other paragraphs, none of which were responsive to the factual allegations in paragraph 21A. The closest the pleading came to saying anything about paragraph 21A was in paragraph 20(f) of the defence where the defendants "deny that they knew, or ought to have known, of the matters pleaded in paragraphs 15-20 and 21A of the further amended statement of claim, as it is untrue." That did not amount to a denial of the facts alleged in paragraph 21A, or indeed any responsive pleading to it. The facts alleged there are therefore taken to be admitted pursuant to r 166(1), and that covers the facts alleged in paragraph 18.

[117] The next issue is whether the defendants knew or ought to have known of these facts. The defendants knew of the facts in (a) and (b) at the relevant time.[124] I infer that they knew the facts in paragraph 18(c), (g), and (h), which are so obvious from the material the defendants had that they must have known of these. It is not the case that they knew or ought to have known the facts alleged in paragraph 18(d), (e), (f), and (i). These were matters which were not readily ascertainable by someone in the position of the defendants,[125] and, in the case of (i), a matter of judgment which it has not been shown would have been accepted by any reasonable financial adviser.

[118] As to whether a financial adviser exercising reasonable care and skill would have advised of these matters, paragraphs (a), (b), and (c) were not made out, on the basis that there was no particular reason to give negative advice in these terms; such an adviser would not have advised to the contrary. No doubt accurate advice as to the extent to which the company Bayshore Mezzanine was protected, given that the intention was that the money paid to that company be on-lent within the Westpoint group, should have been given, but there was no particular reason to give it in these terms.[126] Paragraph (d) was not made out; given the proposed structure there was no reason why anyone would expect that Bayshore Mezzanine would have any significant equity capital. I am not persuaded that it ought to have been said that Bayshore Mezzanine was insolvent, or even arguably insolvent, prior to the time when the other members of the Westpoint group became insolvent, so paragraphs (e) and (f) were inappropriate.

[119] As to paragraphs (g) and (h) I accept and indeed regard as obvious the proposition that an investment adviser should have provided correct information to the client that the investment was unsecured so far as the client was concerned, and correct information as to the structure in place to protect the debt owed to Bayshore Mezzanine Pty Ltd, from which presumably the client was to be repaid when the note matured. The propositions in paragraphs (g) and (h) really follow from that situation, but in my opinion the important consideration is that the client should have been warned that the client had no remedy in the event of non payment by Bayshore Mezzanine Pty Ltd apart from an action as an unsecured creditor against that company or, if that company were in liquidation, proof of debt in liquidation.

[120] As to paragraph (i), again it seems to me that this proposition missed the point; the company Bayshore Mezzanine Pty Ltd was obviously intended to be part of the Westpoint group rather than something independent of it, and the proposed investment ought to have been assessed on that basis, that is, that it did not have the advantage which would have been conferred had there been an independent professional trustee in control of Bayshore Mezzanine Pty Ltd. I am not persuaded, however, that a reasonably careful investment adviser would have given the advice alleged in this paragraph in the terms pleaded. It follows that I am not persuaded that any part of paragraph 18 other than (g) and (h) has been made out.

[121] With regard to paragraph 19, having found that there was no relevant contract between the plaintiff and the defendant there could have been no breach of contract. It was alleged that the failure to advise the plaintiff of the matters referred to in paragraphs 15, 16, 17, and 18 amounted to a breach of the duty of care of the first and second defendants. That can only apply in relation to those paragraphs so far as the facts alleged in them have been found, and they were matters the defendant knew or ought to have known. With regard to paragraph 15(a), there was no breach of duty in failing to provide that advice, because it was obvious, and any investor would assume that that was the case. I am not persuaded there was a breach in failing to provide the advice in paragraph 15(b), in circumstances where what was said by the defendants to the plaintiff made it reasonably clear that Bayshore Mezzanine Pty Ltd was a new company formed specifically for the purposes of this project.

[122] On the other hand, I find there was a breach of duty of care in failing to provide the advice in paragraph 15(c), in circumstances where the letters sent to the plaintiff by the defendant did suggest that Bayshore Mezzanine had a second ranking mortgage and second ranking charge over the development property known as Bayshore Port Melbourne, when that was not the case.[127] In my opinion where misinformation or misleading information has been provided and ought not to have been provided, that was a breach of the duty of care, and also gave rise to a duty to correct the incorrect information which had previously been provided, which duty was also breached in this case.

[123] As to paragraph 15(g) there was a duty to disclose the commission so far as known to the first and second defendants, and, where it was reasonably foreseeable that additional commissions would have been payable to other entities, that fact ought also to have been disclosed. There was no breach of duty in failing to disclose that information, so far as it concerned the first and second defendants, however, because each of Exhibits 46 and 47 disclosed that they would receive a total of 6% commission. I am not persuaded that the defendants in fact knew of the extent of the commission payable to Kebbel (NSW) Pty Ltd or an associated company, or of that to Needlers End Nominees Pty Ltd, at the relevant time, nor that this information was reasonably available to them.[128] The commissions paid were very high (p 1008) which was a significant risk factor which ought to have been disclosed had it been known. Even the amount of commission paid to the defendants, 6%, was a relatively high commission for a fixed income investment, and ought to have been identified as a risk factor.[129]

[124] As to the facts alleged in paragraph 15(h), it was relevant in my opinion that the company to whom the funds were to be lent, Bayshore Mezzanine Pty Ltd, was not independent of the other companies in the Westpoint group, and did not have independent directors. However, I am not persuaded that it was a breach of the duty of care to fail to give this specific advice. Nothing which was said by the defendants to the plaintiff would have indicated or suggested that the company to which he was lending money was independent of the Westpoint group, and a number of things communicated would have suggested to the contrary partiality things in Exhibit 1. It may be that in principle advice ought to be given, either directly or indirectly, as to whether the investment vehicle was independent of the group but in the present case I am satisfied that there was such indirect advice given and in those circumstances I am not persuaded that there was any breach of duty as alleged in this respect.

[125] As to the facts in paragraph 16(a), in my opinion this was an important consideration which ought to have been disclosed if known. The material which was disclosed suggested that there had not been any other equivalent fundraising exercise in relation to this particular project, though there was a reference in the information memorandum Exhibit 1 to some other source of mezzanine finance in addition to the primary financier and the funds being raised through this offer of promissory notes to the public. In those circumstances in my opinion when the truth was different there was a duty to disclose that to the plaintiff. A financial planner aware of that information and exercising reasonable care and skill would have disclosed that information, because it was relevant to the assessment of whether to invest, particularly in circumstances where the material provided by Westpoint suggested that there had not been any other equivalent fundraising effort. However, it was not shown that the defendants were aware that there had been any prior fundraising in this way.[130] I suspect that they ought to have been aware of the earlier fundraising from general familiarity with the industry, but there was no evidence of this and on balance I am not persuaded that they ought to have known this. There was therefore no breach of duty on the part of the defendant in failing to disclose that information to the plaintiff.

[126] The facts alleged in paragraph 16(b), (e), (f), and (i) were all significant factors relevant to the decision to invest, and insofar as the defendants were aware or ought to have been aware of these in my opinion there was a breach of the duty of care on their part in failing to disclose this information. I cannot find that they were aware of any of these facts.[131] I am not persuaded that they ought to have been aware of these facts, except that they ought to have been aware of the ASIC warning issued in May 2004 referred to in paragraph (i). In my opinion this was something a reasonably careful financial planner would have been aware of, and would have taken into account when giving advice in relation to investment.[132]

[127] Apart from the fact that the warning itself indicated concern on the part of ASIC, the fact that such a warning had been given was also relevant to the prospects of success of such a fundraising effort and hence the project, and for those two reasons the existence of the warning should have indicated a risk factor associated with such an investment, a factor which ought to have been disclosed or warned about by a financial adviser exercising reasonable care and skill. I find that the material was readily available on the ASIC website,[133] and that this was therefore something which the defendant ought to have known, so there was a breach of duty in failing to disclose this information to the plaintiff. However, I am not persuaded that the defendant ought to have known about the facts alleged in paragraphs (b), (e), and (f), as this information was not readily available or not the sort of information which it has been shown a reasonably careful financial planner would have ascertained.

[128] With regard to the facts alleged in paragraph 17, in my opinion the duty of care required the disclosure of the information in paragraph (a) and there was a failure to disclose that information, both in failing to make clear the nature of an investment by way of promissory note, and in failing to make it clear that the promissory note was unsecured, particularly in circumstances where it was expressly asserted that there was security. There was no breach in relation to paragraph (b) but there was a breach in relation to paragraph (c)(ii) because of the express assertion that there was a security which was in fact not provided.

[129] I am not persuaded that there was a breach in relation to paragraph (d), because in my opinion the information provided adequately communicated that Bayshore Mezzanine Pty Ltd had not been in existence for any great length of time and that the twenty years applied to the Westpoint group as a whole. As to paragraph (f) I am not persuaded that these were matters which were in fact known, or ought reasonably to have been known, by the defendants and therefore there was no duty to advise the plaintiff of them. As to paragraph (g), the defendant had a set of accounts which indicated a much lower figure (Exhibit 4). I have not seen any reliable document which supported the figure of $80 million.[134] Mr P Brannelly could not say where the figure came from (p 1073), and no proper basis for such a figure has been shown and the defendant had a set of accounts showing a much lower figure: Exhibit 4. I find it was negligent to fail to advise that this was false.

[130] I find that there was a breach of the defendants' duty in failing to advise the plaintiff that the promissory notes were not issued by a company that had a second ranking mortgage over the development property, in circumstances where I have found that the defendants did expressly and impliedly represent that Bayshore Mezzanine had such a mortgage.[135] However, for the reasons given earlier I am not persuaded that there was any breach in relation to paragraph (h)(ii). For reasons given already, I find that there was a breach in failing to give the advice referred to in paragraph (i) that the obligation to repay the money to the plaintiff was not secured by a guarantee. The assertion that there was a guarantee of the investment was a blatant and gross breach of the duty to provide accurate advice about the nature of the investment. The same applies to paragraph (1).

[131] I have found that the first and second defendants did not apply their expertise as financial advisers to the projects undertaken by Westpoint. In my opinion there was a breach of the duty of care in failing to disclose that fact, in circumstances where, because of the factors which gave rise to a duty of care, the plaintiff was reasonably relying on the first and second defendants' expertise as financial advisers and they had impliedly represented that they had done so: para 11(h)(i). There was therefore a breach of duty in failing to advise the fact in paragraph (j)(i) to that extent. The matters alleged in paragraph (k) had not occurred at the time, and therefore there could have been no breach of duty in failing to inform the plaintiff of them.

[132] As to the matters referred to in paragraph 18, it was a breach of duty to fail to advise the plaintiff of the matter in paragraph (a) for the same reasons as for paragraph 17(h)(i), and paragraph (b) is essentially the same point. There was no breach for paragraph (c), which follows paragraph 17(h)(ii), nor for paragraphs (d), (e), and (f), since these are matters the defendant did not know, and ought not to have known, and on the basis of Exhibit 8 were not true, although there was a deemed admission. There was a breach in failing to advise as in paragraphs (g) and (h), as part of the duty to provide accurate information about the proposed investment in the light of what had been said. I am not persuaded that there was any breach in failing to advise as in paragraph (i), in circumstances where there was nothing to suggest that the proposed borrower was not an integral part of the Westpoint group.

[133] With regard to paragraph 20 I find that a financial adviser exercising reasonable care and skill in relation to the investment in Bayshore Mezzanine Pty Ltd would have ensured that the risks were clearly explained and understood by the plaintiff.[136] This arises because of the nature of the duty and the facts giving rise to that duty of care in giving advice and providing information, and because that duty came to be performed in circumstances where the investment was otherwise described as an excellent opportunity to invest, so there was an obligation to draw attention to relevant risks. In other words, it was negligent to describe the Bayshore Mezzanine Pty Ltd promissory note as an excellent opportunity to invest without drawing attention to the particular risks involved.[137]

[134] Paragraph 20(b) and (c) are not made out on the basis that I have not found that the instructions referred to in paragraph 8(a) were given. I find that a financial adviser exercising reasonable care and skill would have advised the plaintiff of the effect and implications of the fact that the investment proposed was an unregulated, high risk investment which was not capital guaranteed. This arose because the investment was a high risk investment, it was a form of investment which was not regulated,[138] there was no guarantee securing the borrower's obligation under the promissory note, and it was apparent from what was said by the plaintiff to the first defendant at the meeting in early August, which I find occurred, in the course of which I find that Mr Evans said the things referred to earlier, that the plaintiff was concerned about the security of his investment and was seeking advice as to whether this was a secure investment, which it was not.[139]

[135] I find that a financial adviser exercising reasonable care and skill in relation to investing in promissory notes with Bayshore Mezzanine Pty Ltd would have advised the plaintiff that the promissory notes provided no additional security to a mere agreement to pay money in the future: paragraph (e)(iii). This was because that was the situation with this form of investment, because promissory notes are an unusual form of investment,[140] the plaintiff was obviously not a sophisticated investor, and was obviously concerned with the security of his investment: p 1121. In these circumstances in my opinion a financial adviser exercising reasonable care and skill would have warned that promissory notes were a form of unsecured investment, and that they were just like a contractual obligation to repay money with interest in the future. As to whether such a financial adviser would have advised that the promissory note was little more than an IOU, and contained no restrictions on the manner in which the borrower used the money, I do not think the former allegation really adds anything of substance to the allegation in paragraph 20(e)(iii), and I am not persuaded that the existence or absence of restrictions on the way in which the borrower used the money was a matter of any particular consequence.

[136] I am not persuaded that the allegations in paragraph 20(f) and (g) were made out; given the circumstance under which the duty arose in the present case I am not persuaded that the scope of the duty extended to providing financial records of the relevant companies to the plaintiff. There is also the consideration that the plaintiff was obviously an unsophisticated investor, and there would have been little point in providing such information to him. As to (g), the information provided indicated that Bayshore Mezzanine Pty Ltd was to be lending the money borrowed to another entity, and in those circumstances it must have been obvious that that company was not going to be keeping the money itself so that it could in time repay the debt from its own funds; rather the intention was that it would repay the debt from the repayment of loans that it had made to the other company.

[137] As to paragraph 20(h), Bayshore Mezzanine Pty Ltd had no security over the land. The defendants ought to have known that from the material they had, and they ought to have advised of this.[141] Paragraph 20(i) alleged that a reasonably careful investment adviser would have investigated the accuracy of the statements in the information memorandum regarding independent directors, and upon discovering that that was false, would have advised against any investment in Bayshore Mezzanine Pty Ltd. Exhibit 1, the information memorandum, identified the directors of Bayshore Mezzanine as Norman Carey, who was said to be the managing director of Westpoint Management and Westpoint group, and Richard Beck, who was said to be associated with Westpoint Funds Management, and to be a leader of the Westpoint group. In these circumstances, it is not entirely clear how the information memorandum was describing the directors at Bayshore Mezzanine Pty Ltd as being independent, presumably in the sense of being independent of other members of the Westpoint group. Obviously they were not. Nothing has been shown to be inaccurate about what has been said about those directors in Exhibit 1. Perhaps I am missing something, but as presently advised I am not persuaded that this allegation has been made out.

[138] I consider that a financial adviser exercising reasonable care and skill would have advised the plaintiff that he was not lending money directly to the development company but rather to a company which did not own the real estate being developed: paragraph (j). Although this was ascertainable from the information memorandum, a copy of which is Exhibit 1, it was not clearly revealed in the information provided in the letters from the defendants, and was not specifically adverted to in anything said orally, and in the circumstances referred to earlier in my opinion the duty of care on the defendants did extend to drawing attention to this feature of the arrangement.[142] I am not persuaded that paragraph 20(k) has been made out; it ought to have been obvious to the plaintiff that what he was investing in was a real estate development, and that he was not going to make any profit as such from the development, other than the fixed interest promised on his money.

[139] I find there was a duty to advise the plaintiff that the security referred to as a guarantee from Westpoint group and a charge over Bayshore Port Melbourne Trust was not security given to the plaintiff as the investor, but security that was to be provided to Bayshore Mezzanine Pty Ltd: para 20(l). This arose because that was the true situation, the letters written by the defendant to the plaintiff had spoken of security in a way which I have found to be misleading, by saying that the plaintiff had the benefit of a guarantee and a charge, and in those circumstances there was a duty to disabuse the plaintiff of that notion. The information memorandum, which was provided to the plaintiff, was unclear about the significance of the guarantee,[143] and in my opinion in those circumstances a financial adviser exercising reasonable care and skill would have drawn attention to the fact that the guarantee was not one the benefit of which was available to the investor.

[140] I should perhaps add that the current pleading in response to paragraph 20, defence paragraph 21, simply said that the allegations are untrue as a matter of law because no contract existed between the plaintiff and the defendants (which was true but irrelevant to the allegation in paragraph 20), no duty of care existed (I have found to the contrary), and in the alternative if a duty of care existed then the first or second defendants did not breach that duty. Paragraph 20 was an allegation as to the scope and content of the duty of care which existed in the circumstances of the case, not an allegation of breach. Defence paragraph 21 was therefore irrelevant to the particular matter which was the subject of paragraph 20, to which there was no proper response. Arguably therefore there was a deemed admission of the allegations in paragraph 20 (pursuant to rule 166(5)). However, I am not prepared to go further than the findings I have already made in relation to paragraph 20 on the basis of that rule.[144]

[141] It was then alleged in paragraph 20A(a) that a financial adviser exercising reasonable care and skill and providing advice to a client would have known of the matters referred to in paragraphs 15 to 17 above. I have not found that all of the facts alleged in paragraphs 15 to 17 have been proved, but insofar as I have found that they were, I find that a financial adviser exercising reasonable care and skill in providing advice to a client would have known of most of those matters,[145] and indeed ought to have known of the same matters, which was in substance what was alleged in paragraph 20B. The whole point of people being financial advisers is that they hold themselves out as having some expertise in relation to potential investments, and that involves having an understanding of those investments, their advantages and disadvantages and the circumstances attending them, of the kind in these paragraphs, to the extent that I have found them proved. None of these were particularly sophisticated or complicated matters; most of them could be ascertained without much difficulty from an examination of the documents emanating from the Westpoint group and provided to the defendants, or to which the defendants must have had access.[146]

[142] It was further alleged that a financial adviser exercising reasonable care and skill would have advised clients of the matters referred to in paragraphs 15-17 above. This does activate the point raised by the defendants, that the plaintiff was not a client in the ordinary sense at the relevant time. That was true, and therefore this allegation, although to some extent true, was irrelevant. I have already made findings about the extent to which, in the circumstances of this case, the duty on the defendants required advising the plaintiff of matters referred to in paragraphs 15-17.

[143] Paragraph 20B alleged that at all material times a financial adviser exercising reasonable care and skill and providing advice to a client ought to have known of the matters referred to in paragraphs 15-17 above. It was not immediately apparent what that added to paragraph 20A(a), but in any case the context in which the allegation was made, of providing advice to a client, is irrelevant in circumstances where the plaintiff was not a client in the relevant sense. I have already found the extent to which a financial adviser exercising reasonable care and skill ought to have known of those matters.

[144] It was alleged in paragraph 21 that the first, second and third defendants would have been aware of all or some of the matters referred to in paragraphs 15-20 and 21A if they had exercised the level of care and skill of a reasonably competent financial adviser. I have already made findings about whether the defendants ought to have known of the facts alleged in paragraphs 15-17. For the reasons given earlier I find that they would have been aware of the facts in paragraphs 15(a), (b), (c), (g)(i), (h), 16(i), 17(a), (b), (c), (d), (g), (h), (i), (j)(i) re the first and second defendants, and (l). Paragraph 18 was an allegation about what advice would have been given by a financial adviser exercising reasonable care and skill in relation to an investment in a Bayshore Mezzanine promissory note. Insofar as it alleged facts, it follows from what I said earlier that a financial adviser exercising the level of care and skill of a reasonably competent financial adviser would have known of the matters alleged in paragraph 18(a), (b), (c), (g), and (h). Paragraph 19 was simply an allegation of breach, and so was irrelevant to paragraph 21. Paragraph 20 was also an allegation about things a financial adviser exercising reasonable care and skill in relation to that investment would have done when dealing with the plaintiff; to the extent that I have found in relation to paragraph 20 that that was the case, it necessarily follows that had the defendants exercised the level of care and skill of a reasonably competent financial adviser they would have been aware of those matters.

[145] In relation to them I find that the defendants ought to have known of the facts in paragraph 20(a), (d), (e), (h), (j), and (l), on the basis that these facts were reasonably obvious, in the light of the material which the defendants had or which was reasonably available to them. With regard to paragraph 21A, this closely parallels paragraph 18, and for the reasons given in relation to that paragraph the defendants ought to have known the facts alleged in paragraph 21A(a), (b), (c), (h), and (i).

[146] Paragraph 21(c) then alleged that the defendants had a duty to advise the plaintiff of all or some of the matters referred to in paragraphs 18, 20 and 21A of the claim. I have already found that there was a breach of the duty of care in failing to advise of the matters alleged in paragraph 18(a), (b), (g), and (h) for reasons already given, and for the same reasons there was a duty to give advice in those terms. Again, for reasons already given in relation to paragraph 20, in my opinion there was a duty to give the plaintiff the advice referred to in paragraph 20(a), (d), (e)(iii), (h), (j), and (l). In relation to paragraph 21A, this closely parallels paragraph 18, and for the reasons given earlier in my opinion there was a duty to advise the plaintiffs of the matters referred to in paragraph 21A(a), (b), (h), and (i).

[147] Paragraph 22 then alleged a breach of contract or breach of duty of care in failing to advise the plaintiffs of the matters alleged in paragraphs 18, 20 and 21A. For reasons given earlier there was no breach of contract, but there was a breach of their duty of care in failing to advise the plaintiff of the matters referred to in paragraph 18(a), (b), (g), and (h), paragraph 20(a), (d), (e)(iii), (h), (j), and (l), and paragraph 21A(a), (b), (h), and (i), for the reasons given earlier.

[148] Paragraph 23 then alleged that there was a breach of contract or breach of duty of care in making the representations referred to in paragraphs 7 and 11 and in the failure to advise the plaintiff of the matters referred to in paragraphs 18, 20, and 21A. I have already found that there was no contract to breach, and just dealt with the question of whether there was a breach of duty in failing to advise in respect of the matters referred to in paragraphs 18, 20, and 21A.

[149] As to whether there was negligence in making the representations referred to in paragraphs 7 and 11, I find that it was negligent to make the representation alleged in paragraph 7(b)(ii) on the ground that this was not an excellent opportunity to invest, for reasons given elsewhere, and it was negligent to represent that the Westpoint group had net assets in excess of $80 million, for reasons given earlier. It was negligent to advise that the company issuing the promissory notes had a second ranking mortgage over the development property and a second ranking charge over the special purpose company: para 7(b)(v). The defendants had no reasonable factual basis for making such an assertion, they knew there was no second ranking mortgage,[147] and that the charge was not second ranking was apparent from material which they had or which was readily available to them and from which a reasonably competent financial planner ought to have been able to ascertain that no such security was provided to Bayshore Mezzanine Pty Ltd. This representation and the equivalent in Exhibit 47 (para 10(b)(iv)) came to be made because this was true of earlier Westpoint projects where promissory notes were issued in a similar way,[148] and the defendant had standard form letters which were used for these projects, which were not modified with sufficient care when things were different this time: p 851. In this case, the operative negligence was sloppy document preparation.

[150] I find that there was negligence in making the representation that the Westpoint Corporation and associated entities provided a guarantee for the company's obligations under the loan, and that the security for the investment was a guarantee from the Westpoint group and a charge over the Bayshore Port Melbourne trust, in circumstances where it ought to have been obvious to an experienced financial adviser from the material available to the defendants that no guarantee was provided direct to the investors, and that the investors did not have a charge over the Bayshore Port Melbourne trust, and they must have known this. Accordingly there was a breach in making the representations alleged in paragraphs 7(b)(vi) and (x).

[151] As to paragraph 11, of those found to have been made, in my opinion it was negligent to represent as alleged in paragraph 11(e) that the group had net assets in excess of $80 million,[149] and in paragraph 11(f)(ii) that promissory notes would be issued by a company which had a second ranking mortgage over the development property for which the money was lent, and negligent to make the representations referred to in paragraph 11(g) (concerning the existence of a guarantee to the investors), (h) (because the first and second defendants had not applied their expertise as financial advisers to the project), and (m) (so far as it related to the guarantee and a charge over the Bayshore Port Melbourne trust) for reasons just given. In other respects, however, I am not persuaded that there was negligence in making the representations, even in relation to those representations which were in fact false. It is possible for a representor to make a representation which is in fact false without being negligent in doing so.

[152] Paragraph 24 then alleged that the plaintiff would not have proceeded with the investment had he been aware of the matters referred to in paragraphs 15, 16, 17, 18, or 20, and 21A. That paragraph covers a lot of ground, even confining it to matters found to be true. I accept the plaintiff's evidence that if he had been told the investment was risky or a high risk investment he would not have made it: p 332.[150] My overall impression of Mr Evans was that he was a very cautious investor who would have been easily deterred from making an investment, particularly by a statement of that nature.[151] I also accept his evidence that if he had been told that he was investing in just an unsecured IOU he would not have invested,[152] because he would only invest in secure investments, and that if he was told there was no mortgage securing the investment, or a guarantee to him from Westpoint and his associated companies,[153] he would not have made the investment: p 332. My impression from his evidence was that Mr Evans was particularly comforted by the presence of the guarantee, and would not have made the investment without it.[154]

[153] I also accept his evidence that had he been told of the ASIC involvement referred to in Exhibit 17 that he would not have made the investment,[155] being the sort of investor who would have been frightened off by that sort of thing: p 333.[156] Mr Evans also said at p 332 that he would not have invested if he had been told that the investment was with a company which was incorporated in 2001.[157] I am wary about this evidence because it seems to me that objectively what was conveyed by the defendants' letters and statements was that the loan was to a company which was specifically incorporated in order to be involved in this project, rather than to the Westpoint company itself which had been in existence for a long time. Ultimately evidence of how a person would have acted in a hypothetical situation in the past is opinion evidence, and it is open to me to reject that evidence without having any particular doubts about the honesty or general reliability about the witness, if the opinion strikes me as inherently implausible. It does and therefore I am not persuaded to make this finding on the basis of Mr Evans' evidence.

[154] As to the other facts alleged in these paragraphs, I suspect that if he had been told the amount of commission paid on the loan as alleged in paragraph 15(g) he may well have been wary about making the investment, but on the whole I am not persuaded that the disclosure of that information would necessarily have deterred him from making it. In view of my assessment of Mr Evans as a cautious investor, I consider on the whole that it is probable that had he been told of the matter alleged in paragraph 16(b) he would not have proceeded with the investment. In the same way, I consider that if he had been told the matters alleged in paragraph 17(g)[158] or (j)(i) concerning the first and second defendants,[159] he would not have made the investment, nor if he was told the matters alleged in paragraph 18(g) or (h).[160] The same applies to paragraph 21A(h) and (i). As to the matters referred to in paragraph 20, I also find that if the risks had been clearly explained to him and understood by him he would not have made the investment (para (a)).[161] Overall, paragraph 24 is made out in respect of paragraphs 16(b) and (i), 17(c), (g), (j)(i), and (l), 18(g) and (h), 20(a), (d), (e), and (l), and 21A(h) and (i), in whole or in part.

[155] It was then alleged in paragraph 25 that the representations referred to in paragraphs 7 to 11 constituted negligent misstatements. With regard to paragraph 7 I have already dealt with that matter in respect of the allegation in paragraph 23. With regard to paragraphs 8 and 9 those representations were not found, so they cannot have amounted to negligent misstatements. The representations in paragraph 10 were found, and this was not dealt with specifically in paragraph 23. For the reasons given in relation to paragraph 7(b)(ii) it was negligent to make the representation referred to in paragraph 10(b)(ii). For the reasons given in relation to paragraph 7(b)(iv) it was negligent to make the representation referred to in paragraph 10(b)(iii). For the reasons given in relation to paragraph 7(b)(v) it was negligent to make the representation referred to in paragraph 10(b)(iv). The reasons given in relation to paragraph 7(b)(vi), it was negligent to make the representation in paragraph 10(b)(v). For the reasons given in relation to paragraph 7(b)(x), it was negligent to make the representations alleged in paragraph 10(b)(viii).

[156] With regard to the representations in paragraph 10A, it was negligent to advise that there was a guarantee from Westpoint group being a solid company with $80 million of its own assets, in circumstances where the investment the plaintiff was proposed to make was not one the repayment of which was to him was guaranteed by Westpoint group, and there was no proper basis for the reference to $80 million. This follows from other findings made elsewhere. In addition it was negligent to say he had nothing to worry about, in circumstances where he had not been told of the risks involved, and in fact had quite a lot to worry about with this investment. I have already dealt in respect of paragraph 23 with the implied representations in paragraph 11 and whether they were negligent.

[157] I should say something about what ought to have been apparent to a reasonably careful investment adviser from the material available to the defendant in relation to Bayshore Mezzanine Pty Ltd, an issue raised by paragraph 60 in Exhibit H. This includes in particular the information memorandum Exhibit 1. The first thing that is obvious from this is that the investment involved lending money essentially to a property developer. That meant that the lender was exposed to the vagaries of the property development industry, an industry which is notorious for its numerous failures, sometimes of quite large and apparently well-established companies. It is I think significant that the defendants' expert said that he personally did not advise people to invest in the property development industry, essentially because he regarded the whole industry as just too risky: p 1035. The first warning sign which ought to have been apparent therefore in relation to this investment was the fact that it was in essence lending money to a property developer.

[158] The second consideration which is apparent from Exhibit 1, as a result of any careful consideration of the information it contains,[162] is that although it makes it clear that there is to be a senior debt financier, since there is a reference on p 1 to "senior debt" of $70.4 million, and a reference to a senior debt financier on p 2, nowhere does the document identify who the senior debt financier is. The defendant in the defence at paragraph 27(c)(iii) actually asserted that the plaintiff on reading this document ought to have been aware that a senior debt financier had not been secured; that plea was not justified, but it ought to have occurred to a careful investment adviser to wonder why the senior debt financier was not identified. In this context, I note that one of the specific criteria identified by Mr M Brannelly in his evidence in chief as to how this investment presented, that is to say why he regarded it favourably, was that the building had started which meant that all the initial pre-conditions of the bank who was the primary funder had been met: p 801 line 20. That assumes, however, that there is a primary funder in place; I would have thought that the failure to disclose that information, or even to assert expressly in Exhibit 1 that a primary funder was in place ought to have given rise to suspicion in the mind of a reasonably careful investment adviser.

[159] However, that is not the end of the matter; the document "Westpoint On Point" for May 2005, a copy of which was provided to the second defendant at about that time,[163] referred to Bayshore Port Melbourne on pages 5-6, and on p 6 said:**

"The 50.4 million senior debt required for stage 1 towers A and B and all buildings to podium level is now in place."

**[160] The irresistible inference from that statement is that not all senior debt required for the entire project was in place; either another senior debt financier was being sought for part of the project, or the senior debt financier had not yet committed to fund all of the senior debt required for the whole project. If that was so, plainly this feature upon which Mr M Brannelly said he placed such reliance was not present for this project. Having received that material, he ought to have been aware of that.[164]

[161] The next feature which is apparent from Exhibit 1 is that Westpoint carefully refrained from indicating how much of its own money was going into this project. The diagram for "Project funding on completion" does not distinguish between "Westpoint equity" and "project margin". This has the additional feature that it is not possible to determine from this document exactly what the profit margin for the project is. If it is relatively high (say $37 million) it means that Westpoint was putting virtually none of its own money into the project, curious behaviour for a company supposed to have a net worth of $80 million.[165] If on the other hand it was putting a significant amount of its own money into the project, it means the profit margin was quite small.

[162] There is also the consideration that the comparable column, in relation to revenue from sales, produces the same total as the project funding column only by ignoring the estimated selling expenses. In the sales analysis which follows the columns, it is apparent that the actual revenue from the sales will not be $157.6 million (the same as the total of the project funding figures) but $131.8 million. That means that once senior debt, mezzanine debt and the proposed Bayshore Mezzanine debt are all paid there will be only $11.4 million to go towards repaying any money put into it by Westpoint, or standing as the project margin.[166] That indicates a very high loan to value ratio, or conversely, a very low profit ratio, or possibly both. The defendants' expert conceded that these figures were unusually bad for a property development.[167]

[163] Even assuming that these figures can be taken at face value,[168] therefore, it seems extraordinary that a property development company which was supposed to be as good as Westpoint was putting together a project where the numbers stack up so badly, and was essentially putting it together on the basis of borrowed money. Any careful analysis of this document must give rise to the question of why a company like Westpoint was engaged in this project at all, when in property development terms it was such an obvious lemon. That I would have thought was an effective counter to another of the features identified by Mr M Brannelly as indicating that this was a desirable project, namely the strength of Westpoint as a property developer. The figures in Exhibit 1 simply do not make sense for a successful and strong, or even moderately competent, property developer.

[164] The next matter identified by Mr Brannelly was that he said the project was due for completion in 10 to 12 months: p 801 line 28. It is not entirely clear when this period ran from (presumably when he was told about Bayshore Mezzanine, in May 2005) but one of the features which strikes me as significant about Exhibit 1 is that it does not say when the project is due for completion. All it says is that as at 28 February 2005 construction is 78% completed. That suggests that completion is not all that long away, and the fact that the promissory notes were due to expire in mid 2006 would suggest that the intention was that the project would have been completed by then, but it seems curious that the document does not actually say when the project was expected to be completed. The omission of such an obviously significant fact suggests that Westpoint was being very careful not to commit itself even to an estimated completion date.

[165] However, this was not the only information available about the state of completion. The Westpoint On Point brochure referred to earlier, which Mr M Brannelly had[169] and had read, said under the heading "Construction Update":**

"Construction of the substructure is now more than 95% complete and the first stages of the superstructure are well underway. Construction of towers A and B, on the Bay Street side of the development, are progressing well and the lower level of these towers will soon be seen above the hoarding. Construction of towers C and D will commence shortly. Completion of these towers is expected to follow one or two months behind towers A and B."

**[166] Given that this document was dated May 2005, it struck me as obviously inconsistent with the statement in Exhibit 1 that the construction was 78% complete as at 28 February 2005. I am assuming that the term "towers" does mean something which rises to some significant extent above ground level, and the development is not essentially subterranean. Subject to that, however, they are obviously inconsistent, a fact Mr M Brannelly conceded when the discrepancy was pointed out to him in the witness box.[170] In my opinion a reasonably careful investment adviser ought to have detected this inconsistency[171] and ought to have seen it as a danger sign, suggesting that Westpoint was being less than frank about the actual progress of construction on this building.[172]

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