Henderson, R F & Ors v Amadio Pty Ltd & Ors (No. 1) [1995] FCA 1029 | Case summary | Zoe

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Henderson, R F & Ors v Amadio Pty Ltd & Ors (No. 1) [1995] FCA 1029

[1995] FCA 1029

Federal Court of Australia|1995-07-01

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Source facts

Court

Federal Court of Australia

Decision date

1995-07-01

Source

Original judgment source is linked above.

Judgment (422 paragraphs)

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TRADE PRACTICES - misleading and deceptive conduct - syndicate for purchase of office building with negatively geared vendor finance - representations as to value, as to increase in rent and capital value, as to ease of re-financing and as to sale of share with no further liabilities - whether representations false or made without reasonable grounds - whether reliance - whether representations made by accountants introducing investors to promoters - alleged representation by silence - whether disclosure of accountants' commission - whether vendor's estate agent's opinion of value held honestly or on reasonable grounds - whether accountants represented to clients good repute of promoters - whether contributory negligence a defence - whether estoppel, affirmation or election - whether damages limited to difference between price and market value at time of purchase - whether subsequent unexpected fall in market value recoverable - whether tax benefits to be taken into account - whether failure to mitigate loss by accepting refinancing proposal NEGLIGENCE - accountants retained to prepare cashflows for promoter of investment scheme - term of retainer that assumptions not be investigated - whether duty of care owed to purchasers NEGLIGENCE - promoters of investment scheme - statements as to value of building, increase in rent and capital value, ease of re-financing and sale of share with no further liabilities - whether duty of care - foreseeability and proximity

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NEGLIGENCE - accountants - investment advice - introduction of clients to promoters of syndicate for purchase of office building with negatively geared vendor finance - non-disclosure of commission from promoter - whether adequate investigation - whether adequate advice as to risk NEGLIGENCE - solicitors - retainer - whether retained as conveyancing sub-contractors for promoters of syndicate for purchase of office building with negatively geared vendor finance - whether obligation to advise as to joint and several liability - whether obligation to advise as to lack of ratchet clause in lease NEGLIGENCE - estate agents acting for vendor - provision of valuation letter to promoters of syndicate - non-disclosure of role as vendor's agent - valuation - relevance of market history of property - whether opinion held honestly or on reasonable grounds - whether duty of care owed to purchasers - foreseeability and proximity REAL PROPERTY - valuation - evidence of market perceptions - application of rule in Spencer v Commonwealth - market performance of subject property CORPORATIONS - prescribed interest - syndicated for purchase of office building with negatively geared vendor finance - whether investment in partnership - financial or business undertaking or scheme - investment contract - invitation to public - offer to public - partnership exclusion - illegality - restitution - unjust enrichment EQUITY - Unconscionable conduct - vendor granting option to promoter of syndicate of purchasers - purchasers advised by solicitors and accountants - whether at special disadvantage EQUITY - restitution - sale of office building with mortgage back to vendor - breach of prescribed interest provisions - retention of benefits by purchasers - setting aside transactions - whether unjust enrichment CONTRIBUTION - liability for negligence and misleading and deceptive conduct - contribution under Wrongs Act - basis for assessing entitlement to contribution - causative potency and culpability DAMAGES - purchase of office building with negatively geared vendor finance - negligence and misleading and deceptive conduct of promoters, valuers, accountants and solicitors - whether damages limited to difference between price and market value at time of purchase - whether subsequent unexpected fall in market recoverable - whether tax benefits to be taken into account - whether failure to mitigate loss by accepting re-financing proposal INSURANCE - accountants' professional indemnity policy - advice to investors in property syndicate - non-disclosure of commissions - whether "conduct of professional business of chartered accountants - whether deliberate acts - whether investment in persons managed or controlled by insured - whether secret commission - whether corporate insured responsible - extension of policy to indemnify for acts of dishonesty by partners - whether contrary to public policy - retroactive date -excess WORDS AND PHRASES - "actual fraudulent or dishonest purpose and intent" - "active and deliberate fraud or dishonesty" - "operated or controlled" - "direct or indirect financial interest" - "retroactive date" ANZ Banking Group Ltd v Turnbull & Partners (1991) 106 ALR 115 ANZ Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 Armagas Ltd v Mundogas SA [1986] 1 AC 717 Arnotts & Ors Ltd v Trade Practices Commission (1990) 24 FCR 313 Attorney-General (NSW) v Australian Fixed Trusts Ltd [1974] 1 NSWLR 110 Australia and New Zealand Banking Group Ltd v Turnbull & Partners (1991) 106 ALR 115 Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121 Banco Exterior Internacional v Mann [1995] 1 All ER 936 Banfield v Wells-Eicke [1970] VR 481 Bank of New South Wales v Rogers (1941) 65 CLR 42 Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] 2 All ER 769 Barclays Bank Plc v O'Brien [1994] 1 AC 180 Barclay v Pearson [1893] 2 CH 154 Beresford v Royal Insurance Co Ltd [1938] AC 586 Blomley v Ryan (1956) 99 CLR 362 H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159 Briginshaw v Briginshaw (1938) 60 CLR 336 Browning v Morris (1778) 2 Cowp 790 Bryan v Maloney (1995) 128 ALR 163 Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 Candler v Cane Christmas & Co [1951] 2 KB 164 Caparo Industries PLC v Dickman [1990] 2 AC 605 Carlton Cricket & Football Social Club v Joseph [1970] VR 487 C E Heath Underwriting & Insurance Pty Ltd v Campbell Wallis Moule [1992] 1 VR 386 CML v Producers and Citizens Co-operative (1931) 46 CLR 41 Commissioner of Taxation v Commonwealth Aluminium Corporation Ltd (1980) 143 CLR 646 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Commonwealth v Verwayen (1990) 170 CLR 394 Corporate Affairs Commission (SA) v Australian Central Credit Union (1985) 157 CLR 201 County Personnel (Employment Agency) Ltd v Pulver & Co [1987] 1 WLR 916 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 Dare v Dobson (1959) 77 WN NSW 227 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Davis Acceptance Nominees Pty Ltd (unreported, 20 April 1994) Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Deposit & Investment Co Ltd v Kaye [1963] SR (NSW) 453 The Directors etc. of the Central Railway Company of Venezuela v Kisch (1867) 2 HLC 99 Duncan & Weller Pty Ltd v Mendelson [1989] VR 386 Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 Erikson v Carr (1946) 46 SR (NSW) 9 Fox v Everingham & Howard (1983) 76 FLR 170 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711 Goldsbro v Walker [1993] 1 NZLR 394 Goold v Commonwealth (1993) 42 FCR 51 Gould v Vaggelas (1985) 157 CLR 215 Gray v Southouse [1949] 2 All ER 1019 Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547 Hawkins v Clayton (1988) 164 CLR 539 Haseldine v Hosken [1933] 1 KB 822 Hedley Byrne v Heller [1964] AC 465 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Hungerfords v Walker (1990) 171 CLR 125 Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 Immer (No.145) Pty Ltd v Uniting Church (1993) 182 CLR 26 In re A Debtor [1927] 2 Ch 367 International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644

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TABLE OF CONTENTS VOLUME 1 I INTRODUCTION Page

The Problem 1 2. The Parties 1 II SELLING THE COLES MYER BUILDING 5 1. Acquisition 5 2. Earlier Attempts to Sell 6 3. The Gray & Winter Option Agreement 12 4. The Gray & Winter Brochure 18 5. Selling the Investment - Methods and Documentation 28
Gray & Winter and Richard Ellis 35
Gray & Winter and Metzke & Allan 43 8. Gray & Winter and Bird Cameron 42 (a) Bird Cameron Perth 48 (b) Bird Cameron Ballarat 58 (c) Bird Cameron Sydney 62 (d) Bird Cameron Port Lincoln 64 (e) Bird Cameron Millicent 67 (f) Bird Cameron Geelong 69 (g) Bird Cameron Melbourne 72
Gray & Winter and Huntley McArdle & Glass 74 10. Gray & Winter and Nevett Ford 78 III THE APPLICANTS INVEST 84 1. Turner 84 2. Gordon 96 3. Dean 105 4. Phelps 114 5. Arthurson 124
Schoeman 134
Haarsma 142
Lee 149 9. Green 155 10. Henderson 160 11. Tranter 174 12. Walker 181 13. Trengove 187 14. Glass 196
Other Investors 198 IV SETTLEMENT OF THE PURCHASE 199 1. Preparation and Documentation 199 2. The Terrey Clause 201 3. The Condition Subsequent and the Escrow Settlement 206 4. The Borrowers' Acknowledgement 209 V DECLINE AND FALL 211 1. The Management Committee 211
Defaults and Short Payments 212
May 1991 Valuations 213
1991 Rent Review 213
Refinancing Discussions 217
Default 223 VI VALUATION EVIDENCE 224 1. Melbourne Commercial Property Market May/June 1990 224 (a) Market Perceptions 224 (b) Oversupply 234 (c) Fringe v CBD 234 (d) Rental Incentives 236 2. The Coles Myer Building - Capital Value 236 3. Cash Equivalent of the Vendor Finance 239 4. Rental Value 242 VOLUME 2 VII AGENCY AND SUB-AGENCY ISSUES 245 1. Hudson Conway & Gray & Winter 245 2. Bird Cameron and Gray & Winter 249 3. Huntley McArdle & Glass and Gray & Winter 250 4. Richard Ellis and Gray & Winter 250 (a) Letter of 31 May 1990 250 (b) Material in Gray & Winter Brochure 254 VIII CONTRACTUAL AND TORTIOUS DUTIES OF CARE - TO WHOM OWED? CONTENT? 255 1. Hudson Conway 255 2. Gray & Winter 256 3. Bird Cameron 256 4. Huntley McArdle & Glass 256 5. Nevett Ford 259 (a) Who was the Client? 259 (b) The Extent of the Retainer 265
Metzke & Allan 274 7. Richard Ellis 276 IX BREACH OF DUTY 283
Hudson Conway 283 2. Gray & Winter 283 3. Bird Cameron 283 4. Huntley McArdle & Glass 291 5. Nevett Ford 292 (a) Joint and Several Liability 292 (b) Lack of a Ratchet Clause 296 (c) The Terrey Clause and the Condition Subsequent 298 (d) Independent Advice 303 (e) The Deans 303 6. Metzke & Allan 304 7. Richard Ellis 307 X REPRESENTATIONS - WHETHER MADE 308 1. The Vendor's Sale Price was $14.835 million 310 2. The Market Value of the Building was at least $14.835 million 311 3. The Property was Underlet 311 4. Rent and Capital Value would Increase 312 5. There would be no Problem with Re-finance in June 1993 313 6. A Partnership Share could be Sold with no Further Liabilities 314 7. It was a Risk Free Investment 315
The Promoters were Reputable 315 XI REPRESENTATIONS - WHETHER FALSE OR WITHOUT REASONABLE GROUNDS 317 1. The Vendor's Sale Price was $14.835 million 317 2. The Market Value of the Building was at least $14.835 million 317 3. The Property was Underlet 318 4. Rent and Capital Value would Increase 318 5. There would be no Problem with Re-finance in June 1993 318 6. A Partnership Share could be Sold with no Further Liabilities 318 7. It was a Risk Free Investment 319
The Promoters were Reputable 319 XII SECONDARY LIABILITY FOR MISREPRESENTATION 322 1. Misrepresentation by Silence 322 2. Involvement 323 3. "A Sound Investment" (Mr Glass) 324 4. Hudson Conway and the 31 May Letter 324 5. Richard Ellis and the 31 May Letter 325 XIII RELIANCE AND CAUSATION 326 XIV CONSTRUCTION OF THE TERREY CLAUSE 332 XV NON-DISCLOSURE OF FEES AND COMMISSIONS 334 1. Gray & Winter 335 2. Bird Cameron and Huntley McArdle & Glass 335 XVI UNCONSCIONABLE CONDUCT 339 XVII ADDITIONAL ARGUMENTS OF THE WALKERS 347 1. Non Est Factum 347 2. Ultra Vires Execution of Guarantee 347 3. Securities Industries Code s 125 348 XVIIIPRESCRIBED INTEREST - LACK OF PROSPECTUS 349 1. Statutory Provisions 349 2. Was Only a Partnership Interest Offered? 352 3. Offer or Issue by Whom? 359 4. Prescribed Interest 361 (a) "undertaking or scheme" - par (a) 361 (b) "investment contract" - par (c) 361 5. Offer to the Public 362 6. The Partnership Exclusion 366 7. Illegality 368
Severability 369
Restitution 370 10. Relief 378 XIX ESTOPPEL 380 XX ELECTION AND AFFIRMATION 384 XXI CONTRIBUTORY NEGLIGENCE 387 XXII MITIGATION 390 XXIIIREMEDIES 393 1. Setting Aside 393 2. Damages 394 3. Allowance for Tax Benefits 400 4. Assessment of Damages 401 XXIV CROSS-CLAIMS 402 1. Contribution under Statute 402 2. Hudson Conway and Richard Ellis 405 3. Assessment of Contribution 405 XXV INSURANCE INDEMNITY - BIRD CAMERON V SGIO 408 1. "Conduct of Professional Business" of Chartered Accountants 408 2. "Act, Error or Omission" - Whether Deliberate 413 3. Exclusion Clauses 414 (a) Exclusion (c) 415 (b) Exclusion (e) 419 4. Secret Commissions 419 (a) Statutory Provisions 419 (b) "Agent" 421 (c) "Receives or Solicits" 423 (d) "Corruptly" 424 (e) The Liability of BPM 427 (f) Extension 3 428 (g) Corrupt Advice 431 5. Retroactive Date 432 6. Excess 433 (a) "Each and Every Claim" 433 (b) Multiplier 434 XXVI SUMMARY OF FINDINGS 435 XXVIIACKNOWLEDGEMENTS 442

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The Problem On 29 June 1990 a group of investors purchased for $14.835 million an office building at 258 Queensberry Street, Carlton. The building was leased to Coles Myer Limited for a term of 15 years from 24 March 1989 with two further options of five years each. The vendor was Amadio Pty Ltd, a wholly owned subsidiary of the listed public company Hudson Conway Limited. The purchase was geared to more than 100 per cent. The vendor advanced $16.265 million secured by a first mortgage for three years with interest only payable and also by a joint and several guarantee by the purchasers and associated entities. The excess of the loan over the purchase price was applied towards payment of some of the acquisition costs and six months interest in advance, the balance being paid by the purchasers. The expectation of the purchasers was that the building would steadily increase in value at a rate of 8.5 per cent per annum. When the vendor finance was repayable in 1993 the building would be worth $19 million. Interest only finance could then be obtained from a bank for 85 per cent of the value and that would be sufficient to pay out the vendor. The building would continue to increase in value at 8.5 per cent per annum and would be worth over $31 million after ten years. In the meantime, the purchasers would obtain taxation deductions for the difference between the interest paid and the net rent of the building. This could be set off against other assessable income of the purchasers. The building did not increase in value, either at the rate expected or at all. It was caught up in the huge slump in property values which hit Australia and in particular Melbourne in the early 1990s. Precisely when that slump commenced, and the extent to which it could or should have been reasonably predicted, are among the many disputed issues in this case. But in any event within less than a year valuations put figures of $11.5 million and $11.9 million on the building. Today the building is worth $8 million. The purchasers, and the associated persons and entities which have guaranteed the purchasers' obligations under the mortgage, are jointly and severally liable for a figure which, with accumulated interest, amounts today to some $20 million. Apart from the general collapse of the property market, the decline in value of the Coles Myer building was affected substantially by a feature of the lease. Clause 3 of the lease provides for rent reviews every two years, the review to be to "the then current market rental". The clause provides a machinery for determining disputes as to the appropriate figure. For present purposes the critical feature is that, apart from the first review in March 1991, as to which maximum and minimum figures were stipulated (the minimum being the existing rental of $172.22 and the maximum $199.13 per square metre per annum), the rent review clause does not provide that the rent cannot decrease. There is not, as there usually is in commercial leases, an underpinning or "ratchet" clause. The result is that the rental has declined from $1,279,807 at the time of purchase to $912,000 today. 2. The Parties The vendor Amadio was a company whose sole function was to hold title to the building. It had no commercial existence separate from its parent Hudson Conway. Hudson Conway retained Richard Ellis (Victoria) Pty Ltd as an agent to sell the building and also an adjoining building at 31-47 Barry Street owned by another subsidiary and leased to Telecom Australia. The purchase was promoted by a firm of solicitors called Gray & Winter. The partners in that firm were Mr Garrick Gray and Mr Michael Winter. Mr James Gray, the son of Garrick Gray, was an employee of the firm. Mr James Gray is not a solicitor. A company called Australian Investment Management (Holdings) Pty Ltd (AIMH) was controlled by the Gray & Winter interests. Mr James Gray and Mr Winter were directors of that company but, for reasons which have become an issue in this case, Mr Garrick Gray was not. The purchasers all live in country areas of Victoria, New South Wales, South Australia and Tasmania. They are mainly farmers, small business people and doctors. Most of the purchasers were introduced to the scheme by firms of chartered accountants to whom Gray & Winter had mentioned the scheme. One of those firms was Bird Cameron. The accountancy practice under that name is actually conducted by a company, BPM Pty Ltd. Its headquarters are in Perth. It had at the time some 38 branches in cities and towns throughout Australia including Ballarat and Geelong in Victoria and Millicent and Port Lincoln in South Australia. The other firm of chartered accountants was Huntley McArdle & Glass who carry on practice in Ballarat. A third firm of accountants, Metzke & Allan, played a different role. In the late 1980s they developed some expertise in producing computer cashflows for real estate investments. At the request of Gray & Winter they prepared spreadsheet cashflows which were used by Gray & Winter in a marketing brochure for the sale of the Coles Myer building. Nevett Ford are a firm of solicitors practising in Melbourne and Ballarat who acted as solicitors in connection with the purchase. There are disputes as to whether Nevett Ford acted for the purchasers or as sub-contractors to Gray & Winter and also as to the precise extent of their retainer and the obligations they undertook. Bird Cameron have been denied indemnity by their professional indemnity insurer SGIO. II SELLING THE COLES MYER BUILDING
1. Acquisition The Coles Myer building was built about 60 years ago for use as a warehouse by the Myer Emporium. In 1988 Coles Myer put the Coles Myer building and the Telecom building on the market for sale by tender. The tender conditions included stipulations that (i) the purchasers would lease back the Coles Myer building and level four of the Telecom building to Coles Myer with a right of first refusal in respect of the other levels of the latter building; (ii) the Coles Myer building and level four of the Telecom building would be fully refurbished by the purchasers; (iii)the leases would be in the form set out in the conditions. Hudson Conway's tender for both properties was successful. Its subsidiary Amadio entered into a contract to purchase the Coles Myer Building on 30 June 1988. Hudson Conway then carried out refurbishment costing approximately $4.6 million. These works were completed in about May 1989. The refurbished building has since been used by Coles Myer for its retail credit facility operations. Hudson Conway took title to the Telecom building in the name of Kotinga Pty Ltd, another wholly owned subsidiary. The term of the lease of level four of the Telecom building was from 31 July 1989 to 31 July 1999. That building was also refurbished, the work being completed in November 1989. Coles Myer leased level four at a rental of $199.13 per square metre per annum. It took up occupation of this floor in about September 1990 and by agreement commenced paying rental on 1 February 1991.
2. Earlier Attempts to Sell Following the stock market crash of October 1987, a flight of capital into property investment resulted in a boom which peaked in about September 1988. By the second half of 1989 Mr Lloyd Williams, the Chief Executive and Joint Managing Director of Hudson Conway, had come to hold a negative outlook about the future of commercial property investments. As a result, Hudson Conway made a strategic decision to quit the majority of its property investments, if necessary by the provision of vendor finance. Mr Williams took the view that Hudson Conway was better off holding debt rather than assets, particularly if the debt generated a better rate of return. In the course of implementing this strategy Hudson Conway put the Coles Myer and Telecom buildings on the market. In July 1989 Hudson Conway prepared an investment summary for the assistance of Richard Ellis, the agent retained for the sale. This report spoke of an "indicated market value" of $18 million for the Coles Myer building. Richard Ellis in turn prepared an investment report seeking to interest purchasers at that price. No sale was concluded. On 22 August Richard Ellis wrote to a potential purchaser advising that the price had been reduced to $15.1 million and stating that they "believed a lower price could be negotiated should you be interested". In October 1989 the property was taken off the market. In February 1990 Hudson Conway initiated another attempt to sell both properties. It prepared an investment report for agents who would be seeking appointment. In relation to the Coles Myer building the investment report noted the present rental of $1,279,806, which included office space at $172.22 per square metre and stated:

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The information memorandum stated that the properties were available for $15.5 million (Coles Myer) and $12 million (Telecom) and that in each case offers would be considered either (i) on a cash basis with 10 per cent deposit and balance in 60 days, or (ii) "subject to an approved purchaser", on a terms contract basis with 10 per cent on signing of contracts, a further 15 per cent within 30 days and the balance in two years with interest only payable to the vendor quarterly at 13 per cent. Richard Ellis sent about 20 copies of the information memorandum to potential investors or their representatives in Australia and overseas, including Gray & Winter. Richard Ellis also mailed out about 1500 copies of a single page coloured flyer. On 14 March Richard Ellis advised Hudson Conway of interest from a number of parties in Australia and overseas. Among these were said to be "private investors" represented by Gray & Winter, Solicitors". The dealings that took place between Richard Ellis and Gray & Winter will be examined in more detail in a subsequent section of these reasons. (Part II Section 6). On 6 April Dr Eugene Chu, a Hong Kong resident, sent a fax to Richard Ellis expressing interest in buying both buildings for a yield of 11.5 per cent, the equivalent of a cash price of about $11.2 million for the Coles Myer building. On 10 April Mr Anthony Rafaniello, the Hudson Conway executive responsible for the sale noted in his internal weekly report to his superiors that there was "strong interest from Gray & Winter solicitors". On 1 May the Richard Ellis sole agency came to an end. By a fax of that date Mr Anthony Chiminello, a director of Richard Ellis reported to Hudson Conway as follows: Following our telephone discussion today we advise of our marketing progress as follows: In summary, the people who have formally made offers on the property and shown definite interest are outlined below: Prospect Comment Mr Lai Te Wood Verbal offer of $9,650,000 balance 60 days. Mr Chu Written offer for both buildings at yields of 11.5%. Mr Baker Serious interest in the property. However, yet to formalise an offer. Gray & Winter Have expressed serious interest Solicitors and we are still awaiting offer. Mrs Tilley Still considering properties. Mr Alfred Abrahams Still considering details. As you are aware the subject properties are competing with distressed sales on the market which we believe are being offered at yields in excess of 10%. Coupled with the above, many purchasers perceive the market to soften even further and therefore are adopting a wait and see approach. Obviously, we are attempting to secure the highest price for the properties within the shortest period of time. therefore we need to respond to the relevant purchasers where necessary at lower sale prices in order to encourage them to further increase their offers. In addition to the existing purchasers, we have commenced a further mailout to the south east Asian region and are contacting all large private investors on the basis of a reduced sale price which would need to be further discussed with yourselves. Although sales evidence in this current market is limited, we have outlined recent sales as follows: Address Type Building Market Sale Yield Size Rental Price 224 Queen St 12 Level 5,430sq m Assessed $10,400,000 11.5% Melbourne $1,200,000 17-21 Malvern 2 Level 1,988sq m $479,325 $ 5,120,000 9.36% Rd Glen Iris Office We are aware of additional sales currently being negotiated at yields of approximately 9.5% - 10% and shall relay these to you as soon as they come to hand. Mr Rafaniello noted in his internal weekly report on 1 May that there was "(l)imited domestic interest in the two buildings" and that a "(n)ew approach (was) required". On 2 May Mr Chiminello sent a fax to Dr Chu stating that Richard Ellis had

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However, I am satisfied that Mr Chiminello's belief at the time was that the Coles Myer building was worth something less than $14 million on a cash sale. Mr Chiminello did say in evidence that he had discussed Dr Chu's offer with Mr Rafaniello and had told him the Hudson Conway asking price was too high. Mr Rafaniello encouraged him to get firm offers. 3. The Gray & Winter Option Agreement The sale of the Coles Myer building that ultimately took place had its genesis in an approach by Mr Garrick Gray to Mr Lloyd Williams. The two men had known each other for about 20 years, but were not close. About 10 years previously there had been one business dealing in which Mr Williams sold to Mr Gray a number of property owning companies. Otherwise their contact had been confined to occasional meetings at social gatherings. Mr Williams was aware that Mr Gray had a reputation as being involved in the promotion of tax driven investment schemes, including negatively geared investments in commercial property. Mr Williams' understanding was that Mr Gray would package such investments for his clients for a fee. On 15 May, on Mr Gray's initiative, a meeting took place in Mr Williams' office. Neither gentleman gave evidence of any other relevant meeting or communication. It was a fairly short meeting of about 30-45 minutes. After some discussion, in which Mr Gray asserted that the asking price of $15.5 million for the Coles Myer building was far too dear, Mr Williams told Mr Gray that the "bottom line" for the properties was $13.8 million for the Coles Myer building and $10 million for the Telecom building. He said that those prices were not the subject of negotiation. Mr Gray said that he was going to syndicate the properties for a group of investors (the conversation concerned both buildings - as will be seen, Mr Gray at that stage had one particular client in mind for the Coles Myer building), that he would like to take an option over each of the properties for his clients and that he would charge them fees for securing the properties. The amount of the fees were not mentioned and Mr Williams did not enquire about the subject. Mr Gray referred to the terms of sale mentioned in the Richard Ellis information memorandum, which were 10 per cent deposit, a further 15 per cent within 30 days and the balance to remain on mortgage to the vendor over two years at 13 per cent. Mr Gray asked Mr Williams whether his company would provide 100 per cent finance for up to five years. Mr Williams said that Hudson Conway would be prepared to provide 100 per cent vendor finance at 14 per cent for three years but only if it was satisfied as to the asset backing and capacity to service the borrowings of the purchaser. It seems likely that Mr Gray mentioned the figure of $6 million net assets and $2 million income for the proposed purchaser of the Coles Myer building without identifying him. In his witness statement Mr Gray said he spoke in terms of a syndicate which had those assets and income, but it may be that a syndicate was only mentioned in relation to the Telecom building. Mr Williams said in evidence that it was not his usual practice to grant options and that he told Mr Gray that the option would only be for 14 days because he was only interested in selling and not in a drawn out transaction. On 16 May Gray & Winter sent a fax to Mr Williams in these terms:

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On 18 May Mr Hamilton forwarded an executed copy of the agreement to Gray & Winter. On 21 May Gray & Winter's client Mr Myers inspected the building, but decided not to proceed with the purchase. Gray & Winter then set about organising a syndicate of purchasers. Mr Gray told Mr Hamilton that he was forming such a syndicate. Mr Hamilton said that if the syndicate members did not have sufficient asset backing Hudson Conway would not proceed. On 1 June Hudson Conway confirmed that, as requested by Mr Gray, the option period would be extended to Friday 29 June and that the amount of vendor finance would be extended from $15.4 million to $16.265 million. About this time Mr Hamilton also agreed with Mr Gray that the "acquisition fee" would be increased to $1,035,000. Since a central attraction of the proposed investment was tax deductibility to persons who were looking for substantial deductions, the transaction had to be completed by the end of June. In any event, it seems unlikely Hudson Conway would have extended the option period much further. Thus Gray & Winter had a month to find 20 investors prepared to invest some $40,000 immediately and to commit themselves to further annual instalments. If successful, Gray & Winter would earn themselves over a million dollars. At the same time Gray & Winter embarked on a similar campaign for the selling of the Telecom building. It will be convenient to deal at this stage with Gray & Winter's marketing approach in general terms, including documentation. Against that background I will then consider the arrangements Gray & Winter made with a number of the respondents for the marketing of the Coles Myer building before turning to the meetings with the applicants themselves. 4. The Gray & Winter Brochure Gray & Winter prepared a brochure for the marketing of the Coles Myer building. On a glossy dark blue cover appear the words "Gray & Winter" and the firm's address, telephone and fax numbers. There is no indication on the cover or elsewhere in the brochure that Gray & Winter are solicitors. The brochure itself is divided into five sections. The first section consists of colour photographs of the interior and exterior of the building and a locality map. The second section is entitled "PROPERTY SUMMARY" and is in these terms:

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5.00 TENANCY DETAILS The property is securely leased in total by Coles Myer Limited, one of the largest retailers in the world. 5.01 Lease Terms & Conditions A summary of the terms and conditions of the lease are as follows:: Tenant: Coles Myer Limited. Commencement: 24th March 1989 Lease Term:15 years. Options: 5 + 5 years. Current Rental Office Rent $1,207,607 Permanent Car Spaces $ 61,000 Casual Car Spaces $ 11,200 TOTAL $1,279,807 Rental Reviews: At the expiration of every two years from the commencement date of the lease to comparable market rental evidence. Next Review: 24 March 1991. Outgoings: Coles Myer Limited are responsible for the payment of all rates and taxes including single holding land tax, all insurances and building operational costs. 5.02 Income Analysis The property is currently producing a total net income of $1,279,806 per annum which has been apportioned as follows: Floor Area Sq M $Per Sq M PA $PA Ground 1,997 172.22 343,923.34 Car Park 61 permanent @ 1,000 pa each 61,000.00 Car Park 14 casual @ 800 pa each 11,200.00 Second 2,492 172.22 429,172.24 Third 2,523 172.33 434,511.06 Total Net Rental 1,279,806.64 It should be noted that analysis of comparable rentals for similar office premises indicate the present rental for this property has significant potential for growth. [Emphasis in original] The best evidence is the Telecom lease at 31-47 Barry Street where the rental equates to $196.36 per square metre per annum ($18.24 per square foot per annum) and $1,400 per car space per annum. Recent lettings are also resulting in rentals of $215.28 per square metre per annum net being achieved ($20.00 per square foot per annum) which would further enhance the income and capital growth potential of the subject property. The current lease provided that the rental on the first review can only be increased to a maximum of $199.13 per square metre per annum for the office space with the car parking rates reviewed to market levels. Every subsequent review is based upon open market rental evidence. 6.00 INVESTMENT POTENTIAL The subject property provides a rare opportunity to acquire an outstanding building with security of income leased to one of Australia's most prominent and successful companies. The property is available for sale at a price of $15,500,000 which reflects an initial yield of 8.3%. However, if a current market rental is adopted together with allowances for depreciation it is evident that the initial yield can be increased significantly. Assessed Market Rents Area Sq M Rental Sq M P Total Rental PA Yield Offices 7,012 $ 199.13 $1,396,300 Cars - Permanent 61 cars $1,440.00 each $ 87,840 Cars - Casual 14 cars $ 900.00 each $ 12,600 $1,496.740 9.7% Depreciation Allowances We have also analysed the equivalent yield taking into account depreciation on items. Capital Depreciation Year 1 $ 320,194 Tax Saving due to Building Allowance Tax Rate at 39% $ 124,776 Equivalent Net Income $1,404,683 Equivalent Yield on Existing Rent 9.1% Equivalent Yield on a Market Rent 10.5% Note:The above equivalent analysis assumes that the purchaser pays tax at the rate of 39% and can take advantage of the tax loss created by the building allowance. We recommend any prospective purchaser seek advice from an accountant in respect of this taxation benefit. 7.00 SALE PRICE & TERMS The property is available for sale at a price of $15,500.00 (fifteen million, five hundred thousand dollars). Terms of Sale Offers will be considered on either of the following bases: 1. Cash Contract with 10% deposit on signing of Contracts and the settlement in full within 60 days from the date of that Contract. 2. We have been informed that subject to an approved purchaser a terms Contract would be available on the basis of a 10% deposit on the signing of the Contract with a further 15% payable within 30 days and the balance by way of interest only quarterly to the Vendor over two years at 13% per annum. [Emphasis in original] In view of the location, security of tenure and prospects for income and capital growth in the short term, we believe the subject property should be given serious consideration.

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ASSUMPTIONS: ------------- Property Cost $14,835.000 Stamp Duty 816.000 Legal Fees 15,000 ---------- Acquisition Cost 15,666,000 Accounting 207.000 First Six Months Interest 1,134,000 --------- Total Funds Required 17,007,000 Owners Initial Contribution 807,000 --------- Borrowings Required 16,200,000 Yield on Acquisition 8.18% Vendor Finance: ---------- First Mortgage Loan 16,200,000 Interest Fixed for Three Years @ 14.00% Payable Six Monthly in Advance. Bank Finance: (After third year) --------------------------------- Payout Vendor Finance 16,200,000

                            First Mortgage Loan 16,200,000
     Interest Fixed @ 15.25%
     Payable Six Monthly in Advance

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BUDGET RENTAL REVIEW: --------------------- MONTH DATE RENTAL AVE.[sic] INCREASE MONTHLY

             12 Jun-90 1,279,800 106,650
                            21 Mar-91 1,496.740 16.95% 124,728
                                            45 Mar-93 1,751,186 17.00% 145,932
                                            69 Mar-95 2,048.887 17.00% 170.741
                                            93 Mar-97 2,397.198 17.00% 199.767
                                            117 Mar-99 2,804.722 17.00% 233.727
                                            141 Mar-20013,281.525 17.00% 273.460

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NOTES: ============ PREPAYMENT OF INTEREST: ---------------------- It is a condition of providing Vendor Finance that the purchaser pay six months interest in advance on $16,200.000 namely, the sum of $1,134.00 SECURITY PROVIDED FOR BANK FINANCE (In June '93): # 1) anticipated Value at June '93 19,457,620 (refer cashflow summary) 85.00%

          Bank lending to 85% of property value 16,538,977
                                        ==========
     Cashflow allows $70,000 for legal and bank lending fee at June '93 on refinancing.
     Refer to schedule 4 for additional contributions

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Two general features of the Gray & Winter brochure should be mentioned. First, it is a substantial and professional looking publication, A4 size and 1.5 cm thick with a glossy cover. Secondly, its contents are confined to the physical, legal and financial aspects of the building itself, the lease and the proposed mortgage. There is nothing in the brochure about the partnership and the joint and several liability the purchasers would assume as partners, mortgagors or guarantors. The one page summary does, it is true, use the words "partnership" and "partner" but is not concerned with the liabilities and obligations which flow as a matter of law from the relationship of partnership, co-mortgagors or co-guarantors. On the contrary, the table directs attention to the projected cost to an individual purchaser. In many cases investors, perhaps understandably, took the one page summary as indicating their maximum potential liability. In any event, the joint and several liability which the present applicants now face is not founded on their status as partners, but on their covenants under the mortgage and guarantee. As will be seen, investors were in many instances given a copy of the brochure and the one page summary to take away after their meeting with the Gray & Winter representatives. Such investors at least had the opportunity to read the brochure in their own time and seek independent advice. However they were never given a document which set out the basis of their liability in respect of the investment about which they were expected to make a decision. The nearest approach to such a document was the Gray & Winter instruction letter to which I shall shortly refer. But this document was only produced on the subsequent occasion when the purchasers signed the instruments which bound them to the transaction. By this time the effective decision to invest had been made. In most instances the purchasers did not read the Gray & Winter instruction letter and were not asked to do so. They were not given a copy to take away. And, as will be later shown, there were serious inadequacies in such disclosures as were made in it. 5. Selling the Investment - Methods and Documentation The following description is not true of all investors, but will give some understanding of the Gray & Winter modus operandi and the documentation used. In the case of most investors Mr Garrick Gray, Mr James Gray or Mr Winter would visit the various offices of Bird Cameron, or the office of Huntley McArdle & Glass in Ballarat, and there make a presentation to clients of those firms in the presence of the accountant with whom the client usually dealt. Gray & Winter had already sent copies of their brochure to those offices. If a person wished to proceed, the Gray & Winter representative would ask them to sign an Application for Finance. This document commenced with the words "Proposed Partnership Share". Against those words in most cases was some reference to "Coles Myer Building" - e.g. "One twentieth in Coles Myer Building" or "5 per cent in Coles Myer Building" but sometimes simply "5%" or "2.5%". The form required details of the name, address, age and occupation of the borrower and the name of any family company, trust or partnership. A second section required details of assets under the categories "cash", "property", "shares", "superannuation", "business goodwill" and "other assets". A third section required details of disposable income. A fourth section required details of the history of the applicant's company or business. A final section required details of liabilities under the categories "bank overdraft", "long term loans" and "other liabilities". The purchaser was to sign at the foot and immediately thereafter there was the following:

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Messrs Gray & Winter Barristers & Solicitors 1st Floor 474 St. Kilda Road MELBOURNE VIC 3004 Dears Sirs, re: Acquisition of the Coles Myer Building 258 Queensberry Street, Carlton I confirm the instructions from Bird Cameron [or where appropriate Huntley, McArdle & Glass] Accountants for you to acquire the above building for a partnership including the undersigned for $17,072,000 including the costs set out below and to arrange a vendor loan on my behalf for an amount of $16,264,764 for 3 years at 14% per annum on security of a first mortgage of the property and joint and several guarantees of all the partners. I undertake to promptly provide all financial documentation required for obtaining the loans to you when requested. I confirm that the cash flow shown to me has been explained and I am satisfied to proceed. We authorise you to direct disbursement of the sum of $17,072,000 as follows at settlement:- Property Cost (including acquisition fee of 7.5% to Gray & Winter) $14,835,000 Stamp duty, 816,000 Legals - Nevitts, Solicitors 15,000

     Capital Acquisition Cost 15,666,000
     Accounting Fees (1.5% of Purchase Price) 207,000
     Stamp Duty - Mortgage 64,764
     First Six Months Interest 1,134,000
     Balance: Clients Account 236

     Total Funds Required 17,072,000

========== We are aware that there is an acquisition fee of $1,035,000 which will be paid to Australian Investment Management (Holdings) Pty. Ltd. a company associated with Gray & Winter which currently holds the option over the property. The balance will be paid out as follows:- Accountants Fees $207,000 I undertake to meet my share of the cost of any adjustment of rates and taxes which may be due to the purchasers at settlement together with any other costs certified by the Management Committee of the Partnership. I authorise you to instruct solicitors on behalf of the partnership to act in the conveyance of the property and the mortgages. I undertake to execute such documentation as is necessary to complete the purchase and mortgage of the property prior to settlement. I authorise you to hand all documentation in respect of the acquisition to Huntley McArdle & Glass, Accountants to be held in trust for the partnership or to be handed over to any other trustee nominated by the management committee of the partnership elected by the partners. The abovenamed building and the prospect of purchasing a part of it in partnership with others was brought to my attention by my accountant and I have decided to invest having received my accountant's advice and as a result of my own appraisal. I requested that your firm should further explain the legal documentation and the taxation consequences resulting from the cash flow and the proposed loan for the purchase and I confirm that you did not approach me or canvass my interest in any way. Yours faithfully,

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(iv) A guarantee and indemnity of the mortgage, under which the guarantors "jointly and severally" guaranteed payment of money, interest and damages due under the mortgage by "the Borrower" - described in a schedule as eighteen named individuals or companies, the same as those listed as mortgagors. On either 8 or 9 August 1990 Mr Balcam as attorney executed a deed of partnership for the Coles Myer Building Partnership. The Coles Myer Building Partnership contained 20 shares. In some instances one share might be held in the name of one partner who had executed a declaration of trust on behalf of himself and his spouse or children. In other instances the share was held by one partner on behalf of himself and another unrelated investor who had entered into a sub-partnership agreement in respect of that share. Another variation was the holding of a share by a family company. Where an individual partner controlled a family company, the company was a guarantor. Whatever the form, the persons other than the named partner who had a beneficial interest were parties to the joint and several guarantee. The partners themselves were not parties to the guarantee but were, as previously noted, jointly and severally liable under the mortgage. On 29 June at about 5.40 pm Nevett Ford sent a fax to the accountants in respect of each purchaser in these terms: [Name of client] As you may be aware we have been appointed by Messrs. Gray & Winter to act for a group of investors purchasing the "Coles-Myer" building at 258 Queensberry Street, Carlton. We are instructed that it has been clearly explained to all investors that their liability under the mortgage, and that of their Guarantors is joint and several. In the event of default an investor's liability is not limited to his share. Pursuant to the Powers of Attorney, Mr. Balcam, the attorney will be executing the following:- 1. Contract; 2. Transfer; 3. Mortgage; 4. Deed of Guarantee and Indemnity; 5. Deed of warranty of Trustee; 6. Partnership. We are not aware of any other documents the Vendor/Mortgagee will require, however, there may be some further documents to complete the transaction. With kind regard to your investments: The Mortgagor is:- [Name inserted] The Guarantors are:- [Name inserted] Yours faithfully, NEVETT FORD 6. Gray & Winter and Richard Ellis Richard Ellis is a licensed estate agent, property consultant and valuer working principally in Melbourne commercial property. Richard Ellis is one of the leading Melbourne city commercial estate agents and property consultants, and has one of the largest commercial property valuation practices in Victoria. At Richard Ellis the marketing of the two Hudson Conway properties was the responsibility of the Suburban Investments Division. Mr Anthony Chiminello, who has already been referred to, was in charge of that division. He was a director of the company and a registered valuer but for some three years or so had worked on the sales side of the business. He was assisted by Mr David Hemingway. On 8 March Mr Garrick Gray's brother Mr Richard Gray, who also worked at Gray & Winter, phoned Mr Hemingway and said that he had seen Richard Ellis advertisements for the two properties and was interested. Mr Hemingway sent him a copy of the Richard Ellis information memorandum. On 21 March, at Mr Richard Gray's request, Mr Hemingway sent two more copies of the information memorandum, copies of the leases and photographs of the two buildings. Throughout the remainder of March there was considerable contact between Gray & Winter and Mr Hemingway including two inspections of the buildings, the taking of more photographs, and the provision by Mr Hemingway of information about carpet replacement and fire rating. As already noted, Mr Chiminello kept Hudson Conway informed of these developments. On 20 April Mr Garrick Gray phoned Mr Hemingway and said that he would have a proposal for both properties by 25 April. Mr Hemingway said in evidence that on 9 May he had two telephone conversations, one with Mr Garrick Gray and one with Mr Rafaniello of Hudson Conway. His evidence as to these conversations was hotly contested because if accepted it would suggest that Gray & Winter's company AIMH obtained an option to purchase the Coles Myer building well prior to the 17th. That in turn might support the applicants' case that the option agreement tendered in evidence was a sham and that Gray & Winter were in truth acting as the agents of Hudson Conway. Mr Hemingway's version is essentially based on a typed summary which he prepared shortly prior to 13 July 1990. At this time Richard Ellis were considering suing Hudson Conway for commission on the sale of the two properties. Mr Hemingway made up his summary from a perusal of a diary in which he recorded all outgoing phone calls, his message book in which he or other staff recorded all incoming calls, and his memory. The message book has been lost but the diary was tendered in evidence. The relevant parts of the summary were as follows:

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I am not satisfied that the two entries for 9 May record events which took place on that day. Rather, I think they represent Mr Hemingway's comments looking back from the time he prepared his summary in the light of knowledge he had since acquired. There was another instance in the summary where confusion of this type arose, viz a reference as at 29 May to Mr Gray wanting comparable rental evidence because he "needed it urgently for his Ballarat syndicate". In evidence Mr Hemingway was quite insistent that he did not learn of the "Ballarat syndicate" until 20 June. I think it unlikely that Mr Hemingway had been told on 9 May of an offer of $23 million for both buildings and an option to purchase the Coles Myer building. Had that been the case, it seems likely he would have made immediate further enquiries about the option. There is no evidence of any such steps being taken. There were phone conversations with Mr Gray on the 16th and the 18th and it seems more likely that in the course of those Mr Hemingway heard of the option. Also, if there was an option in existence on the 9th in the sense suggested in Mr Hemingway's summary, it would have been in writing. There is no evidence that an option agreement bearing such a date ever existed. There is no basis for inferring that such an option agreement was lost or destroyed or that the option agreement which is in evidence and the correspondence concerning it were all fraudulently or mistakenly dated. On 21 May, at the instigation of Richard Ellis, a meeting took place at Hudson Conway between Messrs Chiminello, Hemingway and Rafaniello. Richard Ellis were concerned to renew their extended authority which was due to expire at the end of the month. Also they wanted, in Mr Chiminello's words, "to find out exactly what was happening with Garrick Gray". By this stage Mr Hemingway had heard - probably from Mr Gray himself - about the grant of the option although not the details. At the meeting the Richard Ellis men pressed Mr Rafaniello for further details of the option, and in particular the price, but without success. The price was important to Richard Ellis because their commission depended on it. Richard Ellis believed, quite justifiably in my opinion, that a sale consequent upon Mr Gray's option would entitle them to commission. On 24 May, at Mr Gray's request, Mr Hemingway sent to him a letter setting out his opinion as to the current market rent for the Coles Myer building. The letter was in these terms:

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Gray & Winter and Metzke & Allan Metzke & Allan are chartered accountants who carry on practice at Shepparton. Between 1988 and 1994 Mr Neil Allan was a partner in the firm. In about August 1989 Mr Allan had a meeting with Mr Michael Winter at the Shepparton office. Mr Winter told Mr Allan about Gray & Winter's syndicating of property investments. He said that Gray & Winter always marketed these schemes through firms of accountants and their practice was never to approach investors directly. Shortly afterwards Mr Allan met Mr Garrick Gray at the latter's home in Melbourne. Mr Gray said much the same about Gray & Winter's syndicating. In September 1989 Mr Allan was in Perth examining a property investment being promoted by Gray & Winter. Mr Allan had prepared a cashflow analysis for himself. He showed the spreadsheets to Mr Garrick Gray. Mr Gray was impressed. Thereafter Mr Allan was involved in a number of Gray & Winter projects both as an investor on his own account and as an adviser to clients of Metzke & Allan. Metzke & Allan provided cashflow spreadsheets for these projects. They investigated the assumptions involved and in particular made enquiries as to the relevant property markets. Mr Winter and Mr Gray then asked Mr Allan whether Metzke & Allan would prepare similar cashflow spreadsheets for Gray & Winter projects in which Metzke & Allan clients were not participating, the cashflows to contain data provided by Gray & Winter. Mr Allan agreed but said that if neither Metzke & Allan clients nor himself were participating, then Metzke & Allan would not be verifying the cashflows and accordingly the name of Metzke & Allan was not to be associated with the cashflows. Mr Winter and Mr Gray agreed to this. About March 1990, shortly before leaving for overseas, Mr Allan in the course of a telephone conversation with Mr James Gray agreed upon a fee of $1500 for each cashflow prepared by Metzke & Allan for Gray & Winter. Mr Allan told Mr James Gray, as he had told Mr Winter and Mr Garrick Gray, that the name of Metzke & Allan was not to appear on any cashflows or documents relating to cashflows prepared for any property investment projects in which neither he nor Metzke & Allan's clients were participating. Mr Allan said to Mr James Gray that he did not want any person reading the cashflows to believe that Metzke & Allan were responsible for performing any due diligence in respect of the project. Mr James Gray agreed. Shortly after that Mr Allan went overseas and did not return until 21 May. During the period March - June Metzke & Allan prepared a number of cashflows for Gray & Winter projects in which neither Metzke & Allan nor its clients participated. Metzke & Allan were never asked to verify the financial data provided by Gray & Winter or to check the assumptions and did not do so. In the case of the Executive Building in Hobart, where Metzke & Allan clients were involved, Metzke & Allan did investigate the assumptions. Amongst other things, they made substantial enquiries as to the commercial property market in Hobart. The cashflows which Metzke & Allan prepared were done with Lotus/Symphony software on a template developed by Metzke & Allan. Gray & Winter would provide basic instructions such as cost of purchase, the first rental, settlement date, rent reviews, interest rates etc. The practice was to assume a CPI figure and then treat rent reviews to market as producing a result in accordance with the assumed figure. Gray & Winter would give Metzke & Allan the instructions and usually there would be quite a number of drafts going back and forth before a satisfactory product was achieved. On 16 May Metzke & Allan received a fax from Mr Michael Winter headed "Re Coles Myer Building, 258 Queensberry Street Carlton" and containing certain financial details. Mr Mark Carroll, a chartered accountant employed by Metzke & Allan, performed the task of inputting the data into the template for the cashflow model. Some of the necessary details were not provided. Although Mr Carroll could not specifically recall this, it seems a reasonable inference that he telephoned Gray & Winter to obtain the further details. Mr Carroll sent a draft cashflow to Gray & Winter on the same day. A number of other drafts followed and in each case there were revisions suggested by Gray & Winter. The final version approved by Gray & Winter was dated 1 June. Early in July Gray & Winter paid Metzke & Allan the agreed fee of $1500 plus a small amount for disbursements. Metzke & Allan did not have any input as to the contents of the Coles Myer building cashflow in the sense of providing, or being consulted as to, data used to produce the cashflow. It was suggested that Mr Allan had a discussion with Mr Garrick Gray in which it was agreed that the figure of 8.5 per cent should be used as the assumed CPI rate. I do not accept that this occurred. Consistently with their agreement with Gray & Winter, Metzke & Allan did not make any enquiries as to the validity of the assumptions driving the cashflow, and in particular whether the CPI rate was appropriate for rent reviews to market and whether 8.5 per cent was an appropriate rate for CPI and whether 9 per cent was an appropriate capitalisation rate. When the documents to be signed by Mr and Mrs Henderson were faxed to Metzke & Allan at Shepparton on 27 June the form with the Gray & Winter instruction letter included a reference to Metzke & Allan. Mr Allan became aware of this and immediately phoned Mr James Gray and said that the reference should be deleted. Mr Gray apologised and agreed to fax a replacement letter which would not contain any reference to Metzke & Allan. 8. Gray & Winter and Bird Cameron As already noted, the head office of Bird Cameron is in Perth. In May/June 1990 the Perth office consisted of some 14 partners and about 50 to 60 professional employees. Clients of Bird Cameron offices in Ballarat and Geelong in Victoria and Millicent and Port Lincoln in South Australia invested in the Coles Myer building. The evidence reveals a remarkable divergence as to how Bird Cameron became involved. Gray & Winter assert that full details of the Coles Myer building and the proposed investment were submitted to and approved by the Bird Cameron head office. The Perth partners of Bird Cameron alleged to have been involved in such process flatly deny this. They say that they only became involved in terms of investment assessment in the Telecom building and then only at a late stage, a few days before the end of June 1990. They were aware, but only peripherally, of some Bird Cameron offices in the Eastern states having a connection with the Coles Myer building. (a) Bird Cameron Perth On 5 April 1990 a meeting took place in Perth at the office of Mr Ronald Swinney, the Chairman of Bird Cameron. Present were Mr Swinney, Mr Colin Blyth, a director of Bird Cameron responsible for its Corporate Financial Services Division, and Mr Winter. Mr Garrick Gray says that he was also present but Mr Blyth and Mr Swinney have no recollection of that. Prior to that meeting the following contact had occurred between Gray & Winter and Bird Cameron. (i) From the mid 1970s to the early 1980s some South Australian clients of Bird Cameron for whom Mr Swinney acted had participated in tax minimisation schemes under s 36A of the Income Tax Assessment Act 1936 (Cth) introduced by Mr Winter. At this time Mr Winter contacted Swinney quite often about other tax schemes. Some luncheon and dinner meetings occurred. (ii) Between 1981 and 1990 some further luncheons and dinners were attended by Mr Swinney and Mr Winter at the latter's instigation. Also in early 1990 Mr Swinney and his wife together with another Bird Cameron partner, Mr William Balcam, went to Mr Garrick Gray's home for dinner. No business transactions occurred in this period. (iii) During the late 1980s some clients of regional offices of Bird Cameron in Western Australia made some commercial property investments through Gray & Winter, but these did not involve the head office. At the 5 April 1990 meeting Mr Winter told the Bird Cameron men that Gray & Winter would be able to offer tax effective investments to the Bird Cameron network and its clients. He produced a glossy brochure which had photographs and details relating to a large number of previously acquired commercial properties, the most recent of which was the Executive Building in Hobart. Some of these had been for clients of regional offices of Bird Cameron in Western Australia. Mr Winter said that he wished to make a direct approach to the Bird Cameron offices. Mr Swinney said that the head office would wish to investigate first any proposal and that Mr Blyth's division would do the investigation. Mr Winter said that Gray & Winter's fees would be a commission of 7.5 per cent and that fees would be paid to accountants who introduced investors at a rate of 1.5 per cent of the property cost taken up by each investor. The meeting concluded on the basis that Bird Cameron might be interested in such a proposal and that the Perth head office would consider any proposal when Gray & Winter had something specific to put. Some further meetings occurred on 2 and 3 May. Mr Swinney again said that no property investment proposal would be recommended to regional offices in Western Australia unless it had been vetted by Mr Blyth's division. On 17 May Mr Winter spoke to Mr Swinney about the proposed acquisition of a building at Kewdale, Western Australia which was leased to Brambles Holdings Ltd. By letter of the same date Mr Winter enclosed a copy of a Richard Ellis brochure in relation to that property together with a cashflow. On 21 May Mr Blyth spent some hours with Mr Winter working on an analysis of this property and another nearby property also leased to Brambles. Shortly after the introduction of the Brambles properties Mr Swinney had another meeting with Mr Winter. As a consequence Mr Swinney sent a circular dated 21 May to Bird Cameron offices in Western Australia. He said it was not distributed outside that State. This circular was headed "Tax Effective Property Investment" and included the following:

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This evidence by Mr Garrick Gray and Mr Winter is unsupported by any documents. Mr Winter's evidence was part heard over a long weekend. On the Friday he was requested by counsel for Bird Cameron to produce any correspondence or other documents relating to the transmission of documents concerning the Coles Myer building to Bird Cameron Perth prior to 29 June 1990. When the hearing resumed, no such documents were produced. On the other hand, the internal Bird Cameron documents are consistent with its case on this issue. There is moreover the practical corroborating circumstance that if Bird Cameron Perth were unable to fill the Telecom subscription and had to take up some of the balance themselves, it is unlikely they would take on the burden of investigating the adjoining Coles Myer building in the few remaining days of June. Mr Garrick Gray and Mr Winter are experienced solicitors, well used to dealing with documents. Their persistence in an account which was in the teeth of all contemporary documentation, and which they must have known to be untrue, I find damaging to their general credibility. However during June Mr Blyth and Mr Swinney were aware in general terms of the Coles Myer investment. Mr Swinney asked Mr Balcam to act as attorney under power for the Coles Myer investors - notwithstanding that, as appears hereafter, Mr Balcam told Mr Swinney that Bird Cameron Melbourne would not be recommending the investment. I now turn to the evidence as to contact between Gray & Winter and the Bird Cameron offices who dealt with the applicants or who are otherwise relevant. In these sections I shall deal with evidence of Gray & Winter's presentation of the Coles Myer investment to the respective accountants up to, but not including, meetings with the investors themselves. Those meetings will be dealt with in Part III of these reasons. (b) Bird Cameron Ballarat Mr John Mayne of Bird Cameron Ballarat was introduced to Mr Garrick Gray by Mr William Balcam, the Bird Cameron Managing Partner for Victoria, on 2 April 1990 at a meeting with the partners and managers of the Ballarat office arranged by Mr Balcam. Mr Mayne said in evidence that

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Value $15,878,810 Shortfall 2,768,000 Contribution per share 138,400 And if the market value remained the same, an 85 per cent loan would provide only $12.6 million resulting in a shortfall of $3.6 million or $180,000 per share. Mr Mayne had some contact with other Bird Cameron offices. He received the circular from the Perth office dated 6 June on about the 14th or 15th, and also the memorandum of 22 May. He said that he spoke to Mr Balcam between 19 and 29 June. Mr Balcam told Mr Mayne of other offices of Bird Cameron that were participating in the project. Mr Balcam did not tell him the Bird Cameron Melbourne office had declined involvement. Mr Balcam denied this conversation, but I find that it occurred. (c) Bird Cameron Sydney In 1990 the partner in charge of Bird Cameron's New South Wales operations was Mr Glenn Karutz. In the late 1970s and early 1980s Mr Karutz worked at Port Lincoln for a predecessor of Bird Cameron. He had there met Mr Michael Winter who was promoting what Mr Karutz described as "artificial tax avoidance schemes". He got to know Mr Winter well. He did not meet Mr Garrick Gray at this time, although they spoke a few times on the telephone. After 1985 Mr Karutz had no contact with Mr Winter or Mr Gray until about late May or early June 1990. Mr Winter telephoned Mr Karutz in Sydney and asked whether he would be interested in introducing any of his clients to tax effective negatively geared syndicated property investments that Gray & Winter were then in the process of putting together. Mr Winter said he had done several deals with Bird Cameron in Western Australia. He mentioned a number of names including Messrs Blyth, Swinney and Duncan. He said that a syndicate investment for the Brambles building had been filled and there was another syndicate involving the Telecom building in Melbourne which was almost full. Mr Winter said that he would send Mr Karutz a brochure with details of properties that had been sold or marketed by him in the past. He said that Gray & Winter were in the process of putting together a syndicate for the Coles Myer building in Melbourne. He asked whether Mr Karutz would be able to introduce clients to such a syndicate. He said that he was particularly busy and that Mr Garrick Gray would go up to Sydney to meet Mr Karutz. Mr Karutz believes that Mr Winter faxed to him some brief details of the Coles Myer project but he did not retain copies. On 5 June Mr Garrick Gray met in the Bird Cameron office in Sydney with Mr Karutz and a Mr Smith who was a member of Bird Cameron's staff. The meeting lasted about two hours. Mr Gray had a number of copies of the Coles Myer brochure. Mr Gray made a presentation explaining the scheme by reference to the brochure. Mr Gray said that Mr Blyth in Perth had reviewed the structure of syndicated purchases relating to other projects, in particular the Brambles project, and that Mr Blyth had said that such a structure was satisfactory. According to Mr Karutz, Mr Gray did not suggest that Bird Cameron Perth had investigated the Coles Myer project. Mr Karutz arranged for appointments for about three or four clients to see Mr Gray on 6 and 7 June. Shortly after this Mr Daryl Lynch from Bird Cameron Port Lincoln telephoned Mr Karutz and asked whether he was aware of any tax minimisation schemes that might be available for certain of his clients (many of whom had been clients of Mr Karutz when he was at Port Lincoln). Mr Karutz told Mr Lynch of a number of alternative proposals, including Mr Garrick Gray's Coles Myer proposal. Because one of his clients had expressed some interest, Mr Karutz made some further investigations. Mr Smith rang Mr Alan Tribe at Bird Cameron Melbourne. Mr Tribe told Mr Smith that if a proposal was being put forward in relation to the Melbourne property market it should not be considered because the Melbourne property market was risky. Mr Karutz then advised his client not to participate. (d) Bird Cameron Port Lincoln Mr Daryl Lynch of Bird Cameron Port Lincoln was in May 1990 investigating available tax minimisation schemes. As already noted, he spoke to Mr Karutz of Bird Cameron Sydney, and was told of Mr Garrick Gray's approach. Mr Lynch phoned Gray & Winter and left a message for Mr Garrick Gray. On 14 June Mr Gray called back. He was then in Perth. He told Mr Lynch about the negative gearing schemes involving the Telecom and Coles Myer buildings and the Brambles buildings in Perth. He said that

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He said he was on his way to Adelaide and was keen to come to Port Lincoln the next day. Mr Gray then sent some information about the Coles Myer building scheme by fax. As a result of what Mr Gray told him on the telephone Mr Lynch telephoned a number of his clients including Mr Leo Haarsma, Mr Ivan Phelps and a number of doctors who were in a partnership in Port Lincoln. He told them he had been told of a tax minimisation scheme involving a property purchase with negative gearing and that for an investment of $20,000 there was a prospect of receiving an initial tax deduction of $40,000. He said that he had found out about these purchases through the Bird Cameron group and that a Mr Garrick Gray from the firm's solicitors was interested to come to Port Lincoln the next day to speak with clients who may be prospective investors. He said it was a negatively geared property investment with reducing cash flow outlays, a self-funding scheme with a capital gain at the end with additional tax benefits to be obtained by way of depreciation. When his clients appeared interested Mr Lynch telephoned Mr Gray back and asked him to come to Port Lincoln the next day. At that stage Mr Gray told Mr Lynch that the Perth office of Bird Cameron had looked at his property investment schemes, that he was introducing the Telecom scheme to Bird Cameron clients and that some of the Bird Cameron partners were investing in the Telecom scheme. By this time Mr Gray was in Adelaide. Mr Gray did not say that Bird Cameron Perth was introducing the Coles Myer scheme to its clients or that Bird Cameron Perth had investigated and vetted that proposal. Mr Lynch collected Mr Gray at the Port Lincoln airport at 8.00 am on 15 June. They went to the Bird Cameron office. Mr Gray took Mr Lynch through the Gray & Winter brochure. They discussed the proposal for about half an hour. Mr Lynch said in his witness statement Mr Gray either told him or gave him the firm impression that rental under the lease would always increase. Mr Gray also took him to the Richard Ellis report within the brochure. Mr Lynch at the time had "absolutely no idea" as to building prices in Melbourne and their movement. Mr Gray told him that Gray & Winter were to receive a commission of approximately $1 million and that accountants such as Bird Cameron would receive fees of $10,350 for each partnership share. Mr Gray told him that the purchase price of the building was "very good". Mr Lynch accepted the statements and predictions contained in the brochure, including the Richard Ellis report, and he accepted the cash flows as correct. Mr Lynch then made arrangements with some of his clients for Mr Gray to visit them. Mr Gray spent only the 15th in Port Lincoln. On the 17th Mr Lynch travelled to Millicent to do some work for a client for whom he had acted while based there. The journey took all day. He remained in Millicent until the 22nd when he drove back to Adelaide. He returned to Port Lincoln on the following day. According to his time sheets, during his stay in Millicent he made telephone calls to his clients Dr Arthurson and Mr Haarsma on the 18th. Shortly after the 15th Mr Lynch made a handwritten note of details concerning the Coles Myer investment. The note contained amongst other things the cost, the vendor finance, the lease, the rental (including comparison of rentals with the "Next Door" building), details of rent review dates and a note of the reviews being "to market", a statement as to management as follows Manager - B C Melb Management Committee of 4 1 Partner - Alan Tribe BC Melb BC Ballarat BC Pt Lincoln

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some calculations as to tax deductions including the statement "Note Tax Free Gain of $700K after recouping $91K at 39%" and the statement "Written guarantee from Gray & Winter to repurchase if required within 12 months at full cash cost less tax rebate payable within 45 days". The note did not include any comments as to risk or any other adverse factors. (e) Bird Cameron Millicent Mr Geoffrey Henderson, the manager of Bird Cameron Millicent, was contacted in around early June 1990 by Mr Wayne Smith of Bird Cameron Parramatta who told him that he had learned of a negatively geared investment proposal concerning the purchase of the Coles Myer building. Mr Henderson had previously been at the Parramatta office and Mr Smith asked him whether any of his former clients might be interested. Mr Henderson gave him some names. Some time later, in about the middle of the month, Mr Henderson was phoned by Mr Daryl Lynch who had moved to Port Lincoln from the Millicent Office. He told Mr Henderson he had been approached by Mr Gray, a solicitor from Melbourne, who was marketing the Coles Myer building project and was looking for clients at the Millicent office who might be interested in the project. Mr Lynch said that Mr Gray would probably contact him to arrange a meeting. On 18 June Mr Lynch was in Millicent. He called at the Bird Cameron office and spoke to Mr Henderson and two other Bird Cameron professional staff, Mr Josef Korczak and Mr Garry Lafferty. Mr Lynch passed on the details in his note already mentioned. Mr Henderson kept a copy of the note and referred to it later when speaking to anyone about the Coles Myer investment. On about 21 June Mr Gray phoned Mr Henderson and said he had been referred to him by Mr Lynch. Mr Gray told him a number of clients at the Port Lincoln office had participated in the partnership and that there were still a few partnership shares available. Mr Gray said he wanted to come to Millicent to see clients urgently. He said he would fax some details and sent copies of the brochure by courier. Mr Gray came to Millicent on 25 June and attended an initial meeting with Mr Henderson, Mr Korczak and Mr Lafferty. Mr Gray spoke to them about the Coles Myer proposal. Amongst other things, Mr Gray told them that if any partners wished to get out of the investment they could do so easily by selling to other partners, but that if such endeavours failed, Gray & Winter would purchase the share. He said that there would clearly be an upward trend in property values and that there would be no problem in obtaining bank refinance as a result of the increased property value, its quality tenant and the secure lease. He said that other Bird Cameron offices were involved and that if the Millicent office sold sufficient shares Mr Henderson would represent those investors on a management committee that was to be formed. The three accountants then turned their minds to obtaining potential investors from their own clientele. (At this office each client was considered to be identified with a particular accountant rather than the office as a whole.) (f) Bird Cameron Geelong Shortly prior to 26 April 1990 Mr Peter Landers of Bird Cameron Geelong received a telephone message "out of the blue" to call Mr Garrick Gray. Mr Landers had never heard of Mr Gray before this. On Mr Landers calling back, Mr Gray said that he was contacting Bird Cameron Geelong as a result of dealings with Bird Cameron Perth. He said that he had done a number of deals with the Perth office. Mr Gray called at Mr Landers' office on 26 April and the two men had a discussion for about 30 minutes. Mr Gray said that he had done negatively geared investment projects in the past, particularly in Western Australia and Tasmania, and produced a glossy brochure depicting those projects. Mr Gray pointed out the tax advantages of such investment, including depreciation as well as cash deductions. He said that he would have very similar projects available for investment by Mr Landers' clients prior to 30 June next. On 25 June Mr Gray called again at Mr Landers' office and presented him with a copy of the Gray & Winter brochure on the Coles Myer building. He said that the scheme was almost filled but it needed a few more partners. He said that he was proposing to invest in the project himself. He told Mr Landers that he had recently put together the Telecom building project with some of the Perth partners of Bird Cameron, and he said that the Telecom building was adjacent to the Coles/Myer building and that it was a similar project. He said there was a secure lease, with a quality tenant. He referred Mr Landers to the cashflows and spread them out, and pointed out the assumptions that were made in the figures. He said that the CPI assumption was 8.5% per annum and that this was more than reasonable. He said that the rental was fixed for the first 12 months. He referred Mr Landers to the Richard Ellis section and highlighted cl 5.02 which stated

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Mr Gray said that the Richard Ellis investment report supported the projections in the cashflow. He said that the lease and other legal documents would be vetted by a firm of solicitors in Ballarat. Mr Landers told Mr Gray that he thought his client Ron Trengove may be interested in the venture. Mr Gray asked Mr Landers for Mr Trengove's telephone number. Contrary to Mr Landers' normal practice, but bearing in mind the time constraints imposed by reason of the late date in the financial year, Mr Landers gave Mr Gray the number. Mr Landers knew from Mr Trengove's preliminary figures that he was facing a substantial tax liability. Mr Trengove had previously asked him to investigate tax minimisation schemes. By way of investigation, Mr Landers phoned Mr Trengove's bank manager and ascertained that the proposed vendor finance rate of 14 per cent was under bank rates. He looked at a couple of financial magazines such as Business Review Weekly to see about the property market. Otherwise he took no steps to verify independently what was in the brochure and what Mr Gray had told him. He checked the figures in the cashflow for accuracy and logic and the rates of tax and depreciation. He looked at the rent review provision in the lease and saw that the review was to market and that after the 1991 review there was no floor. He conceded that he "missed the significance of it". Mr Landers said in evidence that his assessment of the commercial risk involved in the transaction was "fairly minimal, based on the quality of the tenant, the positioning of the building and the projections that were presented to me". (g) Bird Cameron Melbourne Some time in June Mr Balcam asked Mr Allan Tribe of Bird Cameron Melbourne to look at the Coles Myer investment proposal. Mr Tribe was (and remains) a partner of the firm whose responsibilities included examining proposed tax effective investment proposals. Mr Tribe was given the Gray & Winter brochure. He looked at the brochure and referred it to Mr Ronald Lym, a partner at the Bird Cameron Toorak office. Mr Lym had been putting together a number of property syndicate investments although of a smaller nature. Mr Lym told Mr Tribe that the cash flows were "too tight". As Mr Tribe understood it, this meant that the property had to increase substantially in value in order to maintain borrowing levels and the profit on resale as stated. Mr Lym also pointed out that the project involved a large commitment for each individual partner. Mr Tribe's own views were the same. He thought the gearing was "very, very high", being in excess of the value of the building. He also had "initial scepticism" about the proposal because of "hearsay that I had heard about Gray & Winter" and their involvement in tax minimisation. The involvement of that firm in the project, in his view, "worsened the matter". He agreed with counsel for the applicants in cross-examination that the project was "terribly sensitive" to falls in property values and rentals. Mr Tribe also said in evidence that he came to his adverse conclusion on the investment without considering the state of the Melbourne property market or the lack of a ratchet clause in the lease. Mr Tribe reported back to Mr Balcam with his views and those of Mr Lym. He advised Mr Balcam that Bird Cameron Melbourne should not be interested in the Gray & Winter proposal. Mr Balcam accepted this view. Mr Balcam phoned Mr Swinney in Perth and said that he did not consider the Coles Myer investment a good one and that the Melbourne office would not be involved. I do not accept Mr Balcam's evidence that this conversation was confined to the Telecom proposal. Mr Tribe was given both proposals to look at and he reported to Mr Balcam on Coles Myer as well as Telecom. In turn Mr Balcam must have spoken of both to Mr Swinney. At about the same time Mr Balcam also told Mr Sidoni of Bird Cameron Perth that the Melbourne office was not going into the Coles Myer investment. Also in June Mr Swinney asked Mr Balcam to act as attorney under power for investors in the Coles Myer and Telecom buildings. Shortly after 30 June Mr Balcam told Mr Tribe that the Melbourne office of Bird Cameron was going to be the manager for the partnership. He asked Mr Tribe to attend the office of Gray & Winter to pick up all the documentation. As a consequence Mr Tribe had a meeting on 18 July with Mr James Gray and discussed details of the future management. 9. Gray & Winter and Huntley McArdle & Glass The member of the firm primarily involved with the Coles Myer investment was Mr Robert Glass. He is a chartered accountant and has been in practice advising in relation to taxation and corporate matters for 19 years. He has never been a licensed investment adviser. In about the middle of January 1990 either Mr Garrick Gray or Mr Winter telephoned Mr Glass and asked him whether he might have a client interested in investing in a partnership syndicate they were promoting to purchase the Executive Building in Hobart. As a result Mr Glass met Mr Garrick Gray and Mr Winter in Ballarat on 23 January. They spoke to him about the investment and taxation benefits of the proposal. Amongst other things they showed him the proposed partnership agreement. Mr Glass asked why it was set up as a partnership rather than a unit trust and one or other of the men said that they had received legal advice that the partnership structure was "the most appropriate way to go". Mr Glass informed a client of the Executive Building investment. The client invested and Huntley McArdle & Glass received a fee of approximately $10,000. Mr Glass saw at the time a letter outlining the fees payable by investors including the Huntley McArdle & Glass fee. The client was required to sign the letter. There was some conflict in the evidence as to when Gray & Winter first raised the topic of the Coles Myer building with Huntley McArdle & Glass. It is common ground that there was a telephone discussion between Mr Garrick Gray and Mr Glass on 23 May and that there were two meetings at the Ballarat office of the firm without clients being present. On the first occasion it was just Mr Glass and Mr Gray. On the second occasion they were joined by Mr Don Huntley, a partner of Mr Glass. Mr Glass has these two meetings as occurring on 8 and 9 May, but I am inclined to think they occurred, as Mr Gray says, in late May and early June and after 23 May. Mr Gray did not have an option on the Coles Myer building until about the 17th and until the 22nd or 23rd it appeared that Mr Gray's client Mr Allan Myers QC would be the sole purchaser. Mr Huntley was not called as a witness to corroborate the evidence of Mr Glass as to the date. At any rate, at both the meetings at Ballarat Mr Garrick Gray spoke about a number of aspects of the proposal. He said the proposed Coles Myer investment was "an exciting prospect" as the building had just been renovated and leased to a blue chip tenant. He said that Gray & Winter had an option over the building, that vendor finance was available for a period of three years at interest only, that at the end of the three years the investors would be able to obtain bank finance by providing the security of a first mortgage over the premises, that the acquisition cost would include a fee to Gray & Winter at 7˝% of the purchase price, that the fees for accountants whose clients went into the investment would be paid from and be limited to an allowance of 1.5% of the purchase price, which amounted to a total of $207,000, that by the time of the refinance of the vendor loan, the rent would have gone up at the first rent review by 17%, that Gray & Winter had allowed 17% rental growth every two years after the first rent review, that Gray & Winter had extensive experience in syndicating commercial property on behalf of clients of their own and other people's clients, and that the purchase price of the building was $13.8 million, which Mr Gray had secured after some vigorous negotiation with Hudson Conway. Mr Glass asked whether there was a valuation of the building. Mr Gray said he was not aware of one but that he would get an independent valuation. Mr Glass was aware that Richard Ellis were the vendor's agent when he saw their brochure but he thought that by 25 May they had become independent because an option had been taken which "effectively cut Richard Ellis out of the sale transaction" and that any advice they were giving after that date was independent. Mr Gray said that Gray & Winter were satisfied that $4.6 million had been spent on renovation. There was no mention of a fee payable to Huntley McArdle & Glass except that in the figures shown to Mr Glass an amount of $207,000 had been allowed for accountants' fees. Mr Glass assumed that a fee would be payable on the same basis as it had been for the Executive Building. Mr Gray gave the partners a copy of the Richard Ellis brochure containing details of the Coles Myer and Telecom buildings, a copy of the one page summary and a copy of the Gray & Winter brochure, although the latter, especially in respect of the cashflow, was probably separate from the brochure and not in final form. Subsequently Gray & Winter supplied further copies. In discussing the Coles Myer building generally and giving its details, Mr Gray referred to different parts of the Richard Ellis brochure. He compared the respective rentals for both office space and car parking space for the Coles Myer and Telecom buildings and pointed out the fact that the Coles Myer rental was substantially lower than Telecom. Mr Gray said that the two buildings were comparable and that as the rent was to market the owner of the Coles Myer building could expect a substantial increase in rental at the next review. Mr Gray also said that there was a ceiling on the first rent review of the Coles Myer building of 17%. He said Coles Myer had negotiated for this and therefore the rent could not increase by more than that 17% at the first rent review. He also said that he was absolutely confident that at the first rent review the ceiling would be reached. In relation to the income analysis part of the brochure, Mr Gray also pointed out that despite the fact that the rental of the Telecom building was higher than the Coles Myer building, Richard Ellis were still predicting a growth in the rental of the Telecom building.

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Mr Glass told Mr Garrick Gray that there were a number of clients of Huntley McArdle & Glass who were willing to listen to the proposal. Mr Gray said that Mr Winter and Mr James Gray would attend at the office of Huntley McArdle & Glass to meet the clients. At the second of the two meetings Mr Paul Stephens, a partner of Nevett Ford was present. This was as a result of an earlier request by Mr Garrick Gray to Mr Glass to recommend a local solicitor "to do the conveyancing on behalf of the investors". Mr Glass mentioned Nevett Ford and two other firms. In cross-examination Mr Glass accepted that his firm was retained to give general advice as to the business affairs of the Turners, the Deans and the Gordons, including advising on the prudence of any business investment they were making. Mr Glass did not make any enquiries as to the Coles Myer proposal. He relied entirely on the information provided by Gray & Winter. In June 1990 he believed the Melbourne property market was "holding and rising". 10. Gray & Winter and Nevett Ford Mr Paul Stephens was admitted to practise as a barrister and solicitor of the Supreme Court of Victoria in 1980. He has been a partner of Nevett Ford since 1984. He is an accredited business specialist under the Law Institute of Victoria accreditation scheme. His practice is mainly concerned with small businesses. At the meeting at Huntley McArdle & Glass just referred to Mr Garrick Gray asked Mr Stephens to recommend the project to his clients. Mr Gray gave an outline of the financing of the proposed partnership structure and tax benefits. Mr Gray indicated the budget allowed for a fee "for acting on the conveyancing of the project" of $15,000. At the conclusion Mr Gray asked whether Mr Stephens would recommend the project to his clients. Mr Stephens said that he would not. Mr Stephens said in evidence that his refusal was not because of any reservations about the scheme, but because of time and work pressures at his office and also because his firm did not promote tax schemes. There was a conflict as to whether at this meeting Mr Garrick Gray asked Mr Stephens whether his firm would be prepared to act as solicitors. Mr Gray's evidence is to this effect, but according to Mr Stephens the possibility was not raised until a few days later when Mr James Gray telephoned him. Mr Stephens was aware at the time of the meeting that Mr Gray was seeking access to his clients. Mr Stephens had the impression that he "might get the conveyancing" but he does not believe that the matter was raised expressly by Mr Gray at this stage. I accept Mr Stephens' evidence on this issue. I do not accept Mr Gray's further evidence to the effect that he expressly raised the prospect of Nevett Ford acting as "independent solicitors" giving independent advice to investors or as a "watchdog" for them. In the subsequent telephone call Mr James Gray said that even though Mr Stephens had not been able to introduce anyone, Gray & Winter nevertheless wanted Mr Stephens "to do the conveyancing of the purchase of the building". He repeated that the budget for legal fees of $15,000 could not be increased. He said that Mr Stephens' task "would be to assist his firm with the conveyancing aspects". He said that it would need to be completed by 30 June so that the participants could obtain a full tax benefit and it would be necessary for Mr Stephens to spend a considerable amount of time in Melbourne at Gray & Winter's office to ensure the project was completed on time. Mr Stephens agreed to accept the engagement. Mr Stephens opened a Nevett Ford file in the name of Huntley McArdle & Glass, it then being Mr Stephens' assumption that most, if not all, of the syndicate members were or would be Huntley McArdle & Glass clients. The Nevett Ford clients' ledger card bore the title "Client: Huntley McArdle & Glass, Matter: Property Syndicate". On 13 June Mr Stephens met with Mr James Gray and Mr Glass at Nevett Ford's Ballarat office. Mr Gray said that the transaction was to take place as a terms contract with vendor terms and guarantees. Mr Gray said Gray & Winter had an option expiring on 29 June. Amongst other things Mr Gray said that Mr Garrick Gray was drafting the partnership agreement. Mr Stephens' file note of the meeting includes the phrase "Act on purchase". On about 15 June Mr James Gray telephoned Mr Stephens and confirmed the matter would be proceeding, but by way of transfer and mortgage back. Mr Barry O'Callaghan of Corrs was to be the solicitor for the vendor. Final negotiations were still to take place. There was a further meeting between Mr James Gray, Mr Glass and Mr Stephens on about the 20th or 21st at Gray & Winter's office. Mr Gray said there would be a declaration of trust (the form to be prepared by Gray & Winter) where there was a portion of a partnership share purchased. He said the mortgage default clause required variation so that an incident of default would not be triggered unless three individuals became insolvent. He said the draft partnership agreement would be provided by Monday, including the arrangements for declarations of trust and sub-partnership. As far as the evidence discloses, no such draft was provided prior to settlement. Thereafter, from about the 21st or 22nd, Mr Stephens commenced working out of Gray & Winter's office in Melbourne. He attended the office nearly every day, returning to Ballarat at night, except for one occasion when he stayed at Mr James Gray's home. On commencing work Mr Stephens found that the project was still far from complete, that the partnership was not in place and Gray & Winter were still endeavouring to "put syndicate members in place in the time available". In his witness statement Mr Stephens said

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III THE APPLICANTS INVEST I shall now deal with the accounts given by the applicants of the circumstances in which they came to make their decisions to invest. The critical events were occurring in a number of localities throughout June 1990. Unless the context otherwise indicates, and subject to anything to the contrary elsewhere in these reasons, what I state in the following narrative I have found as facts. I shall not advert to every instance in which there was a conflict of evidence. Generally, I have taken into account the demeanour of the various witnesses, consistency or otherwise with contemporary documents, and inherent probabilities. In some instances a number of applicants attended the same meeting with Gray & Winter representatives. To some extent there will be repetition in the summary I give of their evidence. However it is necessary to look at what was conveyed to each individual applicant so that the factors which influenced their investment decisions can be assessed.

Turner In 1990 Mr Daryl Wayne Turner and his brother Mr Gary Turner were businessmen in Ballarat. Daryl was 31 and his brother nine years older. Since May 1991 Gary Turner has lived in the United States. Daryl has bought out his brother's interest in the businesses. In May 1978 the Turner brothers established the Golden Nugget hot bread kitchen in Ballarat. In November 1988 and April 1989 they acquired the franchises for Wendy's Supa Sundaes ice cream shops in two locations in the town. The hot bread kitchen was operated through a company Turnbros Pty Ltd and another company Garkat Pty Ltd conducted the two Wendy'sfranchises. Another Turner brothers company, Turnbros Investments Pty Ltd, owned some vacant land in Creswick Street, Ballarat and a block of flats, a house and a shop which were rented. The hot bread kitchen and the two Wendy's franchises were successful and by early 1990 the Turner brothers had funds available for other investments. However they had also experienced some business reverses. In 1990 they had set up a doughnut shop which closed down after less than a year. A few years earlier they made an unsuccessful attempt at setting up a hot bread business in Warrnambool. The Turners had experience of commercial leases in that both the hot bread business and the Wendy's franchises were leased, although in the case of the latter Garkat was a sub-lessee of the franchisor. In their experience rentals had never gone down. Their leases usually contained a provision that the rental would increase at intervals by a fixed percentage on the existing rent or to market value, whichever was the greater. Section 10 of the Retail Tenancies Act 1986 (Vic) prohibits ratchet clauses for retail premises (not that the Turners seem to have been aware of this). But the practical effect of that prohibition is somewhat diminished by an express exception that allows rental increases by a fixed percentage or by reference to a specified index, such as an index of prices, costs or wages. Since 1981 Huntley McArdle & Glass had been accountants for the Turner brothers. The firm was originally known as Marriott Glass & Gillett. The brothers usually dealt with Mr Len Gillett, an employee of the firm. In early May 1990 Mr Gillett prepared figures for the brothers' business up to the end of April. He suggested a number of investment proposals including horse breeding syndicates, pine plantations and films, none of which appealed to them. In early June Mr Gillett telephoned Gary and invited him to a meeting that Huntley McArdle & Glass were arranging concerning a proposed property investment. Gary could not attend and Daryl went by himself. The meeting took place on 7 June. There were about a dozen people present including Mr Gillett and Mr Robert Glass, a partner of the firm. At the commencement of the meeting Mr Glass introduced Mr James Gray and Mr Michael Winter. He said they were solicitors from Gray & Winter, a firm of solicitors in Melbourne. Soon afterwards Mr Gray excused himself and left the room. From then on Mr Winter did nearly all the talking. Mr Winter said that Gray & Winter specialised in putting together syndicates or partnerships to purchase commercial real estate. He went through a number of photographs of properties which the firm had syndicated at locations in Tasmania, Western Australia and South Australia. Mr Winter handed out several copies of the Gray & Winter brochure, one of which Daryl Turner took. Mr Winter distributed copies of the one page summary and also a separate photocopy of the cashflow data at the back of the brochure. Mr Winter told the meeting that there would be a syndicate of 20 partners who would purchase the property at 258 Queensberry Street Carlton. He said the property was subject to a 15 year lease to a "quality tenant", Coles Myer. He said the vendor of the property was prepared to provide interest-only finance for a period of three years. Mr Winter then went through the brochure. Daryl Turner followed in the copy in front of him. Mr Winter referred to the photographs, pointing out that the building had been renovated. By reference to the map he said that the building was in an excellent position on the fringe of the Central Business District, that it was an obvious area of the city to expand and there was limited scope for high rise in the CBD. In the future the land alone would be valuable because it would be a good site for a multi-storey office block. Mr Winter went through the property summary and pointed out the expression "Rent review: Two yearly to market". Daryl Turner did not give much thought to what that phrase meant. His experience of leases was that rent never went down. Nothing was said to him to indicate that "rent review to market" meant the rents could fall. He said that the current rental was below the market. In referring to the income analysis in the Tenancy Details part of the Richard Ellis section Mr Winter said that the carparks would go up to market but the rest of the floor space was restricted at the first review. He said that Richard Ellis thought the rent and value would grow. He mentioned that the Telecom building next door had a higher rental. The Coles Myer building's rental was well under what it should be. He pointed out in the Property Summary the purchase price of $14.835 million and said the property was being obtained at a substantial discounted price. He referred to the price of $15.5 million in the Richard Ellis section and said that Gray & Winter had been able to negotiate a far better deal with the vendor who would lend the purchasers "all the price". Mr Winter said that the lease was a 15 year lease with two five year options but he did not take the meeting through any of its terms. Mr Winter spent some time discussing the cashflow documents at the rear of the brochure. He pointed out how rental for the property would rise and how the value of the property would also rise over the years ahead. He pointed out the figures that showed this and handed out photocopies of the spreadsheets. Someone at the meeting asked whether refinancing of the property would be a problem. Mr Winter replied that it would be "no problem". By the time the refinancing was required the property would be worth nearly $20 million and because of its value and security of the tenancy there would be no problem in arranging refinance with any of the major banks. Mr Winter told the meeting that any partner wishing to withdraw from the syndicate prior to the sale of the property in eight years time would be bought out at market value under the provisions of the partnership agreement and that others could buy in. There was no mention of any partner who sold out remaining liable under the terms of the mortgage to the vendor. Mr Winter said that it was likely the partnership would sell the property after about eight years as there would no longer be any taxation benefits. Each partner would then realise about a $700,000 profit. He said that Gray & Winter were attempting to arrange for the syndicate to be made up of Ballarat investors only and that a Ballarat firm of solicitors, Nevett Ford, had been engaged to act on behalf of the partners. During the meeting Mr Winter handed round a copy of a letter from Richard Ellis which he said was an "estimated valuation" by Richard Ellis. This would have been the 31 May letter. Mr Daryl Turner recalled the letter confirmed the value of the property as $14.8 million. He knew Richard Ellis to be a major real estate agent and valuer in Melbourne and their opinion impressed him. At the conclusion of the meeting Mr Glass spoke briefly. He said words to the effect "There it is - plain and straightforward". Daryl Turner took his copy of the brochure home and showed it to Gary who "flicked through" it. Over the next day or two the brothers discussed the proposal between themselves. As a result of a telephone call from Mr Gillett, the two brothers attended a further meeting at the office of Huntley McArdle & Glass on 21 June. Mr Glass, Mr Gillett and Mr James Gray were present. There was some further discussion about the venture. Daryl Turner asked Mr Gray what would happen if the CPI reduced in the future. Mr Gray replied that current forecasts indicated that the CPI would not fall back. He assured them that there was "no way known" that the rent would decrease. He said that if they did not take up the opportunity that day they would probably miss out because he had many more people who were interested, some of whom were taking two shares. He said that both Mr Winter and himself were taking one share each. He said that the Turners could sell their share at any time and that there would be no trouble doing so. There was no mention of any downside risk. In this meeting Mr Gillett told the Turners that Gray & Winter would be receiving a fee of around $1 million to put the deal together. However there was no mention then or at the previous meeting that Huntley McArdle & Glass were to receive a commission if the Turners invested. Daryl Turner said in evidence that if he had known that, he would have not regarded their advice as being independent. He would have wanted independent advice before investing. Mr Glass and Mr Gray left the meeting and discussion continued with Mr Gillett. Mr Gillett said it was their decision as to whether or not they should invest. In the end they decided to do so. They accepted what Mr Winter and Mr Gray had said about the investment and also were conscious that they would miss out on the investment. They signed an application for finance. Mr Gillett said that this was required to demonstrate they had sufficient assets and would be able to pay the contributions to the partnership. They also handed over a cheque for $40,300. On either 27 or 28 June, having been phoned by Huntley McArdle & Glass, the Turners went to the firm's offices to sign documentation. They arrived at about 6.00 p.m. Mr Glass had laid out a number of documents on his desk. He said that he would have to have the documents signed and out of his office within a very short time in order to get them to Melbourne urgently. Daryl Turner recalls that one of the documents signed was a power of attorney, there were also minutes of meetings of directors in relation to the Turners' two companies and another couple of documents which he is not able to recall. It appears from the evidence that the documents signed on that occasion were powers of attorney by the Turners personally and by Turnbros and Garkat, minutes of directors' meetings of the two companies and certificates under s 230(8) of the Companies Code. Daryl Turner said in evidence

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Until that time the brothers did not realise that Turnbros would be involved at all. Neither did they appreciate that they would be required to guarantee the performance of Garkat, the company that was taking up the share. Daryl Turner was reluctant to sign these documents. Mr Glass said that their financial position required Turnbros to be involved and for personal guarantees to be given. He said that it was normal investment procedure and that it was all in order. Daryl Turner apparently signed the Gray & Winter instruction letter but has no recollection of doing so. In July the Turner brothers signed the second Gray & Winter instruction letter at the office of Huntley McArdle & Glass. Daryl says that he did not read the letter in any detail but did recall seeing a reference to "Ballarat $10,350" and thought that that was the fee that Huntley McArdle & Glass were getting for the use of their office for the presentation and thought that was "pretty good going". He mentioned this some weeks later to his brother. Gary said "Rubbish, they got $60,000 ". Daryl Turner says that he could not see what the firm had done to earn that amount, but he did not see any point in raising the matter. He thought it was too late to do anything about it. In about July or August 1990 at the office of Huntley McArdle & Glass Mr Daryl Turner was handed a copy of the Nevett Ford letter of 29 June. He remembers the letter because he noticed his initials at the bottom were wrong. He does not believe that he read the letter. If he had read the part which said that their liability was not limited to their share he would have asked Mr Gillett or Mr Glass about it. Neither of them had brought those words to his attention. Some months after June 1990, at the offices of Huntley McArdle & Glass, Mr Daryl Turner was given a copy of the mortgage. He noticed a paragraph at the end of it dealing with Michael Terrey which stood out because it was on a separate piece of paper which appeared to be stuck on top of the original document. He tried to read it quickly but did not understand it. He asked Mr Glass about it. In substance Mr Glass said that the clause had been put in because Terrey's financial position was different to the other partners. Mr Turner did not realise there was anything to worry about or that it affected him. In May 1991 Gary Turner was about to go to the United States to live. The brothers had arranged that Daryl would buy Gary out of their business. Daryl went to his bank manager at the Commonwealth Bank in Ballarat to obtain a loan. At the manager's request he arranged for Huntley McArdle & Glass to send all documents concerning his income, assets and liabilities. The manager then told him of his liability in connection with the Coles Myer partnership. He explained that the liability was joint and several and that meant that Daryl was liable for the whole loan. Because of this the bank would not lend him any more money. Daryl Turner was shocked. The manager advised him to see a solicitor. He saw a solicitor the next day who advised him that he could not get out of the loan. He suggested that Mr Turner keep in close touch with what was going on at the partnership. Not long afterwards a vacancy arose on the management committee and Daryl Turner volunteered. The committee met at least once a month. Ms Virginia Wood of Bird Cameron was the manager. She looked after the day to day running of the building and paid the bills. She would keep the partners informed of matters in connection with the building such as the servicing of the lifts. But during the time Daryl Turner was on the committee any decision that affected the partners was made by a general meeting of the partners. The committee was much concerned with attempts to refinance the loan. By 1993 Daryl Turner came to the conclusion that it would not be possible to arrange refinance without the partners all putting in a large amount of money. At one stage the committee got a valuation of the building of about $6 million. Daryl Turner said in evidence that if he had been advised there was a risk that rental could have fallen and the contributions might be substantially more than those set out in the one page summary, he would not have gone into the investment. Similarly, if he had known there was a risk that there would be a substantial shortfall to be made up by the partners when the property was refinanced in June 1993 he would not have gone into the investment. If he had known that the senior partner of Gray & Winter had convictions under the Companies Code and had been barred from acting as a company director as a consequence of a number of companies in which he had been involved going into liquidation, he would not have invested in the scheme. Daryl Turner believed that Huntley McArdle & Glass would not have been arranging for an investment scheme to be put before its clients unless all the people behind the scheme were of good reputation and reliable. At the time he entered into the investment he believed that had he and his brother elected at any stage to sell out their share they would be able to do so and that the result would be they would have no liabilities in relation to the property whatsoever. Had he known that the property was worth less than the purchase price paid by the partnership he would not have invested in it. If he had known that Huntley McArdle & Glass had not made any proper assessment of the risks and benefits of the scheme he would not have invested in it. He did not seek legal advice about the scheme. Mr Winter had told the first meeting that Nevett Ford would be acting for the partners. He was aware that Nevett Ford were a well known and reputable legal firm. He assumed they would provide all necessary advice. Gary Turner gave evidence which was consistent with that of Daryl. Garkat has made payments totalling $152,840. 2. Gordon Dr Henry Arnold Gordon is a medical practitioner in Ballarat. In 1990 he was aged 60 and his wife Mrs Phyllis Caroline Gordon was about nine years younger. For some years Dr Gordon was a member of a large partnership practice consisting of about nine doctors. Since the early 1980s he has operated a sole practice, except for a period of about two years when he had one partner. Mrs Gordon attends to the management of the practice, although she has no formal training in accounting or book-keeping. The practice is conducted through a company Bredtar Pty Ltd which leases a surgery at 603 Maie Street, Ballarat from another company Fourth Varona Pty Ltd. Both companies are owned and controlled by Dr and Mrs Gordon. Fourth Varona has borrowed money from the ANZ Bank secured by mortgage over the surgery. Dr and Mrs Gordon have guaranteed the mortgage. They own their home at 103 Fiskin Road, Mount Helen. They also own two residential properties in Ballarat which are rented through an estate agent. For a number of years prior to 1990, Mr Robert Glass of Huntley McArdle & Glass had been the Gordons' accountant. He had prepared their annual tax returns and given general advice about taxation matters. Mr Glass was a personal friend. In the late 1970s, on the recommendation of Mr Glass, Dr Gordon invested in a flower growing scheme. At about the same time he invested in a cotton production project which he believed had some recommendation by the Australian Medical Association. Both required a capital investment of about $10,000 and both failed. Dr Gordon said in evidence that as a consequence of those two earlier experiences by 1990 he was conscious of the fact that tax advantageous investments are not always sound and he was not interested in any investment which was not a secure one. In early June 1990 Mr Glass telephoned Dr Gordon and invited him to attend a meeting at the Huntley McArdle & Glass office with regard to an investment opportunity. Mr Glass said the meeting would be addressed by a representative of Gray & Winter who were a firm of solicitors specialising in investment in commercial properties. The meeting took place shortly afterwards, Dr Gordon thinks on 7 June. In any event it was the same meeting that was attended by Daryl Turner and the Deans. Mr Glass introduced Mr James Gray and Mr Michael Winter saying they were from the Melbourne solicitors Gray & Winter. Dr Gordon stayed at the meeting for about 45 minutes and then had to leave. Mr Winter told the meeting that his firm was putting together a partnership to buy a property at 258 Queensberry Street, Carlton. He handed out copies of the Gray & Winter brochure and the one page summary. Dr Gordon kept a copy of both documents. Mr Winter went through the brochure starting with the photographs at the front and pointed out the locality by reference to the map. He said that the price was $14.835 million and that the property was leased to Coles Myer. He went through the Richard Ellis section of the brochure pointing out that the present rental received by the property was less than the market level and there would be growth in both rental and capital value. At the meeting Dr Gordon was listening to Mr Winter rather than reading the brochure, although from time to time he looked down to follow Mr Winter. Mr Winter referred to a page which set out details of the property, the tenant and the lease. He specifically pointed out the first two pages of the cashflow spreadsheet. He spent more time on the second page. He pointed out the figures in relation to rent and value of the building. He said that the building could be worth around $30 million in 15 years or so. Dr Gordon tried to follow the figures in the cashflow, but found it difficult. He said in evidence:

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Dr Gordon conceded in cross-examination that he understood Mr Winter was giving his opinion as to what was likely to happen in the future. Mr Winter said that it was an excellent time to buy as commercial property prices had "bottomed" and were likely to rise. He said that the property had a long lease for 15 years, plus options, to a nationally known tenant. The rental of the property would increase over the years with an accompanying increase in the value of the property. He said that the property was situated in the only area in Melbourne where further growth was likely to occur, thereby increasing the value of the building. Dr Gordon had no knowledge of the Melbourne commercial property market and accepted what Mr Winter said. Mr Winter said that a partnership consisting of 20 shares was being put together with each partner being required to invest an initial $40,500. The offer was only open until 30 June. Mr Winter said that the balance of the payments required were being made available through vendor finance. He said the building would have to be refinanced after three years but this "would not be a problem". The property was likely to be sold after approximately eight years at a substantial profit. Mr Winter said that his firm Gray & Winter were receiving a commission of approximately 7% in relation to the sale. Dr Gordon assumed that this commission was being paid by the vendor as was normal business practice in relation to the sale of such properties. Mr Winter had a folder with a number of photographs of properties which he said his firm had previously syndicated. Mr Glass was present throughout the meeting but did not make any specific contribution. He did not appear to disagree with or qualify anything Mr Winter was saying. During a break in the meeting Dr Gordon spoke to Mr Winter and explained to him that he was interested in participating but believed the initial investment of $40,500 and the contribution required in future were more than he wanted to be responsible for. Mr Winter said it was possible for him to take a half share. Dr Gordon left the meeting and took a copy of the brochure home. He read some of the brochure but did not attempt to read the lease or the cashflow. A few days later Dr Gordon spoke with Mr Glass at the latter's office. By this stage he was interested but wanted to know what Mr Glass thought prior to making any firm decision. In particular Dr Gordon wanted the view of Mr Glass as to how secure the investment was. By this stage Dr Gordon was aware from reading the brochure that the mortgage would be $16.265 million. There is some dispute as to what took place at this second meeting. Dr Gordon said in evidence that Mr Glass told him that he thought the investment was totally secure and that the Gordons could not possibly lose out on it. I do not think Mr Glass literally said this. However Mr Glass conceded in his evidence that he said to Dr Gordon that he believed the investment was a "sound investment" and that of the many tax effective investment schemes around, he thought this was more secure because the investment was in real estate with a secure and impressive tenant. I am satisfied that Mr Glass at least said this and that he clearly gave to his client Dr Gordon his firm opinion that the investment was sound - which necessarily conveyed the meaning that the investment was a prudent one for someone in Dr Gordon's position. Dr Gordon again repeated what he had told Mr Winter at the meeting, that is to say that the initial investment of $40,500 and continuing contributions in the one page summary were more than he wanted to be responsible for. He also said that at his age he did not want to be in a project that was going to be of at least eight years duration. He said to Mr Glass he was concerned that his income could fall as the years went by as he might become ill, or unable to work, or die. Mr Glass confirmed that he could take less than a full share, thus reducing the financial commitment. Mr Glass said that he could leave the partnership after four years if he decided to and that he would make a substantial profit by that time. The profit could be between $75,000 and $100,000. He said that the investment was a secure one and that Gray & Winter had set up a number of other successful ventures of a similar nature. He said that the Gordons would be likely to have taxation problems in the future because they had successfully reduced their debt and would therefore not be able to deduct interest payments or distribute income to their children, who now had their own earning capacity. Mr Glass said that investing in the Coles Myer property would result in significant taxation deductions. Dr Gordon asked Mr Glass whether he thought any further opinion was required concerning the value of the building. Mr Glass said that Richard Ellis had looked at it and that was good enough for him. Dr Gordon was aware that Richard Ellis was a major real estate agent and valuer in Melbourne and was satisfied that they had confirmed the value of the property. (Dr Gordon had no recolletion of seeing the Richard Ellis 31 May letter at the first meeting.) Mr Glass also said that Nevett Ford were acting on behalf of the partners in relation to the purchase of the property. Nevett Ford had been Dr Gordon's own solicitors for many years. He usually dealt with the senior partner, Mr Peter Wilson. He said in evidence that he was "pleased and reassured that Nevett Ford were involved and were acting for him". He did not see any need to specifically consult Nevett Ford about the investment or any aspect of it. He did not expect advice from Nevett Ford unless there was something about the investment that he should know. Dr Gordon said in evidence that he trusted Mr Glass completely and respected his judgment. Mr Glass appeared to him to be familiar with all aspects of the investment. It seemed to Dr Gordon that the only real risk associated with the investment was if the tenant were to go broke. As the tenant was Coles Myer that possibility was extremely remote. At the end of this second meeting he told Mr Glass that he and his wife would take a half share between them. On 20 June Dr Gordon signed an application for finance. On 27 or 28 June Dr and Mrs Gordon went at the request of Huntley McArdle & Glass to their office and signed powers of attorney. Mr Glass said there were a large number of people involved and that it was easier to have one person sign all the documents necessary on behalf of the various partners. Dr and Mrs Gordon signed copies of the Gray & Winter instruction letter. He did not read the documents. Dr Gordon signed a declaration of trust by which he declared that he held the share on trust for himself and his wife as to one quarter share each and Mr Glass as to one half share. He had no recollection of learning until some time later that Mr Glass was an investor. Dr Gordon does recall Mr Glass advising him and his wife that their companies Bredtar and Fifth Varona would be required to guarantee their obligations under the partnership. A day or two later Dr and Mrs Gordon went at the request of Huntley McArdle & Glass to the offices of Gray & Winter in Melbourne to sign some further documents. They there signed powers of attorney, minutes of directors' meetings and s 230(8) certificates relating to Bredtar and Fifth Varona. There was little discussion at that time. In early July the Gordons signed the second Gray & Winter instruction letter. Mr Glass never suggested that Dr Gordon should obtain independent legal, investment or valuation advice in relation to the property or the partnership. Dr Gordon was not aware that Huntley McArdle & Glass were receiving commission in respect of any client they introduced into the scheme. Had Dr Gordon been aware of that he would not have been so reassured by the recommendations of Mr Glass. He would at least have obtained some independent advice before proceeding. Had he known that Huntley McArdle & Glass had not made a proper assessment of the potential risks of the investment he would not have even considered it. If he had known that the senior partner of Gray & Winter had been prosecuted under the provisions of the Companies Code and been barred from practising as a company director as a result of numerous failed enterprises, he would not have considered investing in the property. Had he known that the vendor of the building was prepared to sell it at $13.8 million and that in order to participate in the scheme he was in fact paying in excess of $1 million to Gray & Winter he would not have entered into the scheme. If he had known that the true value of the building was less than $14.8 million he would not have entered into the scheme. Had he known that contributions in respect of his one share could be substantially more than the contributions set out in the summary, he would not have agreed to enter into the scheme. Dr Gordon and his wife have paid $76,495. 3. Dean William Stanley (Stan) Dean and his twin brother Harold Francis (Frank) Dean are aged 65. Together with their respective wives Nancy and Kathleen they have been farmers in the Ballarat area all their lives. The brothers' formal education concluded after two years of secondary school. They have bought and sold rural properties but otherwise had no commercial experience prior to 1990. Their farming operations were carried on by a company W S & H F Dean Pty Ltd (the Dean company) which was the trustee of a unit trust. Units in that trust were held by two other companies, Lonihire Pty Ltd and Bactbuild Pty Ltd, on behalf of the Stan Dean Family Trust and the Frank Dean Family Trust respectively. For many years the Dean family had consulted Mr Robert Glass of Huntley McArdle & Glass at Ballarat in relation to their taxation and financial affairs. It was he who advised the establishment of the company and trust structure just mentioned. They had not however sought the advice of Mr Glass as to the purchase or sale of farming properties. In May 1986 the Dean company bought a farming property called "Hawkesburn" for $1.3 million. In July 1989 Hawkesburn was sold for $2.4 million on a terms contract under which $1 million was left owing over three years. Out of the cash proceeds received the Deans bought another farming property and a house in the Ballarat suburb of Wendouree for occupation by Frank and Kathleen. The sum of $250,000 was invested in AGC debentures which were to mature in April 1991. Thus for the 1990 tax year the Deans were facing a substantial capital gains tax liability, although the funds with AGC were earmarked for that purpose. In early June 1990 Mr Glass telephoned Nancy Dean. He said that he would like to see Stan and Frank to discuss an investment proposition. He said that the partnership faced some significant capital gains tax payments later in the year and that the investment was relevant to that. He said that he had organised a meeting to which others had been invited. Nancy Dean passed on the invitation and her husband and Frank attended a meeting at the office of Huntley McArdle & Glass a few days later. There were a number of people present. This was the same meeting that Daryl Turner and Dr Gordon attended. The meeting commenced by Mr Glass introducing Mr Michael Winter and Mr James Gray. He said they were solicitors from the firm of Gray & Winter in Melbourne who were putting together a partnership to buy a commercial building. Mr James Gray did not stay long at the meeting and most of the talking was done by Mr Winter. Mr Winter handed out a number of copies of the Gray & Winter brochure and of the one page summary. Stan and Frank took a copy of each. Mr Winter told the meeting that his firm was putting together a partnership to purchase the property at 258 Queensberry Street, Carlton. He said that it would cost each partner an initial amount of approximately $40,000 and that there were to be contributions to be made in the following years as set out in the one page summary. Mr Winter then went through the brochure pointing out various features. They did not attempt to follow what Mr Winter was saying by reading the brochure. They relied on what they were told rather than what they read. Moreover Frank had forgotten to take his reading glasses with him. However there was one document the brothers did note. While discussing the purchase price of $14.835 million Mr Winter handed around a copy of a letter from Richard Ellis which would seem to have been the 31 May letter. Mr Winter said that Richard Ellis was one of the leading valuers in Melbourne. The brothers noted that the letter said the value of the building was about $14.8 million. Mr Winter said that in fact the building was worth more than the price the partnership was paying and the partnership would be getting an excellent buy. Mr Winter said that the rental of the building was bound to rise as it was low in comparison with the of other comparable properties and in particular the Telecom building next door. He said, in referring to the cashflow sheets, that the rental would rise and the value of the building would also rise. Mr Winter said that the building would be purchased with vendor finance which would have to be repaid after three years. He said that the refinancing would not be a problem because the rental for the building would rise. Mr Winter said the building was an excellent buy and a very good investment with taxation benefits and good capital gain. Mr Glass was present throughout the meeting. There was no mention by Mr Glass or Mr Winter of any risks involved with the investment. Frank Dean left the meeting before it concluded as he had to go to the dentist. Both brothers took their copies of the brochure home and discussed it with their wives. The Deans did not read the brochures in any detail. Frank said that they "kept flipping over to see what was in it" and did not understand the cashflows. Stan accepted in cross-examination that, after looking at the photographs and the map, he "quickly gave up the task as being beyond (him)." It is reasonabnle to infer that the Deans were unfamiliar with documents of this nature. Within two or three days, at the instigation of Mr Glass, the two brothers and their wives went to Huntley McArdle & Glass where they had a meeting with Mr Glass. Somewhat to their surprise, Mr James Gray was also present. Mr Gray and Mr Glass said that it was an excellent investment opportunity involving tax benefits and capital gain. Mr Glass said in evidence that although he could not recall precisely the words he used, he believed that he told the Deans in effect that the investment was a sound one and a more secure form of investment than other tax schemes as it was in bricks and mortar. Mr Glass raised the suggestion of getting some expert advice about the taxation aspects of the investment. A barrister's opinion was subsequently obtained. The Deans denied in evidence that any such advice was discussed, but I find that it was. Mr Glass said there was little point in the Deans only taking one share as they would obtain little tax relief. He suggested that the family take up four shares. The Deans queried whether they could manage the payments associated with four shares. Mr Glass said that it would be necessary for the Deans to have the ability to sell at least two shares within two years of acquiring those shares. This he said would give them the full tax benefit of the four shares for the present financial year in which they had realised their substantial capital gain, but would also allow them to relieve themselves of the burden of holding such shares for a period of eight years. Mr Gray said that if for any reason they wanted to sell out Gray & Winter would buy back two shares at a price equal to what had been paid plus 5 per cent. Throughout the meeting Mr Glass was, according to Kathleen Dean, "nodding his head and agreeing with everything Mr Gray said". Mr Glass apparently did not advert to the need to obtain a discharge from the vendor/mortgagee if the Deans were to be free of liability for any shares they disposed of. On 12 June the Deans attended a furhter meeting with Mr Glass and Mr James Gray. There was further discussion concerning the buy back proposal. Mr Gray said he would provide a letter confirming the agreement of Gray & Winter to buy back two shares within two years if the Deans so desired. Not long after this second meeting the Deans made a decision to take four shares and communicated it to Mr Glass. In the meantime, the Deans made arrangements to borrow $140,000 by way of bridging finance pending maturity of their AGC debentures. This finance was arranged through Nevett Ford from other clients of the firm, Colin and Olwyn Crompton, who advanced $90,000, and the H D Black Charitable Trust, which advanced the balance. A loan agreement was prepared with the Dean company as the borrower and the four Deans as guarantors. On 21 June the Dean brothers and their wives attended the office of Huntley McArdle & Glass. Frank Dean suggested to Mr Glass that they take documents to Nevett Ford so that firm could have them "checked out" before the Deans signed. Nevett Ford and predecessors of that firm had been solicitors for the Deans for more than 40 years and for their family before that. Mr Glass raised no objection so the Deans went off to the offices of Nevett Ford a few blocks away. Their version of what happened thereafter is as follows. They did not have an appointment but Frank Dean asked to see Mr Peter Wilson, who was the senior partner of the firm, and the one with whom the Deans usually dealt. While they were in the waiting area Mr Wilson came out to see them. Frank Dean explained to him that he wanted Mr Wilson to check the documents to see if it was appropriate for them to sign. Mr Wilson said that he was familiar with the Coles Myer partnership arrangements. He took the documents and went away. The Deans remained in the waiting area. Later Mr Wilson returned together with Mr Paul Stephens. Mr Wilson said that the documents were in order, that they should go ahead and sign them. Mr Wilson in evidence denied giving any advice to the Deans. He pointed to circumstances which made the Deans' version unlikely. They were important clients of the firm and would not have been left in the waiting area. They would have been shown to an interview room and a file opened. In any case, Mr Wilson would have referred them to Mr Stephens, who was familiar with the transaction. Moreover, the documents which the Deans had to sign to commit themselves to the Coles Myer investment - the powers of attorney - were not in existence on the 21st. I find that the documents the Deans took to Nevett Ford related to their borrowings from the Cromptons and the Black trust. The seal register at Huntley McArdle & Glass shows that the company seal in the Dean company was taken out on that day, but not the seals of Bactbuild or Lonihire. These companies were parties to the Coles Myer investment but the Dean company was not. I am not satisfied that the meeting took place with Mr Wilson as the Deans described it. It is conceivable that there was some brief encounter at Nevett Ford's office in which passing reference was made by Mr Wilson to the investment. But the Deans' version is one of a specific request for legal advice on documents directly concerning the Coles Myer investment, the acceptance of such a request and the giving of considered advice. I am not satisfied this occurred. Also on 21 June Mr Glass received from Gray & Winter a draft of a letter confirming the buy back proposal in respect of two shares. The draft letter stipulated that the recipients were to offer their partnership share to other partners through the Management Committee and if a sale was not effected, then on 90 days notice Gray & Winter or their nominee would purchase two partnership shares, "at the value determined pursuant to the formula set out in the partnership agreement plus 5%". An original of this letter, addressed to the Deans C/- Huntley McArdle & Glass, dated 21 June and signed by Mr Garrick Gray, was shortly afterwards handed by Mr Glass to Mrs Kathleen Dean. I do not accept the Deans' evidence that this letter was not received until October 1990. Also on 21 June the Deans signed an application for finance which was verified by Mr Glass. Mr Glass also arranged for the following documents to be signed by the Deans 27 June - Gray & Winter instruction letter - Powers of Attorney and minutes of directors' meetings of Lonihire and Bactbuild 29 June - Further copy of Gray & Winter instruction letter and s 230(8) certificate Early July - Second Gray & Winter instruction letter.

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They did not read the documents. The Deans did not know that Huntley McArdle & Glass were to receive a commission in respect of each investor. If they had known that they would not have had the same respect for Mr Glass' enthusiasm and would have sought independent advice. They assumed that Huntley McArdle & Glass had made a thorough and independent assessment of the investment including all risks. They did not know that Gray & Winter were to receive a commission of more than $1 million. If they had known that they would have viewed Mr Winter's enthusiasm with some suspicion and sought independent advice. If they had known that the senior partner of Gray & Winter had convictions under the Companies Code and had been barred from acting as a company director as a consequence of the number of companies within which he had been involved going into liquidation, they would not have attended the meeting and would not have invested in the property. The Stan Dean interests have paid $294,590 and the Frank Dean interests the same amount. 4. Phelps The brothers Gavin, Ivan and Clifford Phelps are farmers near Cummins in South Australia. Cummins is on the Eyre Peninsula, 60 kilometres north of Port Lincoln and 670 kilometres west of Adelaide by road. In 1990 the Phelps brothers were in their mid to late 40s. Each of them had completed year 10 at school and worked ever since in the family farming business. They operated ten separate properties, running sheep and cattle together with wheat and some other crops. The business was operated by a partnership W R Phelps & Son. The partners were the three brothers, their respective wives and Ackina Pty Ltd, a company which was trustee of the Phelps Bros Unit Trust. For as long as the brothers can remember their accountancy work had been done by the office of Bird Cameron in Port Lincoln and its predecessors C P Bird & Associates and J K Ladyman. From about November 1989 the accountant at Bird Cameron the brothers dealt with was Mr Daryl Lynch. The brothers relied upon Bird Cameron to advise them on nearly all their business and financial activities. The partnership and trust arrangements were as suggested and implemented by the firm. From time to time Bird Cameron had advised them to consider off farm investments so they would not be totally dependent on farming. On 14 June 1990 the brothers had a meeting at the Port Lincoln office of Bird Cameron with Mr Lynch and a Mr David Fricker who said that he was part of the financial planning group of Bird Cameron. Mr Fricker spoke about various investment possibilities. He handed them a letter dated 13 June 1990 addressed to Mr Ivan Phelps and signed by Mr Fricker on behalf of Birds Financial Planning Services Ltd. The letter was headed "Negative Gearing for Phelps Brothers". It set out a proposal for investing $50,000 in each of five funds. Of the total amount $120,000 was to come from the Phelps' own money and $130,000 was to be borrowed. There was a table which included a column headed "Upfront Fees" totalling $13,750 and another column headed "Our Fee (incl. in Upfront Fee)" totalling $11,000. It was stated: The above returns are estimations and actual income and growth cannot be guaranteed.

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Mr Fricker discussed the investments referred to in his letter. When he had finished, Mr Lynch said that he had something which was "a hell of a lot better deal" for the Phelps brothers. Soon after this Fricker left the room. Mr Lynch said that there was an investment opportunity in commercial property in Melbourne, a building occupied by Coles Myer. It was, he said, an excellent investment opportunity with taxation benefits. Mr Lynch said that he did not have all the information at the time but would contact them shortly. Mr Lynch said in evidence that he had no recollection of the Fricker meeting, but I accept the Phelps' evidence as to this. The next morning Mr Lynch telephoned Gavin Phelps and said that the solicitor from Melbourne who was putting together the partnership to buy the building in Melbourne was in Port Lincoln and wanted to come out to see them. Gavin agreed to this and said that he would arrange for his two brothers to be at his home later that morning. As it turned out, Clifford was not available. Later that morning Mr Lynch and Mr Garrick Gray went to Gavin Phelps' home. Mr Lynch introduced Mr Gray to Gavin and Ivan as a solicitor from Melbourne who specialised in commercial property transactions. Mr Gray said that he had advised many persons in relation to investment in real estate, including barristers and judges and other senior legal people. Mr Gray said that he was putting together a partnership to purchase a property at 258 Queensberry Street, Carlton. He said there would be 20 shares in the partnership and it would cost $40,500 initially to invest in the property. Various contributions would be required over future years. He produced a copy of the Gray & Winter brochure. He said that the price was $14.835 million and was an excellent buy at that price and that buyers would be getting the property "for a song". He said that he had taken an option on the building. Mr Gray went through the brochure. The way in which he used it emerges from the cross-examination of Ivan Phelps:

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Mr Gray showed them the Richard Ellis section. He pointed out those parts of the brochure which stated that the rental being received was low compared with comparable properties. He said that the property would rise and that as the rental grew the value of the property would rise. He said the property was in an excellent position. The Central Business District of Melbourne was basically full, South Melbourne was filling up fast and Carlton would be the next area to take off. He said there was no question that the property would increase in value and the prices for commercial property in Melbourne had hit "rock bottom" and were now on the way up. The property had been recently refurbished and the purchasers would not need to spend much money on it in the foreseeable future. Mr Gray said to the brothers that rent reviews would be to market. I find they understood that concept to mean that the rent would be fixed by reference to the market demand for rental at the time of review, that is to say, what tenants were prepared to pay. Gavin conceded in cross-examination that the rent would go up to the rent being paid for comparable buildings nearby. Mr Gray said that the building was being purchased by way of vendor finance for three years at the expiration of which it would be refinanced. By that stage, he said, the value of the building would be worth much more and there would be no problems in refinancing. Mr Gray said that it was likely that the partnership would sell the property after about eight years at which time the lease would still have six or seven years to run and would appeal to a purchaser. But he said there would be no problems if the Phelps wished to sell their share in the property before that. Mr Gray turned to the cashflow spreadsheets at the rear of the brochure and demonstrated how the rental for the building would rise and the value would increase. He gave the brothers a copy of the one page summary showing the payments that each partner in the property would be required to make over the years that followed. Ivan Phelps has a recollection of Mr Gray stating that he would be receiving a sum of approximately $1 million for selling the building. Mr Phelps thought this sounded like a large amount of money, but that it must be normal business practice for this type of transaction. Mr Gray did not say that the purchasers would be paying it. Mr Gray said that the smaller superannuation funds in Melbourne would "snap up" the building but he wanted to give the opportunity to the "little people of Australia" and the people who lived outside the big cities. Mr Gray said that after about eight years investors would receive a profit of about $750,000 per partnership share. Oddly enough this was not the first venture for the Phelps brothers which involved Mr Gray. Some years earlier they had lost about $16,000 in a supposedly tax-effective investment when the Taxation Commissioner disallowed their claimed deductions. Ivan Phelps raised this at the meeting. Mr Gray said that the courts had ruled in favour of the scheme and against the Commissioner. He said the Phelps brothers should have also challenged the Commissioner's ruling and not paid the tax. In his evidence Gavin Phelps said

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Mr Lynch was present throughout the meeting. At no stage did he say anything to contradict or qualify what Mr Gray was saying. The brothers assumed that Mr Lynch had checked out the investment and did not have any doubts as to what Mr Gray was saying. They believed that if this were not the case, Mr Lynch would not have arranged for Mr Gray to speak to them. The meeting concluded on the basis that Ivan and Gavin Phelps would think about the matter and discuss it with Cliff. Mr Lynch said that they would have to make a decision quickly as shares in the partnership were filling up fast. A second meeting occurred when the three brothers went to Port Lincoln and met Mr Lynch at the Bird Cameron office. The brothers said in evidence that this happened on Monday the 18th but Mr Lynch's worksheets show that he left for Millicent on the 17th and did not return until the 23rd. I conclude therefore that the brothers are mistaken and that the meeting occurred later than they say and after Mr Lynch's return. Nevertheless Mr Lynch accepted that such a meeting occurred and, apart from the date, and one other matter, I accept the brothers' account of what was said. Mr Lynch went over the investment proposal in some detail and said what a good buy the building was. He said that Bird Cameron "legal eagles" had vetted the investment and that it was all in order. The brothers said Mr Lynch referred to the Bird Cameron "legal eagles", but I am not satisfied this expression was used. He said that unless it was in order it would not have been allowed to have been distributed to Bird Cameron branches. He said that he had looked into the investment but also that "brighter boys" than him have looked at it. The Phelps brothers had confidence in Bird Cameron as a firm that had offices all around Australia. Mr Lynch said that he did not have sufficient funds to participate in the investment but if he had the money he would have certainly invested. Cliff Phelps was initially not impressed. At one stage he said that they should "just pay the bloody tax and be done with it". Mr Lynch gave what was described in Ivan's evidence as "a scoffing laugh". According to Cliff, Mr Lynch said that there were no risks associated with the investment and they should proceed. Mr Lynch's version was that he said the scheme was a good investment but pointed out that there was naturally some minimal amount of risk. I am not satisfied that Mr Lynch said literally that there was no risk. But he was clearly very enthusiastic about the scheme and I conclude that he managed to persuade Cliff that any risk was sufficiently small to be disregarded. In any event, Cliff eventually agreed. Mr Lynch said that he would be on the management committee and would be able to look after their interests. At no stage at any of the meetings was anything said by Mr Gray or Mr Lynch about any risks associated with the investment. At one stage one of the brothers asked Mr Lynch what would happen if someone dropped out of the partnership. Mr Lynch said "You would probably want to buy their share". He said there would be no problem finding a buyer. The brothers decided at the second meeting to take a share in the investment. An initial payment of $40,500 was paid at Mr Lynch's request by telegraphic transfer on 27 June out of the W R Phelps & Son account directly to the account of Nevett Ford in Ballarat. The brothers took up their share in the name of their company Ackina, the trustee of their family trust. None of the brothers have any clear recollection of the circumstances in which they signed the subsequent documents. It would appear that on 29 June they signed personal powers of attorney and a power of attorney and minutes of directors meeting for Ackina. Ivan Phelps can recall signing the Gray & Winter instruction letter and wondering why the letter stated that Gray & Winter had not canvassed the investment with him, when obviously Mr Garrick Gray had. However he did not query this. Otherwise they did not read the documents. If the brothers had known that Mr Garrick Gray had convictions under the Companies Code or that he was banned from being a director of a company as a result of a number of companies with which he had been associated going into liquidation they would not have invested in the scheme. At the time that the brothers committed themselves to the investment and paid the initial amount they were not aware that Bird Cameron were receiving any commission. Mr Lynch said that when Mr Gray was discussing the cashflow he referred to the figure of $207,000 as being "for accountants" but Mr Lynch conceded that there no explanation to the Phelps brothers that this meant Bird Cameron would receive $10,350 for each client who invested in the scheme. Had they known this they would not have invested. When Mr Ivan Phelps received in July a letter from Bird Cameron requesting that the brothers sign and return the second Gray & Winter instruction letter he noted that it was similar to the earlier letter but made specific reference to Bird Cameron at Port Lincoln receiving a considerable amount of money. He spoke to Mr Lynch about it. Mr Lynch "appeared embarrassed" and said that it was for Bird Cameron's accountancy fees. Mr Ivan Cameron believed that Gray & Winter were acting as solicitors for the partnership generally. He relied on them to give all relevant legal advice. The Phelps brothers did not have solicitors as such. When they went into any financial arrangements or purchased property they consulted Bird Cameron and they believed in the present instance that they arranged for whatever legal work needed to be done. Because of the land broker system in South Australia persons buying, selling or mortgaging real property need not necessarily come into contact with solicitors. The brothers say that if they had known the property was worth less than the partnership paid for it, they would not have invested. Nor would they have invested if they had known that Bird Cameron had not made any proper assessment of the potential risks and benefits of the investment. Ackina has paid $152,990. 5. Arthurson Dr John Paul Gerrard Arthurson carries on practice in a medical partnership in Port Lincoln. He and his wife Mrs Suzanne Arthurson are now aged 44 and 41 respectively. They have three children aged between 13 and 6 years. Dr Arthurson graduated in medicine in 1975 from the University of Adelaide. After some work in Adelaide and the United Kingdom he has practised in Port Lincoln since 1981. Bird Cameron were the accountants for the practice when Dr Arthurson joined it and up until 1990 he also retained them for his personal taxation and business affairs. He was aware that Bird Cameron was a large national firm with considerable expertise upon which to draw. From about the middle of 1989 the accountant at Bird Cameron with whom Dr Arthurson dealt with was Mr Daryl Lynch. For some three to four years prior to 1990 Dr Arthurson had considered tax effective investments proposed by Bird Cameron. In 1988 he purchased a flat at Port Douglas in Queensland. As a consequence of the pilots' strike the value of this property had fallen by 1990. There was a shortfall between rent and interest but not greater than Dr Arthurson had expected. By the middle of 1990 he was aware of problems that could arise with real property investment. In November 1989 he had declined to invest in Adelaide commercial property offered to members of the practice because of the difficulty of obtaining quality tenants and guaranteed rent. Of the other tax effective investments proposed by Bird Cameron one was a television series "Dirtwater Dynasty" which proved to be a good investment. There was a film called "Outback" which was never screened and also a horticultural scheme which at June 1990 seemed to be progressing satisfactorily. On 15 June a lunchtime meeting took place at the practice premises after Mr Lynch and Mr Gray returned from the Phelps' farm. This meeting had been organised on the initiative of Mr Lynch. Dr Arthurson attended along with his partners Doctors Watts, Taylor, Ballard and Schoeman. Mr Lynch introduced Mr Gray as a respected Melbourne lawyer who had substantial experience in property investment in Melbourne. Mr Lynch said that he was introducing Mr Gray to a number of other Bird Cameron clients in the area. Those present at the meeting sat around a rectangular table. Mr Gray sat at one end with Dr Arthurson on his right. Mr Gray produced a folder containing a number of photographs of other buildings he said his firm had previously syndicated successfully. He said that amongst his clients were a number of top ranking lawyers in Melbourne who used his special experience and expertise in the property market. He said he was putting together a partnership to purchase a property at 258 Queensberry Street, Carlton. He produced a copy of the Gray & Winter brochure. This copy was the only one available at the meeting. It was taken away by Mr Gray when the meeting concluded. Mr Gray went through the brochure by holding it up in front of him. He commenced by turning through the photographs at the front pointing out various features of the building. He said that it was situated in close proximity to the Melbourne CBD, which was extending outwards and that Carlton was in an excellent position. He said that the tenant of the property was Coles Myer which was an excellent and secure tenant. He said that the lease was for a term of 15 years plus options. He turned through the pages following the photographs. As he did so he spoke about investment in the building, stopping from time to time to draw the attention of those present to a particular page where there was something on it that he wanted to emphasise. Dr Arthurson did not actually read any of the pages in full. He saw parts of pages Mr Gray was drawing their attention to as Mr Gray "flipped through it". Mr Gray spoke about the rental. He said that the rental would rise in the future and as the rental rose the value of the property would increase. He demonstrated the increase in rental by reference to the cashflow spreadsheets at the back of the brochure. There was no mention that the rental could or might fall. He drew the attention of those present to the parts of the brochure which stated that the property was let for less than market rental and said that there was likely to be growth in rental and property value. He referred to the rental having potential for growth. Dr Arthurson said in his witness statement that Mr Gray "did not speak about the method of rent review and did not refer to the expression `to market'". I think Dr Arthurson was misled, partly by an assumption based on his own experience with rental for the surgery and partly by a statement by Mr Lynch, into a confused belief that the Coles Myer lease had some kind of provision which linked rental increases to CPI. But Mr Gray cannot be blamed for this. What Mr Gray said and what was in the brochure was consistent only with an expectation and belief that the Coles Myer rent would rise in accordance with the market, and would initially rise more steeply because it was currently below market and there would be a catchup. Implicit in this was the proposition that the lease provided for rental reviews to be made according to market rental levels prevailing at the time - which is what the brochure explicitly stated. Mr Gray spoke briefly about refinancing the vendor loan and said that with an increased value of the property in three years time refinancing would not be a problem. He said the partnership would be likely to sell the building in about eight years time and he demonstrated by reference to the cashflow that there would be substantial capital gain. He said that if any purchaser wished to get out of the project in the first year he would buy them out. At one stage of the meeting Dr Arthurson asked Mr Gray about the value of the property as he had been aware that the Melbourne property market "had not been doing so well of late". Mr Gray assured him that the market had bottomed and would rise. He stressed the importance of the lease and the quality tenancy. Mr Gray produced copies of the one page summary. He told the meeting by reference to that document the level of contributions each partner would be required to make during the life of the partnership. Dr Arthurson and others present were given a copy of the one page summary to take away, but not a copy of the brochure. Throughout the meeting Mr Lynch said little. He did not ask any questions of Mr Gray or seek clarification of any feature. When the meeting concluded those present were asked to decide whether or not they wished to invest. Dr Arthurson was interested in the investment because it fitted in with his future plans. He and his wife expected that in about eight years time the family would probably be moving to Adelaide for educational reasons. The proposed sale of the property in eight years time would fit in with those plans and the need for additional funds for housing. Dr Arthurson said in evidence, and I accept, that the proposed tax reductions were appealing but were not the primary reason for his interest in the investment. After discussion between themselves, Dr and Mrs Arthurson attended a meeting with Mr Lynch at the Bird Cameron office. This must have been after Mr Lynch's return from Millicent on the 23rd. By this stage Dr Arthurson had made a decision to invest subject to his wife's agreement. Initially Mrs Arthurson was not keen on the investment. She thought that the contributions in the one page summary amounted to a great deal of money to pay each year. She was also concerned at the level of debt which she calculated to be about $800,000 (one-twentieth of $16 million). She mentioned these concerns to Mr Lynch. He succeeded in reassuring her. He said that Coles Myer were a guaranteed blue chip tenant for 15 years so that there was no way they could lose the tenant unless Coles Myer went bust, so therefore it was a safe investment and there should not be a problem with refinancing or with ongoing improvements in value. She asked whether there had been any independent evaluation of the investment and Mr Lynch said the investment had been previously checked out by Bird Cameron's head office. He said that it was a blue chip investment which could not go wrong. He said that it met all the Arthursons' needs in that it would mature at a time when their children's education would be likely to require a move to Adelaide, a more expensive home and probably a drop in income. He said, in answer to a query by Mrs Arthurson, that it was unnecessary to refer the investment to their solicitor in Port Lincoln because it had already been "checked over" by lawyers as Gray & Winter were solicitors in Melbourne and they were arranging it all. Mr Lynch had a copy of the brochure and the one page summary and went through them again. He showed Mrs Arthurson the cashflow. He pointed out the price of the property, the amount to be borrowed, the provision of vendor finance and said that the vendor loan could be refinanced in June 1993 with a bank loan without difficulty. He pointed out the rising figures for rental and value of the property. He did not say that the cashflow figures were based on any assumptions or use that word. Mr Lynch said it was a sound investment and that he recommended it. According to Mrs Arthurson, he said that there were no risks associated with the investment and it did not have a downside. I am not satisfied Mr Lynch went to this extent; it is more likely that he spoke in terms of minimal risk. However I am satisfied that Mr Lynch said that if he had the money he would invest in it himself. Mrs Arthurson mentioned to Mr Lynch that she had heard the Central Business District in Adelaide was not doing all that well. He assured her that the Melbourne CBD was a very different matter and that it was doing very well. He said that many companies were transferring to Melbourne. Either at that meeting or shortly afterwards Dr Arthurson advised Mr Lynch that he and his wife would make the investment. Mr Lynch said that he would be in contact with them for the documentation. On 27 June Dr Arthurson received a telephone call from Bird Cameron advising that there was documentation at their office which urgently needed the signature of his wife and himself. He went to the office. His wife attended at a later time. Mr Lynch was not present. Another member of the Bird Cameron staff showed Dr Arthurson a number of documents and said that he was required to sign them as they had to be returned to Melbourne urgently. Dr Arthurson signed them. He appreciated that one of the documents was a power of attorney. He assumed that this would be used by someone to sign for the purchase of the property on his behalf. He did not understand that it would be used to provide any guarantee of the vendor loan. He noted at the time that one of the documents was the Gray & Winter instruction letter which said that no one from Gray & Winter had canvassed him in any way. He realised that this was clearly not the case because Mr Garrick Gray had canvassed his interest at the earlier meeting. Nevertheless he signed the meeting assuming that it was in order to do so and that Mr Lynch would not have arranged for him to sign any documentation if it was not appropriate and correct. He had also noted that there was a fee payable to a company associated with Gray & Winter. He did not understand what that was for and Mr Lynch was not available to ask. A week or so later Bird Cameron asked him to sign the second Gray & Winter instruction letter. Dr Arthurson did not understand why two virtually identical letters were required. He noted that there was a fee to Bird Cameron referred to. He assumed that this fee represented payment for the time that Bird Cameron had spent assessing the investment on his behalf and that of its other clients. Mrs Arthurson did not sign any documents until about 4 July when she attended at the office of Bird Cameron and together with her husband signed various documents including a power of attorney involving a variation to their Family Trust deed and the second Gray & Winter instruction letter. At no time did either Mr Gray or Mr Lynch point out to Dr and Mrs Arthurson any risks associated with the investment. Some years later Dr Arthurson learned that Mr Garrick Gray had a number of convictions under the companies legislation and was as at June 1990 barred from acting as a director of any company as a result of the failure of a number of companies with which he had been associated. Had he known this he would not have even gone to the meeting which promoted the investment and certainly would not have invested. He assumed that Mr Lynch would not be bringing anyone to address them who did not have a good reputation. Had Dr Arthurson known there was any real risk that the rental for the property would fall and that investors would have to make significant shortfalls, he would not have invested in the property. Had he known that after three years each partner was likely to have to contribute a substantial sum in order to pay out the vendor loan he would not have entered into the investment. He relied on the contributions referred to in the one page summary, which he believed he could afford. Had he known the contributions might be significantly more he would not have invested in the property. Had he known the property was worth less than $14.835 million he would not have proceeded with the investment. He relied on statements made to him by Mr Gray and Mr Lynch that it was a good buy at that price. Had he known that neither Mr Lynch or Bird Cameron had made any proper assessment of the benefits and risks associated with the scheme he would not have invested in it. Had he known that Bird Cameron were receiving commission for every client who took up a share in the partnership, he did not believe he would have had the same confidence in Mr Lynch's advice that it was a good investment. On 11 February 1993 Dr Arthurson attended a meeting in the office of Bird Cameron, Melbourne with a number of other partners including Dr Schoeman. Mr Allan Tribe introduced himself as a partner of Bird Cameron and told the meeting that the Melbourne office of Bird Cameron had been approached by Gray & Winter in 1990 to promote the investment in the property for their clients. Mr Tribe said that their office had declined to do so because they had looked at the investment and it had been considered by Bird Cameron to be too risky. Dr Arthurson has paid $152,990. 6. Schoeman Dr Dick Jacobus Schoeman was aged 55 in 1990. He is a medical practitioner. He was born in South Africa and obtained his professional qualification in that country in 1957. He migrated to Australia in 1978 with his wife and four children who are now aged between 31 and 25. After spending a few months in Queensland he has practised at Port Lincoln ever since his arrival in Australia. He has been a member of a partnership usually consisting of about nine doctors. It is the practice of which Dr Arthurson is also a member. Ever since Dr Schoeman joined the practice, Bird Cameron at Port Lincoln had been its accountants and had also looked after his personal accounting, taxation and business affairs. On the advice of Bird Cameron he made a number of investments. This always happened in June and had taxation benefits. The first, in 1988, was a genetic cattle breeding enterprise. This involved an investment of $55,000 which Dr Schoeman borrowed from Mercantile Credits secured by a mortgage over the stock. That investment failed well prior to 1990. Dr Schoeman received back only $5,000. In 1987 he invested $45,000 in a goat breeding enterprise. Yearly payments of about $5,000 were required. The investment ultimately failed although in the middle of 1990 it still looked good. In about 1988 he invested $15,000 in a native flower growing venture. In June 1990 this appeared to be going well. In 1988 he invested $30,000 in the Australian Horticultural Trust. Again that investment failed, but as at June 1990 it appeared to be satisfactory. Dr Schoeman attended the lunchtime meeting at the practice with Mr Lynch and Mr Garrick Gray. Dr Schoeman was a few minutes late. Mr Lynch said that Mr Gray was a well known Melbourne solicitor very experienced in the field of property investment. He introduced Mr Gray. Mr Gray, according to Dr Schoeman, told the meeting that he was setting up a partnership to buy the property at 258 Queensberry Street Carlton known as the Coles Myer building. He showed the meeting the Gray & Winter brochure and the one page summary. There appeared to be only the one copy of the brochure available. Neither Dr Schoeman or any other of those present were given a copy to take away after the meeting. Dr Schoeman did not obtain a copy until September that year. However he did take away a copy of the one page summary. Dr Schoeman was seated at the end of the table some distance away. From time to time Mr Gray would hold up the brochure and refer to parts of it. Dr Schoeman could not read the brochure from where he was sitting, although he could see the photographs. In his witness statement Dr Schoeman said that Mr Gray "pointed out" various matters. By that Dr Schoeman meant Mr Gray said those things and appeared to be speaking from the brochure, but Dr Schoeman could not read the words themselves. Mr Gray went through the brochure. He showed the photographs and the location by reference to the map. He said that the property was leased to Coles Myer and that the then current rental was less than market rental. When asked in cross-examination what he understood by this, Dr Schoeman said:

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Mr Gray said that the tenant of the property was a quality tenant and the income was secure. He said that the property was situated in a good position and that the property market in Melbourne had "bottomed out" and that the value of the property would rise. He referred to the financial data at the back of the brochure and said how the rental for the property would rise regularly through the term of the investment and how the property value would also rise. Dr Schoeman had no recollection of the topic of refinancing after three years being raised. He said in his witness statement that he did not appreciate that after three years the loan would have to be refinanced. There was no reference by Mr Gray to any risks relating to the investment. Mr Lynch was present but made no particular contribution that Dr Schoeman could recall. A few days after the meeting Mr Lynch telephoned Dr Schoeman to enquire if he was interested in investing in the property. Dr Schoeman expressed some concern about involvement in such a large scheme at his age. Because Mr Lynch knew about his financial affairs he asked Mr Lynch whether he could personally sustain the contributions. Mr Lynch reassured him about the long term prospects stating that his share would be sold in eight years at a large profit and in the meantime he and his wife would have the benefit of tax deductions. Mr Lynch said that he would be able to be on the management committee of the partnership and would be able to personally look after the Schoemans' interests. A few days later Mr Lynch telephoned him again. Dr Schoeman told him that he and his wife had decided to invest. Mr Lynch said he would be in contact with them in relation to documentation. In late June Dr Schoeman received a message from Bird Cameron requesting that he and his wife attend at the Bird Cameron office. They went there during the lunch break. Mr Lynch had several documents. He said they had to be signed urgently as they had to be returned to Melbourne that day. Dr Schoeman did not have the opportunity of taking the documents away or sitting down and reading them carefully. He was not given a copy of the documents he signed. He did not understand exactly the nature of the documents that he and his wife were signing but had confidence that Mr Lynch would not be suggesting anything inappropriate or unnecessary. It appears the documents he signed were a power of attorney and the Gray & Winter instruction letter. He did not sign any application for finance. An application was prepared by Mr Lynch but nothing was said to Dr Schoeman about it. Dr and Mrs Schoeman became joint proprietors as to one-twentieth share. In early July Dr Schoeman signed the second Gray & Winter instruction letter. If Dr Schoeman had known that the liability of the investment depended on the refinancing of the loan in three years time, which was unlikely to be achieved unless the building increased substantially in value, and that if the value did not increase sufficiently or remained static or fell there would be a significant shortfall to be made up by the partners, he would not have invested. If he had known that Mr Gray was a person who had convictions under the Companies Code and was barred from acting as a director of companies as a result of companies with which he had been connected failing, it is unlikely that he or his partners would have agreed to have him even address the meeting. Certainly Dr Schoeman would not have attended the meeting and would not have invested. He assumed that Mr Lynch would not have introduced any person who was not of good business repute. Dr Schoeman was not aware that Bird Cameron would receive a commission or that Gray & Winter were receiving a fee in excess of $1 million. If he had known that he would probably not have entered into the scheme at all but certainly would have sought independent advice. If he had known that the true asking price of the property was $13.8 million and had been increased to allow for the Gray & Winter fee, he would not have invested. Nor would he have invested if he had known the market value was less than $14.835 million. He believed Bird Cameron were a national organisation of chartered accountants and that Mr Lynch would not have recommended the property unless it had been fully checked out and approved by the Bird Cameron organisation. Had he known that Bird Cameron had not carried out any real assessment of the merits and risks of the scheme he would not have invested. At no time was it suggested that he should obtain independent legal investment or valuation advice. Mr Lynch told him that Mr Gray was a solicitor and would be handling the legal side of the investment. Dr Schoeman was never advised that it was possible for the rental of the property to fall. He did not read the lease and his general knowledge and understanding of such legal documents is poor. His own experience with the medical practice was that it leased its rooms under a lease with a clause stating that rental rose in accordance with the consumer price index. When Mr Gray explained to the meeting that the rental for the property would rise in accordance with the data at the back of the brochure he assumed it was a similar arrangement. On 11 February 1993 Dr Schoeman attended a meeting at the office of Bird Cameron in Melbourne along with Dr and Mrs Arthurson and Mr Ivan Phelps. Also present was Mr Allan Tribe, a partner of Bird Cameron. Mr Tribe told the meeting that Bird Cameron had not obtained any outside or independent advice concerning the Coles Myer investment nor any legal opinion in relation to it. He said that Bird Cameron in Melbourne had not recommended the scheme to its clients. He said that Gray & Winter had approached Bird Cameron's Perth office and other offices of Bird Cameron throughout the country. There had been no sales in Western Australia. He said that he thought from "day one" that the asset value of the property was too far below borrowings and that, for the dollars spent, the risk was too great. He thought that for the size of the project there were too few partners. He said that the Bird Cameron Port Lincoln office had not obtained advice from the Melbourne office in relation to the investment. He pointed out that the lease for the Telecom building had a ratchet clause. He said that he thought a valuer of the building had an obligation to look at the rental clause. Mr Tribe said that Bird Cameron had a responsibility to see that investors understood all risk and that Bird Cameron would be liable if they led investors to understand that the scheme was risk free. He said that the figures had not been checked out and there had been no due diligence. He said that there had been an assessment of the Telecom building and that a few of the Bird Cameron partners had invested in it. He said that the rental problems in respect of the Coles Myer building should have been pointed out at the outset, and also that the building could drop in value and that borrowings were in excess of the value of the building. He said that Bird Cameron were not aware of the special deal with Mr Terrey. He said that the joint and several responsibility of investors should have been explained. He said that advisers had responsibility to point out all the pitfalls of the partnership. Dr Schoeman has paid $152,990. 7. Haarsma In 1990 Mr Leo Francis Haarsma was aged 52. He lives in Cummins. For some years Mr Haarsma had been a member of a partnership, L Haarsma & Co, which conducted a rural supply business in Cummins. The other partners were his wife, his son and two family companies, Janle Nominees Pty Ltd and Oyster Farmers Coffin Bay Pty Ltd. Janle also owned a farming property producing wheat, barley and wool. The eponymous company Oyster Farmers Coffin Bay Pty Ltd operated an oyster farm at Coffin Bay. Mr Haarsma completed year 10 at school. He and his wife Mrs Janette Anne Haarsma have four children aged between 32 and 23 years. The Haarsmas had been clients of Bird Cameron at its Port Lincoln office since the early 1970s. From about mid 1989 they dealt with Mr Daryl Lynch. Mr Haarsma would consult Bird Cameron in relation to all his business dealings such as the purchase of the oyster farm. Bird Cameron gave advice about the financial structure of the business. As well as this advice Bird Cameron from time to time recommended investments to Mr Haarsma such as share trading syndicates, films and cattle embryo transplants. Mr Haarsma said in his evidence:

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In June 1990 Mr Lynch telephoned Mr Haarsma at his office. Mr Haarsma said this was in early June but it must have been on or after the 14th when Mr Garrick Gray first contacted Mr Lynch about the investment. Mr Lynch said that he had an excellent investment involving a building in Melbourne. Mr Haarsma said he was not interested. Mr Lynch telephoned again. He said it was "a great deal" and that Mr Haarsma had to be involved in it. It was something he could not afford not to be in. Again Mr Haarsma said he was not interested. But finally Mr Haarsma weakened and said that Mr Lynch could come out and discuss it with him. On about 15 June Mr Lynch went to Mr Haarsma's office. Here again Mr Haarsma's recollection of dates is probably not accurate. Mr Lynch, whose evidence is supported by his timesheets, said that there was a brief meeting of about 10 minutes in the car park at Mr Haarsma's business premises on the 15th at which Mr Gray was present, a telephone call (which would have been from Millicent) on the 18th and a very lengthy meeting back at Port Lincoln on the 28th. I accept Mr Lynch's evidence as to the dates but nevertheless I found Mr Haarsma to be an honest witness and I accept his evidence as to what Mr Lynch said - whether it was said in the telephone conversation on the 18th or at the meeting on the 28th or on both occasions. I also accept Mr Haarsma's evidence that he did not meet Mr Gray. Mr Lynch produced a copy of the Gray & Winter brochure. He said that the scheme involved an initial investment of about $40,000. He said the scheme had been vetted by Bird Cameron's head office and was recommended by them. He said the property market in Melbourne had "bottomed" and there would be real growth from now on, particularly in the central location in which the property was situated. He said the investment would result in substantial growth and would give taxation relief. He said the property would be sold after approximately eight years and at that time Mr Haarsma would receive a tax free capital gain of several hundred thousand dollars. He produced a copy of the one page summary showing the contributions to be made by the partners during the anticipated life of the partnership. Mr Lynch said that if he could arrange for four partnership shares from the Port Lincoln area he would be on the management committee and be able to ensure that Mr Haarsma's interests were looked after. Mr Lynch went through the Gray & Winter brochure pointing out such matters as the price, the vendor finance and the fact that the tenant Coles Myer was a "top class tenant". He went through the Richard Ellis section of the brochure pointing out that the present rental was said to be below the market rental and also that the rental and the value of the property would increase. He said that the property had been valued and was a good buy. At the end of the first three years of the investment the property would be refinanced but this would "not be a problem". He spent some time going through the cashflows at the back of the brochure. He demonstrated by reference to those figures how the rental and the value of the property would increase. Mr Haarsma asked Mr Lynch why he was so adamant about property values rising. Mr Lynch said that all Bird Cameron's information indicated that the property market had bottomed and that it was an excellent time to invest. He said that the partnership was being put together by a Melbourne firm of solicitors, Gray & Winter, who were commercial property specialists. He said that Gray & Winter were prepared to buy back shares in the partnership after a certain period. In answer to a question by Mr Haarsma, Mr Lynch said there was no risk or downside because the property market had bottomed and there was an excellent tenant and no risk. The only risk was that Coles Myer might go broke and be unable to pay the rent. Mr Haarsma considered this to be virtually impossible. Mr Lynch said that Bird Cameron were being remunerated for their involvement in the scheme. Mr Haarsma understood this to mean that Bird Cameron were earning fees for work done in investigating the scheme. It was only some years later that he learned that Bird Cameron were paid a straight commission for every client who invested. He was not aware of this at the time. The investment looked good to Mr Haarsma but he was still reluctant. He told Mr Lynch that he would want a guarantee from Bird Cameron that the investment would not cost him money as the previous ones had. Mr Lynch assured him there were no problems. Eventually Mr Haarsma agreed to invest. He told Lynch that he "would have his guts for garters" if anything went wrong. Mr Lynch did not refer to the lease in any detail and in particular did not say anything about the method of rental review or the rental being reviewed "to market". Mr Haarsma had no appreciation that the rental could fall. Towards the end of June Mr Bob Voumard, a Bird Cameron employee at Port Lincoln, arrived at Mr Haarsma's office in Cummins with numerous documents. He said that they had to be signed urgently and brought back to Port Lincoln in time to be despatched by courier to Melbourne that day. Mr Voumard did not even come into the office. He laid the documents out on the back of one of the vehicles at Mr Haarsma's business and showed him where to sign. Mr Haarsma signed them immediately. He did not read the documents. He says he trusted Bird Cameron and Mr Lynch and believed they would not be asking him to sign any documents that were inappropriate. Subsequently Mr Voumard drove to Mr Haarsma's home where Mrs Haarsma signed the documents and later his son Matthew signed the documents at the office. Mr Lynch did not explain the documents prior to them being brought out for signature and Mr Voumard did not explain them while he was there. Mr and Mrs Haarsma signed personal powers of attorney, a declaration of trust and a sub-partnership agreement, the effect of all of which was that Mr Haarsma held a one-twentieth share on trust on behalf of himself as to 40 per cent and on behalf of his wife and son Matthew as to 30 per cent each. Mr and Mrs Haarsma also signed the Gray & Winter instruction letter. In early July they signed the second Gray & Winter instruction letter. An application for finance was prepared apparently by Bird Cameron in Mr Haarsma's name but it was never signed by hm or shown to him. Had Mr Haarsma known that there were any risks at all that the rent would go down or that refinancing of the vendor loan in three years time might be difficult and that the purchasers might have to make up the shortfall of funds, he would never have entered into the investment. Had he known that the property was worth less than the stated sale price of $14.835 million or that commercial property prices were likely to fall, he would not have even considered in the property. If he had known that one of the senior partners of Gray & Winter had convictions under the companies legislation and was barred from being a director of any company as a result of companies in which he was involved failing, he would never gave gone into the investment. Had he known that Bird Cameron had not made a proper assessment of the benefits and risks of the scheme he would not have invested in it. Had he known that Bird Cameron were receiving a commission of more than $10,000 for each client they arranged to invest in the scheme he would not have had the same confidence in what Mr Lynch said to him about the scheme. He believes he would have obtained independent advice about the scheme or simply declined to invest in it. Mr Haarsma relied on the details of contributions set out in the one page summary. He believed he could manage them. Had he known that those contributions might be much larger because of falling rental or default by other partners or for any other reason he would not have invested in the property. Mr Haarsma did not seek independent legal advice. Mr Lynch had said that Gray & Winter were solicitors who specialised in the area. Mr Haarsma believed that they would give all the necessary legal advice. The Haarsma family have paid $152,990.

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Lee Mrs Barbara Jane Lee lives at 217 Humphreys Road, Frankston. Her husband died about 20 years ago. For many years she has conducted a fashion boutique, first in Toorak Road, Toorak and in more recent years in Mount Eliza. She is the sister of Mr Max Green. Mrs Lee has had experience in real property investment. About 20 years ago she built eight apartments on land at Frankston, sold some and leased the remainder. In 1989, through her company Asska Pty Ltd, she acquired land at Hastings which she has subdivided. This development has been a reasonably substantial one involving borrowings of $600,000 as well as cash from her own resources. She has known Mr Michael Winter since about the mid 1980s. She engaged him to act as her solicitor in relation to a dispute with a builder. Subsequently Mr Winter became a tenant of a house which she owned in Mt Eliza. Mr Winter would call on her to pay the rent and they would have friendly chats. From time to time Mr Winter suggested investment opportunities to Mrs Lee. One was a marble mine in Queensland. He also mentioned two property investments in Western Australia, which she declined because they were too far away. In late 1989 or early 1990 Mr Winter mentioned to her a building which his firm was syndicating in Tasmania and which was to be leased to the Tasmanian Government. Being a Tasmanian by origin, Mrs Lee expressed interest in that property but Mr Winter told her that it was too late and all the shares had been taken up very quickly, including one by himself. He also mentioned the Telecom building to her about this time and offered her a commission if she could introduce other investors. She said that she was not interested in commission. She mentioned the Telecom building to her brother Max Green. In early June 1990 Mr Winter telephoned Mrs Lee to say that he would visit her at the weekend. She said that her brother would be staying with her and that they might both be interested in investing in the Telecom building. Mr Winter said that the Telecom building had been sold but that he had one equally good next door and the tenant was Coles Myer. He said that he was taking a share in the Coles Myer building and that it was an excellent investment. On Sunday 17 June Mr Winter arrived at Mrs Lee's home. She introduced him to Mr Max Green and her cousin Mr Stephen Kerrison, who was also a house guest. It would appear that Mr Winter was not expecting Mr Kerrison to be present. Nevertheless the latter was immediately included in the discussions. Mr Winter produced two copies of the Gray & Winter brochure and all four sat around a table in the front room. Mr Winter spent some time showing the photographs at the front of the brochure and talking about the building itself. Mrs Lee's recollection is that Mr Winter then turned through the pages of the brochure. She "did not really pay full attention to them". She did not believe she would be able to understand much of it. She was "there, in and out" making tea and coffee and looking over the shoulders of the others. She did not make any attempt on that day to read any portion of the brochures. Mr Winter did say the price was $14.835 million, which Mrs Lee assumed was the price at which the property was being purchased from the vendor. Mr Winter said that the vendor was one of the Hudson Conway companies. He said that the rental for the property was less than market value and that there would be growth in rental and capital value. He referred to the cashflow spreadsheets at the rear of the brochure and demonstrated how rental for the property would increase and the value of the property would rise, although Mrs Lee did not herself read the figures "then and there". Mrs Lee was aware, from what Mr Winter said, that there would be rent reviews. She said in evidence:

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"The paper" was a reference to the cashflows. Mrs Lee would have been familiar from her own experience with rent reviews. She said in evidence that she did not recall anything being said as to the basis upon which the rent would be reviewed, and did not recall the CPI being mentioned. I think it likely that Mr Winter made reference to rent reviews being to market. Apart from anything else, that was what appeared in the brochure that he left with Mrs Lee and her brother and cousin. But in any event there is no evidence that Mr Winter said that increases in rent were guaranteed, either by linking to CPI or any other criterion. Mr Winter said that interest rates would drop which would give a far greater return so that investors would not have to put in so much each year. Mrs Lee did not understand that the rent for property could fall. Mr Winter said nothing about that possibility or the absence of a ratchet clause. Mrs Lee's own experience as a retailer renting shops since 1954 is that rent never goes down. She was "quite happy to feel that the rent would go up as it normally does". Mr Winter said that it was a good investment because of the capital growth and tax advantages involved. Mrs Lee was not so interested in the tax aspect. She did not have any problems in relation to payment of tax. She was interested in a sound investment in real estate. Up until that time she had mainly invested in residential property and was keen to invest in commercial property. Mr Winter had said that the property was likely to be sold after about eight years by which time she would have been in her early 70s and she saw the investment as a type of retirement fund. Mr Winter said that the property was to be bought on vendor finance and was to be refinanced after three years. He said that this was not going to be a problem as by then interest rates would have fallen. Mr Winter produced a copy of the one page summary. Mrs Lee noted that the costs of participating in the investment were all set out and that it showed there would be a significant tax free capital gain for each partner. It was arranged that all present, together with Mr Winter's wife, would have lunch at the Peninsula Golf Club. There was some brief reference at the lunch to the Coles Myer building but nothing specific. At the conclusion of the lunch both Mrs Lee and Mr Green indicated to Mr Winter that they were interested in the investment. Mr Winter said that he would be in contact with them regarding the signing of documentation in the near future. Mr Kerrison returned to Tasmania and, after taking some advice, decided not to invest. It is not clear at what stage a firm decision to invest was communicated to Mr Winter by Mrs Lee. In any event, some time in the following week, probably on 20 June, Mrs Lee and Mr Green attended at the offices of Gray & Winter in St Kilda Road. Mr Winter was not present and they were introduced to Mr Garrick Gray and Mr James Gray. Mrs Lee and Mr Green were both asked to fill in a form listing assets. A number of documents were put forward for her signature. She signed a power of attorney and the Gray & Winter instruction letter. The documents were not explained to her by anyone and she did not really understand them. She assumed they were documents necessary for her to participate in the investment. She had confidence that Mr Winter would not have had her execute any documents which were unsuitable or unwise in any way. She signed the papers because she trusted her lawyer. As she said, "If you can't trust your lawyer, who can you trust". She did note that a company associated with Gray & Winter was to receive a fee in excess of $1 million and she was "staggered". But it did not occur to her that the fee would be paid to Gray & Winter themselves. In fact a short time later she agreed to a reduction in Mr Winter's rental for her property at Mount Eliza. She subsequently signed the second Gray & Winter letter of instruction because Mr Winter told her "the accountant had requested some changes". She subsequently executed a power of attorney on behalf of Asska. Mrs Lee believed that Gray & Winter were a reputable firm made up of reputable people. She had no idea that Mr Garrick Gray the senior partner had convictions under the companies legislation nor that in June 1990 he was barred from acting as a director of any company as a consequence of being involved in a number of companies which had failed. Had she known of any of these matters she would not have had any confidence in the investment and would not have proceeded to invest in the property. Had she been made aware that the terms of the Coles Myer lease allowed for rental to fall and that there might have been a significant shortfall in three years when it came to pay out the vendor finance, or that the payments in the one page summary would or might be insufficient, she would not have invested in the property. Had she known that the partnership was paying more than the market price for the property she would not have gone into the investment. Asska has paid $152,990. 9. Green Mr Max Joseph Green of Ulverstone, Tasmania is now aged 72. He has been retired for 30 years. Up until 1954 he managed a sheet metal business owned by a family company. Subsequently he operated a mixed farm, a motor car sub-agency and an electrical business. He owns either solely or jointly with his wife some eight properties in Tasmania and Victoria, mostly residential, and has a portfolio of listed company shares worth about $1.3 million. Prior to June 1990 he had not carried on any business activity in partnership with any other person, nor had he participated in any tax minimisation investment scheme or, to the best of his knowledge, signed any guarantee. He had no particular need to reduce his tax liability at this time. Since a large part of his income came from dividends in public companies he had benefited considerably from the introduction of dividend imputation. In mid June 1990 Mr Green was staying with his sister Mrs Lee at her home at Mt Eliza. Their cousin Mr Stephen Kerrison was also a guest. Mr Winter came to the house. Mr Green had met Mr Winter socially on a number of earlier occasions and had bought some shares on Mr Winter's recommendation. Mr Winter had with him some copies of the Gray & Winter brochure and the one page summary. Mr Winter said that his firm Gray & Winter had packaged a number of syndicated investments including commercial property. He said that the firm had recently been involved in the sale of the Executive Building in Hobart. Mr Green was aware that this was a substantial building which housed the office of the Premier of Tasmania. Mr Winter said that the investment in the brochure was so good he was taking a share in it himself. Mr Winter said that the investment was a good one and would result in substantial capital gain. He said that the tenant of the property, Coles Myer, was a first class reliable tenant. He said that it was a secure investment. He said that the partnership that would be formed to purchase the building would sell it after between eight and ten years, and that a substantial profit would result. He concentrated on the capital growth that would occur and the tax deductions that were available. Mr Winter went through the brochure with Mr Green and Mrs Lee and Mr Kerrison. He had the brochure on a table in front of them. Mr Green's memory as to precisely which pages Mr Winter referred to is "vague". Mr Winter did show them the page setting out the property summary setting out the address of the building, the lease and the rent. He said that the rent was reviewed every two years but Mr Green does not recall any specific reference to rent review or the expression "market rental". Mr Green can specifically recall Mr Winter showing them a couple of pages in the cashflow section and the particular page which showed the rental and value rising impressively. His understanding as to rental generally was that "we had always had the idea that rents always were either steady or went up slightly". Mr Winter spent some time talking about figures on the one page summary. He showed the payments that would need to be made over the course of investment. He used the one page summary to explain what a share would be worth at the end of eight years. After this discussion all concerned went off to lunch at the Peninsula Golf Club. Mr Green recalled no further mention of the proposed investment. A day or so later Mr Green went with Mrs Lee to the Gray & Winter office in Melbourne. His evidence was not entirely consistent on this point, but I conclude that he had substantially decided in his own mind to make the investment before going to the office. Mr Green's decision to invest was substantially affected by his sister's enthusiasm. He gave the following answers in cross-examination:

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Mr Winter was not at the office and Mr Garrick Gray and Mr James Gray introduced themselves and presented some documents which Mr Green signed. They were the Gray & Winter instruction letter an (probably) an application for finance. He gave a cheque for $40,500 on 22 June. He said in evidence that he did not understand the nature of the documents he signed but assumed they were necessary and appropriate. He did not read the Gray & Winter instruction letter. He did see that it contained a break-up of figures and assumed that it was simply an authority from him to proceed to purchase the building which would to be signed by each of the investors. Subsequently Mr Green decided to involve his wife and children in the investment. He therefore notified Mr Winter that his wife Mrs Robin Green and his two children Brian Joseph Green and Gina Kathleen Green would each take a quarter share. Mr Winter said there would be no problem with that. Mrs Green and the two children did not have any direct contact with Gray & Winter. In late June either Mr Winter or Mr Garrick Gray telephoned Mr Green at his home in Ulverstone and told him there were further documents relating to the investment which needed signing urgently and prior to the end of June. There was insufficient time to post them and they would need to be faxed and signed immediately. Arrangements were made for the documents to be faxed to Mr Green's solicitor, Mr David Brothers, in Devonport. As it happened, Mr Brothers had a business engagement in Ulverstone and agreed to receive the fax and bring the documents to Ulverstone. Mr Green arranged to meet Mr Brothers at the Trust Bank of Tasmania at Ulverstone where he, his wife, and two children signed the documents. Mr Brothers did not explain the documents to him. Mr Green did not expect him to do so. He knew that Gray & Winter were the solicitors and they were arranging the partnership. He did not see the need to involve other solicitors. The documents signed were personal powers of attorney, a sub-partnership agreement and a declaration of trust for Mr Green on behalf of himself, his wife and his children Brian and Gina, all as to 25 per cent each. In July Mr Green received a letter from Gray & Winter enclosing the second Gray & Winter instruction letter. He and his family signed the letter but did not really understand what it was about. He did not appreciate until some years later that Gray & Winter were receiving an acquisition fee in excess of $1 million or a company associated with them. If he had known that he says he would have been more sceptical of Mr Winter's recommendation. Had he known that any of the persons associated with the formation of the partnership and purchase of the property had convictions under the Companies Code or were anything other than persons of good business repute, he would not invested in the property. Had he known of Mr Garrick Gray being barred from acting as a director of a company as a consequence of being involved with a number of failed companies, he would not have invested in the property. Mr Green and his family have paid $152,990. 10. Henderson Mr Russell Henderson and his wife Mrs Noelene Henderson live on their farm of approximately 1500 acres near Deniliquin in New South Wales. It is a mixed farm, the bulk of the income coming from rice, wheat and wool. The Hendersons conduct their farming business through a partnership. They came from Skipton in western Victoria in 1980. They have had experience of mortgages of their farm and leases of farm equipment but otherwise no commercial background. They were aged 38 and 35 in 1990. Their education did not advance beyond the middle years of secondary school. Since about 1975 Mr Henderson and, after the marriage in 1977 Mrs Henderson also, had retained as accountants a firm in Ballarat. Prior to about 1986 the firm was known as Adrian Counsel & Associates. In that year the name was changed to Bird Cameron. Mr John Mayne of that firm had since about 1983 handled the Hendersons' work. The Hendersons would usually visit Mr Mayne in Ballarat in about February of each year. They would show him their figures to date and he would advise them as to their estimated liability for income tax for the year and also generally in relation to financial matters concerning their farming business. Prior to the late 1980s the Hendersons had a lot of debt and no surplus funds to invest. However by that time they were doing better and were looking for investments through which they could build up capital with a view to purchasing additional farm land. They have three children including twins. In 1990 the twins would have been seven and the other child six. In February 1990 in accordance with their usual routine Mr and Mrs Henderson travelled to Ballarat to speak to Mr Mayne. They had a discussion in general terms. Mr Mayne suggested they should return in mid June by which time their financial position would be clearer and he would be in a position to provide more specific advice in relation to investment options. The Hendersons returned to Ballarat on Monday 18 June. They showed Mr Mayne the figures from the farm. Mr Mayne discussed with them a number of proposals which included superannuation, an IOOF single premium proposal and a South Australian market gardening scheme. The IOOF investment was for a period of ten years with penalties on earlier recovery of the investment. The Hendersons told Mr Mayne that investment was not suitable because they were hoping to buy further land in the mid 1990s. Mr Henderson mentioned the possibility of purchasing a holiday unit in Queensland. Mr Mayne said that would be too risky. He referred to someone he knew who had purchased such a unit and lost money. Mr Mayne then reached into his desk and produced a brochure for what he described as "the Coles Myer partnership". Mr Mayne agreed in cross-examination that he knew the Hendersons to be conservative people not interested in speculative investments. He did not realise that the Coles Myer investment made them potentially liable for over $16 million. If he had realised this he would not have put the investment up to them. Mr Mayne told the Hendersons that a Melbourne firm of solicitors, Gray & Winter, were putting together a partnership to purchase a property in Carlton. He said the proposed investment had come from the Melbourne office of Bird Cameron. He said that he had never seen a better presentation and that it looked like a great investment. He said that it would fit into their plans. He suggested that if they were interested they should stay overnight in Ballarat and meet the next day with Mr James Gray of Gray & Winter. During the course of the meeting the Hendersons said to Mr Mayne that they would be interested in getting more information about the Coles Myer investment as long as there was not any risk to their farm. In his evidence Mr Henderson said, and I accept:

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The Hendersons took the brochure away with them and agreed to meet the next day. They stayed that night with Mrs Henderson's mother in Ballarat and did not have the opportunity to discuss the matter between themselves. On 19 June at the Bird Cameron office Mr Mayne introduced the Hendersons to Mr James Gray. Mr Mayne said that Mr Gray was from the Melbourne solicitors Gray & Winter and the Hendersons assumed that Mr Gray was a solicitor. The four sat down at a table in the Bird Cameron boardroom. Mr Gray had a folder with pictures of a number of other buildings which he said his firm had syndicated. He stressed how, in each case, the buildings were selected because they had quality tenants. The meeting lasted about an hour. Mr Mayne was present for nearly all the time. At one stage both Mr Mayne and Mr Gray left the room to make coffee. Mr Gray went through the brochure. He started with the photographs at the front and worked through to the financial data at the back. He pointed out the purchase price of $14.835 million and said that it was particularly good value in the current market. He said that one of the main features of the property was that there was a 15 year lease to Coles Myer which was a quality tenant. He pointed out that even if Coles Myer surrendered the lease they would still be liable to pay the rental for the property. Mr Gray pointed out from the brochure that the rental currently received was far less than market rental and that there would be growth in rental and in the value of the building. He referred to the financial data at the back of the brochure and at this point came round to the Hendersons' side of the table and showed them that part of the spreadsheets which demonstrated how the rental for the property would continue to rise. He demonstrated from the spreadsheets how both rental and property value would increase. I am not satisfied that Mr Gray or Mr Mayne said anything to indicate that rises in rental or value were guaranteed. It was clear from his cross-examination that Mr Henderson understood Mr Gray was saying that the rental was currently below that for comparable properties:

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Mr Henderson understood that the Coles Myer rental had, in his words, "the potential to get bigger". Although Mr Henderson said in evidence that in 1990 he did not understand what a rent review was, he did understand the rent was to alter or change every two years. And although he said he did not understand the reference "Rent review: Two yearly to market", he did at least understand what the word "market" meant - "like sheep market", as he volunteered. Mr Gray, with at least the tacit support of Mr Mayne, certainly conveyed a very confident prospect of continuous and substantial increases in rental and value over the term of the investment. But in doing so Mr Gray did not misrepresent the nature of the legal rights the Hendersons would acquire if they invested. Mr Henderson asked him about the security of the investment and Mr Gray replied that the rental for the property was its security. Mr Gray said that the property was in a great position, that the Central Business District of Melbourne was filling up and the Carlton area would be the next to take off. Mr Gray said that it was an investment that the Hendersons could sell out of at any time. That feature was of significance to them as it meant that they would be able to sell out of the investment when they felt they were ready to buy additional farm land. Mr Gray suggested that they could take two shares in the scheme and if necessary Gray & Winter could buy back one from them the following year. Mr Gray told them that a 1/20th share in the scheme could be sold for a profit of approximately $150,000 after a three year period. He showed from the spreadsheets how with the continuing increase in rental the value of the property would be worth well in excess of $26 million by 1997. On that basis he said they could expect a profit share at that time of over $1 million. He said that the scheme was foolproof because rental would continue to rise and the value of the building would increase accordingly. He said that the scheme was just about fully subscribed with only two out of 20 shares remaining. He said that they would have to move quickly if they wanted to secure an investment. At one point of the meeting Mr Gray said that each investor would need to have more than $365,000 in assets to participate. Mrs Henderson asked him why that was necessary. Mr Mayne said that it was not an investment "where any bum could just walk in off the street". Both Mr and Mrs Henderson stressed on a number of occasions that if they went into the investment their farm was never to be put at risk. Both Mr Gray and Mr Mayne assured them that that would not occur. Mr Mayne conceded in cross-examination that "in hindsight" their farm was at risk. At this stage Mr Gray had pointed out there would only be a mortgage over the Coles Myer property itself. Although literally true, this was misleading because it was not pointed out to the Hendersons that their unlimited personal liability would put all their assets at risk, including their farm. Some of the Hendersons' evidence was to the effect that both Mr Gray and Mr Mayne assured them there were no risks associated with the investment. I am not satisfied that an assurance was given in such general terms. However, I am satisfied that both Mr Gray and Mr Mayne assured them that the farm was not at risk. Both Mr Gray and Mr Mayne referred to the tax savings which would result from the negatively geared investment. Mr Mayne compared this with the 10 year IOOF investment which, he said, was much less tax advantageous. During the presentation by Mr Gray, Mr Mayne said little but remained in the room nearly all the time. At no stage did he interrupt Mr Gray or disagree with or qualify anything that Mr Gray said. At the conclusion of the meeting Mr Henderson said he would like some time to think about the proposal. The Hendersons had never participated in any investment like this before. Mr Mayne would have known that. Mr Mayne produced a document which he asked Mr Henderson to sign on the basis that if they later agreed to invest it would not be necessary to send the document out. The document was the final page of an application for finance. At the very end of the meeting Mr Mayne repeated that he thought it was a great investment. The Hendersons returned to Deniliquin and over the next few days considered the scheme. They read the brochure although they did not understand it all. At one point Mr Henderson attempted to read the copy of the lease but could not understand it. He was not aware of any rent review clause in it. He did read the summary of the lease. He read that part of the brochure bearing the name of Richard Ellis. He was impressed by the brochure. Its contents seemed to confirm that the investment was a sound one. The investment seemed to fit in with the Hendersons' plans. It seemed attractive because it was a good investment and was flexible in that they could sell out at any time when they felt it was time to purchase additional farming land. They decided to buy one share. They decided not to take up the second share because, looking at the amount of contributions they did not believe they could afford more than one. (Although there was no direct evidence as to this, I infer that a copy of the one page summary had been given to them.) At no time did either Mr Gray or Mr Mayne mention to the Hendersons that the rent for the property might fall, or that the value of the property might fall, or that contributions by investors to the scheme would be more than those set out in the spreadsheets. When Mr Gray referred to the refinancing of the investment in three years time he stated that there would be no problem at all in that regard. A few days after the meeting Mr Gray telephoned the farm and spoke to Mrs Henderson. She told him that they had decided to invest one share. He said that he would be in further contact with them. On 27 June he telephoned again and told Mrs Henderson that he had arranged for all necessary documentation to be faxed to Metzke & Allan in Shepparton. The Hendersons had had no previous dealings with that firm and knew nothing about them. Mr Gray said that the documents had to be signed that day in order to be back in Melbourne so the scheme would proceed. The Hendersons travelled to Shepparton and arrived there in the late afternoon of 27 June. They went to the offices of Metzke & Allan and were met by a young man who presented them with a number of documents to sign. They looked at the documents but did not understand them. Mr Henderson asked the young man whether the documents were all right and he said that they were straightforward and in accordance with the usual practice. The young man said that the documents had to be signed and returned to Gray & Winter that day. The Hendersons do not have any recollection of signing any particular documents. Mr Henderson admitted that his signature appears on a Gray & Winter instruction letter. He did not read it. Mrs Henderson did not sign. Both the Hendersons admit signing a power of attorney. It was the second version. Mr Mayne received the Nevett Ford fax of 29 June and sent a copy to the Hendersons on 9 July. They did not contact him about it. Mr Mayne admitted in cross-examination that the statement in the fax as to liability not being limited to the investor's share was "contrary to the assumption upon which (he) had proceeded previously" but that he "didn't give any advice to the Hendersons, unfortunately". He understood that a partnership was being formed and understood that a partnership involved each partner being liable for the debts of the other partners but "(a)t that point of time I hadn't considered it properly". Both Mr and Mrs Henderson did not know that either Bird Cameron or Gray & Winter was to receive any fee or commission on account of them investing in a share in the scheme. In respect of Gray & Winter's fee, Mr Mayne was aware they would receive a fee of just over a million dollars for putting the scheme together. Although Mr Mayne's evidence was initially to the effect that Mr Gray had mentioned the fee to the Hendersons, when asked in cross-examination for the details of this disclosure he said:

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Both the Hendersons said in evidence that had they known that Mr Garrick Gray, a senior partner of Gray & Winter, had been convicted of offences under the Companies Code and was at the time of the investment barred from being a director of any company as a consequence of having been involved with failed companies, they would not have entered into the scheme. They believed that Mr Mayne had assessed Gray & Winter as being reliable and of good repute. Mr Mayne said that had he known of Mr Gray's conviction, he would not have recommended the scheme to them. Both Mr and Mrs Henderson say that they did not know there was a real risk of rental for the building falling or that there might be difficulty in refinancing the building in three years or that they would have to make up any shortfall in rental or mortgage finance. If they had known these matters they would not have gone into the scheme. Mr Mayne also said that if he had been aware that there was a real risk of the rent falling, he would not have recommended the scheme. If the Hendersons had known that the market value of the property was less than the price being paid by the partnership they would not have invested in it. Mr Mayne said that if he had known of this difference in value he would not have recommended the scheme. If the Hendersons had known that Bird Cameron had not made any proper assessment of the potential risks and benefits of the investment they would not have gone into it. In about August 1993 Mr Henderson rang Mr Mayne who by then had left Bird Cameron. He asked him if he realised "the mess" he had got them into. Mr Mayne said that he had vaguely heard about it, would make some further enquiries and get back to him. Mr Henderson said that Mr Mayne assured them that the farm would not be at risk. Mr Henderson asked him if he knew what joint and several liability was. Mr Mayne said that he did know now. He did not phone back. In August 1993 Mr Henderson telephoned Mr Rodini of Bird Cameron in Ballarat. He asked Mr Rodini why the fee of $10,350 had been received by his firm in connection with the scheme. Mr Rodini said it was for accounting fees for them and others who had been shown the scheme. Mr Henderson asked if it was a coincidence that all the Bird Cameron branches had charged the same fee and whether the firm had charged about $3,000 per hour. Mr Rodini said they had not charged that and that the fee related to the showing of the scheme to the Hendersons and other clients and for doing clerical work. He said he would telephone back after he found out more about it. He did not do so. Mr Rodini was not called as a witness by Bird Cameron. The Hendersons have paid $152,990. 11. Tranter In 1990 Mr Thomas Tranter and his wife Mrs Pauline Tranter were in their mid 40s. They were educated to year 8 standard. They ran in partnership a mixed farm at Kalangadoo near Millicent, South Australia producing potatoes, wool, fat lambs and cattle. They also did contract hay baling. They had no other commercial experience. Mr Tranter had been a guarantor on two occasions, the first for a friend who required a small bank loan and the second for a son who obtained finance for the purchase of a motor car. For many years the Tranters had taken their accountancy work to Bird Cameron's office in Millicent. They dealt with a number of different people at that firm. Up until about mid 1989 Mr Daryl Lynch was their accountant. He was then replaced by Mr Josef Korczak. By 1990 the Tranters had some surplus funds and were looking for investment. Both Mr Lynch and Mr Korczak had previously suggested various forms of off-farm investments such as pine trees, vineyards and fishing but the Tranters had not taken up any such proposal. Their only asset was their farm. In June 1990 Mr Korczak telephoned Mr Tranter and said that he was aware of an investment opportunity that might be of interest. Mr Tranter went to the Millicent office of Bird Cameron. At their meeting Mr Korczak said that the investment was a commercial property in central Melbourne although he did not know precisely where. He said that it had come to him through the Bird Cameron organisation and was apparently a sound investment. Mr Tranter said that he might be interested and it was agreed that Mr Korczak would contact him when he had more information. Mr Korczak was aware the Tranters were conservative in financial matters and not interested in speculation. Mr Korczak telephoned a few days later and said to Mr Tranter that the investment "looked good". He said it was a medium term investment, that is five to ten years, which fitted in with the Tranters' plans. Mr Korczak said that one of the Melbourne people arranging the syndicate to purchase the property was coming to Millicent in the near future and that he could arrange an appointment. A few days later, towards the end of June, Mr and Mrs Tranter went to the Bird Cameron office and there met a man whom Mr Korczak introduced as Mr Garrick Gray. He said that Mr Gray was a solicitor from Gray & Winter in Melbourne. Mr Gray said that he was organising a 20 share partnership to purchase a building at 258 Queensberry Street, Carlton. He told them that it was a good property in a good position with a top rate tenant, Coles Myer. He said that to invest in the property would require initially $40,500 for a one twentieth share and other contributions each year until the partnership disposed of the property. Mr Gray told them that his firm had previously syndicated a number of other buildings including one in Perth and another in Tasmania. Mr Gray went through the Gray & Winter brochure with the Tranters. There was only one copy available, and Mr Gray "flashed through" it as he spoke. The brochure was side on to both Mr Gray and the Tranters. On occasions Mr Gray turned it around so they could read a particular passage. Mr Gray showed them the photographs and location map. He pointed out that the property had recently been refurbished and fitted out for Coles Myer credit business. He said that there would be growth in rental and in capital value. Mr Tranter was asked in examination-in-chief:

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He also said that Mr Gray, in reference to the Tenancy Details in the Richard Ellis section, said that the rental presently received was less than the market rental and "spoke about the rental growth ... the potential was there for good rental growth". Mr Gray showed them the cashflow figures which Mr Tranter understoood were projections based on an assumption of 8.5 per cent growth. Mr Gray said that the lease of the building was secure, that Coles Myer was a "top rate" tenant who was not likely to "pack up and move out" and that the rent was assured. Mr Gray said that the rent was reviewed every couple of years. Mr Gray showed them the cash flow documents at the back of the brochure and by reference to those how the rent would increase year by year and the value of the building would also increase. He said that while the cash flow data referred to a ten or eleven year period the property would be likely to be sold after approximately eight years to obtain maximum benefit. He said that the building would increase in value because of the rental increases. The price of $14.835 million was, he said, a good buy at that price. Since there was a vendor finance arrangement the property would be refinanced after three years. Mr Gray said there would be no problem in obtaining bank finance at that time. He showed the Tranters the one page summary setting out the contributions and likely returns. He said that the office space in the Central Business District had filled up and this demand had flowed over into South Melbourne. Carlton would be the next area to take off. Mr Gray said that they could sell out at any time. Mr Tranter, because of his awareness of the erratic nature of farming, asked about the position if they wanted to sell out earlier than eight years. Mr Gray said there would no problem with selling out earlier. Mr Korczak was present at the meeting. He did not interrupt or qualify anything Mr Gray said. The Tranters believed that Bird Cameron had fully investigated the investment and therefore Mr Korczak was in a position to know whether everything Mr Gray was saying was correct. Had they known that neither Bird Cameron or Mr Korczak had carried out any proper analysis of the benefits and risk of the investment they would not have been interested in it. Neither Mr Gray or Mr Korczak pointed out any risks associated with the investment. However Mr Tranter was aware that the investment was not entirely risk free. He was asked in cross-examination:

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Mr Gray said that Gray & Winter would be preparing the documents and would look after "the legal side of things". The Tranters decided to invest then and there. Mr Gray said that the relevant documentation was required to be signed urgently so that it could be returned to Melbourne. The Tranters do not recall precisely what documents they signed. In any case they did not really understand them. Mr Tranter was aware that one of the documents was a power of attorney because Mr Gray had told him it was not possible to get other documents out to Millicent and back to Melbourne. In any event they both signed powers of attorney and Mr Tranter signed an application for finance. Mr and Mrs Tranter have no recollection of signing the Gray & Winter instruction letter, although it appears they did. They were not given copies of any of the documents. At the time of signing the power of attorney Mr Tranter asked Mr Korczak and Mr Gray how much power the attorney was given and how long it would last. He was told that it only gave a limited power to sign documents and would not last beyond the signing of the documents. Mr Korczak had no recollection of seeing the Nevett Ford fax of 29 June. The Tranters believed that the people who arranged the partnership were of good business repute and that Bird Cameron would not have recommended the investment to them unless this had been the case. Had they known that any of the people arranging the application had convictions under the companies legislation or had been associated with a large number of failed companies they would not have invested in the property. Had Mr Korczak known this, he would not have recommended the scheme to them. Had they known the property was worth less than the sale price or there was a risk of the property falling in value, they would not have invested. Had Mr Korczak known these things he would not have recommended the investment. The Tranters assessed that they could afford the recommended contributions as set out in the one page summary. Had they known there was a risk the partners would be required to contribute substantially more, they would not have invested. They were not aware that Bird Cameron was to receive commission if they took up a share in the partnership. They were not told this by Mr Korczak. If they had known of this they would not have had the same confidence in Mr Korczak's recommendation. They believe they either would not have invested in the property or would have sought independent investment advice. They did not appreciate at the time that Gray & Winter would receive a commission in excess of $1 million if the partnership purchased the property. Had they known that they would have been far more sceptical of Mr Gray's promotion of the property. They did not seek independent legal advice in relation to the investment. They did not think it was necessary. They thought their own accountants Bird Cameron had closely examined the investment proposal. They knew that Mr Korczak was recommending it. They knew that Gray & Winter were solicitors and that they were arranging the partnership. It did not occur to them that additional legal advice was necessary. They knew that Bird Cameron were a big firm with offices all over Australia. They assumed that Bird Cameron had approved the investment because otherwise Mr Korczak would not have arranged for them to meet Mr Gray and sign the documents and also Mr Korczak would not have sat through the meeting without disagreeing with anything Mr Gray said. The Tranters have paid $152,990. 12. Walker Mr Phillip John Walker and his wife Mrs Judith Ann Walker live in Millicent. In 1990 they were about 45. They owned in partnership a small video shop in Millicent and also operated a fertiliser spreading business. Their education went as far as year 8 and year 10 of secondary school respectively. The Walkers had always used Bird Cameron at Millicent as their accountants. From about 1988 onward they had dealt with Mr Josef Korczak. Bird Cameron did their individual and partnership tax returns and at one stage helped them with their will. They always consulted Bird Cameron regarding any major business decisions. One day towards the end of June 1990, probably on the 27th, Mr Korczak telephoned Mrs Walker at her home and asked if he could come out to see her. He said that he had a scheme that he wanted to discuss with her. He said:

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Mrs Walker said that her husband was not at home. Mr Korczak said that she could tell him. Shortly afterwards Mr Korczak arrived at the Walkers' home and spoke to Mrs Walker. He said that the scheme was for an investment in the Coles Myer building in Melbourne. It would allow them to stop paying tax each year. He said they were not obligated to remain in the scheme; if they could not keep up with the payments they could get out at any time. He said there were only 20 partners. He said the building in the scheme was good value. At various stages of her cross-examination Mrs Walker attributed to Mr Korczak statements that "the rents would go up", "the rents would possibly go up" and "that the rents would go up and it would probably increase in value". He said the asking price was fair. The Walkers' only liability would be the contributions starting at $20,000. If they wanted to get out they had to offer their shares to another partner and if it was not taken up then the solicitors Gray & Winter were obliged to buy the share out. He said that he would explain it all to Mr Walker but that he had to know by 7.00 pm that night. Mr Korczak had a copy of the Gray & Winter brochure with him. He did not show Mrs Walker any particular pages other than perhaps the photographs and the map. In Mrs Walker's words "all (Mr Korczak) did was talk. He really didn't go through anything; he just talked off the top of his head". He said that she should tell her husband about all of this and that he would be in his office at 7.00 pm that night. She said that it was above her head. Mr Korczak said not to worry, they could get out of it at any time they wanted. If no partner wanted to buy it out it was "not a problem, Gray & Winter were obliged to buy them out". Mr Korczak left and Mrs Walker tried to read the brochure but could not understand it. When her husband got home she told him what Mr Korczak had said, but he did not attempt to read the brochure either. That evening the Walkers went into the Millicent office of Bird Cameron. Mr Korczak had a copy of the brochure. The course events took emerges from the following passage in the cross-examination of Mr Walker:

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Mr Walker recalls seeing the cashflows in the brochure but did not understand them and made no attempt to read them. Mr Korczak said that "Bird Cameron have been offered this". Mr Walker asked if they could get out at any time. Mr Korczak said "Not a problem, first option goes to the partners, otherwise Gray & Winter are obliged to buy you out". Mr Walker said "I have had nothing to do with investments but if we can get out, I will take your word for it". Mr Korczak said the scheme was to run for eight years. Payments were to be made each year of about $20,000 going down to $8,000. He said they would get $350,000 tax free after eight years. Those figures were for a half share. Mr and Mrs Walker signed powers of attorney. Mr Korczak said "little things might come up" and the lawyer "won't want to be sending things here and there" and that the power of attorney would give him permission to handle those things. On the following day Mr Korczak arranged for an overdraft for their first payment of $20,000. Their bank manager said to them "Have you looked into this carefully? I hope you know what you are doing". Mr Walker then rang Mr Korczak and relayed the bank manager's comments. Mr Korczak said "I can assure you it is no bottom of the harbour scheme and we are heavily involved ourselves". With this, Mr Walker was happy. He had asked Mr Korczak twice about getting out and each time Mr Korczak said it was not a problem. As well as powers of attorney the Walkers signed an application for finance and a Gray & winter instruction letter. They were not given any explanation of these documents and did not read them before signing. The Walkers would not have made the investment if they had known Bird Cameron had not investigated the scheme and made a judgment on it. It was Mr Korczak's assurances that the scheme was a good investment that convinced them to invest. If they had known that Gray & Winter and Bird Cameron were receiving success fees or commissions, they would have made further enquiries about the scheme. If they had been aware that any person associated with the scheme had been convicted of companies offences or "mixed up in insolvent companies" they would not have invested. If they had known the building was not worth what was being paid they would not have gone into the scheme. Nor would they have gone in if they knew there was a risk of the building going down in value. If they knew they were putting more at risk than their contributions they would certainly not have got into the scheme. The Walkers understanding of relevant legal and commercial concepts was low. They did not understand the notion of a guarantee as a promise to pay the debt of another person. The Walkers only paid the initial amount of $20,275. When the next contribution was due they spoke to Mr Korczak. He said that they were not the only ones trying to get out. They said that he had told them they could get out. An attempt was made to arrange with a person called Rutt for him to take over their share but nothing came of that. The Walkers initially did not join with the other applicants. They became parties as cross-respondents to Amadio's cross-claim on the guarantee. To that cross-claim they have pleaded a case substantially similar to that of the other applicants although, as will be seen, with some extra grounds of complaint. As a matter of convenience however I shall use the expression "the applicants" as including the Walkers, unless the context indicates otherwise. They were separately represented. 13. Trengove Mr Ronald Frederick Trengove and his wife Leonie live at Cape Otway in Victoria. In 1990 Mr Trengove was a professional fisherman and abalone diver. The business was conducted by the Trengoves company Maraican Pty Ltd. Mr Trengove is still engaged in that business but for health reasons no longer dives himself. He is now aged 48. He and his wife have two children aged 22 and 19. He left school at the end of the third year of secondary school. Prior to taking up fishing in 1984 he had run a service station in partnership with his brother. He also ran a small cattle farming property and had bought and sold a block of land at what he described as "a major loss". From about 1986 Mr Peter Landers of the Bird Cameron office in Geelong had been the Trengoves' accountant. From time to time Mr Landers brought investment proposals to Mr Trengove's attention. However prior to June 1990 he had not made any such investments because he always seemed to need all available cash for his business. In about the middle of June 1990 Mr Landers telephoned Mr Trengove and discussed his impending tax liability which Mr Landers said would amount to approximately $70,000. (Mr Trengove's tax returns showed that his gross income from abalone diving increased from $287,000 in the 1989 tax year to $563,000 in 1990.) Mr Landers mentioned some further superannuation contributions as a possibility and said that other investments such as forest plantations might be appropriate. The two men agreed to meet further. It is common ground that a meeting took place at the Bird Cameron offices at which Mr Garrick Gray, Mr Landers and Mr Trengove were in attendance. However there is a conflict as to whether prior to that meeting there was an earlier meeting between Mr Trengove and Mr Landers or merely, as Mr Landers says, a telephone call in which the possibility of investing in the Coles Myer building was raised. I am inclined to think that Mr Landers is correct on this point. As a witness Mr Trengove was at the very least, prone to confusion. For example, he had a fixed idea that he was told the Coles Myer property was worth $16 million. On any view of the documentation that was not the case and it is highly unlikely that Mr Gray or Mr Landers would have said so. On another evidentiary issue, the fax imprints on documents sent to Bird Cameron's office are inconsistent with Mr Trengove's version as to the time in which he signed the documents. Where there is a conflict between Mr Trengove and Mr Landers, I prefer the latter. Of all the accountants who advised the applicants, Mr Landers alone saw it as preferable to charge his client on a time basis for professional services rendered rather than accept a commission from the promoters of the scheme. This shows him to be a man who will put principle before personal gain and redounds very much to his credit. In any event, shortly after the matter was initially raised between Mr Landers and Mr Trengove, Mr Garrick Gray telephoned Mr Trengove at his home. He said he was on his way back to Melbourne from South Australia and asked if he could call at Mr Trengove's home to discuss the investment. He said he had been given Mr Trengove's name and telephone number by Mr Landers. Mr Trengove declined. He said he wanted to be with his accountant at any discussion. Mr Trengove believed that he would not understand the figures and other financial implications of the investment and wanted his accountant there. Mr Gray said that time was running out and that if he wanted to invest in the property he would need to do so before the end of June. He said he would be in contact with Mr Landers to arrange a meeting. Shortly afterwards Mr Landers telephoned and made arrangements for Mr Trengove to attend at Bird Cameron's office to meet Mr Gray. On 27 June Mr Trengove went to the Bird Cameron office. He was shown to Mr Landers' office. Mr Landers said that all the indications were that the investment was a good deal. He suggested that they speak to Mr Gray who was then waiting in the client waiting area. The three men then met in the boardroom of Bird Cameron. Mr Trengove sat at one end of the table with the other two on either side. The meeting lasted about two and a half hours. Mr Gray said that he was a solicitor and that his firm was putting together a syndicate to purchase 258 Queensberry Street, Carlton. He produced a large folder containing photographs of a number of other buildings which he said his firm had previously syndicated. He said that the investors in those other buildings had made a great deal of money. Mr Gray then produced a copy of the Gray & Winter brochure and went through it. In Mr Trengove's phrase, Mr Gray was "flicking through it like a deck of cards". Generally speaking, Mr Trengove paid much more attention to what was said than what was in the brochure. Mr Gray said that there was a 15 year lease and a very good tenant in Coles Myer. He pointed out by reference to the map how close the property was to the Central Business District. He said that the CBD could not expand much more and the site of the property was a fine site which would be worth a great deal of money in the future. Mr Landers commented that he agreed the tenant was an excellent one. Mr Gray said that the present rental was less than the market rental and that there would be good growth in rental from the property. He said, according to Mr Trengove's evidence, that the rent would "catch up with market rental". He referred to the cashflows. Mr Trengove said that they did not mean a thing to him and that he left that to his accountant. There was a separate copy of this document available. Mr Gray pointed out from the increase in rental shown in the cashflows how much the building would be worth and how there would be a capital gain in the eighth year at which time it would be better to sell and leave some of the lease for the purchaser. Mr Trengove already had had a copy of the one page summary faxed to him. Mr Gray said that for $40,000 Mr Trengove would be getting $70,000 tax benefit. He said that the one page summary set out the amount of contributions the investors would have to pay during the course of the investment. He explained that contributions would gradually fall after an initial increase because the rental would rise. Mr Gray said that the building next door, the Telecom building, had been similarly syndicated and that a number of Bird Cameron clients had bought into it. Mr Gray said that those that had bought into the Telecom building were very happy. He pointed out that most buildings returned a yield of between 6 - 7 per cent but this property returned a yield of 9 per cent which was more than most other properties he had sold. Mr Landers said that he agreed it was an excellent yield. He said it was a very good time to buy a commercial property and the value would increase due to increases in rental. Mr Gray said in the course of the meeting that the cashflow contained projections about future growth that were based upon assumptions about future levels of CPI growth. Mr Trengove asked Mr Gray about the risks associated with the investment and whether there would be growth in market rental in view of the then current state of the economy. According to Mr Trengove, Mr Gray's response was

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Mr Gray said that people would "bend over backwards" to buy a building with a tenant like Coles Myer. He said that, with a 15 year lease with a tenant such as Coles Myer and the rental income that would be paid during the period of the lease, "you can't go wrong". He said it was such a good investment that Mr Trengove should consider buying two shares. Mr Trengove said that he did not think he could afford the two lots of contributions. Mr Gray suggested that Mr Trengove buy two shares and that he (Mr Gray) would arrange a loan of $40,000 in respect of the second share and he would agree to buy back a share taken out in respect of the property. Mr Landers indicated he thought that was a pretty good deal. By his reference to "the current state of the economy" Mr Trengove had in mind what seemed to him a confused situation. As far as his own business was concerned, the price of abalone was escalating but there was, in his words, "doom and gloom" in the media. He said in evidence that it was for that reason he declined to buy the second share, although he said to Mr Gray that he could not afford it. Mr Trengove repeatedly asked Mr Gray whether there was any downside, but Mr Gray made no mention of any. He said that the building had an independent valuation. He further said that the scheme was the same as the Telecom building. He asked rhetorically why would the senior partner in Bird Cameron go into an investment like the Telecom building if the partners in that case were going to be exposed. Mr Landers said in evidence that he also believed there was no downside and that was why he recommended it. Mr Gray explained that the vendor was giving vendor terms for the first three years and at the end of the three years the property would have to be refinanced. He said there would be no problem refinancing the building. Interest rates were decreasing and with increases in the rent any bank would refinance the mortgage in three years. At no time did Mr Gray or Mr Landers suggest that Mr Trengove would be required to pay out money additional to the amount set out in the one page summary. Towards the end of the meeting Mr Gray left the room. Mr Trengove expressed initial interest to Mr Landers. Mr Gray came back into the room and Mr Landers told him of Mr Trengove's interest. Mr Gray then arranged for a bundle of documents to be faxed from the Gray & Winter office in Melbourne. The documents arrived, according to the Bird Cameron fax imprint, at 6.42 pm. They consisted of powers of attorney by Mr and Mrs Trengove and Marican (in the second version) minutes of a directors' meeting of Marican and the Gray & Winter instruction letter. Mr Gray initially suggested that Mr Trengove go home and get Mrs Trengove. Mr Trengove declined. Before receiving the documents Mr Landers discussed the joint and several liability of Marican with Mr Trengove and said to him that if anything might go wrong, that he (Trengove) may be liable because he stood behind the trust. (Mr Landers had in mind that the real asset of Marican as trustee of the Ron Trengove Family Trust was its right of indemnity against Mr and Mrs Trengove.) Mr Landers said that there was a possibility that Mr Trengove could be exposed to the full extent of the loan if other partners were unable to pay their debts or ongoing contributions to the partnership investment, but Mr Landers said that this was unlikely because of the quality tenants. Mr Landers also explained the possibility of joint and several liability for the extent of monies owing under the loan if other partners were unable to contribute to the amount owing. Mr Landers told Mr Trengove that liabiilty under a partnership would be joint and several. He said that he thought the proposal was quite a good quality investment. He recommended that Mr Trengove take it up. He said that whilst the investment looked O.K., it was up to Mr Trengove to make the decision. When the documents were faxed to Bird Cameron, Mr Landers learned that personal guarantees were required of Mr and Mrs Trengove. He told Mr Trengove of this and of his and Mrs Trengove's personal liability. He did so on a number of occasions. He said that Mr Trengove would be personally responsible and liable and that he could lose $16 million or more in a worst case situation. Mr Trengove then agreed to go home and think about it. Before leaving the office after the meeting, Mr Landers told Mr Trengove that he would be receiving commission of approximately $10,000 but that he would refund this to him as it was not his practise to take such commissions. He would charge him independently however for the investment advice that he had given. Subsequently Mr Landers did send an account for services amounting to $2,900. He received the commission of $10,350 from Gray & Winter and remitted the balance to Mr Trengrove. There were further discussions between Mr Landers and Mr Trengove at the office and on the telephone that night. On the following day, the 28th, there was a further meeting at the Bird Cameron office. According to Mr Landers' time sheets, the meeting took at least two hours (which included discussion concerning unrelated tax matters). Mr Trengove then signed the documents and Mr Landers returned them to Gray & Winter on the 29th. Mrs Trengove's signature appears on the documents, but the evidence is unclear as to how and when that came about. She did not give evidence. In any event, Mr Trengove did not read the documents he signed. Mr Trengove's evidence was that he signed the documents on the 27th at Bird Cameron, that after doing so he left the office at a time when it was still light, and that there was no meeting with Mr Landers on the 28th. On that day he said he was installing engines in his boat. I reject this evidence. Apart from the preference already mentioned for Mr Landers' evidence, the receipt of the documents at 6.42 pm in the middle of winter is obviously inconsistent with Mr Trengove signing them and leaving the office in daylight. Neither Mr Gray nor Mr Landers suggested Mr Trengove get separate legal or investment advice. They did not point out the risks associated with the investment. Mr Trengove did not appreciate that Gray & Winter were receiving a commission in relation to the investment. Had he known so he would have been more suspicious of Mr Gray's enthusiasm for the property. Had Mr Trengove known that Mr Gray was a person who was barred from acting as a company director as a consequence of the number of companies with which he had been involved failing, he would not have attended the meeting with him and would not have invested. He assumed that Mr Landers would not be introducing him to anybody who did not have a good business reputation and a good investment track record. Had Mr Trengove known the property was worth less than the amount the partnership paid for it he would not have invested in the property. Marican has paid $152,900. 14. Glass Mr Robert Glass of Huntley McArdle & Glass took up a half share in the investment. By an amendment to cross-claim allowed during the course of the trial he has raised a claim under the Trade Practices Act and in negligence against Gray & Winter and Hudson Conway. He alleges that in making his own decision to invest, he relied on the statements made by Mr Garrick Gray and Mr Winter at the preliminary meetings with them and at the presentation to Huntley McArdle & Glass clients. He also claims that he was misled into causing his family trust company Wintarni Pty Ltd to execute a power of attorney which resulted in that company becoming liable on a joint and several guarantee. In this respect he relies on the fact that in the case of the Executive Building no guarantees were required from related entities of investors. He said in evidence that on 26 June when he received by fax the documents for signature by his clients and himself he noted that the documents included powers of attorney for signature by persons and companies other than investors. Shortly afterwards when Mr James Gray phoned him to confirm receipt of the documents, Mr Glass asked about this and Mr Gray said that if at the settlement there was any "hiccup" at the last minute the attorney would need to have the power to execute the requisite documents to make sure the transaction went through prior to 30 June. Mr James Gray did not recall saying this. I find it was not said. The explanation imputed to Mr Gray is quite illogical. If related entities were not to become liable, or participate in any way, how could any "hiccup" alter the situation? I note also Dr Gordon's evidence, which I accept, that Mr Glass advised him and his wife that their companies Bretdar and Fifth Varona would be required to guarantee the Gordons' obligations. There is no reason why Mr Glass should have thought his family trust company would be treated differently. 15. Other Investors Mr Michael Winter and Mr James Gray each took a full share. Mr Robert Charles Morgan and his wife Mrs Dianne Jayne Morgan of Millicent were investors as to a half share. Their claims, which raised some quite separate issues, was settled at a late stage of the trial. Apart from the foregoing there were some other investors and these have been joined as respondents.

[162]

Preparations and Documentation On 20 June 1990 Mr Stephens of Nevett Ford telephoned Mr Barry O'Callaghan, a partner in Corrs. Mr O'Callaghan is and was at the time a director of Hudson Conway. In that latter capacity he was aware that the Coles Myer building was on the market but knew nothing more about the sale prior to hearing from Mr Stephens. Mr O'Callaghan provided Mr Stephens with title particulars. On the following day he had some further telephone discussions with Mr Stephens which included reference by one or other of them to the fact that the purchasers were buying jointly and severally. Mr Stephens at this stage said he would not have the full list of purchasers until the following day, although there would be 20 including some from interstate. There was some further discussion about the terms of the mortgage. The detail is not presently relevant except for the fact that they involved Mr Stephens seeking variations of Corrs' standard terms in a way beneficial to the mortgagors. Shortly afterwards Mr O'Callaghan handed over the conduct of the matter to Ms Elizabeth McCallum. She was then a senior associate and was to become a partner on the commencement of the new financial year. At the same time Mr O'Callaghan handed over responsibility for the Telecom building transaction to Mrs Jan Boxall, another partner. In the days that followed Ms McCallum dealt with Mr Stephens as solicitor for the purchasers. She asked amongst other things for satisfactory evidence as to each purchaser and guarantor entering into the transaction. On 25 June Ms McCallum sent Mr Stephens a draft contract of sale which, as already noted, bore Nevett Ford's name as solicitors for the purchasers. Mr Stephens forwarded drafts of the power of attorney to be executed by the purchasers and the guarantors which Ms McCallum settled. Mr Stephens forward the final list of purchasers and guarantors on 28 June. That list included as one shareholder Mr Ernest Clyde Rutt of Millicent and as guarantor for that share Mr and Mrs Morgan. Subsequently Ms McCallum used that document as a check list. Ms McCallum was aware that Mr Stephens was working out of the Melbourne office of Gray & Winter. Sometimes, for example a fax on 27 June, correspondence from Corrs was addressed to Gray & Winter marked for the attention of Mr Paul Stephens. Likewise on a number of occasions Mr Stephens sent letters to Corrs on Gray & Winter letterhead. There seems to have been a marked ambivalence in the Hudson Conway camp as to the exact role of Gray & Winter and Mr Garrick Gray. In her witness statement Ms McCallum said:

[164]

She was aware at the settlement that AIMH was to receive a fee of over $1 million and that that company was controlled by Gray & Winter. Mr Hamilton, a man experienced in dealing with solicitors in property transactions, thought that the solicitors for the purchasers and guarantors were "Nevett Ford and/or Gray & Winter". 2. The Terrey Clause Mr Michael Terrey and his sister Elizabeth Terrey had agreed to invest in the partnership. The Terreys live in Sydney. They control a company called Spectrans Pty Ltd. Their accountants are a Sydney firm Phillips McSweeney. That firm often obtains legal advice from a Sydney firm of solicitors, Gillis Delaney. On 28 June Mr Paul Turner of Phillips McSweeney telephoned Mr Christopher Brown, a partner in Gillis Delaney, and told him that the Terreys were considering going into a partnership which would buy the Coles Myer building in Melbourne. Prior to that conversation various draft documents had been sent to Gillis Delaney and discussed between Mr Brown and one of the firm's associates, Mr Peter Wright. Mr Brown was concerned about persons making taxation arrangements using partnerships and believed they were potentially very dangerous because of the joint and several liabilities of partners. He was aware of previous examples which had resulted in the partners owing millions of dollars to financiers and fights between partners about contribution. He was aware that often the partners had no way of knowing whether other partners could meet their obligations. Upon Mr Turner telling him that the money involved was about $15 million Mr Brown told Mr Turner the investment could be a disaster for the Terreys. He advised Mr Turner they should not invest unless their liability was limited to their interest in the land. Mr Turner told Mr Brown that the documents were to be executed under a power of attorney and the power of attorney had to be in Melbourne by the next day. Mr Brown told Mr Turner that he should send the signed power of attorney to Melbourne but under cover of a letter which stopped the attorney from acting until the deal was "structured properly". He dictated a form of letter for Mr Turner to send. It was in these terms:

[166]

The letter was to be signed by Mr Terrey and his sister and by her on behalf of Spectrans. It was addressed to Gray & Winter, attention Mr Paul Stephens. Mr Brown said that he did not have time to handle the matter further but that his associate Mr Wright would see the Terreys the following morning. He did however suggest that Mr Turner arrange for Mr Garrick Gray to telephone him (Mr Brown) so that he could tell Mr Gray of the terms that he wanted for the Terreys. At about 7.30 pm the same day Mr Brown received a telephone call from Mr Garrick Gray. Mr Gray asked what was the problem. Mr Brown told him that he had advised Mr Turner that the Terreys should not enter into the deal because of what he understood was potentially a huge joint and several liability. He pointed out to Mr Gray that the Terreys had not met any of the partners and knew nothing about their financial positions. He said that he had advised the Terreys that they should not incur any obligations unless liability was limited to their interest in the land and "we have sorted out how the investment should be made". He told Mr Gray that Mr Wright was seeing the clients in the morning, but he understood that a power of attorney had been sent down by overnight courier on the basis that nothing was to happen until his firm were happy with the limitation of liability aspect. He told Mr Gray that Mr Wright would be in contact with him the next day. Mr Gray said that he did not know whether this would be acceptable to the financiers and pointed out that Mr Brown was raising all of this at the last minute. Mr Brown said that he was sorry if Mr Gray was inconvenienced but he could not help that. He said that the Terreys would not proceed unless the liability was limited to their interest in the land. On the following day, 29 June, at 8.15 am Mr Wright met with Ms Terrey and Mr Turner. Mr Wright had been informed of Mr Brown's earlier involvement. Mr Wright was shown a number of documents relating to the proposed investment including a guarantee, an indemnity and a mortgage as well as some other documents he cannot now recall. He looked at the documents and formed the view that it would be unwise for the Terreys to invest on the terms proposed. He particularly noted that each partner and guarantor would be jointly and severally liable for the entire mortgage loan. He advised Ms Terrey that she and her brother ought not to enter into the transaction if there were any personal covenants in the mortgage. Shortly afterwards, about 9.00 am, Mr Wright telephoned Mr Gray and confirmed that Gray & Winter were not to act upon any power of attorney without notification in writing from him. He advised Mr Gray that his clients were not prepared to enter into the deal unless the documents were altered to provide that the extent of Michael Terrey's liability was to be limited to his interest in the land. In a second telephone conversation Mr Wright said that Spectrans was not to be involved in the scheme in any way. Mr Gray said he would take instructions and that the power of attorney would not be acted upon in accordance with his request. At 3.15 pm Mr Wright sent a fax to Gray & Winter in these terms:

[170]

At 5.38 pm Mr Wright sent a fax to Gray & Winter confirming that the amendment was acceptable and that they could proceed on the document as forwarded. Mr Stephens was aware of the problem that arose with the Terreys. Prior to his leaving the office of Gray & Winter in the late afternoon of 29 June to attend settlement at Corrs, he was told by Mr Gray that the vendor would agree to the limit sought on Terrey's liability. He has a note of a telephone conversation with Corrs stating that Mr Terrey is to be "off title" and all the Terreys are to be "off guarantee". He said that this conversation was "at a late stage" on the 29th and as a result of what he was told by Mr Gray. Later in the afternoon he saw the Terrey clause itself. At some time in the morning of 29 June Mr Stephens asked his partner Mr Peter Lumb to send faxes to the accountants in the terms already indicated. It would appear the faxes were not sent until about 5.40 pm. Mr Stephens said in evidence that he did not know whether he gave his instructions to Mr Lumb before or after he learned of the Terry request for limitation of liability. In cross-examination Mr Stephens denied there was any connection between the Terrey issue and the fax. Ms McCallum's recollection of the circumstances concerning the Terrey clause was, in her words, "extremely vague". She believed she was told of Mr Terrey's stipulation by Mr Hamilton. She did not think the Terrey clause itself was drafted by her. She believed that Mr Stephens perused it and raised and no objection. The clause was finalised before she left the office at approximately 5.45 pm, which of course was only a few minutes after Mr Wright's fax confirming the clause. 3. The Condition Subsequent and the Escrow Settlement Settlement of the purchase and associated transactions was effected at the Melbourne office of Corrs on 29 June. Settlement of the purchase of the Telecom building took place at the same time in the same room and at the other end of a long table. Proceedings commenced at about 3.00 pm. Ms McCallum left at about 5.45 pm to go to the ballet and handed over responsibility to Mr Peter Drake, an employee solicitor. Mrs Boxall was also available to assist. Ms McCallum said in evidence that at the stage she left all the signing and exchange of documents had been carried out and all that remained to be done was to attend to questions as to the legal capacity of the purchasers and guarantors and as to matters concerning the powers of attorney. Before she left she prepared a form of condition subsequent which was typed and subsequently signed on behalf of Corrs by Mrs Boxall. It was addressed to Nevett Ford for the attention of Mr Stephens and was in these terms:

[172]

The outstanding matters as to "the legal capacity of the parties" included the provision of original certificates under s 230(8) of the Code, the amendment of the deeds of family trust of certain of the mortgagors and guarantors, the signature by Mr and Mrs Morgan of the guarantee and the provision of certified copies of the powers of attorney and stamped counterparts of trust deeds. From Ms McCallum's description of the stage proceedings had reached when she left, it might have been thought that not much more needed to be done. However Mrs Boxall said that she was engaged at the settlement until about 10.40 pm and a number of other witnesses gave evidence of remaining at the settlement until that time or later. The settlement of the Morgans' claim makes it unnecessary to canvass a substantial body of evidence as to how they came to sign personal powers of attorney some time in early August. It is sufficient to note that the Morgans, who were clients of Bird Cameron Millicent, on Tuesday 26 June caused their company Glincraft Pty Ltd to execute a power of attorney but did not sign a power of attorney themselves. At the settlement Mr Garrick Gray gave to Corrs a written undertaking, purportedly on behalf of the Morgans, to obtain their signature or that of their lawful attorney to the guarantee. (Mr Balcam nevertheless signed the guarantee purportedly as attorney on behalf of the Morgans personaly; it seems likely that Mr Stephens mistakenly omitted to tell Mr Balcam that no personal power of attorney signed by the Morgans was in existence. Mr Stephens only became aware in the course of these proceedings that Mr Balcam had signed on behalf of the Morgans.) After settlement Mr Stephens proceeded to attend to the outstanding matters, including the obtaining of a power of attorney from the Morgans. On 5 July Ms McCallum released some of the funds held in escrow paying to Nevett Ford bank cheques for $1,036,219.89 payable to AIMH and for $7,018.20 payable to Terrey and others and to Amadio cheques for $552,666.62 and $587,226.99 being prepaid interest. In so doing she was acting at the request of Nevett Ford and on the instructions of Mr Hamilton. She continued to pursue further outstanding arrangements during the escrow period. In early August the Morgans signed personal powers of attorney which Mr Stephen forwarded to Corrs. On 13 August Ms McCallum sent a fax to Mr Stephens confirming that Corrs "now held all documentation which we required to be provided in respect of this transaction". 4. The Borrowers' Acknowledgment One of the documents which as a matter of standard practice Corrs, when acting as solicitors for lenders, would require from borrowers is a form of acknowledgment. In the present case it was in these terms:

[175]

Some events which occurred after the completion of the purchase on 29 June 1990 are relevant to various issues in this case. 1. The Management Committee Under the authority vested in him by the various powers of attorney Mr Balcam executed an agreement constituting the Coles Myer Building Partnership. The agreement itself is expressed to be "made as of the 29th day of June 1990". It was not in fact executed on that day (as the expression "made as of" would suggest). From the evidence it would appear it was executed by Mr Balcam on 8 or 9 August 1990. The affairs of the Coles Myer Building Partnership were administered by a Management Committee. By virtue of cl 12(b) and the Third Schedule of the partnership agreement, the first members were Mr Balcam, Mr Glass, Mr Lynch and Mr Geoffrey Henderson. The first secretary of the Management Committee was Ms Gaye Mason, an accountant employed in the Melbourne office of Bird Cameron. Ms Mason performed the secretarial role of arranging meetings of the committee (as well as of the partners), preparing agendas and taking minutes. She also liaised with members of the Management Committee on various issues that arose including the obtaining of property valuations and the arranging of rent reviews and dealing with such matters as building maintenance. She also performed accountancy functions by calculating partners' contributions, preparing bi-annual accounts, preparing and distributing notices seeking contributions from partners, preparing annual financial accounts and taxation returns, cash management, banking and the payment of creditors' accounts. She was a contact and liaison point for partners and in her words saw herself as "a central contact point and post office". If a particular matter affected the client of a particular member of the Management Committee, she would speak principally with the member of the committee whose client that was. Under cl 13(a) of the agreement and the First Schedule Mr Balcam was appointed Manager, but he did not in fact do any work in that role. Upon Mr Balcam retiring from Bird Cameron, Mr Peter Landers was appointed to the Management Committee on 7 June 1991. Later Mr Daryl Turner replaced Mr Daryl Lynch and Mr Rogan Ward (a real estate representative of Mrs Barbara Lee) replaced Mr Geoffrey Henderson. 2. Defaults and Short Payments After the initial contribution, the next payment from the partners fell due on 31 December 1990. The Walkers and the Connells defaulted in this payment ($12,935 each) and did not make any payments thereafter. By letter dated 28 May 1991 the Management Committee sent the partners a notice under the partnership deed requiring contributions. From that notice it appeared that only 19 full units were paid up. The two Dean partners Bactbuild and Lonihire each made a short payment of $11,390 as a result of their protest over the re-purchase issue. 3. May 1991 Valuations Pursuant to cl 18 of the partnership agreement, the Management Committee arranged valuations of the property. Ms Sally Clarke of Richard Ellis provided a valuation as at 17 May 1991 of $11.9 million. Mr Andrew McDonald of Baillieu Knight Frank provided a valuation as at 23 May 1991 of $11.5 million. By letter of 14 June 1991 the Management Committee provided to partners an extract of those valuations. 4. 1991 Rent Review The first rent review after the purchase was due on 24 March 1991. As has been noted, this was the only rent review under the lease for which any parameters were set. Within those limits of $172.22 and $199.13 per square metre per annum the rent for the ensuing two years was a matter for negotiation or, in default of agreement, determination by a valuer under cl 3.2 of the lease. As the reader by now will probably not be surprised to learn, complications arose. Clause 3.2 of the lease relevantly provides:

[185]

It appears from the evidence of Mr Read that this letter was deliberately backdated to 17 June and had in fact been posted on the evening of 18 June. Thereafter a dispute ensued as to whether Coles Myer had lost its right to object to the rental increase proposed by the lessor. Gray & Winter on behalf of the lessor obtained a written opinion from counsel which was to the effect that the letter of 13 May was a valid notice of the amount considered to be the current market rental, that the lessee had waived any defects in service, that the lessee's letter of 17 June was out of time as a response to the letter of 13 May and that the letter of 17 June was not a response to the lessor's letter of 7 June. By mid October the dispute was still unresolved. In telephone conversations on 15 and 16 October between Mr Fetter and Mr James Gray on behalf of the lessor and Mr Read on behalf of the lessee there was discussion both as to the rival legal views and the appropriate market rental. There was discussion of 75 per cent and 50 per cent of the owner's claim as possible figures for agreement. On 18 October Mr James Gray and Mr Fetter met with Mr Read and two gentlemen from Coles Myer. The respective legal stands were restated and market rental evidence was discussed. The upshot was that Coles Myer offered 50 per cent of the increase sought by the lessor. That was rejected. The Coles Myer representatives then offered $190 per square metre for the office space, which they said was their maximum. A few days later agreement was reached on a figure equal to 75 per cent of the proposed increase. On 31 October Bird Cameron wrote confirming the new rental, viz $1,452,094.33. This represented office space at about $192.40 per square metre. I think that all I can and need say is that there was a clearly arguable case that Coles Myer had lost its right to object to the lessor's proposed rental. A commercial settlement was negotiated which took into account the legal position as well as evidence of market rents. Accordingly I do not think the figure that was arrived at necessarily represents the market rent and the figure may well have been lower had the legal issue not intruded. 5. Refinancing Discussions At a partners' meeting on 7 August 1992 Mr Glass told the meeting that there might be a problem refinancing the mortgage which fell due in the following year because of the substantial fall in the commercial property market. Various courses of action were discussed, including the possible extension of the mortgage loan by Hudson Conway. Mr James Gray said that it would be in the partners' best interests to consider putting up additional security and seeking a loan from financial institutions sufficient to pay out the existing mortgage. He pointed out that market interest rates had fallen from 14 per cent under the mortgage to about 9.75 per cent. This meant that the annual shortfall for partners would reduce from about $40,000 to about $5,000. Mr Gray said that they ought to continue contributing $40,000 but using the surplus to reduce the mortgage debt. In January 1993 discussions took place between Mr Gray and Mr Glass. The latter said that the partners preferred an extension of the mortgage by Hudson Conway. Mr Gray said that it was commercially unrealistic to expect Hudson Conway to extend a mortgage of $16.265 million for a further five years at the prevailing market rate. Mr Gray said to Mr Glass and other members of the Management Committee that a more sensible approach to Hudson Conway would be to suggest the partnership attempt refinance by way of first mortgage from another lender of up to $10 million, have the partners contribute about $1 million, and ask Hudson Conway to leave in by way of second mortgage about $5 million. On a number of occasions in late January and early February 1993 Mr Gray put forward the same suggestion to Mr Tony Kelly, a solicitor who acted for a number of partners. Mr Kelly said that while he would listen to any constructive suggestions he felt the absence of a ratchet clause meant that the property was only worth between $6 million and $8 million and that in his opinion there was no prospect of achieving a refinancing even if Hudson Conway were to assist. About this time Mr Gray did some work on possible calculations of refinancing structures. He prepared a refinance strategy, based upon existing debt of $16.265 million, existing rent of $1,453,094; an assumed capitalisation rate of 12% and an assumed valuation of $12,100,000. He assumed debt service on a first mortgage of $9,075,000 at 9% being $816,750 per annum and a second mortgage of $5,690,000 at 9% of $512,000, giving a total of assumed debt service of $1,328,750. It was assumed that the partners would contribute equity of $1.5 million. Estimates of partner's payments 1 July 1993 to 30 June 1997 were approximately $48,500 per person per year. Mr James Gray arranged a meeting on 10 February which took place between Mr Barry Hamilton of Hudson Conway, Mr Kelly and himself. Mr Hamilton said that, without making any commitment, Hudson Conway would welcome a refinancing proposal. He said that Hudson Conway had been more than reasonable in reaching a commercial solution with the members of the Telecom partnership and he could see no reason way the same flexibility would not be offered to the Coles Myer partners. Mr Gray obtained a letter dated 11 February 1993 from R & I Bank of Western Australia Ltd giving "an indicative outline of a facility proposal" for refinancing. The facility amount offered was a first mortgage of $9.25 million or 70 per cent of the current assessed value of the property, whichever was the lower, for a fixed term of five years. The letter required, amongst other things, a current valuation by a licensed valuer acceptable to the bank. On 12 February Mr James Gray and Mr Garrick Gray attended a meeting of the partners and put forward a number of suggestions as to how refinancing might be achieved with Hudson Conway based on the R & I Bank proposal. Mr James Gray told the partners of the meetings with Mr Hamilton and said that Mr Hamilton had indicated that consideration would be given to refinancing a proposal similar to that agreed with the Telecom partnership. He also told them that Mr Hamilton said that if Hudson Conway were to assess a refinance proposal it would require updated asset and liability statements of the partners. Mr Gray asked each investor to provide such statements. On 15 February Mr James Gray provided a without prejudice "draft refinance proposal" to Hudson Conway and sent a copy to Mr Glass for circulation to all partners. The essential elements were first mortgage finance of $9.25 million, a Hudson Conway second mortgage of $5 million and partners' additional equity of $2.015 million. Interest rates were to be 10.15 per cent for both first and second mortgage. The assumption was made that rent would continue at $1,453,094. On 17 February Mr Gray submitted a further refinance proposal which varied the earlier one by suggesting that Hudson Conway share the equity contribution with the partnership. On 26 March Mr Garrick Gray wrote to Mr Kelly discussing refinancing proposals and enclosing a copy of the R & I Bank's letter. On 6 April Mr James Gray spoke to Mr Hamilton who produced a proposal of "indicative terms and conditions" in a letter dated 25 May from NatWest Australia Bank Limited for a loan of $10 million on first mortgage. This was based on an assumption of a current market value of $12.5 million. It required repayments of capital of $250,000 per annum payable quarterly. At the meeting a second mortgage loan of $3 million by Hudson Conway was mentioned, with the balance being made up by partners' contributions. Whether Mr Hamilton put forward that second mortgage loan as a firm proposal is not clear. On 11 May Mr James Gray wrote to Mr Alan Tribe of Bird Cameron with a proposal for the refinancing headed "Refinance Assumptions". This involved a first mortgage from Natwest of $9.3, $9.35 or $9.605 million, second mortgage from Hudson Conway of $5.215, $4.58 or $5.91 million, partnership bank account $.7 million and contribution from partners of $1.05 million. However the stated assumption was an agreement with Coles Myer that rent would not fall until at least 1997 from a figure of $1,366,128. Also on 11 May a partnership meeting was held. The meeting resolved to authorise Mr Rogan Ward to negotiate with Coles Myer on a without prejudice basis the rent review and report back. Following that meeting Mr Glass wrote in his capacity as a partner and not as Chairman of the Management Committee to Mr James Gray. The letter noted that:

[194]

It is important to review the progress of Hudson Conway during the 1989 financial year in the context of the general business and economic climate prevailing in Australia. The domestic conditions during 1988 characterised by such things as rising residential and commercial property prices and increased consumer spending, created a false sense of economic prosperity in this country. The reality was that such expansion was fuelled not by an intrinsic improvement in our industrial base or international competitiveness, but rather by greater access to borrowed funds by Government, corporates and individuals alike. The problems which the country is now facing - record trade deficit, increasing inflation and record levels of national debt - are the direct result of these excesses. Australia had not earned the right to undertake this level of borrowing and the economic hardship now being felt is the price we must pay to restore our international competitiveness. The necessity for high interest rates and a restrictive monetary policy is likely to continue throughout 1990. The casualties of this policy in the corporate sector have been well publicised and, no doubt, more will surface over the next twelve months. The resultant tightening in bank lending policy and slowdown in economic growth can only exacerbate this problem given the reliance of some sectors on debt finance. ... the international markets which Australia used so effectively to finance its expansion are harsh in judgment. The cost of borrowings and availability of funds for corporates and Government will be adversely affected as Australia's credit rating inevitably deteriorates. The effects on the property sector have been significant where a combination of high gearing, inflated asset values and lack of buyers has caused the industry to contract. It is within this environment that Hudson Conway concentrated its efforts during the year on consolidating the Company's financial position. The success of this strategy, made possible by our conservative approach to the property market during 1988, is evident in the Annual Accounts presented to you today. ... In terms of our core activity of property investment and development, as Mr Williams reported at the Annual Meeting last year, Hudson Conway approached 1989 with considerable caution. No new acquisitions of any significance were undertaken; our work in progress was completed; and plans for the three major development sites - Coles Myer Tooronga, Capital Plaza and the C.U.B. site - are being actively pursued so that realistic development opportunities can be generated. ... Your Company remains committed to investing in Australia. However, unless major structural reforms referred to earlier are introduced, Australia will increasingly become a less attractive place to invest on a world scale. Your Directors feel these important issues are now being addressed. The rate of change will, however, be slow and our view of the economic prospects in general for the next twelve months are not optimistic.

[199]

Both valuers in giving evidence sought to retreat from those contemporary expressions of view. Mr Chiminello said that he was just "softening the vendor up" and trying to extract instructions for a counter offer. Mr Forsyth said that he was merely acting as "an advocate" and just "painting a picture" as best he could for his client. I do not find these explanations convincing. In fact they reflect little credit on professional men who advanced them seriously in sworn evidence. In both cases the valuers were addressing their comments to persons who were expert and knowledgeable in the Melbourne commercial property market. Hudson Conway was one of the largest property investment and development companies in Australia. Mr Gill was a highly experienced and respected valuer. It is one thing of course, as Mr Forsyth stressed, for a valuer to put a figure. A valuer acting for a tenant in a rent review will obviously put a figure as low as possible consistent with the evidence, just like a barrister acting for a defendant. But in both instances Mr Chiminello and Mr Forsyth were advancing a factual description of what was happening in the market place to a recipient who was, and was known to be, an expert in that market. I am satisfied that Mr Chiminello and Mr Forsyth believed that what they were saying was a true and fair description of the market at the time - as in fact it was. Moreover Mr Chiminello and Mr Forsyth both considered their descriptions of the market as relevant to the professional task in which they were engaged. Whether or not those tasks were valuations in the strict sense, they were serious occasions for the application of professional expertise in which opinions of value, whether rental or capital, were necessarily involved. There was also evidence that from a time, said by Mr Church to be about mid 1990, Richard Ellis adopted as standard practice the insertion of a warning into their form of valuation letter. After that part of the standard letter which contained a definition of market value in terms of Spencer v Commonwealth (1907) 5 CLR 418, there was inserted the following:

[204]

I respectfully agree with Wilcox J's comments. Although the present case is not concerned with the particular kind of issue as to which Wilcox J thought evidence of genuine offers might be relevant, his Honour shows that it is unsafe to assert in unqualified terms that a specified kind of evidence is per se inadmissible without careful analysis as to the purpose for which it is sought to be used in the instant case. There are two categories of evidence which I think are relevant and admissible on particular issues in the present case without infringing the McDonald rule. These issues include the question whether Mr Chiminello honestly held on reasonable grounds the opinion expressed in the 31 May letter. The Court is entitled to look at how Mr Chiminello's opinion was arrived at by considering, amongst other things, material of the kind which valuers themselves obviously use. The first of the categories is that of market perceptions about the present condition of the relevant market, which necessarily include present views as to future prospects. Spencer itself shows that questions of value are not to be determined by a mechanistic process strictly confined to evidence of comparable completed sales. Also relevant were views then held as to the likely future prosperity of Fremantle (Griffith CJ at 430, Barton J at 436). Isaacs J (at 441) in expounding the concepts of the hypothetical sale and the willing but not anxious buyer and seller, included among the "ordinary business consideration(s)" "the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever". Mr Chiminello himself did no more than this when he said in his letter of 31 May that "(c)onsideration should also be given to the current state of the property market and this has been reflected in the analysis used to arrived at the value of the property". The second category is that of the performance of the subject property where it has already been exposed to the market. I asked this question of Mr Keck, a valuer called by Hudson Conway:

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I accept the view of Mr Dudakov that this over supply effect was more serious in the Melbourne CBD and immediate fringe area than in St Kilda Road and suburban areas. (c) Fringe v CBD In the Melbourne metropolitan area commercial property is considered as falling into particular market segments: the CBD, the fringe CBD, St Kilda Road and suburban. Each has its own particular characteristics and, over the relevant period, some performed better than others. In particular it seems that the over-supply of office space had a greater impact on the CBD and fringe than on the other segments. This market separation is somewhat more distinct in the tenancy market than in the investment market. Factors such as the identity and occupation of tenants no doubt affect this. For example, one can readily understand that a major legal or accounting firm would only be interested in a CBD tenancy. From the point of view of investors, who are interested in the income stream presented by rental and also capital growth, the distinction is perhaps less marked and is largely a function of the cost of the building, buildings in the CBD being in absolute terms usually more expensive. Nevertheless investment properties are marketed by a few leading real estate firms such as Richard Ellis, Jones Lang Wootton, Baillieu Knight Frank etc all of whom would offer a potential investor a range of commercial properties over the different metropolitan market segments. And within each of the market segments there is obviously a range of quality and price resulting in overlap with other segments. My general conclusion is that while I accept that there are distinct market segments in the sense mentioned, they do not operate in isolation one from another. Dealings in one would impact on another. I do not seek to venture into technical areas of market definition and substitutability; none of the expert evidence really addressed those issues. (I do not wish to be taken as complaining that there was not enough expert evidence in this case.) Nevertheless it seems but a matter of common sense that there could be tenants whose needs were equally suited in the CBD or the fringe area and who might be attracted into the CBD from the fringe by low rents in the former with a consequent effect on demand in the fringe. And of course all Melbourne metropolitan markets would be affected by macro-economic factors such as inflation, interest rates and perceptions as to the future of the State and national economies. (d) Rental Incentives There was much debate in valuation circles in 1990 as to whether a valuer in considering comparable rentals should take into account rental incentives offered by landlords in what was then becoming a strong tenants' market. Suffice to say that the debate, which assumed almost theological fervour (one valuer witness in this case referred to the opposing view as "intellectually corrupt"), was finally settled in 1991 in favour of the incentivists by a ruling of a special conference of the Australian Institute of Valuers and Land Economists. I accept that as at June 1990 there were reputable valuers who were non-incentivists. 2. The Coles Myer Building - Capital Value The building itself is a four storey warehouse converted in 1980 to office and storage accommodation. There are on-site car parking facilities for 75 vehicles located at first floor level. The total net lettable area of the building is approximately 7,012m2. The lease by cl 3.3 specified certain criteria which were to be adopted in all rent reviews. The effect of these was

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To my mind a compelling indication of the value of the Coles Myer building was the fact that the sale took place on 29 June 1990 consequent upon the option granted to AIMH on 17 May, that is to say, a sale which was in truth for $13.8 million and was on generous vendor terms. This sale was, for reasons which I shall explain in more detail hereafter (Part VII Section 1), completely at arm's length. The property had been professionally marketed by leading Melbourne commercial estate agents in the previous year and for three to four months leading up to the sale. The vendor was a professional in the property development and investment field, in fact one of the largest and most successful in the country. There is hard evidence as to their expertise in what turned out to be the wise position they took in 1989 as to the then future for the property market. While it is clear that Mr Lloyd Williams wanted to sell this property, there is no evidence of any pressure, financial or otherwise, which might have deflected him or his company from getting the best price available on the market. Mr Williams and Hudson Conway fit well the picture of the willing but not anxious vendor. That being so I conclude that $13.8 million on terms was the best price available on the market for this building as at 29 June 1990. For reasons which again will require some elaboration later, Gray & Winter's fee of $1.035 million was a charge for work enuring to the benefit of the purchasers. It has nothing to do with the value of the building nor any services provided to the vendor. It was not part of the consideration which the vendor received for the sale of the building. One way of testing that conclusion is as follows. If a valuer had to value a hypothetical office building in the Queensberry Street area as at 29 June 1990, a relevant comparable sale would be the Coles Myer building. A valuer knowing all the circumstances of that sale would have to treat it as being an arm's length sale for $13.8 million and then make such allowance as appropriate for the vendor finance. The unusual market conditions, the previous marketing history of the building and the circumstances of the sale which actually occurred make this a case where conventional valuation approaches do not yield a satisfying result. This is not to say of course that I have not had careful regard to the evidence of the valuer witnesses. There may be little to criticise in much of their internal methodology. But in the light of what actually happened, I think their values are simply too high (and in the case of Mr Dudakov too low). 3. Cash Equivalent of the Vendor Finance The finance provided by Hudson Conway ($16.265 million for three years at 14 per cent, interest only) represented value to the purchasers because it was more favourable than the terms they might have obtained were they to borrow from an external financier and pay cash (i.e. 10 per cent deposit and balance of 60 or 90 days) to the vendor. What value is to be attributed to the vendor finance? Of the valuers who gave evidence on this issue, both Mr Keck and Mr Forsyth started with their assessed market value (Keck $14.2 million, Forsyth $14.25 million) and then calculated the cost of external finance for a cash purchase at that price, together with acquisition costs. From the cost of that hypothetical external finance they subtracted the cost of the finance actually obtained by the purchasers. They then took the net present value of that difference as being the benefit of the vendor finance. They added the resultant figure (Keck $1.037 million, Forsyth $760,000) to their assessed market value to reach a figure which they said represented fair market value for a sale on the terms the purchasers obtained (Keck $15.237 million, Forsyth $15.01 million). Mr Dudakov took essentially the same approach, although his figures differed substantially. His assessed market value was $11.9 million and the net present value of the vendor finance $2 to $2.5 million. Before dealing with the question as to what is the preferable figure, I would observe that the equation would seem to logically work in reverse also. If fair market value on a cash sale plus net present value of the vendor finance equals fair market value for a sale on these terms, then if a sale on the same terms is a fair market price, the subtraction of the net present value should yield the fair market value on a cash sale. As Mr Forsyth said in evidence:

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Mr Keck thought it was a "popular misconception even by valuers, that the full extent of the benefit of vendor finance terms is always reflected in an increased sale price". His experience suggested that there is often a "surplus benefit" enjoyed by the purchaser because the total benefit of the vendor finance is not always taken up in an increase in purchase price. For this reason Mr Keck preferred to start with an assumed (cash) purchase price, being his opinion of market value. His evidence on this point was not challenged. Nevertheless it necessarily raises a rather subjective and intangible element. The fact remains that a sale on vendor terms more favourable than could be obtained from an external financier, as was on any view the case with the sale of the Coles Myer building, represents value passing from vendor to purchaser and indicates that an arm's length sale for cash would have been at a lower price. The element mentioned by Mr Keck may perhaps be taken into account as a discounting factor, but it is no reason in my opinion for refusing to attempt the task of assessing the cash equivalent of a sale by vendor finance which actually took place. Turning to the figures, an essential element is the market interest which would have been paid on external borrowings. Mr Kech used 16.5 per cent for the total acquisition cost. This was plainly incorrect since, as Mr Forsyth and Mr Dudakov pointed out, probably no more than 70 per cent could have been borrowed on first mortgage. There would have been a second mortgage up to the extent of the price and an unsecured loan for the balance. Mr Dudakov said first mortgage rates at the time would have been of the order of 18 per cent, with second mortgage rates at 22.5 per cent and an unsecured loan a further 2 per cent higher. Mr Forsyth however produced evidence of first mortgage rates quoted in Australian Property News of 3 May 1990 which support his first mortgage rate of 16.25 per cent. I accept that and also his second mortgage and unsecured rates of 18.5 per cent and 20 per cent respectively. Mr Forsyth worked on a loan amount of $14,978,871 which was made up of the price of $14.835 million plus stamp duty, legal and loan fees, less the purchasers' equity of $808,536. Mr Dudakov points out, correctly in my view, that the amount in fact loaned was $16.265 million which included the first six months interest and was on top of the purchasers' equity contribution. The implications of differing views as to these various components were not worked out arithmetically in evidence or submissions. Doing the best I can, I find the value of the vendor finance was at least $1 million. Some account has been taken of Mr Keck's "surplus value" element, but not much. Mr Williams was a very experienced and successful property dealer who was not likely to give away any great bonus in an arm's length transaction. I find therefore the market value on a cash sale as at 29 June 1990 was $12.8 million. 4. Rental Value This issue bears on the question whether or not it was misleading and deceptive to say in June 1990 that the Coles Myer building was underlet, that is to say let at less than a market rental. Among the numerous lettings suggested by the various valuation witnesses as being comparable, the most relevant in terms of location and date of letting (or most recent rental review) were: $/m2 Telecom 31-47 Barry Street Carlton 7/89 196 St Nicholas Place Carlton 7/90 203 100 Drummond Street Carlton 5/88 204 121 Cardigan Street Carlton 6/89 187 550 Church Street Richmond 3/89 175 Of these the Telecom building obviously attracted the most attention as a yardstick. An attempt was made by the applicants to show that the Telecom building was much superior to the Coles Myer building and that as a consequence the difference in rent was due to the respective merits of the buildings rather than Coles Myer being let at less than market rent. Richard Ellis contested this and asserted a case that the Coles Myer building was not merely comparable to the Telecom building but superior. The contest concerned such detailed issues as the relative position (Coles Myer being on a corner with a main street frontage), ease of subdivision, ceiling lights, lift movements, planning controls and other matters. However I remain unpersuaded that two buildings, not only in the same area but next door to one another, and both refurbished at the same time for office and car parking use, are not very comparable. That finding together with the lack of evidence of any other property directly comparable to the Coles Myer building let at a similar rental, leads me to the conclusion that I am not satisfied that the Coles Myer building as at June 1990 was not underlet. Insofar as rental incentives may have operated in the market place at this time, there is no satisfactory evidence that in the case of any directly comparable properties there were incentives which resulted in net rentals that would support a conclusion that the Coles Myer rental was a market rental.

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(For convenience, and unless the context otherwise indicates, reference hereafter to Hudson Conway is to be taken as including its wholly owned subsidiary Amadio.) In law, agency connotes an authority or capacity in one person to create legal relations between a person occupying the position of the firstmentioned person's principal and third parties: International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644 at 652. To establish that Gray & Winter became Hudson Conway's agent, it is not enough to show that the former did work at the request of the latter for its benefit: CML v Producers and Citizens Co-operative (1931) 46 CLR 41 at 48. Moreover, an independent contractor may promise to endeavour to achieve a specified result, and stipulate for the receipt of a commission if he does so, but on the basis that he "is his own master as to how he goes about it": Erikson v Carr (1946) 46 SR (NSW) 9 at 14 per Jordan CJ. A familiar example is the insurance broker. Generally he is not the agent of the insurer, notwithstanding that he is paid by a commission out of the insurer's premium: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 at 234. Turning to the evidence, there are three major factors which make the applicants' case on this issue untenable. First, there was no need for Hudson Conway to make Gray & Winter its agent. In the ordinary course of its business, as exemplified by some 25 instances in the 18 months leading up to May/June 1990, Gray & Winter would locate commercial properties with blue chip tenants holding long leases, negotiate with owners an option to purchase the properties, and then put together a syndicate of purchasers recruited through accounting firms. That business was not one of acting on behalf of vendors; rather it involved organising purchasers and acting on their behalf. Hudson Conway was typical of the vendors with whom Gray & Winter dealt in this way. The "acquisition fee" which Gray & Winter charged in this case was not in substance a payment made by Hudson Conway (although, as mentioned above, even if it were that would not in itself be enough to make out the applicants' case). The "acquisition fee" was a reward to Gray & Winter for the services it performed for investors. In the present case, an individual with $40,000 to invest could buy shares in Coles Myer on the Stock Exchange, but could not, without some special arrangement, buy a share in the equity of a building which Coles Myer occupied as a tenant. It was through the syndicate organised by Gray & Winter that an investor could achieve that end. Secondly, there is the conversation between Mr Garrick Gray and Mr Lloyd Williams on 15 May 1990. The evidence of both men as to this was in substantial accord. There was no suggestion in their evidence of the establishment of an agency or some other arrangement along the lines alleged in the amended statement of claim. I have no reason to doubt the evidence they gave on this issue. It is inherently probable, being consistent with the sort of business that Gray & Winter carried on as a syndicator of property investments and Hudson Conway's position as a vendor which wanted to dispose of this particular property. The applicants' case would require me to construct some different version, quite contrary to credible evidence. Thirdly, there is the option agreement. An arm's length agreement granting an option and the relationship of principal and agent are two quite different things. The option-holder has no obligations, fiduciary or otherwise, to the vendor; the option-holder has no power to create legal relationships between the vendor and a third party (other than pursuant to a nominee clause in the option agreement itself). The option-holder simply has the right to exercise the option and become a purchaser upon the stipulated terms: cf Elders Trustee & Executor Co Ltd v E G Reeves Pty ltd (1987) 78 ALR 193. It is said that the option agreement was a sham. There is much authority on the concept of sham but it is sufficient if I refer to what was said by Lockhart J in Sharrment v Official Trustee (1988) 82 ALR 530 at 537:

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In my opinion the evidence compels the conclusion that the option agreement of 17 May 1990 was a genuine arm's length transaction. It was entirely consistent with the negotiated position reached between Mr Gray and Mr Williams on the 15th. Its form was moulded by the counter-offer from Mr Hamilton by his fax of the 16th and the amendment of the draft forwarded by Gray & Winter on the 17th. Either those are ordinary offer and counter-offer between arm's length commercial parties, or they are the most Machiavellian and complex charade. If both parties were agreed on a sham, why not simply create the option agreement? The unexplained disappearance of the $10,000 option fee between the fax of 16 May and the agreement of the 17th is mildly puzzling, but not a circumstance which comes anywhere near turning an explicable commercial transaction into a fell conspiracy. I conclude therefore that Gray & Winter did not relevantly become the agent of Hudson Conway. It is thus not necessary to consider the detailed submissions made on behalf of Hudson Conway to the effect that, even if there was an agency relationship, Hudson Conway would not be liable for mis-representations which were not in fact specifically authorised by it or made by an agent with apparent or ostensible authority: see Armagas Ltd v Mundogas SA [1986] 1 AC 717. I also note for the sake of completeness that the agency case alleged was one of actual authority, not ostensible or apparent authority. Such a case was not open. There was no holding out by Hudson Conway nor did Gray & Winter say or do anything to indicate to the applicants that they were acting on Hudson Conway's behalf. 2. Bird Cameron and Gray & Winter Bird Cameron did not become the agent of Gray & Winter in the legal sense discussed above. However, Gray & Winter conveyed information to Bird Cameron, knowing and intending that Bird Cameron would in turn pass that information on to prospective investors. In the case of the Haarsmas and the Walkers there was no face to face contact between Gray & Winter and those applicants. In the case of other applicants such as the Gordons and the Schoemans, the respective wives had no contact with Gray & Winter. Nevertheless the whole purpose of Gray & Winter informing Bird Cameron about the scheme was to enable Bird Cameron to recruit investors. To the extent that Bird Cameron passed on misleading and deceptive information to an applicant, that was the intended, natural and probable result of Gray & Winter's conduct, and that conduct is actionable by the applicant against Gray & Winter. 3. Huntley McArdle & Glass and Gray & Winter Similar considerations apply to Huntley McArdle & Glass. 4. Richard Ellis and Gray & Winter (a)Letter of 31 May 1990 I find that when Richard Ellis sent the letters of 24, 29 and 31 May to Gray & Winter they knew and intended that Mr Gray would show those letters, or convey their contents, to prospective purchasers of the Coles Myer building. Further, Richard Ellis knew that the content of those letters was likely to have an influence on the making of a decision to purchase and intended that result. Mr Hemingway said in his witness statement:

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Mr Chiminello had been selling property in the City of Melbourne since 1983. As at May 1990 he was aware of syndicates buying properties, although he had never heard of Gray & Winter before. He agreed he did not try to exercise any control over the use Mr Gray might make of the 31 May letter. While I accept that, as at 31 May, Richard Ellis were not aware of the details of the syndicate Mr Gray was organising or of the identity of its proposed membership, they knew he was likely to be, in Mr Hemingway's words, "putting together some sort of a group". The syndicate of purchasers that in fact emerged was just such a group. Further, Richard Ellis must be taken as having been aware, that (i) the group of purchasers might well include persons who were not professional investors, or knowledgeable concerning the Melbourne commercial property market; (ii) Mr Gray in using the 31 May letter probably would not dilute its effect by informing potential purchasers that Richard Ellis were the vendor's agent, a fact which did not appear on the face of the letter; (iii)Mr Gray would be standing to gain some significant personal benefit if the group became a purchaser (albeit that the amount of that benefit was not known); and (iv) the 31 May letter was likely to be treated as a serious and considered opinion as to value given by a leading Melbourne firm of real estate agents and valuers and signed by a director of the company who was a qualified valuer. From the point of view of Hudson Conway, the matters referred to in the preceding two paragraphs are matters of which they were aware. This is not just a matter of imputing to Hudson Conway the knowledge of its agent Richard Ellis. Nor am I concerned with questions as to whether the usual or apparent authority of a selling agent extends to providing opinions as to market value. Hudson Conway, through Mr Rafaniello, knew of the terms of the 31 May letter and expressly authorised its being made available to Mr Gray. Moreover, Hudson Conway knew Mr Gray was organising a syndicate. They also knew that the best price they had been able to achieve on the open market after 18 months effort was $13.8 million with generous vendor finance, whereas the letter was putting a value of $14.8 million on a cash sale. They also knew that Richard Ellis, and in particular Mr Chiminello, would have been aware of the marketing history of the property. Counsel for Hudson Conway submitted that the opinion of value in the letter of 31 May was "not given by Richard Ellis on behalf of Amadio in its capacity as selling agent, rather it was given by Richard Ellis in its own professional capacity after Chiminello had obtained clearance from Rafaniello to provide such an opinion". The only significance of Mr Rafaniello's clearance was, it is said, to avoid the conflict of interest that would otherwise have arisen for Richard Ellis as selling agent. With respect, I think this analysis ignores the reality that both Mr Rafaniello and Mr Chiminello wanted a sale to take place to the person or persons to whom Mr Gray was likely to show the letter. Hudson Conway expressly approved the letter and were aware that it was to be used by Mr Gray as a marketing tool. (b) Material in Gray & Winter Brochure As to the Gray & Winter brochure, I am not satisfied Richard Ellis had any knowledge of it in May/June 1990. Mr Chiminello said, and I accept, that he had not seen it or known of its existence prior to the commencement of these proceedings. Gray & Winter did not seek permission to use any material from the Richard Ellis information memorandum in their brochure. As already noted, Gray & Winter reproduced the information memorandum in their brochure in a seriously distorted form. I find that Richard Ellis did not authorise the publication of their information memorandum in the Gray & Winter brochure. They did not do so expressly. Nor did their conduct amount to implied authorisation. Even though Richard Ellis knew Gray & Winter were acting on behalf of potential purchasers, they could not be taken to authorise the use of their document in such an altered form.

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Hudson Conway Given my conclusion that Gray & Winter were not acting as the agents of Hudson Conway, there was no duty of care owed by Hudson Conway to the applicants. They simply stood in the position of vendor and purchaser respectively. Hudson Conway is liable in respect of the Richard Ellis 31 May letter on a basis which has already been considered (Part VII Section 4(a)). 2. Gray & Winter Gray & Winter did not owe a solicitor's duty of care to the applicants. Although they were introduced to most of the applicants as solicitors, the work they did was not in my opinion the work of a solicitor. Their brochure did not refer to them as solicitors. They did not render an account for work done as solicitors. They acted as promoters of an investment scheme. As to this issue see also Section 5(a) of this Part. However Gray & Winter did, on ordinary principles of negligence, owe a duty of care in respect of the statements they made to the applicants. There was foreseeability of loss if the statements were to be relied on, and sufficient proximity. The statements were made with the intention that the applicants rely on them. There was obvious pecuniary interest, via AIMH. These concepts are discussed more fully in the Section 7 of this Part dealing with Richard Ellis. 3. Bird Cameron Bird Cameron did not dispute that they owed those of the applicants who were their clients a duty to exercise the care, skill and diligence of a prudent accountant in giving investment advice concerning the Coles Myer building investment proposal. It was not argued that their responsibility in giving advice was limited to taxation aspects. 4. Huntley McArdle & Glass The case of Huntley McArdle & Glass on this issue was a complex one. To understand that argument it is necessary to look briefly at the applicants' amended statement of claim. In par 35 the applicants other than Mrs Lee and Mr Green each allege that in June 1990 they had retained and had for many years retained Bird Cameron or Huntley McArdle & Glass, as the case may be, "as their accountants to advise them on accountancy, taxation and investment matters touching upon their affairs". In par 36 it is alleged that it was a term of each of the retainers that each of the accountants would carry out its retainer with the reasonable skill, care and diligence of a prudent accountant. That was said to be implied by law to give efficacy to the retainer and by the proper custom and practice of accountants. Par 37 is as follows:

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In par 38 it is alleged in substance that in breach of the terms of the retainer each accountant failed to give the advice and carry out the various steps referred to in par 37. Counsel for Huntley McArdle & Glass argued that the question whether Mr Glass was required to perform all or any of the acts referred to in par 37 in order to meet the standard applicable to the performance of its retainer depended on what terms were implied into the retainer. Counsel then developed his argument by reference to the BP Westernport criteria for implied terms such as business efficacy and obviousness. Particular reliance was placed on Hawkins v Clayton (1988) 164 CLR 539 at 544, 570-1, 582-5. That case concerned a claim by an executor that the solicitor for a testatrix was obliged to notify him of the existence and whereabouts of her will. Counsel referred to the analysis by Mason CJ and Wilson J (at 545) of the various contractual obligations as between testatrix and solicitor as to the steps the solicitor should have taken in relation to custody of the will. Counsel then argued that a term should only be implied in the Huntley McArdle & Glass retainer requiring positive acts to be undertaken where the problem which the positive step was to meet could not in the circumstances be reasonably dealt with in some other way. For example, he said, the clients could have been advised about joint and several liability by the solicitors Nevett Ford or Gray & Winter. With respect, I think this argument is based on a misconception. It elevates the detailed tasks required to be carried out in discharge of the retainer to the level of contractual terms. By way of illustration, if a person retained a solicitor to act in the purchase of real property, it would not normally be said that there were implied terms (in the BP Westernport sense) that the solicitor would (a) search the vendor's title at the Titles Office, (b) make requisitions on title, etc. etc. Rather the term to be implied that the solicitor would exercise the care and skill of a reasonably competent solicitor in a transaction of that kind. The amended statement of claim in the present case by pars 36-38 raises against Huntley McArdle & Glass just that kind of case. In my opinion the duty owed by Huntley McArdle & Glass to their clients was precisely the same as that admitted to be owed by Bird Cameron to the latter's clients. This conclusion is all the more readily reached because of the admission of Mr Glass that he gave advice to some of his clients that the Coles Myer scheme was "a sound investment". Obviously he treated advice of that nature as being given in the course of his retainer. If so, it is hard to see how the retainer could be anything other than that which the applicants allege. 5. Nevett Ford (a) Who was the Client? In my opinion Nevett Ford accepted a retainer to act as solicitors for the investors. (The question as to who fell within that category will be considered later.) Mr Stephens said in his witness statement that he saw himself "as an agent for Gray & Winter in assisting them to complete the project". But the test is an objective one and the evidence compels a contrary conclusion. Notwithstanding Gray & Winter's admission on the pleadings of a limited retainer to act as the applicants' solicitors "to negotiate the acquisition of the property on their behalf" (which falls well short of a retainer to act generally in the purchase and mortgage) on the terms of the Gray & Winter instruction letter, I find no such retainer in truth existed. The inconsistency between the role of Gray & Winter as promoters or entrepreneurs (which they undoubtedly filled) and their suggested role as solicitors for the investors is demonstrated by the following passage from the judgment of Brennan J in Leary v Federal Commissioner of Taxation (1980) 32 ALR 221 at 239-240:

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The evidence in this case suggests that the scheme was promoted by members of the legal and accounting professions, who assumed the mantle of entrepreneurs. But it does not appear that any of the entrepreneurs in the present case assumed the functions of professional adviser to a client, nor does it appear that any professional adviser assumed the role of an entrepreneur. It has not been material to consider whether it is possible for the role of a professional adviser and the role of an entrepreneur properly to coincide or overlap, but the appearance of solicitors performing these respective roles in the present case leads me to invite attention to significant differences between the two functions. These differences do not arise out of any judicial view as to the lawfulness or morality of tax avoidance: as to which see FC of T v Westraders Pty Ltd (1980) 11 ATR 24; 30 ALR 353; IR Comrs v Westminster (Duke) [1936] AC 1; Latilla v IR Comrs [1943] AC 377 at 381; Estate of Vicars (1944) 45 SR (NSW) 85 at 93; Re Weston's Settlements [1968] 1 Ch 223 at 245. They arise because the field of professional activity is co-extensive with a lawyer's professional duty. That duty is to give advice as to the meaning and operation of the law and to render proper professional assistance in furtherance of a client's interests within the terms of the client's retainer. It is a duty which is cast upon a lawyer, as a member of an independent profession, whether his services are sought with respect to the operation of taxing statutes, the provisions of a contract, charges under the criminal law or any other of the varied fields of professional concern. It is a duty which arises out of the relationship of lawyer and client. But activities of an entrepreneur in the promotion of a scheme in which taxpayers will be encouraged to participate falls outside the field of professional activity; those activities are not pursued in discharge of some antecedent professional duty. Entrepreneurial activity does not attract the same privilege nor the same protection as professional activity; and the promotion of a scheme in which particular clients may be advised to participate is pregnant with the possibility of conflict of entrepreneurial interest with professional duty. But, in any event, even if Gray & Winter did act in the limited respect suggested as solicitors for the investors, or carry out some of the tasks that solicitors do, that does not diminish or qualify the extent of Nevett Ford's retainer. The Gray & Winter instruction letter, which was shown to Mr Stephens at the outset, treats "Legals" (obviously legal costs) as an amount payable as part of the cost of acquisition of the building. Nevett Ford were to be paid directly out of the investors' funds and thus to rank equally with AIMH. The costings do not include any fees payable to Gray & Winter for solicitor's work. Their (substantial) reward, or rather the reward of AIMH, which is not a solicitor, is to be an "acquisition fee". The letter authorises Gray & Winter "to instruct solicitors to act in the conveyance of the property and the mortgages". (In fact there was only one mortgage, but this misdescription is not significant.) Thus Gray & Winter are not instructed to act as solicitors for the purchasers or otherwise in relation to the purchase. This letter would have been the ideal occasion for the recording of such instructions; it is a letter prepared by Gray & Winter and addressed to themselves. If they wished to assume the rights and obligations that go with a solicitor's retainer they could have done so very simply. On the contrary, the terms of the letter made it clear that a signatory would be authorising Gray & Winter to carry out the task of instructing other solicitors to act. This is not surprising. Although Mr Garrick Gray was, in verbal dealings with potential investors, happy enough to exploit the cachet of being a Melbourne solicitor, it would be a different matter to stipulate formally in the instruction letter that Gray & Winter, the indirect beneficiary of a million dollar acquisition fee if the transaction went ahead, would also be solicitors for the investors. That such a conflict would exist is in itself a circumstance pointing against a conclusion that Gray & Winter accepted a retainer as solicitors: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1985) 160 CLR 226 at 234, Leary (supra). The reference in the letter to Gray & Winter "further explain(ing)" legal documentation and taxation consequences is not inconsistent with the conclusion I have reached. These are not instructions operating prospectively but part of a self-protecting and self-serving paragraph by which Gray & Winter are attempting to have the signatory acknowledge a past history of events - much of which will turn out to be fiction, although of course Mr Stephens was not to know this when he saw the letter as a pro forma. The explaining of legal documentation and taxation consequences can be tasks falling within a solicitor's retainer, but not necessarily so. Such tasks can be done by others. In the absence of an explicit retainer of Gray & Winter as the investors' solicitors for this purpose (or any other purpose), the inference to be drawn is that Gray & Winter had been doing the explaining in their capacity as promoters. To return to Nevett Ford, Corrs appear to have dealt with them as solicitors for the purchasers, mortgagors and guarantors. The dealings between the two firms included negotiations as to the form of the mortgage; Nevett Ford sought and obtained a variation beneficial to the mortgagors. An important document in this regard is the contract of sale. It was proffered by Corrs bearing the name of Nevett Ford as solicitors for the purchasers and accepted by Nevett Ford without demur or qualification. The opening of the file and the client's ledger card are not consistent with Gray & Winter being Nevett Ford's client. True it is Huntley McArdle & Glass were named as clients, but nobody suggests that was literally the case. In the context, as explained by Mr Stephens, the name on the file was an indicator that it was expected at the time that clients of Huntley McArdle & Glass who invested in the scheme would become clients of Nevett Ford. The reference to "Property Syndicate" confirms this conclusion. The Nevett Ford fax of 29 June addressed to the accountants for the purchasers stated that Nevett Ford "have been appointed by Messrs Gray & Winter to act for a group of investors purchasing the Coles Myer building". The word "appoint" captures rather well the essence of the relationship between Gray & Winter and Nevett Ford. Solicitors were obviously needed for this large and complex transaction. It would be quite impractical for each investor to appoint his, her or its own solicitor and equally so for them to meet and agree upon a common solicitor. The appointing or engaging of a solicitor to act was a logical task for Gray & Winter. Finally there is the bill rendered by Nevett Ford. It is not addressed to Gray & Winter, but to "The Partners, Coles Myer Building". The "c/- Messrs Gray & Winter" is no more than an address for convenience. It is not at all inconsistent with Gray & Winter acting as agent, and not principal, that they should physically receive the bill and organise payment. It is hard to see who else could carry out that task. As to the identity of Nevett Ford's clients, I think that category included not only partners (who became purchasers and mortgagors), but other persons and entities who guaranteed the liabilities of partners, including those who came to give guarantees because they were sub-partners. All of these parties were incurring liability in respect of the same investment. For present purposes no sensible distinction can be drawn between these various sub-categories. For reasons which appear hereafter (Part XVIII Section 2), the partnership was not to come into existence until after the purchase. I think therefore Nevett Ford were acting for individuals as purchasers and prospective partners. Their clients were, as they said in their fax of 29 June, a group of investors. (b) The Extent of the Retainer Mr Stephens' evidence, the text of the Gray & Winter instruction letter, and Mr Stephens' file note of 15 June ("Act on purchase") enable the extent of the retainer to be defined quite simply - it was to act in the conveyance of the property and the mortgage. In relation to the latter, the retainer also extended to the guarantee since without the guarantee there could be no mortgage and no transfer. The content to be given to the obligations of a solicitor undertaking such a retainer is a question on which the expert opinion evidence of solicitors is certainly not essential: Fox v Everingham & Howard (1983) 76 FLR 170 at 178-179. The Full Court there adopted the statement of Bray CJ in Neagle v Power [1967] SASR 373 at 376:

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That passage was cited with approval by Kirby P in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 at 653. See also MacIndoe v Parbery (1994) Aust Torts Rep 81-290 at 61,543. In any case the evidence of Nevett Ford's first expert, Mr Charles Brett, is not of great assistance because it proceeded on an assumption, contrary to my finding, that Nevett Ford's client was Gray & Winter. Mr Brett looked at some of the evidence and formed a conclusion as to the nature of Nevett Ford's retainer. He did not express an opinion based upon assumptions put to him. As such, his evidence suffered from the defect discussed by the Full Court in Arnotts Ltd & Ors v Trade Practices Commission (1990) 24 FCR 313 at 344 et seq. In contrast to Mr Brett, Nevett Ford's other expert witness, Mr Peter Mitchell, accepted an assumption that Nevett Ford were to "act on behalf of the purchasers in the conveyance and the mortgage" but with the qualification that, rather than Nevett Ford "tak(ing) its instructions from the purchasers in a conventional solicitor/client relationship", the firm "should take its instructions from Gray & Winter". He said that in his experience this was "an unusual arrangement". Mr Mitchell then proceeded to say, in essence, that Nevett Ford were entitled to rely on what Gray & Winter told them. Mr Mitchell's reference to his assumed version of the Nevett Ford and Gray & Winter relationship being an unusual arrangement is a useful reminder that we are not concerned with a familiar solicitor's task, such that a solicitor called as an expert witness can say "This is the way things like this are usually done by prudent and competent solicitors". Therefore, Mr Mitchell's opinion as to what Nevett Ford were entitled to do is case-specific, and subject to criticism of the kind expounded by Oliver J in Hett. To return to Mr Mitchell's qualification as to the nature of the retainer which he assumed, he said in cross-examination that it meant Gray & Winter were to be the exclusive source of instructions. I do not agree. In my opinion, the word "instruct" in the context of the Gray & Winter instruction letter is used in the sense of retaining or engaging or appointing solicitors to act in relation to the transaction identified. It does not refer to "instructions" in the sense of the giving by a client of detailed information as to facts within his or her knowledge or the objectives he or she wishes to achieve. Still less does it mean or imply that the giving of instructions (in the latter sense) to Nevett Ford is to be the exclusive function of Gray & Winter. Obviously as a matter of practicality the parties are to be taken as contemplating that much information could pass to the solicitors for the investors via Gray & Winter, but equally it could pass via the accountants. Indeed that is in fact what happened and, moreover, at Mr Garrick Gray's suggestion. There was in my opinion nothing in the retainer to restrict in any way the right and obligation of Nevett Ford to communicate directly with their clients or via their clients' accountants, should such communication be necessary or appropriate for the discharge of their obligations to their clients. The obvious conflict of interest which Gray & Winter faced is an added reason for not implying such a restriction. I do not accept the view of Mr Brett that it would have been unreal or even improper to suggest Nevett Ford contact their clients directly in respect of some matters such as pitfalls in the proposed transaction. In fact Nevett Ford went some way to advising their clients directly in their fax of 29 June. This only went to the accountants and not to Mr Green and Mrs Lee who had not been introduced by accountants. It dealt only with the joint and several liability point. It was much too late, being sent to country accountants after normal office hours while the actual settlement was taking place. But Gray & Winter never complained about any impropriety in Nevett Ford sending this fax, nor could they. I am not persuaded there would have been any difficulty in framing the necessary advice to clients clearly but in terms to which Gray & Winter could not reasonably have taken offence. Such a letter could and should have been prepared at the outset and sent to each investor on his, her or its identity being revealed. I find that Nevett Ford's retainer imposed an obligation on them to advise their clients as to the nature of the rights and obligations they were undertaking by becoming parties to the contract of sale, transfer and mortgage or guarantee. The retainer was not limited to the task of ensuring that the purchasers obtained a good marketable title to the property. Once it is accepted that a solicitor is acting for a lay client in relation to a transaction involving, after the retainer commences, the execution of technical legal documents, it must follow in my opinion that the solicitor is obliged to explain and advise the client as to the effect of those documents. (I am speaking of lay clients in the sense of people whose ordinary business does not include transactions of the kind in question; different considerations might well apply, for example, to a client like Hudson Conway.) Much modern legal documentation, such as mortgages and commercial leases, is virtually unintelligible even to well-educated lay people. Yet generally speaking the law binds people to documents they sign, whether read or not. It is for this very reason that a solicitor's explanation and advice is so essential. And often it is important for a client to know what a document does not contain. Fox v Everingham and Howard (1983) 76 FCR 170 is directly in point. In that case Mr and Mrs Fox wished to purchase a house in the course of construction. The defendant solicitors acted for the vendor company which was also the builder. After discussions with a representative of the vendor company the Foxes went to the defendants' office. The vendor's representative introduced the Foxes as prospective buyers to Mr Everingham, a partner in the defendant firm. Mr Fox asked Mr Everingham if he would represent his wife and himself in the purchase of the house. Mr Everingham said he would. He took certain particulars, including the Foxes' full names and address, and the conversation then ended. Subsequently (in fact six or more months later, but nothing turned on the delay) the Foxes went to the defendants' office and saw a secretary who gave them a contract. Mr Fox discussed the contract with the vendor's representative. As a result of that discussion changes were made. The Foxes then signed the contract. The Foxes did not see Mr Everingham at the time the contract was signed, or thereafter. At no time did Mr Everingham, or anyone else on behalf of the defendant firm, explain to the Foxes any of the terms of the contract or give them any advice about their rights and obligations thereunder. With the consent of the vendor the Foxes went into possession before completion of the contract. Under a clause of the contract, of which they were not aware, they then became obliged to insure the property. The house was destroyed by Cyclone Tracy. It was not insured. The Full Court (Woodward, Muirhead and Sheppard JJ) held that the defendants were negligent in failing to advise the Foxes of their rights and obligations under the contract and in particular their obligation to insure upon going into possession (at 181). Their Honours said (at 174-175):

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The retainer given by the Foxes to the respondents obliged the respondents to act generally in the Foxes' interests in and about their entering into the contract and their taking of title to the property pursuant thereto. At the least that obligation required the respondents, either themselves or by an employee qualified to do so, to go through the contract with the Foxes and explain the salient points of it to them. In this way their principal rights and obligations under it would be explained as would the general course the matter might be expected to take. The respondents were also under an obligation to explain to the Foxes provisions of the contract which were in an unusual form and which might affect their interests as they were known by the respondents to be. In this respect we refer to Sykes v Midland Bank Executor and Trustee Co Ltd [1971] 1 QB 113 where the Court found a solicitor negligent because he had failed to draw his client's attention to a clause in an underlease which prohibited the use of the premises for other than specified purposes without the consent of the lessor. We refer also to Attard v Samson (1966) 110 Sol J 249. The respondents were also under an obligation which required them to give attention, before the contract was signed by the Foxes, to the question of whether it, from their point of view, contained adequate provisions to protect them against a variety of contingencies which might reasonably have been foreseen as likely to arise if things did not go as expected. It does not appear whether the contract was drafted in the respondents' office, but it was proffered by them on behalf of the company. The Foxes were entitled to rely on the respondents to see to it that the contract was adequate to protect their interests. In cases such as the present a solicitor is paid not only for what he in fact does, but also for the responsibility he assumes in trying to protect clients from financial loss if things go wrong. It is easy enough to act for people if things go as they are expected to. But it is because the unexpected will sometimes happen that solicitors are rightly paid the fees which they command. The corollary of this proposition is that if they do not measure up to the standard which is required of them, they are liable for breach of the obligation which they owe to clients. (Emphasis added)

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It is true that the lease was in existence at the time of the purchase and that substantial variations against the tenant's interest were unlikely to be achieved. But by the same token the clients were not legally bound to the purchase until the exchange of contracts at settlement on 29 June. Proper advice to the clients as to the terms of the lease was needed because a proper understanding of the benefits or otherwise of the lease was essential to the making of an informed decision whether to invest at all. The retainer duties discussed above are concerned with the lawyer's duty to give legal advice. Commercial advice, for example as to the market value of a property or the likely profitability of a business, is not ordinarily the function of a solicitor: cf Orszulak v Hoy (1989) Australian Torts Reports 80-293. But the applicants' claim against Nevett Ford does not, properly considered, involve a complaint concerning such advice. The duty to advise existed as a matter of law whether or not the particular investors expected to receive a letter of advice from a solicitor. Since the investors were in relevant respects ignorant of their legal rights and obligations, it is no answer for the solicitor to say that their clients did not know enough of the extent of their ignorance to ask for advice. 6. Metzke & Allan The applicants claimed that Metzke & Allan knew or ought to have known that the financial data they prepared at Gray & Winter's request would be used by Gray & Winter to promote the scheme to investors who would be likely to rely on the data in deciding whether to invest and who could suffer loss if was inaccurate. They argued that Metzke & Allan owed the applicants a duty to investigate and satisfy themselves as to the accuracy both of the facts asserted and of the assumptions on which the financial data was based. Metzke & Allan argue that the assumptions they used were provided by Gray & Winter under a limited retainer merely to generate cash flows using the given assumptions. Further, Metzke & Allan argue that Gray & Winter gave no instructions to verify the information supplied, and agreed to the specific request of Metzke & Allan not to use Metzke & Allan's name in any of the cashflows. While the relationship between accountants and their clients is contractual, the existence of concurrent duties in tort means that an accountant may be liable to third parties in certain circumstances: see Hedley Byrne v Heller [1964] AC 465, where the House of Lords approved Lord Denning's dissent in Candler v Cane Christmas & Co [1951] 2 KB 164. The case against Metzke & Allan is a claim for economic loss brought against professionals by people who are not their clients. It therefore calls for a direct application of the principles laid down by the High Court in the series of decisions referred to hereafter in consideration of the claim against Richard Ellis (Section 7 of this Part). The reasonable expectations of the parties, and hence the standard of care which may expected of a professional, is largely established by the particular relationship of professional and client. The original retainer is important in establishing the nature of the duty of care owed not only to clients but also to third persons. Windeyer J in Voli v Inglewood Shire Council (1963) 110 CLR 74 at 84-85 said this of the influence on the duty to third parties of the original retainer:

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See also Bryan v Maloney (1995) 128 ALR 163 at 167-168. Thus a contract between the original parties is not a bar to tortious liability towards third parties but it influences the nature and scope of the duty which arises: see Seale v Perry [1982] VR 193 at 215 per Murphy J, at 239 per McGarvie J; see also Junior Books v Veitchi Co Ltd [1983] 1 AC 520 at 533 per Lord Fraser of Tullybelton. Any duty Metzke & Allan owed to the applicants was limited by the terms of their express arrangement with Gray & Winter. Such duty did not extend to advising potential investors on the validity of the assumptions used in the cashflows. 7. Richard Ellis The claim against Richard Ellis is for economic loss suffered as a consequence of reliance on what is said to be the negligent opinion of value contained in the 31 May letter. The applicants making the claim (the Turners, Gordons and Deans) have to establish that Richard Ellis owed them a duty to take reasonable care in giving that opinion. The existence of that duty depends on (i) the loss the applicants suffered being loss of a kind that was reasonably foreseeable if such care was not taken, and (ii) the existence of "a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant kind of damage": Bryan v Maloney (1995) 128 ALR 163 at 165 per Mason CJ, Deane and Gaudron JJ. If a valuer negligently gives an opinion which puts too high a value on a property, it seems reasonably foreseeable that a purchaser relying on that opinion is likely to suffer economic loss by paying more for the property than its true market value: cf Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] 2 All ER 769 at 841. This seems obvious enough. The more difficult question is whether there was in the present case proximity in the sense expounded by the High Court in Bryan and earlier cases, especially Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529, Sutherland Shire Council v Heyman (1985) 157 CLR 424, San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340, Hawkins v Clayton (1988) 164 CLR 539 and Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520. Since the question of proximity in the present case arises out of "pure" economic loss (that is to say loss unconnected with damage to person or property) said to arise as a result of negligent misstatement, particular attention needs to be paid to those authorities which deal with that category of case, and in particularly San Sebastian and the valuable analysis of that case by Brooking J (with whom Gobbo and Tadgell JJ agreed) in R Lowe Lippmann Figdor & Franck v AGC (Advances) Ltd [1992] 2 VR 671 at 679-682. (His Honour's judgment is also illuminating for its discussion of Ultramares Corporation v Touche 174 NE 441 (1931) - "more often cited than read" as his Honour notes - which is the source of the celebrated aphorism of Cardozo CJ warning against exposure of defendants "to a liability in an indeterminate amount for an indeterminate time to an indeterminate class".) San Sebastian (at 357) established that

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As I read that passage, the existence of a pecuniary interest of a sufficiently direct kind, something more than the general interest local authorities have in developing their area, may be sufficient, as an independent alternative to intention of the kind discussed in Lowe, to support a finding of proximity. But at the very least pecuniary interest is relevant in determining whether a relationship of proximity exists. In my opinion there was, in connection with the making and publication of the 31 May letter, a relationship of proximity between Richard Ellis and the applicants. Mr Chiminello prepared the letter knowing, as I find to be the case, that Mr Gray was going to show it to a limited and specific class of persons namely potential investors in the purchase of the Coles Myer building organised by Mr Gray. The expression of an opinion by a registered valuer who was a director of one of the State's leading real estate and valuation firms was inherently likely to be an inducing factor in a decision to purchase the building. That conclusion is not affected by the circumstances that Mr Chiminello and Richard Ellis were not aware of the actual state of expertise of the investors or the details of Mr Gray's proposed scheme (including what counsel for Richard Ellis not unfairly called "its outrageously high gearing"). Nor does it matter in my view that Richard Ellis might reasonably have expected a higher degree of competence being exercised by accounting and legal advisers than turned out to be the case. The fact remained that a purportedly expert and independent assessment of market value was likely to be fundamentally relevant to any decision to invest. I find Richard Ellis intended that the letter would be relied on by potential investors organised by Mr Gray. Indeed it is hard to see that the letter had any other purpose. Further, Richard Ellis had a pecuniary interest in the sense discussed above. If Mr Gray was successful in organising a sale, Richard Ellis would be entitled to a commission under the applicable scale of the order of $200,000. I think that was so as a matter of law; in fact Richard Ellis were subsequently paid a commission by Hudson Conway, albeit a reduced amount negotiated after an initial refusal. In any event at the relevant time Richard Ellis believed they would be entitled to commission. Richard Ellis did not ask for or receive any fee or other payment for providing the letter. There is no reason why Richard Ellis would wish to act out of pure philanthropy, merely to do Mr Gray a good turn. The obvious purpose of Richard Ellis in providing the letter was the encouragement of persons organised by Mr Gray into a decision to purchase, an event which would result in commission for Richard Ellis. Counsel for Richard Ellis argued that, given their appointment as selling agent, their first duty was to act in the interests of the vendor in selling the property and obtaining the best possible sale price. I agree; that is one reason why I think the letter Mr Chiminello sent to Dr Chu reflected his true view of the property's market value. However, counsel proceeded from that proposition to argue that Richard Ellis sat "on one side of the bargaining table" and

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But that is the very problem. The letter of 31 May gave no indication that Richard Ellis was on the vendor's side of the table. Richard Ellis had no reason for believing that Mr Gray would volunteer that fact to prospective investors - indeed the trouble Mr Gray went to in order to procure the letter indicated the contrary. The position of Richard Ellis is to be distinguished from that of auditors of company accounts dealt with in Lowe and Caparo Industries PLC v Dickman [1990] 2 AC 605. Auditors undertaking a company audit must necessarily have the intention to discharge their statutory and contractual duties by making the report required by statute: Lowe at 682. The existence of such an intention may leave no room for the intention, essential for a negligent misstatement claim, of having some other person or persons act on the report. However, in the present case the letter of 31 May was brought into existence at the request of Mr Gray for a specific purpose, the influencing of purchasers being organised by Gray & Winter. It was a bespoke document. Moreover in terms of the limited class of persons to whom it was likely to be shown, it was a far cry from a company's audited accounts which, as in Ultramares, are typically to be shown to "banks, creditors, stockholders, purchasers, or sellers, according to the needs of the occasion, as the basis of financial dealings": Lowe at 675. Likewise the duty did not involve a liability indeterminate in point of time. It was limited to the marketing of this property to purchasers who, if concerned with tax deductions, would want to complete the sale before 30 June. In any case, if the purchase was to be by a group arranged by Mr Gray it was likely, and would have been obvious to Richard Ellis, that the sale would either be completed within a few weeks or fall through. Nor did the duty involve a liability indeterminate in amount. Any loss was likely to be fixed by reference to a decline in value of this particular building.

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Hudson Conway Apart from the 31 May 1990 letter there was no relevant duty. 2. Gray & Winter Those statements which I have found amounted to misrepresentation (see Parts X and XI) were also negligent and in breach of the duty of care owed to applicants. Someone in Gray & Winter's position acting reasonably would not have made such statements. The reasons for such a conclusion I think will be sufficiently apparent from the discussion as to the accountants' breach of duty (Section 3 and 4 of this Part). 3. Bird Cameron The Bird Cameron accountants were approached by Gray & Winter, of whom they had not previously heard, and who stood to earn over a million dollars if sufficient investors subscribed, and were invited to recommend the Coles Myer scheme to their clients on the basis that they would be paid $10,350 for each client who invested. The Bird Cameron accountants suggested the scheme to their respective clients with a recommendation, at least implicit and usually explicit, that the client invest. Apart from Mr Landers, the accountants did not point out any risks to their clients and in some instances reassured clients who enquired as to the existence of risk. I am satisfied that Bird Cameron breached the duty of care which they owed to their clients. On its face the Coles Myer investment proposal was extremely risky. Because of its high gearing it was utterly dependent on the property increasing in value to a substantial degree and with relentless regularity. The expectations raised by the promoters depended on market predictions extending far into the future. However it would have been readily ascertainable to a reasonably competent accountant that rent rises, or the absence of falls, were not guaranteed. Rental was not automatically linked to the CPI, which in any event might not increase at the projected rate. The consequences of the predictions not being borne out could be illustrated quite simply. It should have been obvious to reasonably competent accountants, on consideration of the Gray & Winter instruction letter, and from what they were told by Gray & Winter, that the true purchase price was $13.8 million. For reasons already explained (Part VII Section 1), the Gray & Winter "acquisition fee" was not a vendor's cost or a payment that added value to the building. Gray & Winter did not suggest to the accountants any rational reason for thinking that $13.8 million was anything other than a market price struck after arm's length negotiation with the vendor. Further, the generous vendor terms should have suggested a cash equivalent market price significantly less and probably below $13 million. Let that figure be assumed for the purposes of the present discussion. In any prediction as to the future value of property acquired for investment purposes, one possibility which should be within the parameters of any reasonable expectation is that the value of the property does not increase, does not fall, but remains the same. In the present case it was critical to the whole scheme that the vendor finance be repaid in three years time by finance from a bank or other external lender. Making the generous assumption that such a lender would advance 85 per cent of the value, if the value of the property remained the same as that which the present price suggested, such a loan would be only $11.05 million. There would be a shortfall of $5.215 million, that is $260,750 per one-twentieth share. So the investors could and should have been told that if, disappointingly but surely not unforeseeably, the value of the property were to remain the same in three years time, each would have to find over a quarter of a million dollars by way of further capital contribution. And it is difficult to see how this amount would be tax deductible. Similarly, the predicted growth in capital value of the building assumed a constant capitalisation rate of 9 per cent. It would not need a large variation in that figure to produce a substantial difference in the resultant value. For example, at a capitalisation rate of nine per cent on the passing rent of $1,279,807, the capital value is $14.22 million. If the rate varied by only one per cent, a capitalisation rate of 10 per cent on the same rental would result in a value of $12.80 million, a difference of $1.42 million or $71,000 per share. All the foregoing is but illustrative of the inherent potential for high risk as well as high reward in a heavily geared investment. The Bird Cameron clients were being asked to participate in an investment which involved a borrowing of $16.2 million for the acquisition of an asset which, on the evidence available to the Bird Cameron accountants, could rationally be considered as worth no more than $13 million. Yet none of the Bird Cameron accountants even mentioned to their clients the peculiar risk which the heavily geared nature of the investment created. The proposal on its face called for critical scrutiny, and particularly so because the clients did not have any experience in large scale commercial property investment. A competent and prudent accountant advising a client on investment needs to consider not only the investment in abstract terms, but its suitability for the particular client, given that client's personal and financial circumstances. What might be an acceptable risk for one client may not be for another. In the present case the particular circumstances of the clients accentuated the need for strong warnings about the risks inherent in the scheme - or, more to the point, indicated that it should never have been referred to them in the first place: Sweetman v Bradfield Management Services Pty Ltd (1994) ATPR 41-290 at 41, 912. The Bird Cameron clients were either primary producers, business people or doctors who lived in country towns. As such their prosperity turned directly or indirectly on the vagaries of the rural sector, subject as it always is to drought, fire, flood, commodity price fluctuations and other uncertainties. Even if the commitment to the investment over the ensuing years followed the prediction in the one page summary, the advice of a competent or prudent accountant ought to have included a warning that the present good times of 1990 might not always continue. And if bad times for the personal circumstances of the investor were to coincide with bad times for the performance of the investment, the compounding effect would be disastrous. I do not see the breach of Bird Cameron's duty as being mitigated by the tax attractiveness of the investment. Negative gearing, in the sense of a planned tax deduction of the difference between interest and net investment income, was a legitimate objective. But the scheme was sold as a long term investment standing on its investment merits, and in particular a projected increase in rental and capital growth. While the applicants were to differing degrees interested in tax deductions, the evidence does not suggest that any of them were unable to pay their 1990 tax year commitments without such benefit as they might have received from this investment. I do not doubt that the occasion may occur when a taxpayer is so anxious for a deduction that he or she cheerfully pays out money to obtain a taxation deduction fully recognising that the amount may be lost forever (which is what occurs with a charitable donation). However, it is quite a different matter to impute to the applicants in this case a concern only with tax deductions, notwithstanding that the scheme brought liability potentially far beyond the amount actually paid. All the foregoing assumes that the Bird Cameron accountants did not go beyond an examination of what appeared on the face of the scheme itself, accompanied by a wary scepticism arising from the fact that the promoters had such a massive incentive in the scheme succeeding. But I think a prudent and competent accountant in the circumstances, especially given the commercial inexperience of these clients, also had an obligation to make some enquiries as to the commercial validity of the assumptions on which the investment was based. An accountant assuming the obligations of advising a client as to investment in a particular area can make some enquiries as to the appropriate market. This is particularly so in the case of a large nationwide firm such as Bird Cameron which laid claims to investment expertise. The brutal fact is that the Bird Cameron accountants in the various country towns knew nothing about the Melbourne commercial property market, other than what they had learned from Gray & Winter, who they knew stood to earn over a million dollars if sufficient investors subscribed. Apart from Mr Landers, who looked at a few business magazines, they made no enquiries. The circumstances called at least for a frank disclosure to their clients that the giving of investment advice was made without suggesting any knowledge of the prospects of the Melbourne commercial property market. Had any such enquiries been made it is likely that the accountants would have encountered highly negative perceptions. While it is true that, as far as the evidence goes, no commentator in mid 1990 was predicting the extent of the downturn which eventuated, there was striking unanimity among all the valuers called as witnesses in this case as to the uncertainty which was seen in the market place at this time. The only conclusion which reasonable enquiries would have suggested was that the Coles Myer investment, a risky investment at the best of times, was being embarked on in a very uncertain market. Moreover, the investment had to succeed in the short to medium term and achieve the projected growth in value to enable refinancing in three years time. Yet it was this very period which was seen to be particularly uncertain. If the refinancing was going to cause significant problems, it was no comfort that in the long term, over say ten years, reasonable growth might be achieved. While the dangers of a perspective in hindsight need to be kept in mind, there was evidence of contemporaneous recognition of the risks of the Coles Myer scheme. Mr Allan Tribe of Bird Cameron Melbourne consulted with his colleague Mr Ronald Lyn of Bird Cameron Toorak. Both considered the investment was too highly geared and too risky and "terribly sensitive to falls in rental or property prices". It involved "a lot of money from the point of view of individual participants". If the property market or rentals moved the wrong way, clients could suffer very large losses. They decided not to deal with it. Mr Tribe reported the views of his client and himself to Mr Balcam. Mr Tribe and Mr Lyn were able to reach this conclusion without any consideration of the prospects of the Melbourne commercial property market or the absence of a ratchet clause in the lease. Mention needs to be made of the role played by Mr Balcam. He was a director of BPM and hence of the company which was the proprietor of the Millicent and Port Lincoln practices, and a partner in the Ballarat and Geelong practices. He was the Victorian State Manager of BPM and the supervisory partner for the Ballarat and Geelong offices. Notwithstanding the advice received from Mr Tribe he made no attempts to ensure that other Bird Cameron offices, and in particular Victorian offices, were warned not to put clients into the Coles Myer scheme. Mr Balcam had introduced Mr Garrick Gray to Mr Mayne and the other partners of Bird Cameron Ballarat. Further, Mr Balcam told Mr Mayne in the latter part of June 1990 about "other Bird Cameron offices participating in the project". He did not tell Mr Mayne that Bird Cameron Melbourne had been approached to promote the investment but declined. Mr Balcam denied having introduced Mr Garrick Gray to Bird Cameron Ballarat, volunteering as a reason why this should not have happened the fact that he did not "hold Garrick Gray very highly ... and because of that there is no way that I would have introduced him to any of our regional offices". I am satisfied that Mr Balcam, in respect of this issue, gave evidence that was consciously untrue. The knowledge of Mr Balcam is to be imputed to BPM. Therefore the advice that was given to the clients of Bird Cameron in Ballarat, Geelong, Millicent and Port Lincoln was given with the knowledge that experienced accountants at Bird Cameron Melbourne and Toorak had rejected the Coles Myer investment as unsafe. Finally, the failure of Bird Cameron (apart from Mr Landers) to disclose fairly and adequately to its clients the commission received from Gray & Winter - the details of which are discussed elsewhere in these reasons (Part XV Section 2) - was in itself a serious breach of the duty of care they owed to their clients and sounds in damages. Knowledge of the receipt of this commission was something which was likely to affect the reliance of the clients on Bird Cameron's advice. 4. Huntley McArdle & Glass All the foregoing comments apply to Huntley McArdle & Glass. Mention should be made that Mr Glass was aware that refinancing might prove to be a problem. At a meeting Mr Glass attended with Mr James Gray and Mr Stephens on 13 June Mr Stephens' notes includes the following:

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Yet Mr Glass did not suggest to his clients there was any risk at all as to refinancing without further capital contributions. For his clients the Deans the risk was that if the value of the property remained the same, they would face a liability for over a million dollars. Moreover, any rights to resell their shares were of little value in the absence of a provision releasing them from claims by the mortgagee and the other investors. In relation to the Deans and the Gordons, Mr Glass did not merely fail to warn of the dangers which should have been apparent in the investment, he took on a role of positive encouragement. 5. Nevett Ford It is alleged Nevett Ford breached their retainer by failing to give advice on a number of matters. (a) Joint and Several Liability I find Nevett Ford breached their retainer by not giving adequate and timely advice to their clients explaining the joint and several liability which was being undertaken. Time was short, but a common form letter of advice could have been prepared at the outset and posted or faxed to each client as soon as Nevett Ford became aware that client was joining in the investment. At the very least such a letter could have been sent to the accountants with the request that they onforward it urgently to the client. The Nevett Ford fax of 29 June shows a belated recognition of the importance of this particular issue. But, for a variety of reasons, I find this breach has no legal significance for the present case. Those reasons have to do with issues of reliance, causation and damage. Such issues are generally dealt with at a subsequent stage of these reasons. At the risk of distorting the structure of these reasons, I shall however deal now as comprehensively as I can with the issue of joint and several liability. The ignorance of the applicants of their joint and several liability loomed large in the presentation of their case. It was said that the applicants had no idea that they were becoming jointly and severally liable with people whom they had never met for a debt of $16.265 million. As a matter of evidence, I accept that the applicants were truthful when they said that they did not understand the concept of joint and several liability. Some of them had been familiar with farming or medical practice partnerships, but the way the Coles Myer investment was put to them involved a very different sort of enterprise and one that might understandably suggest some kind of company. There was, for example, emphasis on the investor's "share" and details of the individual's commitment as specified in the one page summary. But there is no point in replacing a half-truth with a three-quarter truth. What the presentation of the applicants' case overlooked in this regard was the value and extent of each applicant's rights of contribution. The likely effect on the applicant's conduct of knowledge of the true state of affairs has to be tested as at the time immediately before they became committed to the purchase by the exchange of contracts on 29 June. As at that stage the information obtainable from the applications for finance showed that the respective net assets of the applicants and other investors were as follows:

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I find the failure to advise in this respect was a breach of the retainer. Reliance on what Mr Gray claimed to have done was not an adequate discharge of the obligations which Nevett Ford assumed. The absence of such a clause was an unusual feature in leases of this kind. Mr Dudakov said that in his experience 90 to 95 per cent of commercial office leases contained such clauses. This was a matter peculiarly calling for a solicitor's skill because it depended on knowledge as to what usually appeared in documents of this type. It was thus something even the most diligent lay person was unable to discover simply by reading the lease. Nevett Ford should have drawn this feature to their clients' attention. The breach did not involve any failure to give commercial advice. The complaint here is not that Nevett Ford failed to give advice about the rental prospects of the building. I agree that such advice would have been outside their area of expertise. Rather, it was a failure to advise the applicants as to their prospective legal rights as landlords of the building in a respect which fundamentally affected the ongoing security of their investment. Some of the valuers called by respondents took a rather disdainful attitude towards the importance of ratchet clauses. They said, for example, that the lack of a ratchet clause would have no relevance in fixing the appropriate capitalisation rate. Perhaps that view may have been affected by the historical fact that, up until the early 1990s, rents rarely fell. But the fact that houses rarely burn down is no argument against the importance of fire insurance. The fact that usually landlords have sufficient bargaining power to require the insertion of such clauses explains why they are very common. The absence of the ratchet clause meant that the rent review provisions were unusual and might work to the disadvantage of the applicants: Sykes, Fox (supra). This conclusion is not affected by the argument that there was a ratchet clause applicable to the first rent review in 1991 and that a reasonable view as at June 1990 might have been that a slow down in rental growth would be compensated for by the floor placed under the rental between 1990 and 1993. I think this argument tends to confuse two matters, that is to say, advice as to legal rights and prediction as to commercial and market factors. In any case, the lease was to extend for another fourteen years with rent reviews every two years. The longer the period, the more difficult predictions become and the more important the security that a ratchet clause would give. (c)The Terrey Clause and the Condition Subsequent In par 63 of their amended statement of claim the applicants allege that Nevett Ford were required to advise them as to various matters including:

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The "condition subsequent" is presumably that referred to in par 47J, viz that the transfer on 29 June had been executed by Amadio in escrow and that the purchase moneys paid to Amadio and the settlement that took place that day were subject to the condition subsequent that if within 45 days from that date Amadio or its solicitor was not entirely satisfied as to the legal capacity of all of the parties in connection with the contract, transfer, mortgage, guarantee and indemnity of mortgage and power of attorney relating to the execution of such documents, then the transfer executed in escrow would not be released as the condition subsequent would not have been fulfilled - in which case the vendor reserved the right to cancel the sale, destroy the transfer and transfer back to the purchasers the moneys paid in excess of the amount of the mortgage loan. In par 64(a) it is alleged that Nevett Ford failed to give the advice referred to in par 63. It is also alleged in par 63A that Nevett Ford were required to (a) inform Hudson Conway, Amadio and Corrs that none of the applicants had been advised of or understood the Terrey clause or the condition subsequent, and (b) instruct Balcam not to execute any documents until the applicants had expressly consented to the Terrey clause and the condition subsequent. In par 64(b) it is alleged that Nevett Ford "failed to attend to any of the matters referred to in par 63A". Mr Stephens played no direct role in negotiating the Terrey clause. Mr Garrick Gray seems to have adopted the role of solicitor for the mortgagee on this issue. He dealt with Mr Terrey's solicitor on the basis of instructions obtained from Mr Hamilton who in turn sought the advice of Ms McCallum. Mr Stephens said that he only saw the clause after the wording had been finalised and that this would have been, going by the time of relevant faxes, some time between 3.15 pm and 5.38 pm on the afternoon of the 29th. There remains a suspicion that it was knowledge of Mr Terrey's stand that provoked Mr Stephens to request his partner Mr Lumb to prepare and send out the Nevett Ford fax of 29 June with its specific reference to joint and several liability. In any event, the case of Nevett Ford is that if, as I have found, they did not have a limited retainer then Mr Stephens had to make a judgment as to what course he should follow in the light of learning of the Terrey clause some time on the day of settlement, which on any view was a very late stage. Plainly the Terrey clause on the face of it altered the rights of Nevett Ford's clients because it affected their rights of contribution. Moreover, it would raise the suspicion that if Mr Terrey had not been informed until a very late stage about joint and several liability, perhaps Gray & Winter had not, as they claimed, informed other investors about the matter. It cannot be doubted that if time was available Mr Stephens should have sought instructions. But I think counsel for Nevett Ford was correct in arguing that it was too late to obtain meaningful instructions. There would be no point in merely contacting the accountants because they would in turn have to obtain instructions. Most of the clients lived in or near country or provincial towns. Nevett Ford would have had to not only contact them, on their farms or fishing boats, but explain the implications of the Terrey clause to them. Even if Hudson Conway agreed to adjournment of the settlement over to the following day (a Saturday), the time available would hardly have been adequate. Unless settlement was achieved on the 29th or 30th the clients would lose what at that stage they perceived to be a good investment and a major tax deduction. They were unlikely to thank Nevett Ford. In any case, it seems highly unlikely that Hudson Conway would have agreed to any significant number of applicants getting the same benefits as Mr Terrey, and certainly not all applicants. And how were Nevett Ford to distinguish between those of their clients who were to get a Terrey clause for themselves and those who were not? My conclusion is that in allowing the settlement to go ahead in the particular circumstances with which they were faced, Nevett Ford were not departing from the standard to be expected of a reasonably competent solicitor. And moreover, for the reasons already discussed in relation to the joint and several liability issue, Nevett Ford's judgment proved to be correct. A hypothetical and fully informed consideration of the Terrey clause by the applicants would include (i) advice as to the extent of the pool of assets available for contribution even without Mr Terrey, (ii) advice that if everyone insisted on a Terrey clause, the mortgagee would almost certainly refuse and the transaction with its expected tax and investment benefits would collapse, and (iii) advice that it was not practicable to give a Terrey clause to some but not others. In that setting the applicants may have been disgruntled at Mr Terrey stealing a march, but I am not persuaded they would have pulled out of the investment. As to damages, it has not been shown that the applicants suffered any damage by reason of their loss of contribution rights against Terrey. Their remaining contribution rights remained very substantial. The applicants' loss flows from the fall in value of the building, which has nothing to do with the Terrey clause. As to the condition precedent, all the outstanding requirements of the mortgagee were subsequently satisfied by 13 August. The Morgans' claim having been settled, the position is that as far as the other applicants are concerned, any requirements of the condition subsequent affecting the Morgans must be taken as having been satisfied. It was a benefit for the applicants to have the settlement go ahead in escrow on the 29th and thereby secure their desired tax deductions. The mortgagee was entitled to insist on provision of all the security documents it had requested. In any event the condition subsequent was satisfied by the provision of further documentation not connected with matters of which the applicants complain. There is no rational reason for supposing the applicants would not have consented to the condition subsequent had they been consulted and fully advised. Their evidence did not assert the contrary. As to the complaint in par 63A(a), Nevett Ford's duty was owed only to their own clients. Either that duty was discharged or it was not. If it was discharged in the circumstances that arose as a result of the Terrey clause and the condition precedent, then there was no obligation to discuss the matter with the parties on the opposite side of the transaction. Likewise the complaint as to failing to instruct Balcam (par 63A(b)) adds nothing to the allegation of breach of duty in relation to the Terrey clause and the condition subsequent. (d)Independent Advice It is alleged that Nevett Ford were required to advise each client "to obtain independent accounting, investment, legal and valuation advice in relation to the scheme" (amended statement of claim par 63(c)). But the retainer as I have found was one for Nevett Ford itself to give independent legal advice. There was no suggestion of any conflict of interest on the part of Nevett Ford. For the reasons already mentioned, it was peculiarly Nevett Ford's duty to explain clearly the legal rights and obligations that would accrue to the clients if they went ahead with the investment. It was not part of their duty to give general investment advice or to scrutinise the quality of such investment advice as the applicants had received. If for example the accountants did not give competent investment advice, then that is a matter for which the accountants are liable. I do not see that claim can be loaded on to Nevett Ford. (e)The Deans For the reasons already mentioned, I am not satisfied that a specific request for advice was made by the Deans to Mr Wilson nor any advice given by him in relation to the Coles Myer investment. 6. Metzke & Allan The applicants' claim against Metzke & Allan was settled during the trial. But it is still necessary to consider their liability for the purposes of cross-claims by other respondents. In the light of the specific and limited retainer which they accepted from Gray & Winter (see Part VIII Section 6), I do not think Metzke & Allan breached any duty of care owed to the applicants, or to Gray & Winter or any other respondent. There is no suggestion that the cashflow which Metzke & Allan produced was arithmetically defective, or that the assumptions it adopted, such as the assumed CPI rate, were on their face patently absurd. Since Metzke & Allan prepared the cashflows on the assumption, which I find to be reasonable in the circumstances, that they would only be shown to potential investors who were advised by competent accountants, there was no obligation on Metzke & Allan to investigate the validity of the assumptions and, in effect, adopt the (unpaid) role of accountants advising investors. Mr Allan was asked in cross-examination whether he had intended that potential investors in the Coles Myer scheme would read the Metzke & Allan cashflow. His answer was

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That seems to me a reasonable description of the function of the Metzke & Allan cashflow. In itself it was a useful and relevant document. An investor would be concerned with the future prospects of the building as an investment. This depended very largely on rental increases. There is a logical enough connection between CPI and market rent since office rental accommodation is a commodity whose nominal value is going to be affected by, amongst other things, the decline in purchasing power of money as measured by the CPI. There is not of course a controlling or mathematically measurable relationship, but CPI is nonetheless relevant. So I think Metzke & Allan were quite entitled to take the view that a competent accountant could use the cashflow and say to a client that one indicator of possible rental increase is CPI and that if the CPI increased broadly along the lines it had over the past ten years, the rent could increase as shown in the cashflow. The fact that the accountants in this case did not go on to point out to their clients the other risks and imponderables which made the cashflow unsafe to use in isolation, is not in my opinion something to be sheeted home to Metzke & Allan. I should record that in considering this issue I have been assisted by the evidence of Mr John Balmford, who was called by Metzke & Allan. Mr Balmford has had a distinguished career in the accountancy profession, culminating in some seven years as senior partner of Arthur Young (now Ernst & Young) and including membership for 15 years of the National Disciplinary Committee of the Institute of Chartered Accountants in Australia. I thought Mr Balmford articulated convincingly and in a principled yet practical way considerations applying to the practice of accountancy in the situation under review. Reference was made to the Rules of Ethical Conduct of the Institute of Chartered Accountants, and in particular REC 6. That rule is headed "Prospectus and Reports on Profit Forecasts". Paragraph 5 of REC 6 was said to be applicable. That paragraph needs to be read in the context of the preceding paragraphs which are as follows:

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Use of Names 1 No member, practice entity or practice entity participant shall allow his or its name to be used in any prospectus, in any statement containing an offer to acquire securities or other interests, or an invitation relating to the acquisition of securities or other interests, or in any document containing a report on the accounting bases and calculations of profit forecasts, until the words proposed to be used therein in respect of such member, practice entity or practice entity participant shall have first been submitted to, and approved by the member, practice entity or practice entity participant. 2 Reference to members, practice entities or practice entity participants in any such prospectus, statement or document shall be confined to a professional designation and no laudatory reference shall be permitted except as required by law. 3 A member, practice entity or practice entity participant shall not permit his or its name to appear as a director, auditor or otherwise in any such prospectus, statement or document if there is any matter contained therein or omitted therefrom which, in his or its opinion, could cause the prospectus, statement or document to be misleading. 4 A member, practice entity or practice entity participant shall not permit his or its name to be used in conjunction with any forecast of results of future transactions in a manner which may lead to a belief that he or it confirms, underwrites or guarantees the achievability of the forecasts. 5 This REC does not prohibit a member, practice entity or practice entity participant from preparing or assisting a client in the preparation of forecasts of results of future transactions. When he or it is associated with such forecasts, there shall be the presumption that that data may be used by parties other than the client. Therefore, full disclosure must be made of the sources of the information used and the major assumptions made in the preparation of the statements and analyses, the character of the work performed and the degree of the responsibility that he or it is taking.

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The corresponding State provisions are s 10A (Victoria) and s 54 (South Australia). At this stage a brief procedural explanation is necessary. The applicants' amended statement of claim pleads many representations which allegedly contravened s 52 (unless otherwise indicated, references to s 52 and s 51A are to be taken as comprehending also the corresponding State provisions). The representations are divided into two categories. First, there are written representations contained in the Gray & Winter brochure and referred to in the amended statement of claim as the "brochure representations". These are set out in par 22(a) to (r). Secondly, there are the "common scheme representations" set out in par 24(a) to (p). The latter representations are said to be partly in writing, partly oral and partly to be implied. Schedules to the amended statement of claim provide particulars under par 24 in respect of each group of applicants as to which representations are said to have been made and by which respondent. These particulars include the "brochure representations" as well. There is much overlap in the various representations pleaded. Including sub-parts, the brochure representations total 20 and the common schemes representations 17. As part of the management of the trial I circulated among counsel a draft Outline of Issues. After helpful debate with counsel, a final version was issued on 26 July 1995. Generally speaking, the structure of these reasons for judgment follows the Outline of Issues. The Outline of Issues included two sections "Representations - Whether Made" and "Representations - Whether False or Without Reasonable Grounds". In each of those sections there are eight sub-headings. The sub-headings are intended to summarise the essence of the various representations alleged. They are, to borrow a term from the law of defamation, the sting of the representations complained of. Counsel for the applicants did not intend them to be a substitute for the case as pleaded in the amended statement of claim. Rather they are an attempt, made at my suggestion, to bring into clearer focus the essential elements of the applicants' claim so that the evidence and argument could be marshalled in more coherent fashion. The asterisk * indicates a representation as to a future matter within the meaning of s 51A. What follows are my conclusions as to which of the representations (as summarised) were made to which applicant by which respondent. The primary findings on which these conclusions are based appear earlier in these reasons, and in particular in Parts III and VII. In respect of some of the representations it will be necessary to explain briefly my reasons for the conclusions reached. 1. The Vendor's Sale Price was $14.835 million Applicant Respondents Turner Gray & Winter Gordon Gray & Winter Dean Gray & Winter Phelps Gray & Winter Arthurson Gray & Winter Haarsma Gray & Winter Lee Gray & Winter Henderson Gray & Winter Tranter Gray & Winter 2. The Market Value of the Building was at least $14.835 million Applicant Respondents Turner HC, G&W, RE Gordon HC, G&W, RE Dean HC, G&W, RE Phelps Gray & Winter Arthurson Gray & Winter Henderson Gray & Winter Tranter Gray & Winter Trengove Gray & Winter Insofar as this representation was contribution by the Richard Ellis letter of 31 May, in the case of the Gordons the substance of the Richard Ellis opinion was conveyed by Mr Glass to Dr Gordon, who did not see the letter himself. But Richard Ellis was aware of the purpose for which their letter was to be used and its use by Mr Glass in this way was a natural and probable consequence of Richard Ellis providing it. 3. The Property was Underlet Applicants Respondents Turner Gray & Winter Gordon Gray & Winter Dean Gray & Winter Phelps Gray & Winter Arthurson Gray & Winter Schoeman Gray & Winter Haarsma Gray & Winter Lee Gray & Winter Henderson Gray & Winter Tranter Gray & Winter Trengove Gray & Winter 4. Rent and Capital Value would Increase * Applicants Respondents Turner Gray & Winter Gordon Gray & Winter Dean Gray & Winter Phelps Gray & Winter Arthurson Gray & Winter Schoeman (not as to rental) Gray & Winter Haarsma Gray & Winter Lee Gray & Winter Green Gray & Winter Henderson Gray & Winter Tranter Gray & Winter Walker Gray & Winter Trengove Gray & Winter This representation was not a guarantee that rent and value would increase as a matter of certainty. I am not satisfied that any applicant really held that belief. In any case, it is most unlikely that Gray & Winter would have said anything which conveyed such an impression, given that the brochure made it clear rent reviews were to market. Rather, the representation was a prediction as to what was likely to happen, a prediction expressed with great confidence and persuasiveness, but a prediction nonetheless. Moreover the prediction of increase conveyed to the applicants was not some averaged increase over a term of eight or more years, but the regular and consistent growth of the kind indicated in the cashflows. 5. There Would be no Problem with Re-finance in June 1993 * Applicant Respondents Turner Gray & Winter Gordon Gray & Winter Dean Gray & Winter Phelps Gray & Winter Arthurson Gray & Winter Haarsma Gray & Winter Lee Gray & Winter Henderson Gray & Winter Tranter Gray & Winter Trengove Gray & Winter The applicants case on this issue was criticised by counsel for Hudson Conway as being evidence given to a "formula". Certainly almost all the applicants' witness statements imputed to Gray & Winter representatives a promise in very similar language, and including the expression "no problem". However it is inherently likely that Gray & Winter would have made such a statement. Obviously re-financing of the three year vendor's loan was an essential element in an investment which was being sold as a holding proposition for at least eight years. Something would have to be said to investors about re-financing. I think Gray & Winter basically believed in the scheme they were promoting. They saw the scheme through the eyes of salesmen, seeing only its good features such as a long lease to a blue chip tenant and a quality building. The propositions that rent would always increase in line with CPI, the general measure of inflation, and that CPI would increase consistently with historical experience, were matters that, in light of their previous experience they had probably come to believe - albeit without any objectively reasonable grounds. If those predictions came to pass, re-financing in all probability would be "no problem". There was therefore good reason for them to say what the applicants say they said. 6. A Partnership Share could be Sold with no Further * Liabilities Applicants Respondents Turner Gray & Winter Gordon Gray & Winter Dean Gray & Winter Phelps Gray & Winter Haarsma Gray & Winter Henderson Gray & Winter Tranter Gray & Winter Walker Gray & Winter

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It was a Risk Free Investment I am not satisfied that this representation was made to any applicant. 8. The Promoters were Reputable Applicant Respondent Turner Huntley McArdle & Glass Gordon Huntley McArdle & Glass Dean Huntley McArdle & Glass Phelps Bird Cameron Arthurson Bird Cameron Schoeman Bird Cameron Haarsma Bird Cameron Henderson Bird Cameron Tranter BC Millicent Walker Bird Cameron The amended statement of claim is not at all clear as to whether this representation is alleged to have been made by Gray & Winter themselves as well as by Bird Cameron and Huntley McArdle & Glass. However, as a matter of fairness I think I should treat this allegation as only being made against the accountants. My recollection of a hearing prior to trial at which an amendment was sought to introduce this representation is that the applicants' counsel, in reply to the indignant opposition of counsel for Gray & Winter, pointed out that they were not really concerned because they were only alleged to be the subject matter of the representation and not its maker. In his final submission at trial counsel for Gray & Winter did not advert to this issue. The implied representation pleaded in par 24(o) of the amended statement of claim is that each of the persons involved in the promotion of the scheme was: (i) reliable; (ii)of good business repute. I think this representation is to be implied from the conduct of the accountants in introducing their trusting clients to Gray & Winter, of whom the clients had never heard and, in most cases, actively urging the client to invest large amounts of money and incur great potential liability. The representation to be implied is not merely that the accountants subjectively believed the promoters were reliable and of good business repute. A person in the position of the investors would in my view reasonably assume that their trusted accountants had thoroughly checked out the standing of this firm who were proposing such a major investment and not just taken them on their own say so.

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The Property was Underlet I am not satisfied the property was not underlet; see Part Section 4. 4. Rent and Capital Value would Increase * I am not satisfied that Gray & Winter had reasonable grounds for making this representation. Perceptions of market professionals in June 1990 were virtually unanimous - it was a time of unusual uncertainty, quite inconsistent with the confident prediction of spectacular uninterrupted growth made by Gray & Winter. As well as those perceptions, there was hard evidence available of a likely impending downturn, and particularly the oversupply of office space; see Part VI Section 1(b). 5. There would be no Problem with Re-finance in June 1993 * I am not satisfied that Gray & Winter had reasonable grounds for making this representation. The combination of market uncertainty and the inherent risk created by the extreme over-gearing made this prediction, objectively considered, one that could not be made reasonably or responsibly; see Part IX Section 3. 6. A Partnership Share could be Sold with no Further Liabilities * There were no reasonable grounds for predicting that the vendor/mortgagee (or a subsequent financier) or other partners would release partners irrespective of the value of the property and the state of the indebtedness. Why would they promise to do so? 7. It was a Risk Free Investment I have found this representation was not made. 8. The Promoters were Reputable On 16 June 1988 Mr Leo La Fontaine, an authorised officer of the National Companies and Securities Commission, made an order under s 562A (3) of the Companies (Victoria) Code prohibiting Mr Garrick Gray for a period of two years from being a director or promoter of, or from being in any way (whether directly or indirectly) concerned in or taking part in the management of a corporation without leave of the Supreme Court of Victoria. The order arose out of the winding up of two companies of which Mr Gray was a director, First GAV Holdings Pty Ltd and Collstower Investments Pty Ltd. The reasons of Mr La Fontaine that were tendered in evidence were concerned with the fixing of an appropriate term of disqualification, the maximum provided by the statute being five years. Mr La Fontaine had earlier given reasons canvassing the facts surrounding the winding-up of the companies, but these reasons were not tendered in evidence. In the reasons which were tendered, there is only brief and oblique reference to those circumstances. Apparently Collstower owed $74,500 for group tax which Mr La Fontaine considered "should perhaps be regarded more seriously". He concluded:

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Corresponding provisions are s 31 of the Victorian Act and s 3(3) of the South Australian Act. The accountants are not liable on this basis because it has not been established that they had actual knowledge of the falsity of the representations: Yorke v Lucas (1985) 158 CLR 661. 3. "A Sound Investment" (Mr Glass) Mr Glass told the Turners, the Gordons and the Deans in substance that the investment was a sound one. For the reasons discussed in relation to the negligence issues, I find this statement was misleading and deceptive. It was an opinion which may have been honestly held, but was not held on reasonable grounds. 4. Hudson Conway and the 31 May Letter Hudson Conway, through Mr Rafaniello, were aware of the contents of the Richard Ellis letter of 31 May and expressly authorised the provision of it to Gray & Winter. Hudson Conway must also be taken to have authorised its use in circumstances where recipients were not aware that Richard Ellis were the vendor's agent. That did not appear on the face of the letter and Hudson Conway had no ground for believing that Gray & Winter would volunteer the fact. Hudson Conway of course knew the terms of the option agreement and thus the fact that the true price to Hudson Conway was $13.8 million. As was strongly urged by Hudson Conway in relation to other issues, the "acquisition fee" of $1.035 million was not a commission payable by Hudson Conway out of the price received by it. Moreover the generous vendor terms meant that the cash equivalent of $13.8 million was a figure substantially less. Hudson Conway also knew the marketing history of the property and knew that after prolonged and vigorous exposure to the market of $13.8 million on vendor terms was the best price obtainable. They also knew that Richard Ellis, and in particular Mr Chiminello, would have been aware of the marketing history of the property. See generally the discussion in Part VII Section 4(a). In the circumstances, Hudson Conway became involved in the contravention of the Act by Gray & Winter. Hudson Conway had the requisite knowledge required by Yorke. 5. Richard Ellis and the 31 May Letter Similarly Richard Ellis, by providing the letter to Mr Gray, authorised its use by him in circumstances where they must be taken to have been aware that it would be likely to mislead or deceive. See also Part VII Section 4(a).

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Dealing first with the misrepresentation claims, the applicable principles include the following: (i) At law a person may be responsible for damage when his or her wrongful conduct is one of a number of conditions sufficient to cause the damage: March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 at 509. (ii) What is the cause of a particular occurrence is a question of fact which must be determined by applying common sense to the facts of each particular case: March at 515. (iii) Proposition (ii) remains so in a case where the question of the requisite causal connection is complicated by the intervention of some act or decision of the plaintiff or a third party which constitutes a more immediate cause of the loss or damage: Medlin v SGIC (1995) 182 CLR 1 at 6. (iv) Claims based on contravention of s 52(1) in the form of misleading and deceptive conduct constituted by misrepresentations are governed by the same concept of causation. Acts done by the representee in reliance upon the misrepresentation constitute a sufficient connection to satisfy the concept of causation: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 515. (v) If a material representation is made which is calculated (in the sense of being objectively likely) to induce the representee to enter into a contract and that person in fact enters into the contract, there arises a fair inference of fact that he or she was induced to do so by the representa- tion: Gould v Vaggelas (1985) 157 CLR 215 at 236. The representations by Gray & Winter which contravened the statute were an effective cause in inducing the applicants to invest. It was Gray & Winter who devised and marketed the scheme. They held themselves out to the applicants and their accountants as having a high degree of expertise in this unfamiliar (to the applicants) but attractive line of business. The representations went directly to the merits of the investment and its predicted benefits and were of a nature inherently likely to induce people to invest - one might ask, rhetorically, why else were they made? The undoubted fact that the applicants (other than Mrs Lee and Mr Green) relied on their accountants does not break the chain of causation linking the applicants' loss to the representations of Gray & Winter. Without Gray & Winter there would have been nothing for the accountants to advise on. Conversely, without the accountants Gray & Winter would never have met the applicants and had the opportunity to promote the scheme. I conclude that as a matter of common sense the applicants, in making their decision to invest, relied on the representations of Gray & Winter as well as the advice of the accountants (except in the case of Mrs Lee and Mr Green). The Richard Ellis letter of 31 May, conveying as it did an expert opinion by a purportedly independent expert, was also likely to induce investors to invest and did, I find, operate as an inducement to the Huntley McArdle & Glass clients who saw or were told of it. The suggested negligence on the part of the applicants cannot destroy the causative link between the conduct of Gray & Winter and the accountants and the loss suffered. For reasons discussed elsewhere (Part XXI) contributory negligence is not a defence to claims under the Trade Practices Act and is in any event not made out in the circumstances of the present case. The accountants, understandably, did not raise a defence of contributory negligence. In any case the fact remains that the misrepresentations and negligence of Gray & Winter, the accountants and Nevett Ford remained causative factors. The negligence claims against the accountants are in part based on positive conduct both express and implied. The accountants all either recommended the scheme or at least told their clients it was a suitable investment for the client to consider. By introducing Gray & Winter and making their premises available for the presentation, the accountants implicitly conveyed the impression that they had applied their professional skills in an examination of the scheme and considered it appropriate for their clients, with whose financial affairs they were familiar. I am satisfied the relevant applicants relied on what was explicitly and implicitly said by their accountants and that the necessary causative link between the accountants negligence and the applicants' loss is made out. The negligence claims also rely on omission - the failure of the accountants to warn their clients and point out the risks and dangers of the scheme. This aspect is not so much a question of reliance because, ex hypothese, the advice in question was never given, so there was nothing to rely on. One must of course be cautious about evidence after the event when a plaintiff who has suffered a disastrous investment loss says, "Had I been told X, I would not have invested". Such evidence may be honestly given yet artificial, in the sense that the plaintiff is speaking in a setting irreversibly different from that in which the investment decision was made, because the loss had not then been suffered. Nevertheless, I am satisfied that the advice of a competent accountant in the present case would have been sufficiently clear, given the manifest risks and dangers of the scheme and its unsuitability for these clients, to have deterred the applicants from investing. Perhaps more importantly, a competent accountant, upon an examination of the scheme, would not have introduced his clients to Gray & Winter in the first place. Like Ulysses' oarsmen, their ears would have been blocked to keep out the siren song of Gray & Winter. As to Nevett Ford, no question of reliance arises. The applicants in cross-examination said they did not expect to receive a letter of advice from a solicitor. But proper professional advice from accountants and solicitors should have included a warning as to the particular hazard caused by the absence of a ratchet clause. Nevett Ford's negligence in not giving this advice was in my opinion a contributing cause, albeit one of a lower order of magnitude than the negligence of the accountants. The case of the respondents on reliance and causation essentially seemed to be that the loss of the applicants was entirely brought about by their own negligence, and greed for tax benefits and capital gain. The unreality of this approach emerged as soon as each respondent moved to its contribution claims. Each respondent then claimed that all the others were guilty of serious misrepresentations and/or negligence. In this this were much more persuasive. There must have been something which caused these applicants, intelligent and hard-working people who had been successful in their own fields of endeavour, to make a sudden leap into the Melbourne commercial property market. Once it has been established that there was negligence and misleading and deceptive conduct on the part of the respondents in connection with matters which objectively would be likely to operate as an inducement for such an investment, I find it difficult to see how it could be argued that such negligence and misleading and deceptive conduct was not at least a cause of the applicants' decision to invest.

[294]

In the present case the accountants Bird Cameron and Huntley McArdle & Glass were, vis-ŕ-vis their clients, fiduciaries - even though they were not agents or trustees. To their knowledge their clients reposed trust and confidence in them: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96. The rules as to disclosure of conflicts applied to them. I did not understand the contrary to be contended.

Gray & Winter The Gray & Winter fee to be received via AIMH was adequately disclosed in the Gray & Winter instruction letter. 2. Bird Cameron and Huntley McArdle & Glass The fee of $10,350 in respect of each client which the accountants Bird Cameron and Huntley McArdle & Glass received is another matter. The Gray & Winter instruction letter is the communication relied on primarily by the accountants as a disclosure to their clients. Apart from that letter, the accountants' evidence on this issue mostly took the form of assumptions as to what the client would or should have known. These assumptions seem to me to rest on shaky ground. For example, Mr Glass in his witness statement (par 19) conceded there was "no specific mention" of his firm's fee at the presentation by Mr Winter. He believed his clients would have been aware of it because (i) Mr Winter referred to the assumption in the cashflow which included accounting fees of $207,000 for the 20 shares and (ii) his client who invested in the Executive Building had received a letter similar to the Gray & Winter instruction letter and he believed such a letter would be sent to investors in the Coles Myer scheme. Mr Glass said that at the time the Deans signed the Gray & Winter instruction letter he explained that his firm's fees were "coming out of" the $207,000. He spoke in evidence of a similar explanation to Dr Gordon. The Deans and Dr Gordon denied this. I do not accept the evidence of Mr Glass. But even if that was done, it was an inadequate and misleading explanation of what the fees were for. As to the Turners, they appeared to have worked out for themselves that Huntley McArdle & Glass were getting a fee for "putting us into" the scheme but this was only derived from the second Gray & Winter instruction letter, which was after the transaction. As to Bird Cameron, Mr Lynch claimed he discussed the commission with Mr Haarsma. The latter denied this. I do not accept Mr Lynch's evidence. None of the other Bird Cameron witnesses suggest there was any mention of the matter to their clients. The only suggested disclosure in the Gray & Winter instruction letter arises from the words and figures "Accounting fees (1.5% of Purchase Price) 750,000". In the context of the letter, and especially the reference to items such as stamp duty and "Legals - Nevitts, Solicitors 15,000", which are obviously part of the acquisition costs on behalf of the purchasers, this was quite misleading. It would convey the impression that some kind of accounting work, such as the preparation of financial documents, the establishment of book-keeping or computer services, or the giving of accounting, taxation or financial advice, was to be carried out for the purchasers as a necessary and incidental cost of the purchase. The camouflage is all the more effective because the Gray & Winter fee is disclosed; the reader is unlikely to suspect that the "Accounting fees" cover another payment of a similar kind. In truth the payment was to be paid and received for introducing to Gray & Winter clients who subsequently invested in the scheme. It was payable irrespective of how much or what kind of work the accountants did, or whether they did any work at all apart from introducing the client. This is exemplified by the case of Mr Korczak who seems to have spent no more than an hour of his time with the Walkers. As far as the evidence shows, he did not produce a single document. He did nothing which was of any use in the completion of the transaction or the subsequent establishment of the partnership. Yet plainly he earned his $10,350 because he performed his side of the bargain with Gray & Winter - he got money from his clients and their signature on a power of attorney. The reality of what was happening would have been revealed if the letter said:

[300]

Counsel for Hudson Conway contended that the test as to constructive knowledge was a stricter one and that the statement of Mason J just referred to did not form part of the ratio of Amadio. It was necessary, counsel said, to show that the circumstances giving rise to the special disadvantage were "sufficiently evident" to the other party: see per Deane J at 474-479. If the suggested difference in truth exists, it is a subtle one. In any case, it seems to be enough to attract the operation of the doctrine if the facts and circumstances known to the allegedly unconscientious party are sufficient to put that party on enquiry. Thus the doctrine appears to apply where the allegedly unconscientious party should be aware of circumstances which might reasonably be inferred from the existence of facts known to that party: see Bank of New South Wales v Rogers (1941) 65 CLR 42, Barclays Bank Plc v O'Brien [1994] 1 AC 180 at 195. But the applicants have not in my view made out a case for relief on this ground. The circumstances alleged by the applicants to call for the application of the doctrine in the present case may be summarised as follows: (i) Amadio "knew that the sale of the property was being promoted on the basis of a genuine sale price of $14.835 million whereas they knew that the genuine price was $13.8 million"; (ii) in the state of the property market and given the size of the loan, Amadio "must have been aware that the scheme was being promoted to investors on the basis of growth (rent and capital) in circumstances where Amadio had no belief itself that there would be any such growth"; (iii)Amadio ought to have been aware that the mortgagors and guarantors had not had the Terrey clause explained to them or consented to it; (iv) Amadio knew that the Morgans had not executed a power of attorney at the date of settlement and accordingly Mr Balcam was not empowered to sign the guarantee on their behalf, and (v) Amadio agreed to settlement in escrow subject to the condition subsequent. The first two matters arise from the marketing of the property by Gray & Winter and (iii), (iv) and (v) concern events at the settlement. As to (i), the position was in truth that the vendor's price was $13.8 million and Gray & Winter's "acquisition fee" was added on to make $14.835 million. That was clear enough from the Gray & Winter instruction letter. There is in my opinion no reason for concluding that Amadio would or should have thought that purchasers would have thought otherwise. As to (ii), Gray & Winter were not, as I have found, acting as the agents of Amadio. Gray & Winter had an enforceable right (via AIMH) to the purchase of the property under their option. For the reasons already mentioned (Part II Section 3), the option was a genuine arm's length transaction, and not a sham. Gray & Winter also had a role as promoter of the investment scheme and organiser of the group of investors. Either way, Gray & Winter were not the agents of Amadio and the latter had no liability, in law or as a matter of conscience, for what Gray & Winter might have said or not said to investors. Moreover, Amadio knew most of the investors were being advised by their own accountants and had retained solicitors. As to (iii), (iv) and (v), the unconscionable conduct claim faces at the outset what is to my mind the insuperable problem that the investors were represented by Nevett Ford. While lack of appropriate assistance for one party is a well-recognised basis for a finding of special disadvantage creating vulnerability to unconscionable conduct by the other party, I am not aware of any case, and certainly none was cited by the applicants, in which an unconscionable conduct claim has succeeded where the party seeking such relief was represented by independent solicitors. Of course if those solicitors are negligent or otherwise fail in their duty, then their clients will have appropriate remedies against them. But from the point of view of the opposite party, the existence of legal representation will usually be an answer to any allegation of special disadvantage. Analogous issues arose in Tresize v National Australia Bank Ltd (1994) 50 FCR 134. That case involved a claim to set aside the compromise of a proceeding negotiated between counsel during a trial. It was alleged that, amongst other things, the applicants entered into the compromise as a result of undue influence exercised by their counsel and solicitor. The respondent bank's application for summary judgment was upheld at first instance and on appeal. In the joint judgment of Sweeney J and myself, with which Black CJ (at 135) generally agreed, it was said (at 147):

[302]

In the present case, as I have found, Nevett Ford had an unqualified retainer to act for the purchasers and guarantors. Corrs, the solicitors for Amadio, dealt with Nevett Ford in that capacity. Prior to settlement various aspects of the transaction were negotiated between Corrs and Nevett Ford and the contract of sale prepared by Corrs bore Nevett Ford's name as solicitors for the purchasers. This conclusion is not affected by the circumstance that Mr Stephens as a matter of convenience worked out of the Melbourne office of Gray & Winter and wrote some letters on their letterhead. Another matter which should be mentioned is the borrower's acknowledgment, a form designed to be witnessed by the solicitor for a borrower, but in the present case mistakenly witnessed by Ms McCallum. It was a remarkable error on her part, and has consequences which bear on other issues in the case. But I cannot infer there was a deliberate decision by her not to proffer the document to Mr Stephens knowing that he would not sign as witness. In fact Mr Stephens was, as he said in evidence, "prepared for a fight" if asked to witness the document. Such a stand would have been correct. He had not even met most of his clients, let alone satisfied himself as to their understanding of the documents about to be signed by Mr Balcam as their attorney. The borrower's acknowledgment was simply inappropriate for a transaction like this when the documents were being signed under a power of attorney. If it had come to a point, the probability is in my opinion that Corrs would have recognised this and advised their client to settle without any borrower's acknowledgment. In any case, Ms McCallum would gain no advantage for her client, and would not improve a defence to any unconscionable conduct claim, by witnessing a borrower's acknowledgment when she was obviously not the borrower's solicitor. From her client's point of view, it was a worthless document. It totally failed to achieve its purpose, in the memorable aphorism of Mr Magee QC, of "protecting Amadio against Amadio". As to the Terrey clause (ground iii above) Mr Stephens was aware, at least in general terms, of the negotiations that arose from Mr Terrey's objection, even though he did not participate in the drafting of the terms of the clause itself. He saw the mortgage in its final form with the clause included. Neither Mr Stephens nor Ms McCallum spoke in evidence of any conversation between them about the clause. It may be that someone in Ms McCallum's position should have realised that it was unlikely that Mr Stephens had managed to communicate with all his clients, discuss the Terrey clause and its implications with them and obtained their consent to it. However, for the reasons already mentioned in connection with the consideration of the case against Nevett Ford (Part IX Section 5(c)), I do not think that Nevett Ford were in breach of their duty of care in dealing with the Terrey issue as they did. I am not satisfied that had the issue been raised with other applicants and the full circumstances, including the existing rights of contribution explained, the result would have been any different. Since Nevett Ford did not breach their duty to their clients, it is impossible to make out a case that Amadio, on the opposite side of the transaction, was guilty of unconscionable conduct on the ground that it should have realised that Nevett Ford breached their duty. As to the Morgan power of attorney and the condition subsequent, I again refer to what has been said as to the corresponding allegations of breach of duty against Nevett Ford. Allowing settlement to take place in escrow and thereby giving the investors the benefit of their tax deduction was something which, at the very least, was not exclusively for the benefit of Amadio. Likewise the question of the Morgan power of attorney and the other apparent deficiencies in the capacity of the mortgagors or guarantors which resulted in the settlement in escrow subject to the condition precedent were matters which Amadio and its solicitors could sensibly take as formal procedural problems which could be fixed, given time. They were in fact subsequently attended to, and this would have been seen at the time as being substantially to the benefit of the investors.

[311]

Section 5(4) is not intended to be a comprehensive definition of what constitutes an offer or invitation "to the public". It was introduced to overcome the effect of Lee v Evans (1964) 112 CLR 276 which required an offer to the public to be one made to the public generally and capable of being acted on by any member of the public: see Corporate Affairs Commission (SA) v Australian Central Credit Union (1985) 157 CLR 201 at 206-208. The prescribed interest provisions have been the subject of two recent decisions of Australian appellate courts: Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 (NSW Court of Appeal) and O'Brien v Melbank Corporation Ltd (1991) 7 ACSR 19 (Supreme Court of Victoria Appeal Division). Both cases concern tax-driven investment schemes with associated borrowings. In both cases there is detailed examination of the concepts of "prescribed interest" and "offer to the public", the application of the principles of statutory illegality formulated by the High Court in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 and the issue of severability. Rather than cite all the lengthy extracts which provide important guidance in the present case, I will treat the whole of the judgments as being incorporated in these reasons. Reference should also be made to Davies v Mortgage Acceptance Nominees Pty Ltd, unreported, Rolfe J, Supreme Court of New South Wales, 20 April 1994. 2. Was Only a Partnership Interest Offered? At the outset, counsel for Hudson Conway argued that the mortgage and guarantee were beyond the reach of the legislation because all that was offered to the applicants was an interest in a partnership which, once formed, would thereafter buy the property from an undisclosed vendor. The process, he said, involved two distinct stages. This is perhaps no more than another way of looking at the question of severability which logically falls to be considered after determining whether there was an "offer to the public" of any and what "prescribed interest". Nevertheless, it was strongly urged as a threshold point, so I shall turn at once to it. In developing his argument counsel pointed out that virtually all the applicants spoke of the respective Gray & Winter representative saying at the initial meeting that the firm was "putting together a partnership to acquire the Coles Myer building". Also the Gray & Winter instruction letter confirmed instructions from the accountants "to acquire the ... building for a partnership including the undersigned". However in my respectful opinion this analysis is neither commercially realistic, nor consistent with the contemporary documentation considered as a whole. Particular expressions used by the parties will of course not be determinative of the true nature of a legal relationship or transaction. Counsel said that a partnership existed prior to 29 June 1990 and the fact that the formal partnership agreement was not executed until later (in fact some time in August) does not alter this fact. I accept that sometimes a partnership may exist prior to the execution of a formal partnership agreement, or indeed without any written agreement at all. But for the purposes of the present argument counsel was unable to say just when it was that the partnership was formed. He suggested that it was when the last partner joined, but was unable to say when that event took place. Certainly there was no communication to or between the partners on or prior to 29 June advising of the formation of any partnership. It does not seem that anyone on the purchaser/mortgagor side of the transaction - investors, Gray & Winter, the accountants, or Nevett Ford - turned their mind to the question as to when the partnership was to come into existence. There is no suggestion in the evidence of a meeting (whether personally or by proxy) on or prior to 29 June of a newly formed partnership at which a decision to acquire the Coles Myer building was made or confirmed. When pressed with these difficulties, counsel acknowledged that it could not be determined precisely when the partnership "crystallised", only that, whenever it did, that occasion was prior to settlement. In the days leading up to settlement, as Mr James Gray advised Mr Hamilton from time to time of the increasing number of shares taken up, there was, in counsel's words, a "rolling partnership". Perhaps he meant that on each day when the number of investors increased, there was a dissolution of an existing partnership and the creation of a new one. Apart from raising juristic problems of the kind discussed by Gowans J in Banfield v Wells-Eicke [1970] VR 481 and Carlton Cricket & Football Social Club v Joseph [1970] VR 487, that theory does not fit the essential commercial and financial structure on which all were agreed. If all that could be "sold" were, say, 17 shares, the transaction would simply not proceed, and there would be no partnership. Likewise, if the full amount were subscribed but for some other reason the sale of the Coles Myer building did not proceed, the prospect of all the disparate investors from Millicent, Port Lincoln, Ballarat, Geelong, Deniliquin and Ulverstone meeting and considering whether they should look for some other property to acquire together seems quite fanciful. The Coles Myer building investment scheme was not promoted as a new entity which would carry on the business of property investment; it was entirely transaction-specific. What Gray & Winter were offering (in the popular or commercial rather than the legal sense: Hurst at 438, O'Brien at 337) was the opportunity to acquire a one-twentieth share (or two or more shares, or a fraction of a share) in the Coles Myer building. The acquisition of this building in shared ownership was the general intention and common understanding of both Gray & Winter and the investors. The fact that some investors were not to become legal co-owners or mortgagors on title does not alter the fact that, commercially considered, this was a co-ownership scheme. On the title 18 co-owners are noted, including Dr and Mrs Schoeman as joint proprietors of one share. Of those co-owners, five (Terrey, Henderson, Green, Haarsma and Tranter) held on behalf of themselves and family members and three held on behalf of "stranger" co-partners (Connell/Walker, Gordon/Glass and Rutt/Morgan). Of this last group, Connell and Gordon also held their half shares on behalf of their spouses and themselves. But the investors not on title had enforceable equitable rights against the legal owners of the respective shares. Because the fruits of ownership were only to be realised over a substantial period of time, during which co-owners would be faced with complex demands of building management as well as financial and other issues as between themselves, a management structure such as a partnership, company or unit trust was essential. So viewed, the partnership was a necessary adjunct to co-ownership in the particular circumstances of this case, including the wide geographical dispersion of the co-owners and the lack of any pre-existing association between themselves or any appropriate expertise. The documents support this analysis. The Gray & Winter instruction letter certainly speaks of the acquisition of the building "for a partnership", but the letter is specifically designed to be sufficient authority for the purchase, without the need for any subsequent authority from the partnership as a partnership. Twenty of these letters (or more or less depending on fractional or multiple shareholdings) were all that would be needed. The application for finance does refer to "Proposed Partnership Share" but in most cases the applicant expressed that as a fraction or percentage of "the Coles Myer building". Although the document does not bear the vendor's name, the Gray & Winter representatives, according to their evidence, told prospective investors that they would have to make application to the vendor for vendor finance. The primary marketing document, the Gray & Winter brochure, is only concerned with details of the property and the financing of the purchase. The word "partnership" does not appear. The word does appear in the one page summary, but only in the context of fixing the amount for which the investor is going to be liable. The document constituting the legal commitment of the investor is the power of attorney. The documents the subject of the grant of power are: (i) the sale and borrowing documents (vendor's statement, contract, transfer and mortgage for $16.265 million); (ii) an assignment of rental income under the lease; (iii) documents required as "necessary or desirable" for (a) the acquisition of an estate or interest in the land; (b) the borrowing of moneys as security on the land; (c) securing the payment of money borrowed on the security of the land; (iv) any bill of sale or charge over chattels providing security for the repayment of money; (v) "a Deed of Partnership between the owners of the land", and (vi) a guarantee and indemnity with respect to any of the above. The partnership deed is thus seen as something to be agreed "between the owners of the land", that is to say, between persons who have become owners, and not as part of the process of acquiring ownership. There is no reference to any proxy or similar power authorising the attorney to vote at any partnership meeting for the purpose of acquiring property or borrowing for such purpose. There was no separate form of application to join the partnership; nor was any document presented to investors setting out or even summarising the terms of the proposed partnership. Finally, neither the contract of sale, the transfer, nor the mortgage make any mention of the partnership. The mechanisms which provided for those investing in less than a full share or for holding a share on behalf of family members - declaration of trust and sub-partnership agreements - were anticipatory of the partnership which was to come into existence. But in themselves they could create a partnership which did not then exist. In my view the partnership did not come into existence until the partnership agreement was executed in August. An agreement for a partnership of this nature was, objectively considered, always going to be constituted by a complex document. To mention but a few examples, it would have to provide for such matters as management structures, voting, meetings, financial reporting, retirement, and transfer and transmission of shares. The agreement in fact executed in August contains 35 clauses extending over 43 pages of typescript. Fundamental to the business of the proposed partnership would be decisions as to the sale of the building or the grant of a new lease. How would such decisions be made? By unanimous consent of all partners? By a majority, and if so by a simple majority or a two-thirds, three-quarters, nine-tenths or some other fractional majority? And if by a majority then by actual consent of the requisite numbers or by a majority at a meeting? And if at a meeting on what rules as to notices, proxies etc would such a meeting by convened? Of the numerous permutations and combinations thrown up, some might be arguably preferable to others, but none could be said to be objectively "reasonable" in the sense that it could be ascertained as a sufficiently certain rule for the operation of the proposed partnership. Applying the reasoning of Brooking J in Toyota Motor Corporation Australia Limited v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 130-134 the conclusion is that the parties are not to be taken as intending that a partnership agreement would come into existence until they (or their attorney) had executed a document dealing with "matters which are ordinarily agreed upon in transactions of the class in question". Indeed the present case is stronger. This is not a question whether some "informal, vague and relatively short document" was legally binding - there was no document at all. Pending the execution of the partnership agreement, the rights and obligations of the group of investors would be adequately governed by the law relating to co-owners and guarantors. When executed, the partnership agreement was expressed to have, as might have been expected, a commencing date of 29 June 1990. But that does not affect the conclusions that the partnership was not in existence on 29 June and that formation of the partnership was not an event which was to occur prior to acquisition of the property. 3. Offer or Issue by Whom? Attorney-General (NSW) v Australian Fixed Trusts Ltd [1974] 1 NSWLR 110 was concerned with public solicitation by AFT of moneys which were then applied in taking up units in unit trusts established and managed by one or other of a number of companies associated with AFT. It was argued that s 83(1) of the Companies Act 1961 (NSW), the equivalent of s 170(1) of the Code, only operated where the company making the offer or invitation was the company which would issue the interest and that therefore the only relevant issue was not made to the public but by the unit trust company to AFT. In rejecting this argument Street CJ in Eq said (at 117):

[318]

Prescribed Interest (a) "undertaking or scheme" - par (a) The words "financial or business undertaking or scheme" are "of very wide import". All that the word "scheme" requires is that there should be "some program, or plan of action": Softwood at 129 per Mason J. The undertaking or scheme in the present case was to acquire the Coles Myer building, hold it for a period during which the excess of interest charges over rental, together with depreciation allowances, would yield tax deductions, and then sell it for a capital profit. That this undertaking or scheme was of a financial or business nature is self-evident. The investors obtained a "right to participate" in any profits (whether of an income or capital nature) of the undertaking or scheme either because they became co-owners or because they would acquire equitable rights against co-owners. For the same reason, they obtained an "interest" in "assets" of the undertaking or scheme, viz the building itself. (b) "investment contract" - par (c) There was also an "investment contract". There was a "scheme or arrangement" (see above). There was the investment of money - the initial subscription of $40,500 and subsequent contributions as predicted in the one page summary. There was the acquisition of an "interest in or right in respect of property" - an undivided share as a tenant in common in the Coles Myer building or equitable rights against a holder of such a share. That interest was to be "used or employed in common with any other interest or right in respect of the property" - the undivided shares of the other co-owners. I do not think the decision of McPherson J in Munna Beach Apartments Pty Ltd v Kennedy (1982) 7 ACLR 257 is to the contrary. However, to the extent it is, I would respectfully decline to follow it. Par (c) has been found applicable in a number of the authorities: Australian Fixed Trusts at 119, Waldron v Auer (1977-78) CLC 40-314, Radiata Forestry Development Co Pty Ltd v Evans (1977-8) CLC 40-372, M G Securities Australasia Ltd v CAC [1975] 1 ACLR 157.
Offer to the Public In my opinion, there was an offer to the public, independently of the extended definition of that term in s 5(4). The number of potential investors to whom an offer is extended is relevant, but not conclusive. An offer to one person may be an offer to the public if it is the first of a series of offers which individuals are invited to accept: Nash v Lynde [1929] AC 158 at 169. Restricted or selective circulation may not necessarily prevent an offer being an offer to the public: Re South of England National Gas and Petroleum Co Ltd [1911] 1 Ch 573 at 576, Lee v Evans (1964) 112 CLR 276 at 285, 287. While of course questions of this kind must turn on the circumstances of the instant case, I find particular assistance in the following passage from the judgment of McHugh JA in Hurst (at 440):

[319]

Among the findings of the learned trial judge were findings that no applicant for investment was rejected and that there was no restriction on any person being accepted. When those findings are coupled with the marketing methods used by the respondent, the most probable conclusion is that investment in the scheme was open to any member of the public. By itself the offer of commission to accountants in return for introducing investors is a powerful, if not decisive, factor in favour of that conclusion. Employment of agents for commission to introduce suitable investors seems almost conclusive evidence of an offer to the public. It is no answer to that proposition to say that the agents themselves came from a specially selected group or that many of the investors came from their clients. The overwhelming inference is that persons were accepted as investors, not because they were clients of accountants or had participated in previous tax schemes or were partners or members of the families of such persons but because, as members of the public, they had the funds to invest in a scheme which gave them tax advantages. In Australian Softwood Forests Pty Ltd v Attorney-General for New South Wales ex rel Corporate Affairs Commission the High Court held that an offer of an "interest" under the Companies Act 1961 occurred where salesmen were employed to procure people within a defined locality to take up portions of a pine tree plantation. The company did not advertise or make personal approaches or solicit participants. Its salesmen learned of interested persons in three ways, (i) by a person getting in touch with the company, (ii) by a person approaching a salesman directly and (iii) by a salesman calling at the request of another person who was already participating. Mason J said (at 135) that there was no hint of restriction to a class or group of persons having a characteristic or qualification except that of possessing the money with which to buy the trees. Wilson J pointed out (at 144) that the salesmen were not required to confine their efforts to prospective growers who satisfied any particular criterion. Likewise in the present case investors were not restricted to any class having some special characteristic or qualification except that of a desire to invest in a tax scheme.

[322]

In the present case there is the element of payment of commission. The stock of interests that Gray & Winter had available on offer (O'Brien at 41) was available to anybody who could satisfy the vendor's financial requirements. Since any investment scheme requires investors who have money or who can borrow it to invest, that in itself can hardly constitute a restriction sufficient to prevent the offer being one made to the public: see the comment of Mason J in Softwood cited by McHugh JA in Hurst. There is no evidence in the present case of any applicant for investment being rejected. Gray & Winter were constantly on the lookout for prospective investors, whether or not they were clients of any, or any particular, accountants. Mr Winter, in the course of soliciting the investment of his client, landlady and friend Mrs Lee, also tried (successfully) to recruit her brother Mr Green and (unsuccessfully) her cousin Mr Stephen Kerrison. Mr Garrick Gray sought to interest clients of Nevett Ford through Mr Stephens. To adopt and adapt a test applied by Kirby P in Hurst (at 408), if a wealthy patient of the Investigator Medical Clinic at Port Lincoln had wandered by mistake into the doctors' lunchtime meeting and, becoming impressed by Mr Garrick Gray, had expressed a desire to invest, can it be seriously suggested that Mr Gray would have politely declined the patient's request on the ground that he was not a client of Bird Cameron? This is a stronger case than Hurst. In that case there was some basis for an argument, albeit one that did not succeed on the facts (at 440) (and may not have mattered even if it did: O'Brien at 47), that investors were all part of a network or circle, viz clients of the promoter Mr Peter Fox or investors in similar schemes promoted by him, or accountants who had previously dealt with him, or partners or family members of persons in those categories. In Lee at 292 Windeyer J cited with approval Palmer's Company Precedents 16th Ed (1951) at 10 where it is said:

[324]

Although his Honour dissented as to the result, the passage from Palmer appears consistent with the reasoning of the majority. In the present case there was no subsisting network or circle connecting potential investors to the promoters Gray & Winter. The theory obviously underlying Gray & Winter's modus operandi was that they were only dealing with clients of accountants at the latters' invitation. Hence investors were required to subscribe to the fictional assertion in the Gray & Winter instruction letter that the firm "did not approach (the investor) or canvass (his or her) interest in any way". But Mrs Lee and Mr Green were not, in connection with the solicitation of their investments, clients of any accountant at all. Of the others, some were clients of various offices of Bird Cameron and some were clients of Huntley McArdle & Glass, but there was no connection between those firms. Apart from the coincidence of Mr Lynch having moved from Millicent to Port Lincoln, there was no relevant connection between the various offices of Bird Cameron or their respective clients. Gray & Winter did not set out to recruit investors from among some existing circle or network or other existing group of people defined by some common characteristic. Rather, they hoped that accountants and solicitors, spurred on by the hope of large commissions for not much work, would find potential investors. And if anybody suitable was encountered along the way, like Mrs Lee or Mr Green or Mr Kerrison or clients of Nevett Ford, they would be targets too. 6. The Partnership Exclusion I accept that, for reasons of language and layout, par (g) applies to both (a), (b) and (c) and is not confined to investment contracts. But I think par (g) has no application. For the reasons already mentioned, investors were not being offered an interest in a partnership agreement. There was no partnership agreement in existence, or even a draft or summary of a proposed agreement. The partnership was something which would arise in the future, as a convenient way of administering the scheme. It formed no part of the prescribed interest which Amadio was to issue. But in any case sub-par (i) applies. On the evidence, Gray & Winter's ordinary business included the promotion of similar undertakings, schemes, enterprises or investment contracts but the business of Hudson Conway and Amadio did not. However, sub-par (i) in my opinion applies because the undertaking or scheme was "promoted by" Gray & Winter. In other words, sub-par (i) applies if the person whose ordinary business includes the promotion of such undertakings or schemes either promotes the scheme himself or has someone else promote it on his behalf. Such a construction is consistent with the principle established by Australian Fixed Trusts that the absence of agency of promoter on behalf of issuer does not prevent the issue being caught. Conversely, if the promoter is the agent of the issuer, and the issuer's ordinary business includes the promotion of such schemes but the promoter's does not, the issue would also be caught. The concluding words of par (i) - "whether or not that person [i.e. the promoter] is, or is to become, a party to the agreement or proposed agreement" - support the conclusion reached. They expressly contemplate that the statute will apply where, as in the present case, the promoter drops out after recruiting investors and does not become a party to the partnership agreement. As originally enacted (as par (f) of the definition of "interest" in the 1961 Act), interests in partnership agreements were excluded without qualification. The predecessor to sub-par (i) was inserted in the Victorian legislation in 1975. The purpose of the regulation of prescribed interests generally is the protection of investors. In narrowing the scope of the exclusion for partnership interests, the legislature must be taken to have determined that the exclusion went too far where professional promoters were involved. It would be an odd intention to impute to Parliament that exclusion of a partnership interest promoted by a professional promoter depended on whether or not it was being done on behalf of another. That distinction would make no difference to the investor. The mischief is promotion to the public without registration of a prospectus. 7. Illegality All the members of the court in Hurst, and a majority in O'Brien (Fullagar and McGarvie JJ), held that a contract which results from the offer of an interest made in breach of the prescribed interest provisions is unenforceable. Their Honours gave detailed reasons why the application of the principles in Yango should produce such a result: Hurst per Kirby P at 410-413, per Mahony JA at 428, per McHugh JA at 441-443; O'Brien per Fullagar J at 31, per McGarvie J at 48. It is sufficient to say that I respectfully agree and find the present case relevantly indistinguishable. I should only add that I see particular significance (as did McHugh JA in Hurst at 443) in s 174(2). That provision assumes that otherwise a contract made in breach of the provisions would be unenforceable. Also it removes an obvious unfairness and absurdity of the kind which influenced the decision of the High Court in Yango, viz that innocent parties would lose the benefits of contracts they sought to enforce.

[328]

When, as the result of a breach of the law passed for the protection of certain persons, one or more contracts come into existence, the rationale of the illegality doctrine requires the invalidation only of a contract or part of a contract which defeats that protection. In many cases the unaffected contractual provision will be severable from the affected part. But in other cases, such as the present, severance may not be possible. Although a provision is outside the scope of the statute, it may be inextricably linked with the affected part of the contract or contracts. But it does not follow that the parties are without remedy in respect of executed transactions entered into under the unenforceable contract. In some cases the doctrine of restitution will enable a party to recover compensation for a benefit accepted by the other party under the contract even though the contract is unenforceable. Recovery of compensation in these cases does not depend on the terms of the unenforceable contract. The right of recovery is based on an obligation or promise which the law itself imposes: Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 255-256. As the decision in that case shows, compensation may be payable in respect of work done and accepted under a contract even though a statute declares that the contract is unenforceable. Whether restitution is possible in respect of benefits accepted under a contract declared by statute to be unenforceable depends on the intention of the legislature. That is to say, the question is whether the legislation evinces an intention not only to invalidate the contract but to preclude the recovery of compensation by way of restitution for benefits given and accepted under the unenforceable contract: cf Pavey & Matthews v Paul (at 263), per Deane J. In the present case the contract of loan is invalid because it was made as the result of a breach of the Companies Act 1961, s 83. Nothing in s 83 and s 86 of the Act or the Act as a whole indicates that the legislature intended that a loan of money made to an investor who takes up an interest is not recoverable as a matter of restitution. Although the contract of loan is unenforceable, the appellants have received and have had the benefits associated with the loans. With one exception, they have had the benefit of the tax deductions associated with the amounts of the loan. They have also been able to increase their interest in the films as the result of the loans. Yet the result of my judgment is that the contracts of loan are unenforceable. If appellants are not required to refund the moneys which they borrowed, they will reap an unmerited benefit. That, of course, is often the result of the illegality doctrine. But the modern doctrine of restitution enables the court in appropriate cases to overcome these injustices. Whether or not Filmco is entitled to recover compensation for loans by way of restitution was not argued in this appeal or before Hodgson J. This is understandable since Filmco was the defendant in an action which sought to declare the loan agreements invalid. But once the Court declares the loan agreements are enforceable, Filmco should be given the opportunity to raise the matter: see Supreme Court Act 1970, s 63. This should be done before Hodgson J. Accordingly, the appeal should be allowed. The matter should be remitted to Hodgson J to allow Filmco, if it wishes, to make any application for restitution and for his Honour to make such orders as are appropriate having regard to the reasons of this Court.

[329]

My enquiries reveal that after remittal to Hodgson J the matter was settled. In O'Brien the majority reached the conclusion that the loan contracts were severable and hence not struck down by the statute. Had the contrary conclusion been reached, the matter would have been remitted to the trial judge for determination of the lender's claim by way of restitution. McGarvie J (at 58) expressed the view that there would be an arguable claim in restitution. Therefore, as far as I am aware, the present case is the first one in which it has been necessary to decide a claim in restitution by a party seeking to enforce rights (in this case conferred by the mortgage and associated guarantee) which would otherwise be rendered unenforceable by reason of non-compliance with the prescribed interest provisions. The High Court authority referred to by McHugh JA, Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, concerned a claim by a builder to recover on a quantum meruit for the value of work done and materials supplied under an oral contract. Section 45 of the Builders Licensing Act 1971 (NSW) made a contract by a licensed builder for building work "not enforceable against the other party to the contract" unless the contract was in writing. Mason, Wilson, Deane and Dawson JJ held that the section did not prevent the quantum meruit action. Mason, Wilson and Deane JJ held the plaintiff's right to recover on a quantum meruit did not depend on the existence of an implied contract, but on a claim to restitution based on unjust enrichment. In my opinion that decision does not assist Hudson Conway or Amadio. First, the High Court distinguished a line of cases in which money-lenders have not been able to recover loans made in breach of money-lending legislation, in particular Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428 and Kasumu v Baba-Egbe [1956] AC 539, see also Deposit & Investment Co Ltd v Kaye [1963] SR (NSW) 453 at 461. In Pavey Mason and Wilson JJ said (at 229):

[336]

The alleged representations are contained in a prospectus, the object of which was to invite the public generally to join the proposed undertaking. In an advertisement of this description some allowance must always be made for the sanguine expectations of the promoters of the adventure, and no prudent man will accept the prospects which are always held out by the originators of every new scheme, without considerable abatement. But although, in its introduction to the public, some high colouring, and even exaggeration, in the description of the advantages which are likely to be enjoyed by the subscribers to an undertaking, may be expected, yet no misstatement or concealment of any material facts or circumstances ought to be permitted. In my opinion, the public, who are invited by a prospectus to join in any new adventure, ought to have the same opportunity of judging of everything which has a material bearing on its true character, as the promoters themselves possess. It cannot be too frequently or too strongly impressed upon those who, having projected any undertaking, are desirous of obtaining the co-operation of persons who, having no other information on the subject that that which they choose to convey, that the utmost candour and honesty ought to characterize their published statements. As was said by Vice-Chancellor Kindersley, in the case of the New Brunswick and Canada Railway Company v Muggeridge 1 Dr & Sm 381 "those who issue a prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge the existence of which might in any degree affect the nature, or extent, or quality of the privileges and advantages which the prospectus holds out as inducements to take shares."

[337]

The particular nature of the illegality in the present case is a "vitiating factor" rendering the "enrichment" of the applicants by a setting aside of the transactions not unjust: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379. Thirdly, I do not think counsel's description of Amadio as no more than "an innocent financier" is accurate. Amadio's role as vendor, as well as lender, must not be overlooked. It is true that, as I have found, Gray & Winter were not the agents of Hudson Conway or Amadio and also that there is no basis for an unconscionable conduct claim. Nevertheless Hudson Conway was able to dispose of a property which it had been trying to sell on the open market by conventional means without success for more than twelve months. It was able by this sale to implement its strategy of converting real property assets, not otherwise saleable for cash at a satisfactory price, to well-secured debt at interest rates which are now well above market. It was able to dispose of the property in circumstances where its agent had informed it the property was "competing with distressed sales" in a market which "many purchasers perceived (would) soften even further". Objectively considered, the circumstances in which a sale was at last achieved should have put Hudson Conway on notice that a breach of the prescribed interest provisions were likely. Mr Williams was aware that Mr Garrick Gray packaged negatively geared investment schemes in commercial properties for a fee. As the applications for finance came in to Mr Hamilton, it was obvious that Gray & Winter had travelled to provincial and country towns in south eastern Australia and had signed up farmers, doctors, abalone fishermen and others who on the face of it had no experience with the Melbourne commercial property market, and no obvious connection with Gray & Winter or with each other. Further, Gray & Winter were, to the knowledge of Hudson Conway, to be rewarded for these efforts, and by the time of settlement it was known that that reward was in excess of $1 million. Not to put too fine a point on it, Gray & Winter were hawking the Coles Myer building around the countryside of Victoria and South Australia. This should have been obvious to Hudson Conway. The seriousness with which Parliament has treated breaches of this law is also relevant. As Kirby P pointed out in Hurst (at 402), such legislation dates back to the early days of joint stock companies in the 19th Century. So seriously does Parliament regard this law that a breach, not necessarily fraudulent and not necessarily causing any monetary loss, can result in a person being sent to prison for five years. All the more reason, in my opinion, to regard it as just that persons who have suffered loss as a result of a breach of these laws should not be put in a position where the beneficiary of the breach achieves the same benefit as if the law had not existed. 10. Relief In the present case the property can be returned to the vendor. The vendor/mortgagee has already taken possession. There is no suggestion the building has suffered any physical deterioration. The tenant is still in occupation under the original lease. If Amadio is put back in the position that it would have been in 1990 had it not sold the building in a difficult market for vendors through a scheme which infringed the Code, it is not unjust that the risk of the drop in values that occurred between then and now should be to its account. Looked at another way, the change of position of the applicants, that is to say their investment in the building, is bound up with the promotion of the investment by a means which infringed the law. The loan was, for the reasons already mentioned, an integral feature of that promotion. That circumstance provides the applicants with a "defence" to the claim that their retention of the loan money (which, after all, was for the purpose of buying the property from the vendor itself) is unjust: David Securities at 379, ANZ Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673. Conversely, it can be said that Hudson Conway have been enriched by the conversion of the building into well-secured debt bearing interest at what is by now a high rate. That enrichment is unjust because it arose out of a breach of the law. The present case is one where the applicants are members of a class (viz investors) for whose protection the infringed provisions were enacted. As such they can recover monies already paid, as well as having protection against any further enforcement of the mortgage. They are not in pari delicto: Browning v Morris (1778) 2 Cowp 790, 98 ER 1364, Barclay v Pearson [1893] 2 CH 154, Gray v Southouse [1949] 2 All ER 1019, South Australian Cold Stores Limited v Electricity Trust of South Australia (1965) 115 CLR 247 at 257. Practical justice can be done by making it a term of the relief that the applicants execute transfers of their interests in the land in favour of Amadio and procure similar execution by co-owners who are not applicants. Thus Amadio can become registered proprietor as it was on 29 June 1990 and not merely mortgagee in possession.

[342]

In the present case the essential elements of inducement by the party sought to be estopped and reliance by the party raising the estoppel are absent. As to (1), as far as the evidence goes Hudson Conway never saw the Gray & Winter instruction letter. Gray & Winter were, as I have found, not the agents of Hudson Conway. In any case, Gray & Winter themselves could not assert any reliance on the instruction letter since they knew much of it was obviously contrary to fact ("I confirm you did not approach me or canvass my interest in any way"). As to (2), the powers of attorney do no more than represent, as was the fact, that Mr Balcam was given authority to execute documents. They say nothing as to what led the person granting the power to arrive at a decision to enter into the relevant transaction. If A executes a contract to purchase land from B, that of itself does not amount to a representation that A has not been the victim of misleading and deceptive conduct, negligent advice, unconscionable conduct etc. etc. If the contract is executed by C acting under a power of attorney granted by A, the position can be no different. As to (3), the terms referred to are primarily "acknowledgment" clauses in the contract of sale purporting to say that there were no conditions, warranties or other terms other than those in the contract of sale, that the purchaser should not be entitled to rely on any representations made by the vendor or its agent and that the purchasers have inspected the lease and are "deemed to be aware of (and) satisfied with (its) terms and conditions". There is now a substantial body of Federal Court authority which holds that exclusionary and disclaimer clauses cannot override the statutory prohibition against misleading and deceptive conduct or prevent the grant of appropriate statutory relief where loss or damage is, as a matter of fact, caused by contravention of the statute: see the review by Burchett J in Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 at 556-558. Counsel for Hudson Conway submitted that "the trend of authority in the Federal Court is not in accordance with established principle". Even if I agreed with that proposition, which I do not, it is unlikely to be of much utility when advanced to a single judge of this Court. There is moreover the evidentiary problem for Hudson Conway that the one document specifically designed to prove that investors had been adequately and independently advised, the borrower's acknowledgment, was witnessed not by the borrower's solicitor as the form of the document contemplated, but by the lender's solicitor Ms McCallum. In the light of that, I do not see how Hudson Conway could make out a case of reliance, even if there was any inducement on the part of the applicants, which I find there was not. As to (4) and (5), the short answer is that knowledge of the party alleged to be estopped is not sufficient. There must be inducement arising from the representation or conduct of that party. Counsel for Gray & Winter relied on the Hudson Conway submission in support of an estoppel plea but did not advance any separate argument. For essentially the same reasons as those discussed in relation to Hudson Conway, that plea fails also.

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XX ELECTION AND AFFIRMATION Hudson Conway contended that by paying interest for amounts due under the mortgage up until 29 June 1993, notwithstanding their knowledge by mid 1991 of the decline in value of the property, the applicants (including presumably those applicants who were only liable as guarantors) elected to affirm the contract of sale, mortgage and guarantee. As will appear (Part XXIII Section 1) I find that such of the case of misleading and deceptive conduct as has been made out against Hudson Conway - confined as it is to the Richard Ellis letter of 31 May - should not in the circumstances lead to relief under s 87 of the Trade Practices Act and equivalent State provisions for the setting aside of the relevant transactions. Relief in respect of the breach of the prescribed interest provisions is a separate matter. No questions of election or affirmation arise, for much the same reasons as those that exclude any plea of estoppel (see Part XIX). Therefore it is not strictly necessary to deal with arguments on affirmation and election, at least in respect of Hudson Conway. Affirmation and election are matters going to a plaintiff's right to rescind or obtain an order for rescission; they do not affect a right to damages. Implicit in the concepts of election or affirmation is the notion that the innocent party affirms the continuance of the contract and the rights and obligations flowing therefrom - including the right to damages for breach: Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR NSW 632 at 641, 643. Hudson Conway's election and affirmation argument was also adopted by counsel for Gray & Winter, but if the contract of sale, mortgage and guarantee could not be set aside against Hudson Conway that is the end of the matter. Gray & Winter are not parties to any of the transactions sought to be set aside. In any case, rescission in the present case would not be a contractually conferred right, but a right arising from a discretionary order made under s 87 of the Trade Practices Act or its equivalents: see Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 645. The essence of the applicants' complaint is that the value of the building declined far beyond any reasonable expectation. The fact that this might have been apparent from mid 1991 onwards does not mean that the applicants were "`confronted' with two mutually exclusive courses of action between which (they) must in fairness to the other party, make (their) choice": Spencer Bower and Turner, "The Law Relating to Estoppel by Representation" 3rd Ed at 313, cited in Immer (No.145) Pty Ltd v Uniting Church (1993) 182 CLR 26 at 41. Property values, as Hudson Conway elsewhere forcibly argued, are a function of a market which can go down as well as up, and quickly and steeply in either direction. If the applicants had purported to rescind in, say, mid 1991, Hudson Conway would have been the first to point out the unreasonableness of asserting then that the target of growth sufficient for re-financing by mid 1993, or the targets over 8 to 10 years shown in the cashflows, could necessarily not be achieved. On the other hand, the obligations under the mortgage were clear and fixed. Paying the undoubted amounts due under the mortgage was not mutually exclusive with the applicants seeking to ride out what they might have reasonably seen as, or at least hoped to be, a temporary storm.

[353]

The admissibility of this statement may be doubted. However it was not objected to and can be treated as a convenient summary of Gray & Winter's case on mitigation. A plaintiff is only required to do what is reasonable to mitigate the loss caused by the defendant. What is or is not reasonable in the circumstances is a question of fact: Sotiros Shipping Inc v Sameiet Solholt [1983] 1 Lloyd's LR 605 at 608. The onus is on the defendant to show that the loss proved could have been minimised or avoided altogether by the taking of some step which the plaintiff could reasonably have taken but did not take: Goldburg v Shell Oil Co of Australia Ltd (1990) 95 ALR 711 at 714. The mitigation case has not been made out. Although there was much discussion in the first half of 1993, as far as the evidence discloses no clear "proposal" for re-financing was ever put to the applicants. No valuation was obtained for the R & I Bank or NatWest so as to make their proposals unconditional. Nor did Hudson Conway confirm the suggested second mortgage finance. Gray & Winter were wrongdoers who had caused loss to the applicants (were this not so no question of mitigation would arise). Since Gray & Winter were exploring the possibility of re-financing, it was up to them to advance a firm offer. More fundamentally, even if such an offer had emerged it would have involved paying further substantial sums and incurring the risk of further decline in value in reliance on Gray & Winter's assurance that the Coles Myer building was "an excellent property investment still". Since this disastrous investment was Gray & Winter's idea in the first place, applicants could not be said to be acting unreasonably if they thought it a case of once bitten, twice shy. Further, there is the circumstance that the applicants' conduct must be treated on the basis that they have damages claims for negligence and misleading and deceptive conduct against one or more of Huntley McArdle & Glass, Bird Cameron, Nevett Ford, Hudson Conway and Richard Ellis. Of these respondents Nevett Ford, who adopted Gray & Winter's case, was the only one to raise mitigation. If a plaintiff believes - correctly as a court subsequently holds - that he or she has a good claim for recovery of loss against a number of defendants, why is it reasonable to expect the plaintiff to incur further substantial risk and expense so as to lessen the compensation payable by one of the defendants? The accountants moreover would, or certainly should, have told their clients that the re-finance along the lines discussed in 1993 was still an unwise investment and bore an inappropriate risk.

[354]

XXIII REMEDIES 1. Setting Aside For the reasons advanced in Part XVIII I am of the view that the transfer, mortgage and guarantee should be set aside, upon the terms therein mentioned, because of the contravention of the prescribed interest provisions. Were that ground not made out, it would not be appropriate to set aside those transactions in the exercise of the discretionary power conferred by s 87 of the Trade Practices Act and equivalent State provisions. Once the claim that Gray & Winter were agents of Hudson Conway is rejected, the only liability of Hudson Conway in respect of negligence or misleading and deceptive conduct is that in connection with the Richard Ellis letter of 31 May. That letter of course was only a factor in the case of the Turners, the Gordons and the Deans and then only one of a number of contributing factors. There would be no basis in logic or fairness for either setting aside the transaction in favour of all applicants, or setting aside the transactions in respect of the Turners, Gordons and Deans but not the others. A mortgage and guarantee without rights of contribution against the Turners, Gordons and Deans would amount to a substantial detraction from the rights of other applicants without any relevant wrongdoing on their part. Moreover, damages are available as a remedy for allocating liability to compensate as between respondents found to be liable to particular applicants. 2. Damages Both in respect of negligence and misleading and deceptive conduct the damages should be assessed so as to place the applicants as far as possible in the position in which they would have been but for the commission of the wrong: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 12-13. Hudson Conway's case, adopted by the other respondents, was that damages were to be fixed by reference to the difference at the time of purchase between the real value of the property and the price paid. It was argued that any subsequent decline in value ought not to be taken into account. The fall in the value of the market was due to "independent", "extrinsic" and "supervening" events caused by the collapse of the whole of the Melbourne commercial property market from late 1990. However in Gould v Vaggellas (1984) 157 CLR 215 (a case of deceit at common law which however has long been treated as applicable to damages claims under the Trade Practices Act) Gibbs CJ said (at 220-222, citations omitted):

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It is well established that in an action of deceit where the plaintiff has been induced by the fraudulent misrepresentation of the defendant to enter into a contract of purchase, the measure of damages usually applicable is the difference between the real value of the property at the time of the purchase and what the plaintiff paid for it: Holmes v Jones; Potts v Miller; Toteff v Antonas; Foster v Public Trustee; Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd. Events that happen after the time of the purchase may throw light on the real value of the property at that time: Potts v Miller. Where the property has depreciated in value after the purchase, and the depreciation was due to some cause inherent in the property itself, the depreciation must be considered in determining the real value of the property at the relevant time, but where the cause of the depreciation was "independent", "extrinsic", "supervening" or "accidental", the additional loss is not the consequence of the inducement and it should not be taken into account in arriving at the value of the property at the time of the purchase: Potts v Miller. The usual rule is, however, only a special application of the general principle that "In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant": Toteff v Antonas. In other words, the general principle is that the plaintiff is to be put, so far as possible, in the position he would have been in if he had not acted on the fraudulent inducement: Holmes v Jones, see also Canavan v Wright; Doyle v Olby (Ironmongers) Ltd, and South Australia v Johnson. In McAllister v Richmond Brewing Co (NSW) Pty Ltd, Jordan CJ suggested that this general principle is subject to a rule (which he called a rule of practice) which requires the usual measure of damages to which I have already referred to be applied in all but exceptional circumstances. He said: "A rule of practice is, however, now well established that where a person complains that he has been induced by deceit to buy something and pay more for it than it was worth, the amount of damages which he is entitled to recover is restricted, prima facie at any rate, to the amount by which the price which he has paid exceeds the true value of the thing bought at the time when he bought it: Potts v Miller. The rule is well settled, and exceptional circumstances are necessary to justify an award of anything more by reference to the general principle, but such circumstances may occur." He went on to suggest that a defrauded purchaser of a business could not recover compensation for losses incurred in carrying on the business as well as damages assessed according to the usual measure, unless, perhaps, as a result of the deceit, the purchaser had been led to have dealings with a third party which made rescission impossible. The reasons given for this conclusion were that the possibility of trading losses must have been taken into account in assessing the value of the business at the date of the contract (see also Selman v Minogue) and if the business had no value the purchaser should have rescinded the contract and thrown the loss back onto the vendor. This rule, is, with all respect, not quite as inflexible as Potts v Miller might suggest. There may be cases in which the purchaser continues to trade, either because he has not real alternative or because he has not become aware of the nature of the fraud, and in those circumstances incurs losses which are not represented by the difference between the price and value of the business. There is no reason in principle why the defrauded purchaser should not recover damages for all the loss that flowed directly from the fraudulent inducement (unless, possibly, the loss was not foreseeable). If the purchaser, besides paying more for the business than it was worth, has suffered additional losses which resulted directly from the fraud he ought to be compensated for them. Of course, the court must be satisfied that the loss did result directly from the fraud and not from some supervening cause such as the folly, error or misfortune of the purchaser himself, and must ensure that no additional compensation is given for losses when those losses, or the probability of their occurrence, has already been taken into account in determining the value of the business. In accordance with the general principle, consequential losses have in a number of cases been allowed to a defrauded purchaser. The warning of Gibbs CJ against adopting a rule of undue inflexibility is consistent with the statement by Mason CJ, Dawson, Gaudron and McHugh JJ in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 530 where their Honours said:

[359]

Many of the authorities in this area are claims by purchasers alleging fraud, or contravention of s 52, by vendors. Gould v Vaggelas was such a case, as was the recent decision of the High Court in Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 69 ALJR 787. Wardley was however not a vendor/purchaser claim and neither is the present case. Apart from the claim against Hudson Conway by three of the applicants in respect of the 31 May letter, all the damages claims that have been upheld are against third parties whose negligence and/or misleading and deceptive conduct caused the applicants to enter into the integrated transactions of purchase, mortgage and guarantee with Amadio. And even the claim against Hudson Conway is strictly speaking not a claim against a vendor but is bound up with the negligence and misleading and deceptive conduct claims against Richard Ellis. The integrated transactions included the mortgage, which was for a term of three years. And the whole investment had been sold on a promise of consistently increasing value of a much longer period. Some of the misrepresentations were as to future matters. Restriction of compensation to a comparison of values at the frozen moment of sale seems at odds with the commercial essence of the transactions. There is substantial authority that negligence claims against third parties arising out of disadvantageous real estate transactions are not subject to an inflexible damages formula of price less market value on acquisition. The English Court of Appeal in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] 2 All ER 769 considered an argument virtually identical to that advanced by Hudson Conway in the context of claims by lenders against valuers for negligently over-valuing properties as securities for loans. The Court rejected the argument that the lender could only recover the difference between the valuer's valuation and the market value at the date of that valuation. It was held that the lender could also recover a further decline in value between the date of valuation and the date of a realisation sale as a result of a general fall in the market. In reviewing the authorities dealing with claims against negligent solicitors, valuers and other professionals in connection with real property transactions, the Court noted (at 840) two methods of assessing loss, the "no-transaction method" and the "successful-transaction method":

[374]

This trial has been held in Victoria and the Victorian provision is therefore applicable regardless of where the liability for damage occurs (a consequence which is implicit in s 24(2A)(c) of the Wrongs Act). There is thus not the problem that there was in Turnbull where Sheppard J held (at 127) that the New South Wales contribution legislation (which was in the same terms as the South Australian provision) had no application because a claim for damages under s 82 of the Trade Practices Act was not a claim in tort. Thus the Victorian statute provides a basis for making orders as to contribution, notwithstanding that such relief is not available under s 87 of the Trade Practices Act: Re La Rosa; Ex parte Norgard (1991) 31 FCR 83 at 88-91, Turnbull at 126. The Wrongs Act will in any event apply to the negligence claims which are claims in tort. That being so, I do not need to deal with cross-claims based on separate allegations of negligence or misleading and deceptive conduct as between respondents. If for example respondent A claims that respondent B made misleading and deceptive statements to A as a result of which A has become liable to applicants because it in turn made the same statements to those applicants, or negligently failed to warn them about the subject matter of the statements, then the damages recoverable by A from B will depend on the liability of A to the applicants. That amount in turn will depend on what contribution is apportioned between A and other respondents, including B. Findings as to the relevant conduct of the respondents will appear from the narrative in these reasons and have been taken into account in arriving at the contribution assessments. 2. Hudson Conway and Richard Ellis The one exception to the foregoing as a matter requiring special mention concerns the cross-claims between these respondents arising out of the 31 May letter. Hudson Conway contend that it was an implied term of the Richard Ellis agency agreement that Richard Ellis would exercise a reasonable degree of care and skill in acting as agent for Hudson Conway. If (which Hudson Conway deny) Richard Ellis prepared the letter as agent for Hudson Conway then Richard Ellis breached the agency agreement by not exercising due care. For its part, Richard Ellis claim they sent the letter to Gray & Winter in their capacity as agents and are entitled to be indemnified by Hudson Conway. I do not think either claim is made out. Richard Ellis did not purport to provide the letter to Gray & Winter as agent for Hudson Conway. The existence of the agency explains the motivation of Richard Ellis in providing the letter in that Richard Ellis hoped a purchase organised by Gray & Winter would give rise to commission. But the letter was not written in the capacity as agent - on the contrary it appeared to be that of an independent expert valuer. Hudson Conway specifically approved the terms of the letter and thus had actual notice of the role being adopted by Richard Ellis. 3. Assessment of Contribution Apportionment should be "dealt with somewhat broadly and upon common sense principles": The Volute [1922] 1 AC 129 at 144 per Lord Birkenhead. Relative individual culpability and causative potency are relevant: Dare v Dobson (1959) 77 WN NSW 227. A convenient way of applying these principles in the present case is to fix three levels of contribution which I shall call, in descending order, Levels I, II and III. Each of the lower levels will represent roughly half the degree of liability of the one above. (As will be seen from the subsequent table, the nearest convenient percentages have been taken.) Since I have found there was no negligence by Metzke & Allan, they have not been included. On Level I I would place Gray & Winter who instigated and marketed the scheme and the accountants (other than Bird Cameron Geelong) without whose recommendation such of the applicants as were their clients would never have invested. The accountants were quite negligent in not adverting to the obvious hazards of the scheme and its inappropriateness for their clients. The non- disclosure of the commission played a significant role. That is something for which Gray & Winter are also responsible. They prepared the instruction letter which was misleading on this question. On Level II I would place Bird Cameron Geelong, mainly because Mr Landers not merely disclosed the commission but declined to accept it. Mr Landers however gave quite inadequate weight to the inherent risk of the scheme arising from the high gearing and was therefore negligent. Also on this level are Hudson Conway and Richard Ellis who were responsible for a limited, albeit significant, contributing factor in the case of the Turners, the Gordons and the Deans. On Level III I would place Nevett Ford. Their error in not advising as to the ratchet clause was again a limited failure. In terms of culpability, it would appear that Mr Stephens was apparently not very experienced in this kind of transaction. I do not think a comparison between the respective remuneration of the respondents, e.g. Gray & Winter $1.035 million and Nevett Ford $15,000, is relevant for this purpose. Accordingly the percentage apportionment in respect of the various applicants will be as follows: HC GW BC BC Glng HMG NF RE Turner 15 31 31 8 15 Gordon 15 31 31 8 15 Dean 15 31 31 8 15 Phelps 44.4 44.4 11.2 Arthurson 44.4 44.4 11.2 Schoeman 44.4 44.4 11.2 Haarsma 44.4 44.4 11.2 Lee 80 20 Green 80 20 Henderson 44.4 44.4 11.2 Tranter 44.4 44.4 11.2 Walker 44.4 44.4 11.2 Trengrove 58 28 14

[383]

As developed in the evidence of Mr David Boymal, who was called as an expert by SGIO, it was argued that objectivity and independence are cardinal requirements of the profession of accountancy. If the accountant receives a fee from a third party and does not disclose it to the client, his independence is "tainted" because of the existence of the fee. If he were to disclose the fee but not do any competent investigative work, his objectivity would be flawed because he would not be in the position to give objective advice. I think this approach confused two quite separate issues, namely whether on the one hand professional work was done competently or ethically and on the other hand whether the work done was professional work. It is clear that today the giving of investment advice to clients is work done by accountants in the ordinary course of carrying on the profession of accountancy. The evidence shows that payment for such work by commission from a third party with whom the client invests is common. I do not see how an accountant doing work badly, as for example making no adequate investigation or perhaps no investigation at all, means that the accountant thereby ceases to be doing the professional work of an accountant. Likewise, although the accountant both as a matter of professional conduct rules and the general law should disclose commissions, the fact that there is not disclosure does not alter the nature of the work that the accountant does, namely investment advice. I do not accept that Bird Cameron became agents of Gray & Winter or that when Bird Cameron introduced clients to Gray & Winter Bird Cameron ceased to be acting as accountants and performed some role on behalf of the promoters. Nor did the acceptance of the commissions mean that Bird Cameron was, as SGIO argued, "speculating privately" and "pursuing its own business interests" to the extent that they ceased to carry on the professional business of chartered accountants and embarked on some different business. Haseldine v Hosken [1933] 1 KB 822 at 837-838 does not assist SGIO. In that case a solicitor entered into a champertous agreement with a client to share the proceeds of an action. At that time in England champerty was a crime as well as a tort, although the solicitor was unaware of this. The action failed and the defendant sued the solicitor for champerty, the damages being the amount of the defendant's taxed costs. The solicitor claimed indemnity under a policy which insured against loss arising out of "any neglect, omission or error". The English Court of Appeal rejected the claim on a number of grounds: (i) the commission of a criminal act, knowing what the act is that is being committed (even though it is not known to be criminal) did not come within the expression "neglect, omission or error" (at 833, 835, 837, 387), (ii) the act of entering into the agreement with the client was deliberate and hence not within the policy (at 839), (iii) quite apart from any question of champerty the solicitor was undertaking a personal speculation and was not acting as a solicitor (at 839). On my reading of the case ground (iii) only appears in the judgment of Slesser LJ and is not part of the ratio. It is, with respect, difficult to follow. If (as in the United States) champerty were not illegal, a champertous agreement would be merely one way of arranging payment for the conduct of litigation, which is obviously enough part of the professional business of a solicitor. In the present case, what Bird Cameron were doing - advising clients as to investment- was part of the ordinary professional business of chartered accountants. The wrongfulness of the non-disclosure, or inadequate disclosure, of commission needs to be considered separately, but the receipt of those commissions did not mean Bird Cameron ceased being chartered accountants and started to carry on some other business - the precise nature of which SGIO's argument did not specify. All the Bird Cameron personnel had previously acted as accountants for their respective clients and had given at least general accounting and taxation advice and in some cases investment advice. There was an established retainer of accountant and client and it was within the scope of that retainer to bring to the client's attention possible investments, and in particular those which might have a tax benefit. 2. "Act, Error or Omission" - Whether Deliberate It is a rule of insurance law that, in the words of Lord Atkin in Beresford v Royal Insurance Co Ltd [1938] AC 586 at 595:

[393]

It is "control" in the last-mentioned sense in the passage just cited that is applicable in the present case. Par (b) is concerned with a fixed point in time, when advice is given or acted upon (Heath supra). Attention must therefore be directed towards legal power to control the "person" in which the investment is to be made. It would be unworkable to apply a test of de facto control, depending as such test must on the complexity of human relationships, informal arrangements and understandings and courses of conduct extending over an indefinite period of time. In the present case "control" of the partnership was not vested in the Management Committee or such Bird Cameron members of that committee who happened to form a majority of that committee. By cl 13(b) the control of the Management Committee was to be subject to any directions which may be given by the majority of parties. The parties also had power to remove and appoint members of the Management Committee: (cl 12(c)). Likewise the partnership was not to be "operated" by the Management Committee or by any Bird Cameron majority of members of that Committee or by a Manager appointed under cl 13(a) who happened to be a Bird Cameron person. The function of the Management Committee was that of accounting and administration manager. The business objective of the partnership was to hold the Coles Myer Building and make profits by letting under the existing lease or a new lease and ultimately selling that building. The fundamental decisions which that business would require - the sale of the building or the grant of a new lease - were matters for the partnership. Everything else was management and administration. Nor is (v) satisfied. SGIO argued that Bird Cameron had a "direct or indirect" financial interest because of (a) the commissions, (b) the opportunity of earning management fees by appointment as manager or members of the Management Committee, and (c) ongoing accountancy fees. I accept Bird Cameron's argument that "financial interest" means an interest of a proprietary nature. Consistent with this is the exclusion of a "nominal financial interest", defined to be less than 10 per cent of the issued capital of a listed company. The language of par (b) refers to a "person" (defined to include "any incorporated or unincorporated entity") "in which the assured ... has a direct or indirect financial interest". The expression "in which" suggests an interest of ownership or part ownership in the "person" itself. SGIO's argument would require the paragraph to be read as though it said "or from whose business the assured will or might derive some financial benefit". SGIO's construction would catch an accountant who advised a client about the acquisition of a company in the (quite reasonable) expectation that if the company was acquired the accountant would do its accountancy work. (b) Exclusion (e) This exclusion does not apply. The Coles Myer building was a building, not an "investment facility or service". Bird Cameron did not have "a direct or indirect control" of it or a "financial interest" in it. 4. Secret Commissions Relying on the principle that an insured "may not recover under a policy of insurance in respect of a loss intentionally caused by his own criminal or tortious action" (MacGillvray & Parkington on Insurance, 8th Ed, par 459, see also Beresford and Haseldine supra) SGIO argued that the claims by the applicants who were clients of Bird Cameron at Port Lincoln, Millicent and Ballarat arose from loss suffered, in part at least, as a result of conduct by Bird Cameron which contravened the criminal law's prohibition of secret commissions. Bird Cameron Geelong and Mr Peter Landers are of course not concerned with this issue. (a) Statutory Provisions The relevant South Australian law is contained in the Secret Commissions Prohibition Act 1920 (SA). Section 5 relevantly provides:

[401]

I was very much impressed with the argument of Mr Stacy that the Act was not intended to apply to cases of this kind; that it was intended to prohibit and to punish the taking or soliciting of secret commissions from people who had business relations with the principal of the agent. There are many expressions in the Act which certainly strongly suggest that that is what the Legislature had chiefly in contemplation; but the prosecution was under s.3 of the Act which I think is not so limited. It provides, as far as is material here, that if any agent corruptly solicits from any person any valuable consideration as an inducement or reward for forbearing to do any act in relation to his principal's affairs or business he is guilty of an offence against the Act. The question for us is whether the failure to report to his superior officer the breach of the by-laws was to forbear to do an act in relation to the Council's affairs. The argument of Mr Stacy was presented in this way: "A breach of the by-laws is a breach of the law and therefore a public offence. The prosecution of anybody for that breach is not an affair of the council's but an affair of the public generally, and anybody who prosecutes or refrains from prosecuting is not doing or forbearing to do any act in relation to the Council's affairs." If the appellant had been an officer nominated by the Council under some Act with authority under the Act to prosecute for a breach of the by-laws I should have been very strongly disposed to hold that that was not forbearing to do an act in relation to the Council's affairs. But that is not the position here. The appellant was not the person who had authority to prosecute. He was a person employed by the Council to obtain information for them, and I cannot see how in that respect he differs from any other employee of the Council who is employed with certain definite duties which are imposed upon him by the Council and for which he is paid by the Council. ... I think therefore that it was proved that the appellant, who was an employee of the Council and was therefore their agent within the interpretation clause, did solicit from some person a reward for forbearing to do some act in relation to his principal's affairs, that is forbearing to report to his principal matters which he was employed to report. [Emphasis added]

[405]

This statement was approved by the Full Court in Gallagher at 231. I do not think I should rely on the statutory provisions which reverse the burden of proof (s 16(2) (SA) and s 186(2) (Vic)). These appear to be procedural provisions addressed to criminal courts trying prosecutions under the relevant statutes. Nevertheless at common law the mere fact of a secret receipt - a sum of money secretly received by an agent - was presumed to show that the money had been given with an intent to gain an advantage: R v Scott [1907] VLR 471 at 474 per Cussen J. I draw the inference that the relevant Bird Cameron accountants knew, at the time the promise or offer of the commissions was made, that it was the intention of Gray & Winter to influence Bird Cameron to introduce to Gray & Winter clients whom Gray & Winter would not otherwise have met and to recommend and support the investment of those clients in the Coles Myer building investment scheme. Further, the relevant Bird Cameron accountants knew that Gray & Winter were to receive over a million dollars if sufficient numbers invested in the scheme. I also infer that the relevant Bird Cameron accountants knew their clients trusted them and knew that Gray & Winter knew this also. The commissions were kept secret from the clients. The Gray & Winter instruction letter, even in its second version (which was of no practical use anyway since it came after the decision and investment had been made), was not a genuine attempt to inform the client about the commission. It did not tell the client what the accountant was receiving money for. It would make the ordinary reader think the payment was for a quite different purpose. On the question of disclosure of commissions, I think it excessively charitable to describe the instruction letter as ambiguous. But even if it were only ambiguous, it is remarkable that none of the relevant Bird Cameron accountants made any enquiry of their clients to see if the client properly understood the highly relevant fact that Bird Cameron would get $10,350 merely for the client's investing. See also Part XV Section 2. It is not credible that the accountants merely overlooked the commission or that it was something that slipped out of their minds. It was a large amount, multiplied of course several times in the case of the Port Lincoln and Millicent offices. I have come to the finding, serious as I recognise it to be and applying the standard laid down in Briginshaw v Briginshaw (1938) 60 CLR 336 and Rejfek v McElroy (1965) 112 CLR 517, that the Bird Cameron accountants at Port Lincoln, Millicent and Ballarat solicited and received these commissions corruptly within the meaning of the criminal law. (e) The Liability of BPM The rule that an insured cannot recover in respect of loss caused by his or her own deliberate criminal act does not exclude recovery by a party to the policy who was not privy to the wrongful act: P Samuel & Co Ltd v Dumas [1924] AC 431 at 457, Midland Insurance Co v Smith (1881) 6 QBD at 561, Lombard Australia Ltd v NRMA Insurance Ltd [1969] 1 Lloyd's Rep 575. Where the insured is a corporation, and loss is caused by the criminal act of an individual, the corporation's claim under the policy will only be defeated if, in accordance with the general principles of corporate criminal liability, the individual was "the directing will and mind of the company": H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159 at 172, Tesco Supermarkets Ltd v Nattrass [1972] AC 705 at 713. The application of these principles is illustrated by S & Y Investments (No 2) Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1986) 44 NTR 14, a case directly in point. A company operated an hotel. A manager employed by the company shot and killed a customer in circumstances which constituted manslaughter. The company was held by the Full Court of the Supreme Court of the Northern Territory to be entitled to indemnity under an accident policy against a claim by the customer's widow. The manager had authority to act for it in the management of the licensed premises but was not so closely connected with the company that his acts could be said to be its acts: see per Asche J at 38-40. On the basis of these principles the wrongful acts of BPM's employees Lynch and Korczak were not the acts of BPM. As to Messrs Blyth and Swinney in Perth and Messrs Balcam and Tribe in Melbourne, even if any of them are to be treated as the "directing mind and will" of BPM, which I doubt, none of them were aware of the critical element of non-disclosure of commission. (f) Extension 3 Extension 3 of the policy provides:

[407]

(To facilitate reference I have divided the clause into numbered parts.) The taking of secret commissions amounted to dishonesty. It is sufficient in my opinion for the claim to be "brought by reason of any alleged dishonesty" within the meaning of part [i] if acts amounting to dishonesty formed part of the alleged facts and circumstances on which the claim is based. In the present case that dishonesty was "on the part of" the employees Messrs Lynch and Korczak in relation to the claims of the Millicent and Port Lincoln clients and "on the part of" a partner, Mr Mayne, in relation to the claim of the Ballarat clients. The dishonesty was not "on the part of" BPM itself because none of Lynch, Korczak or Mayne were the "directing mind and will" of BPM. BPM is an insured covered under the policy for claims made against it. Since there was no alleged dishonesty, mis-statement or fraud "on the part of" BPM, it does not have to rely on extension 3 and meet the qualifications contained in that exemption, except for the case of Mr Mayne. From part [ii] onwards there is a qualification of the cover provided by extension 3. For a start, that qualification is only concerned with partners, as distinct from employees (see part [iii]). Thus further consideration of extension 3 is only necessary in the case of Mr Mayne. Have SGIO established that there were "acts of active and deliberate fraud or dishonesty committed by (Mr Mayne) with actual fraudulent or dishonest purpose and intent" (emphasis added)? This expression is to an extent oxymoronic since it is not easy to conceptualise dishonesty that exists without actual dishonest purpose. But the words appear in a commercial document and have to be given a workable meaning if at all possible. I am not satisfied Mr Mayne's conduct did fit that description. It was, as I have found, dishonest but arose from weakness and lack of candour rather than the deliberate act of saying something known to be untrue. Therefore BPM is not prevented by the terms of extension 3 from claiming full indemnity under the policy, subject otherwise to its terms, against the claim of the Hendersons. SGIO also argued that extension 3 (which of course was part of its own printed form) was void as being contrary to public policy. It relied on what was said by Lord Macmillan in Beresford at 602-605. I would however respectfully prefer to follow the decision of the United States Supreme Court in North Western Mutual Life Insurance Co v Johnson 65 US Law Ed 159 (1920), a judgment written by Oliver Wendell Holmes J. In any event, the present case is a far cry from the rare and tragic fact situation in Beresford where Major Rowlandson, crippled by debt, shot himself three minutes before the end of the period of cover. The SGIO policy is a professional indemnity policy, typical no doubt of very many issued by insurers to accountants as well as solicitors and other professionals. Human nature being what it is, some partners and employees of accountants are going to be dishonest. Not only is it not contrary to public policy, but it is positively desirable that accountants who are not party to such dishonesty should be able to get the protection of insurance indemnity, for which of course they pay a premium which takes into account, amongst other things, the prospect of such claims. The position of the third party claimant must also be remembered. It is again positively desirable that persons suffering loss as a result of an accountant's dishonesty should have a right of recovery as far as possible against an insured defendant. The principle that an individual cannot insure in respect of his or her own deliberate criminal act remains inviolate. But otherwise insurance along the lines of extension 3 serves a useful purpose, is not likely to encourage the commission of fraud, does not interfere with the administration of the criminal law, and is not contrary to public policy. (g) Corrupt Advice Section 8(1) of the South Australian Act provides:

[417]

Gray & Winter did not become the agents of Hudson Conway. Gray & Winter did not become the agents of Bird Cameron or Huntley McArdle & Glass. In respect of the various respondents, findings as to liability are as follows. Hudson Conway and Amadio did not owe any duty of care to any of the applicants. They were not guilty of unconscionable conduct. However they are liable for the use by Gray & Winter of the Richard Ellis letter of 31 May 1990 although not for the use of the Richard Ellis information memorandum. The letter contained an opinion by Mr Chiminello, a director of Richard Ellis, that the value of the Coles Myer building on a cash sale was $14.8 million. I find that opinion was, to the knowledge of Hudson Conway and Richard Ellis, not held honestly or on reasonable grounds. Hudson Conway and Richard Ellis are liable for damages for misleading and deceptive conduct to the applicants Turner, Gordon and Dean who relied on the contents of that letter. I find the sale of the Coles Myer building by Amadio to those of the applicants who were purchasers, coupled with the mortgage back to Amadio and associated guarantee, contravened the prescribed interest provisions of the Companies Code. Hudson Conway and Amadio would be unjustly enriched if they were to retain the benefit of those transactions. The transactions should be set aside on terms that the present registered proprietors execute transfers of their respective interest in favour of Amadio and that the mortgage and guarantee be discharged. Gray & Winter in promoting this investment scheme were not acting as solicitors and did not owe a solicitor's duty of care to the applicants. However on ordinary principles of negligence they owed a duty of care to the applicants. Loss was reasonably foreseeable and there was sufficient proximity. They are liable for the following statements which were negligent as well as being misleading and deceptive within the meaning of the Trade Practices Act and Fair Trading Acts; (i) the market value of the building was at least $14.835 million, (ii) rent and capital value would increase, (iii) there would be no problems with re- finance in June 1993, (iv) a share could be sold with no further liabilities. Bird Cameron owed to those of the applicants who were their clients a duty to exercise the care, skill and diligence of a reasonably competent accountant in giving investment advice concerning the Coles Myer building investment scheme. They breached that duty by failing to warn their clients of the inherent risk of the investment scheme arising from its extremely high gearing and its total dependence on substantial and uninterrupted growth in capital and rental value. Because of its high degree of risk and requirement for large and continuing contributions, the scheme was quite inappropriate for persons in the particular personal and financial circumstances of Bird Cameron's clients. Bird Cameron made no adequate enquiries as to the state of the Melbourne commercial property market and relied virtually entirely on assurances by Gray & Winter who, to Bird Cameron's knowledge, stood to earn over a million dollars in fees if all shares in the investment were taken up. Bird Cameron implicitly represented to its clients that each of the persons involved in the promotion of the scheme was reliable and of good repute. This was misleading and deceptive because at the time Mr Garrick Gray was disqualified under s 562A(3) of the Companies (Victoria) Code from acting as a director of a company on the ground that he had taken part in the management of failed companies. Also Mr Gray had been convicted by a magistrate for issuing securities without a prospectus although on appeal to the County Court the charges were adjourned without conviction. With one exception the Bird Cameron accountants failed to disclose to their clients that they would receive a commission of $10,350 for each client who invested in the scheme. The exception is Mr Peter Landers of Bird Cameron Geelong who not only disclosed to his client the proffered commission but declined to take it and charged, on a time basis, a much lower amount. Huntley McArdle & Glass owed the same duty to their clients and breached it in essentially the same ways. They also failed to disclose the commmission of $10,350 for each of their clients who invested. The claim of Mr Robert Glass of that firm that his family company Wintarni Pty Ltd became a guarantor as a consequence of misleading and deceptive conduct of Gray & Winter is not made out. Nevett Ford were retained generally to act as solicitors for the applicants in relation to the purchase, mortgage and guarantee. They were not merely sub-contractors of Gray & Winter and their obligations were not confined to conveyancing. Amongst other things they owed a duty to their clients to advise them as to the nature of the legal rights and obligations that would arise upon making the investment. Nevett Ford breached that duty by not giving adequate and timely advice as to the joint and several liability which their clients were undertaking. However in the circumstances of this case that breach was not an effective cause of their clients' loss. But Nevett Ford is liable in respect of another breach of duty, namely failing to advise their clients of the absence of a ratchet clause in the Coles Myer lease and the effect that would have on the security of the investment. Nevett Ford did not in the circumstances breach their duty in the way they dealt with two problems which arose at settlement, namely the Terrey clause and the condition subsequent. The claim by the Deans alleging negligent advice by Mr Peter Wilson of Nevett Ford is not made out. Metzke & Allan owed a duty of care to the applicants but the extent of that duty was limited by the terms of the retainer they accepted from Gray & Winter. Metzke & Allan did not owe the applicants a duty to investigate the validity of the assumptions underlying the cashflow they prepared. Accordingly Metzke & Allan were not negligent and are not liable on any cross-claim for contribution by other respondents. The Walkers argued additionally that they were not liable on the guarantee because the defence of non est factum was available and because the powers of attorney they signed did not confer power on their attorney to execute the guarantee on their behalf. Neither argument is made out. Nor does s 125 of the Securities Industries Code gave them any additional assistance. The Terrey clause limits Mr Terrey's liability to his interest in the land. Effectively he is not liable on a personal covenant. The defences of estoppel, election, affirmation and contributory negligence are not made out. There has been no failure on the part of the applicants to mitigate their loss. Contribution between respondents in respect of their liability to the various applicants will be in the proportions set out in Part XXIV of these reasons. As to remedies, the transactions should be set aside because of the breach of the prescribed interest provisions. There is no other ground made out for setting aside. In the absence of the prescribed interest ground, the applicants would be left to their rights in damages. The amounts already paid are recoverable as damages. Interest at commercial rates is payable on these amounts. The damages would also include the applicants' liability under mortgage and guarantee, were they not to be set aside, less the present value of the building. The decline in the property market after the purchase is not a supervening event breaking the chain of causation. In calculating damages, tax deductions or other tax benefits obtained are not to be taken into account. As to the insurance indemnity claim by Bird Cameron against SGIO, I make the following findings. The claims made against Bird Cameron arose by reason of acts, errors or omissions of Bird Cameron in or about the conduct of the professional business of chartered accountants and are within the cover of the policy. Indemnity is not avoided on the ground that Bird Cameron's acts, errors or omissions were deliberate acts. Exclusion clauses (c) and (e) do not apply. The receipt of commissions by Bird Cameron accountants other than Bird Cameron Geelong constituted breaches of the criminal law against secret commissions. However BPM Pty Ltd, the company which carries on the practice of Bird Cameron, is not denied indemnity on this ground because it was not party to the wrongful acts within the principles which govern the criminal liability of corporations. BPM is entitled to cover under the terms of extension 3 in the case of the clients of Bird Cameron Ballarat. Extension 3 is not void as being against public policy. The applicable cover under the policy is $10 million with an excess as provided in the policy in respect of each and every claim. Spouses and other related parties are to be treated as making a single claim. The total excess is $740,000 costs inclusive. The multiplier does not apply. The further hearing will be adjourned to a date to be fixed to enable the parties to make submissions as to the form of orders, including orders for costs, which should be made in the light of these findings. I direct written submissions to be filed and served within 14 days.

Henderson, R F & Ors v Amadio Pty Ltd & Ors (No. 1) [1995] FCA 1029

At a glance

Court

Decision date

Source

Judgment (422 paragraphs)

The fourth section of the brochure contains a copy of the Coles Myer lease. The fifth section contains a series of fold-out spreadsheets. The first of these is in the following terms. It is headed: COLES MYER BUILDING

258 QUEENSBERRY STREET, CARLTON. CASHFLOW SUMMARY FOR THE YEARS ENDED Jun-90 to June-2000

PROPERTY INFORMATION

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Legislation Cited (12)

Cases Cited (69)

Cited By (1)