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[2024] FCA 1434
Federal Court of Australia
2024-12-12
Thawley J
Original judgment source is linked above.
THE COURT ORDERS THAT:
OVERVIEW 1 The applicant, Inruse Pty Limited as trustee for the 224 Hinxman Trust, seeks damages against the respondents, Equity Lenders Pty Limited and its sole director, Mr Robert Kirk. Equity Lenders is a mortgage originator and broker, linking private lenders with borrowers, particularly in the construction and building industries. Inruse makes investments in the Hinxman Trust for the purposes of generating wealth for Mr Swain and his family. Unless otherwise stated in these reasons, a reference to Inruse is a reference to Inruse in its capacity as trustee of the Hinxman Trust. 2 By three loan agreements between July and December 2021, Inruse lent money to Construxn Pty Ltd, a construction and property development company based in Queensland. Mr Nelson Wayne Leon was the sole director and shareholder of Construxn. 3 The three loans were as follows: (a) The First Loan, made on 13 July 2021: a loan of $262,500, secured by a second mortgage over 69A Albert Street, Goodna, Queensland (the Goodna property) and 36-46 Bromley Street, Cornubia, Queensland (the Cornubia property). The First Loan was for 6 months at an interest rate of 24% pa ($31,500), with three months interest prepaid on drawdown ($15,750) and a "Funder Fee" of 4.4% ($11,550) payable to Inruse on drawdown. Interest became payable at 48% in certain circumstances. By 14 October 2021, the borrower was in default such that interest was payable at 48%; (b) The Second Loan, made on 18 August 2021: a loan of $222,700, secured by a second mortgage over 40 Glenmore Crescent, Rochedale, Queensland (the Rochedale property). The first mortgagee was Certane Ct Pty Ltd, being an investment vehicle for the Australian Secure Capital Fund (ASCF). The Second Loan was for 2 months at an interest rate of 24% pa ($8,908), fully prepaid on drawdown together with a "Funder Fee" of 4.4% ($9,798.80) payable to Inruse on drawdown. Interest became payable at 48% in certain circumstances. On 18 October 2021, the borrower requested an extension until 18 November 2021. Inruse granted this extension at the default rate of interest of 48%, but Construxn defaulted on repayment; and (c) The Third Loan, made on 13 December 2021: a loan of $579,500, secured by a third mortgage over 47 Edward Street, Brisbane. Certane was the first and second mortgagee. The Third Loan involved a refinancing (and therefore a discharge) of the First Loan. The Third Loan was for three months at a "lower rate" of 48% pa, with the whole of the interest deducted from the principal on the loan date (a total of $69,540). Interest became payable at a "higher rate" of 60% in certain circumstances. An establishment or lender's fee of 4.4% ($25,498) was paid to Inruse at drawdown. Unless the loan was repaid before the loan repayment date and there had not been any event of default, a "deferred commitment fee" of $100,000 was payable. Before entering into the Third Loan, Construxn was in default under both the First and Second Loans. Construxn defaulted by not repaying the Third Loan on 13 March 2022. 4 In respect of each of the loans: (a) Equity Lenders acted for Inruse as broker and mortgage originator; and (b) Bransgroves Lawyers acted for Inruse. 5 On 12 June 2022, Construxn was placed under administration: Swain at [10]. Inruse has not been repaid the amounts owing under the Second and Third Loans which, after default, accrued interest at 48% and 60% respectively. 6 Inruse blames Equity Lenders and Mr Kirk for its predicament. By its primary case, Inruse claims that it was induced to engage Equity Lenders and make the loans by representations contained in documents accessed on or through its website, namely a "Private Lender Guide" and "FAQ's on becoming a lender on the Equity Lenders panel of lenders" (FAQs). The Guide and FAQs, amongst other things, provided information as to what Equity Lenders would do if a lender became a lender on Equity Lenders' panel of lenders, lending on first or second mortgages. The Guide and FAQs addressed loans in which the maximum loan to value (LVR) was 70%. 7 Mr Swain was the controlling mind of Inruse. He has 18 years' experience in the banking industry and 39 years' experience as a business manager assisting clients with their business and wealth management. Since 2016, he has devoted his attention solely to managing his family wealth. He had experience in private lending before the relevant events the subject of these proceedings. 8 After twice reading the Guide and FAQs carefully, Mr Swain contacted Mr Kirk at Equity Lenders and, after discussions, instructed Equity Lenders that Inruse preferred to lend on a second mortgage basis, charging interest of between 18% and 24% pa, with an LVR up to 90%. 9 In accordance with Mr Swain's instructions, Equity Lenders put forward the First Loan at 24% interest with an LVR in respect of two properties of 85.7% and 85.736%. The Second and Third Loans had an LVR of about 75%. 10 Inruse says that it was induced to deal with Equity Lenders by the representations it says were conveyed in the Guide and FAQs, including that Equity Lenders would only put forward loans where the lenders funds would be "safe" or "secure" and where there was sufficient equity in the security property to repay the loans. 11 Inruse claims that, were it not for the representations, Inruse would have engaged a different mortgage broker, and that: (i) it would have entered into different private loans at the same or similar rates to those which it in fact entered into; and (ii) it would not have suffered the losses it did. 12 Inruse claims damages: (a) under s 236(1) of the of the Australian Consumer Law (ACL), being Sch 2 of the Competition and Consumer Act 2010 (Cth) for a breach of s 18(1) of the ACL on the basis that Equity Lenders engaged in misleading or deceptive conduct by making certain representations about Equity Lenders' lending policies; (b) against Mr Kirk on the basis that he was "involved in" the contraventions within the meaning of s 2(1) and s 236(1) of the ACL; (c) for breach of contract, the alleged terms finding analogues in the alleged misleading or deceptive representations; and (d) for negligence at common law and under s 267(4) of the ACL on the basis that Equity Lenders failed to comply with the guarantee under s 60 of the ACL by failing to provide services with due skill and care. 13 For the reasons which follow, each of Inruse's claims should be dismissed.
Mr Swain and Inruse 14 Mr Swain and his daughter, Ms Elizabeth Swain, are directors of Inruse which is used as an investment vehicle for the Hinxman Trust: Swain at [1]-[3]. 15 Mr Swain is an experienced investor, having retired in 2016 to run his family office full-time. He holds a Master of Business Administration from Southern Cross University: Swain at [20]. From 1959 until 1977, Mr Swain was employed by the Australia and New Zealand Bank (ANZ) as a city branch accountant and relieving manager: Swain at [21]. In about 1977, Mr Swain left the ANZ and commenced a business management practice which he operated until 2016: Swain at [22]. Although Mr Swain was not a tax agent or a registered accountant, he maintained financial accounts for his clients before those clients submitted the financial accounts to their accountants. As part of his business management practice, Mr Swain managed the personal wealth of Australian businessman, Mr Warren Anderson. 16 When he ceased operating his business management practice in 2016, Mr Swain turned his attention solely to managing his family wealth: Swain at [23]. Mr Swain is solely responsible for making investment decisions for Inruse: Swain at [35]. 17 By reason of his experience in the banking industry and as a business manager, and his previous experience in causing the Hinxman Trust to invest in private mortgages, Mr Swain was experienced in private mortgage lending and was aware that it was a "potentially risky class of investment": Swain at [71]. Mr Swain stated that he retained a mortgage broker when undertaking private mortgage lending "as an extra layer of assessment to help mitigate the risk" to Inruse: Swain at [74].
The decision to retain Equity Lenders 18 On 10 May 2021, Mr Swain decided to explore whether Equity Lenders would be an appropriate broker to act for Inruse in relation to a $500,000 investment. 19 Mr Swain gave evidence that he visited Equity Lender's website after dinner on 10 May 2021, first viewing the "splash page": Swain at [88]. Mr Swain stated that he then carefully read the FAQs, namely the document entitled "FAQ's on becoming a lender on the Equity Lenders panel of lenders": Swain at [92]. The FAQs included the following (emphasis original): Why does a 2nd mortgage have higher risk compared to a 1st mortgage? … Risks to lenders include:
The First Loan 36 Between 21 May 2021 and 7 July 2021, Equity Lenders acted as broker for Inruse in respect of a potential loan to Nepean Highway Holdings Pty Ltd (Nepean Highways Loan): Swain [106]. That loan was proposed to be for $262,500, secured against a property in Malvern East in Victoria. 37 Inruse paid $262,500 to Bransgroves' trust account for settlement of the Nepean Highways Loan: Swain [110]. One half of this was funded by a friend of Mr Swain, Harry: Swain at [109]. The loan was at 24% pa interest. 38 On 14 June 2021, Mr Kirk sent Mr Swain an email proposing a second mortgage loan for a "long-term client [Construxn] in Brisbane that purchased DA approved development land in Brisbane.": CB396. 39 Consistently with Mr Swain's instructions to source loans up to 90% LVR with interest at 24%, the proposed loan was at 24% pa at a 90% LVR, with a principal sum of $162,000. The loan was to be secured against the Goodna property. Mr Kirk attached to his email:
The Second Loan 70 On 14 August 2021, Mr Kirk sent an email to Mr Swain in relation to a second loan to Construxn (CB800). The email included: Hi Peter I've been asked for a loan secured by 2nd RM [registered mortgage] on a property in Brisbane for the same borrower you assisted a month or so ago. He needs the funds only for a month. I've told him you have funds but earmarked for a borrower that is late on settling. He's asked if he can use those funds on Tuesday and have the funds returned to you within the month. I can hold off the current borrower Barber Society as they can wait for the funds to be made available. They have taken a couple of months and can wait another month. If you are ok to provide the following loan, the borrower wishes to proceed early next week with a drawdown. Details of the loan required is as follows:
Default on the First and Second Loans 83 On 14 October 2021, Construxn defaulted in payment of interest on the First Loan: Swain at [149]. Four days later, on 18 October 2021, Mr Kirk emailed Mr Swain stating that Construxn had requested an extension of the Second Loan term until 18 November 2021 and that the interest due be payable upon discharge on the same date: CB1079. 84 Later that day, Mr Swain agreed to the extension in relation to the Second Loan and enquired with Mr Kirk about what Construxn proposed in relation to payment of interest on the First Loan which, Mr Swain observed, now attracted 48% default interest (rather than 24% interest): CB1082. Mr Swain's email stated: We are prepared to postpone settlement of the $222,700 until 18th November, 2021 on the basis of a default interest charge of 48% being applied. This being $8,908. What does the borrower contemplate in regard to the interest on the $262,500, now in arrears since 14th October, 2021 and attracting a default rate of 48%. 85 Between 4 November 2021 and 29 November 2021, Mr Swain and Mr Kirk exchanged emails regarding arrangements for repayment of the First and Second Loans: CB1086-1098. 86 Throughout this period, Mr Swain became increasingly "anxious" (CB1090) about repayment of the loans. Construxn attributed its default to a delay in settlement of the sale of a property from which funds would be applied to discharge the two loans. 87 On 29 November 2021, Inruse received two interest re-payments, both in the sum of $5,450.00, neither of which matched the default interest payable on either the First or Second Loan: CB1100. Mr Swain wrote to Ms Jabbour (cc'ing Mr Kirk) stating that (CB1103): Received two deposits of $5,450.00 each. Neither matches with default interest payable on either loan. … We require the current shortfall of $27,916 ($21,000 + $17,816 - $10,900) by close of business on 2 December, 2021 together with substantiated evidence of forthcoming settlement of both loans Recovery action to then commence if these conditions not met. 88 In compliance with Mr Swain's demand, the amount of $27,916.00 was deposited into Inruse's account on 29 November 2021: CB1100. The principal on the First and Second Loans remained outstanding.
The Third Loan 89 On 5 December 2021 at 1.02pm, Mr Kirk sent an email to Mr Swain stating that Construxn wanted to: (1) rollover both the First and Second Loans to the end of January with prepaid interest and fee; and (2) borrow an additional $300,000 until the end of January: CB1106. The email stated that "[i]nterest rates and fees are not a consideration and [Construxn] will pay whatever rate and fees are required" and that Construxn "requires the $300k net on Monday the 6th December for a … purchase deposit". The email stated: On Friday I received confirmation from the borrower's solicitor acting for the property sale, that a loan extension is required. You may recall the borrower [Construxn] was seeking bridging funds from you while waiting on a property sale to materialise to an ASX listed company. The sale was continuously delayed due to an outstanding requirement by the council and was expected to settle a few months ago. Because settlement hadn't proceeded, the Gov't a week or so ago swept in and stopped the sale from proceeding. Instead, the Qld Dept of Health are purchasing the site. The site is approved for the brand new Hospital in Logan City Brisbane with adjoining Accor motel. Contracts etc are presently underway and settlement is now expected by latest end of January 2022. The borrower has requested the following to be considered by Inruse:
Recovery proceedings 112 On approximately 30 May 2022, Inruse and the other lenders entered into a Bare Trust Deed with Bransgroves (Syndication Deed), and instructed Bransgroves to commence enforcement proceedings against Construxn. The Syndication Deed appointed Omicron Mortgages Pty Ltd as bare trustee of charges over each of the secured properties. 113 On 12 June 2022, Construxn was placed under administration: Swain at [10]. 114 On 26 August 2022, Omicron lodged caveats against each of the Construxn properties. On 29 August 2022, Omicron commenced proceedings seeking the declaration of a caveatable interest in the Construxn properties. There was no evidence as to the current status of these proceedings.
Overview of Inruse's case 115 Inruse's misleading and deceptive conduct case as pleaded comprised the following essential elements. 116 First, Equity Lenders published the Guide and the FAQs: SOC at [6] and [7]. Assessed in context, those two documents were said to convey the following representations (SOC at [8]): a. that Equity Lenders was a long-established business, with highly experienced staff; b. that Equity Lenders would undertake preliminary due diligence of any borrowers, including speaking with borrowers, assessing their credit worthiness, assessing the value of real estate security and the level of equity, and repayment exit strategy; c. that Equity Lenders would only present loans to be made to reputable borrowers; d. that Equity Lenders would only present loans to be made where the lenders funds would be secure; e. that any funds advanced by a lender would be safe and secured; f. that Equity Lenders would only advance lending proposals where there was sufficient equity in any security property(ies) to repay any amounts lent and interest, fees and charges incurred on that loan; g. that in assessing the equity position of the borrower and the proffered security, Equity Lenders would consider the indebtedness of the borrower and would advise the lender of the equity position of the security, including any prior ranking securities and their amount, including where those securities cross-collateralised other debts; and h. that in packaging any loan application, Equity Lenders would assess the application, undertake necessary investigations in to [sic] the value of the asset, the credit history of the borrower, the loan to value ratio and the equity position of the borrower and would advise a panel lender of any relevant information, including whether the borrower was currently in default, and would not propose loans where there was a risk of the lenders funds not being repaid, (together, "the Lending Policy Representations"). 117 Secondly, Mr Swain carefully read the Guide and the FAQs twice before entering into the First Loan, once on 10 and 11 May 2021 and a second time between 11 and 17 May 2021. Inruse understood the Lending Policy Representations as being "promises" by Equity Lenders that if Inruse agreed to appoint Equity Lenders as Inruse's lending broker and mortgage originator (SOC at [10]): a. that Equity Lenders would undertake preliminary due diligence of any borrowers, including speaking with borrowers, assessing their credit worthiness, assessing the value of real estate security and the level of equity, and repayment exit-strategy; b. that Equity Lenders would only present loans to be made to reputable borrowers; c. that Equity Lenders would only present loans to be made where the Lenders funds would be secure; d. that any funds advanced by a lender through Equity Lenders would be safe and secured; e. that Equity Lenders would only advance proposals where there was sufficient equity in any security property(ies) to repay any amounts lent and interest, fees and charges incurred on that loan; f. that in assessing the equity position of the borrower and the proffered security, Equity Lenders would consider the indebtedness of the borrower and would advise the lender of the equity position of the security, including any prior ranking securities and their amount, including where those securities cross-collateralised other debts; and g. that in packaging the loan application, Equity Lenders would assess the application, undertake necessary investigations in to [sic] the value of the asset, the credit history of the borrower, the loan to value ratio and the equity position of the borrower and would advise a panel lender of any relevant information, including whether the borrower was currently in default, and would not propose loans where there was a risk of the lenders funds not being repaid. 118 Thirdly, the Lending Policy Representations were misleading or deceptive or likely to mislead or deceive "given the failure to advise or identify the existence or potential existence of further debts secured against the security properties proffered by Construxn, or their magnitude, or that those debts could or would be so great as to result in the mortgage securities held by Inruse not being able to satisfy [sic - be satisfied]": SOC at [44(c)]. 119 Fourthly, after it was engaged, Equity Lenders proposed three loans: SOC at [12], [13] (the First Loan); [20], [21] (the Second Loan); [28] and [29] (the Third Loan). Equity Lenders did not correct or qualify any of the Lending Policy Representations before Inruse entered into any of the three loans: SOC at [14] (the First Loan); [22] (the Second Loan) and [31] (the Third Loan). 120 Fifthly, Mr Swain thought that Equity Lenders was only putting forward loans which had met an assessment against Equity Lenders' criteria and due diligence: Swain at [117] to [119] (First Loan); [132] to [134] (Second Loan); [179] and [180] (Third Loan). Because of this Mr Swain considered that, if Construxn defaulted, there would be sufficient security to meet and repay the loans: Swain at [117] to [119] (First Loan); [134] to [136] (Second Loan). 121 Finally, Inruse suffered loss because of the misleading or deceptive conduct: SOC at [46]. The losses were occasioned by Construxn's default on the Second and Third Loans. 122 As to quantification of loss, Inruse's pleaded claim was for: (a) the principal amount lent to Construxn; (b) the interest which Inruse would have been entitled to receive; (c) the interest that Inruse would have been entitled to receive if it had lent to other parties through another broker; and (d) prejudgment interest - see: [43], [48] and [51] of the SOC. Claims (c) and (d) were not alternative claims, creating significant double or triple counting. 123 By its oral opening submissions, Inruse redefined the quantification of its losses to claim (MFI-1): (a) the principal sums on the Second ($222,700) and Third Loans ($579,500); (b) the default fees on those loans of $50,000 and $100,000 respectively; (c) loss of earnings by reference to what Inruse says it would have earned on second mortgage loans at 24% interest through a different mortgage broker from the time the Second and Third Loans were repayable (18 October 2021 and 13 March 2022) until dates proximate to the hearing, calculated to be $260,700 (Second Loan) and $645,500 (Third Loan), together with "loan application fees" of $125,690.40; (d) refinancing costs totaling $81,008; (e) "internal loan management fees", representing Mr Swain's time spent in relation to these proceedings, being 220 hours of Mr Swain's time at $330 an hour, totalling $72,600; and (f) its costs of these proceedings said to be $199,087.65 as at 3 December 2024. 124 The total claim was therefore roughly $2.34 million.
Establishing a breach of s 18(1) of the ACL 125 Section 18(1) of the ACL provides: 18 Misleading or deceptive conduct (1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. 126 In Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8; 97 ALJR 388 at [80] and [81], Kiefel CJ, Gageler, Gordon, Edelman and Gleeson JJ set out the four steps involved in determining whether a person has breached s 18 of the ACL. The steps are: (a) First, identifying with precision the "conduct" said to contravene s 18(1). The first step requires asking: "what is the alleged conduct?" and "does the evidence establish that the person engaged in the conduct?" (b) Second, considering whether the conduct was conduct "in trade or commerce". (c) Third, considering what meaning the conduct conveyed to its intended audience. Where the pleaded conduct is said to amount to a representation, it is necessary to determine whether the alleged representation is established by the evidence. (d) Fourth, determining whether the conduct, in light of the meaning the conduct conveyed, meets the statutory description of "misleading or deceptive or ... likely to mislead or deceive", that is, whether it has the tendency to lead into error. 127 In relation to the third and fourth steps the High Court stated at [82] (footnotes omitted): The third and fourth steps require the court to characterise, as an objective matter, the conduct viewed as a whole and its notional effects, judged by reference to its context, on the state of mind of the relevant person or class of persons. That context includes the immediate context - relevantly, all the words in the document or other communication and the manner in which those words are conveyed, not just a word or phrase in isolation - and the broader context of the relevant surrounding facts and circumstances … 128 Where an applicant contends that the impugned conduct conveys a representation, one cannot only analyse the separate effect of isolated parts of the conduct said to give rise to the representation without analysing whether the representation was conveyed by the whole of the conduct assessed in context: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; 149 CLR 191 at 199; Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60; 218 CLR 592 at [39] (Gleeson CJ, Hayne and Heydon JJ); Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 at [52]. 129 Examining only isolated parts of the conduct "invites error": Butcher at [109] (McHugh J); approved in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at [102]. McHugh J stated (footnotes omitted): The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document. 130 It follows that it would be wrong only to analyse particular words and phrases in the Guide and FAQs in isolation. Not only must those documents be read as a whole, they must be read with each other and against the broader context of the relevant surrounding facts and circumstances. 131 Further, in this case, it is necessary to consider what the conduct as a whole would have conveyed at different points in time. Mr Swain's decision to contact and engage with Equity Lenders was only one of the relevant decisions made. Having engaged Equity Lenders to source loans with an LVR up to 90%, preferably on a second mortgage basis, Inruse later decided to make three loans. What the whole of Equity Lenders' conduct conveyed does not necessarily remain static as at the point in time Mr Swain read the Guide and FAQs before engaging with Equity Lenders. That is because relevant conduct occurred once Mr Swain contacted Equity Lenders and continued as did the relevant events, such that the context and surrounding circumstances were different when entering into each of the three loans.
First step: What is the conduct? 132 There is no dispute that Equity Lenders published the Guide and the FAQs. There is also no dispute that Equity Lenders proposed the three loans and that, in doing so, it made the various communications referred to earlier. 133 To the extent that the conduct relied on by Inruse included later conduct, in particular, what was said and not said in emails when putting the loans forward, there was no dispute that the relevant conduct occurred. Somewhat confusingly, the SOC at [44(b)] identifies the conduct as Equity Lenders "acting as lender's broker, mortgage originator and manager" and by reference to SOC [4] to [37] (some of which do not identify any conduct).
Second step: Trade or commerce 134 There was no dispute that all of the conduct occurred in trade or commerce.
Third step: The meaning the conduct conveyed to its intended audience 135 As has been mentioned, the structure of Inruse's case was that Mr Swain was misled by the Guide and FAQs into having the understanding pleaded at [10] of the SOC that various "promises" were made as to how Equity Lenders would act if Inruse engaged Equity Lenders. 136 Inruse's case was that, absent Mr Swain thinking that the "promises" at [10] of the SOC had been made, Inruse would have retained a different mortgage broker. Inruse also says that the Lending Policy Representations were not corrected before entering into any of the loans. 137 At the centre of Inruse's case, therefore, is the question whether the Lending Policy Representations were conveyed by the Guide and the FAQs. The Lending Policy Representations are set out at [116] above. It was not in dispute that none of the alleged representations were expressly made in the Guide or in the FAQs in the unqualified and absolute terms pleaded. 138 The question is whether the Guide and FAQs conveyed the pleaded representations to the "intended audience" (Self Care at [81]). This must be assessed in light of the conduct as a whole and in the context of all of the relevant circumstances. 139 Equity Lenders was (and remains) engaged in the business of mortgage broking and originating for private lenders. Equity Lenders were arrangers of non-code loans to companies and corporate trustees of family trusts - they did not undertake lending on behalf of private individuals and did not hold the relevant licences to do so: CB354. The "intended audience" of the Guide and FAQs are individuals or entities who make, or were at the relevant time considering making, "non-code" loans. Having regard to the observations of the High Court (French CJ, Gummow, Hayne and Kiefel JJ) in Forrest v ASIC [2012] HCA 39; 247 CLR 486 at [36], it is probably sufficient to identify the intended audience as private lenders (or those considering private lending) or a wider section of the commercial community such as investors. 140 It must be recognised, however, that it is the whole of Equity Lenders' conduct up to the relevant material times which is relevant in determining whether Inruse suffered loss because of any breach by Equity Lenders of s 18(1). So far as the impugned conduct includes direct dealings and communications between Equity Lenders and Inruse, it is the objective characterisation of the conduct viewed as a whole, and its notional effects, judged by reference to its context, on the state of mind of Mr Swain that is relevant: Self Care at [82]. In that respect, it should be emphasised that Mr Swain was neither naïve nor stupid. He was relatively sophisticated commercially, with 18 years' banking experience and 39 years' experience in providing business and wealth management services to others and with experience in making private loans. He also took care to read material thoroughly. Mr Swain's commercial experience was evident, for example, in his understanding of the importance of a deed of priority and in his recognition at the time of the Third Loan that the interest rates of 48% (non-default rate) and 60% (default rate) which he proposed for the Third Loan were ones which would apply in a situation of distress: T39.9.
Representations (a) and (b) 141 By its Defence, which was filed at a time before the respondents had legal representation, Equity Lenders admitted that representations (a) and (b) were conveyed by the Guide and the FAQs. As mentioned, these were: a. that Equity Lenders was a long-established business, with highly experienced staff; b. that Equity Lenders would undertake preliminary due diligence of any borrowers, including speaking with borrowers, assessing their credit worthiness, assessing the value of real estate security and the level of equity, and repayment exit strategy; 142 Representation (b) appears to be based substantially on the part of the FAQs answering the question "Is lending to a Company or a Corporate Trustee safe?" at CB342, set out at [19] above.
Representation (c) 143 Lending Policy Representation (c) was: "that Equity Lenders would only present loans to be made to reputable borrowers". The meaning of "reputable" in this representation is obscure. The word is not to be found in the Guide or the FAQs. If it is intended to be a reference to a borrower who fully and frankly discloses all information relevant to a decision to lend, then the representation was not conveyed by the written material. The word "reputable" cannot sensibly be a reference to a borrower who would not default on a loan. If that is what was intended, the Guide and FAQs plainly conveyed that borrowers might default. Representation (c) was not made by the Guide and the FAQs as asserted at [8] of the SOC.
Representations (d) and (e) 144 Lending Policy Representation (d) was: "that Equity Lenders would only present loans to be made where the lenders funds would be secure". Lending Policy Representation (e) was: "that any funds advanced by a lender would be safe and secured". 145 The Guide included the words "safely secured by mortgage(s) on property" (emphasis added): CB349. There is certainly no express representation that Equity Lenders would only put forward loan applications where the lender's funds would be "secure" or that "any funds advanced by a lender would be safe and secured" as absolute and unqualified propositions. Nor were these representations conveyed by implication in the Guide and the FAQs read as a whole. A reasonable member of the intended audience reading those documents would have understood that: (a) borrowers might default and that loans and fees and charges might not ultimately be able to be recovered; (b) the particular terms of any given loan, including the type of security given, would depend upon the terms ultimately agreed; (c) the decision whether or not to enter into a loan rested with the lender and the lender's appetite for risk, having made whatever inquiries the lender wished to make; (d) although the Guide used the words "safely secured by mortgage(s)", there was no guarantee of future performance by unidentified future borrowers and no representation that the money lent would be recovered.
Representation (f), (g) and (h) 146 Lending Policy Representation (f) was: "that Equity Lenders would only advance lending proposals where there was sufficient equity in any security property(ies) to repay any amounts lent and interest, fees and charges incurred on that loan". 147 This representation was not conveyed by the Guide and FAQs in the absolute and unqualified terms pleaded. A reasonable reader of those documents would have understood that: (a) a borrower might default; (b) the loan principal, interest and fees might not be recovered if the borrower did default; (c) the risk of these events occurring were likely to increase where the loan was a second mortgage loan and had a higher LVR; (d) "preliminary due diligence" might not reveal matters relevant to a determination of whether there was sufficient equity in the security property to repay the amounts lent, together with interest and charges. 148 A part of the surrounding circumstances of which a reasonable reader would have been aware, is the fact that second mortgage non-code lending often involves entities in some form of financial pressure or difficulty. 149 Lending Policy Representation (g) was: "that in assessing the equity position of the borrower and the proffered security, Equity Lenders would consider the indebtedness of the borrower and would advise the lender of the equity position of the security, including any prior ranking securities and their amount, including where those securities cross-collateralised other debts". 150 A reasonable reader would have understood that, typically, the "preliminary due diligence" would be likely to involve at least a consideration of "the equity position of the borrower and the proffered security" and a consideration of "the indebtedness of the borrower". 151 A reasonable reader would not have understood that the "preliminary due diligence" would generally or typically involve an investigation or audit of whether the security was cross-collateralised and the extent of any such cross-collateralisation beyond what Equity Lenders was told by the potential borrower. 152 Lending Policy Representation (h) was: "that in packaging any loan application, Equity Lenders would assess the application, undertake necessary investigations in to [sic] the value of the asset, the credit history of the borrower, the loan to value ratio and the equity position of the borrower and would advise a panel lender of any relevant information, including whether the borrower was currently in default, and would not propose loans where there was a risk of the lenders funds not being repaid". 153 Representation (h) was not conveyed by the Guide and FAQs in the absolute and unqualified terms pleaded. It would have been manifestly obvious to a reasonable reader of those documents that there was a risk of not being repaid and a risk of incomplete- or non-recovery. No reasonable reader would have thought that Equity Lenders would never propose a loan where there was a risk of the lenders funds not being repaid.
Fourth step: Was the conduct "misleading or deceptive or likely to mislead or deceive"? 154 Lending Policy Representation (a) was not misleading or deceptive or likely to mislead or deceive. 155 Lending Policy Representation (b) is, or at least includes, a representation as to a future matter, namely a representation as to how Equity Lenders would conduct itself in relation to the types of loans described in the Guide and FAQs such that s 4 of the ACL must be applied. The evidence adduced shows that Equity Lenders undertook preliminary due diligence. This is shown by: (a) the content of the loan applications which, amongst other things, contained substantial information about the properties owned by Construxn and the borrowings which had been made against those properties - see: CB422; 827; (b) the various emails from Mr Kirk which refer to discussions he had with Construxn and to what he had been told in relation to the purpose of the loan, the circumstances of Construxn and the exit strategies - see for example: email of 7 July 2021 at CB460; email of 14 August 2021 at CB800; email of 5 December 2021 at CB1106; email of 6 December 2021 at CB1108; (c) the documents which referred to dealings between Equity Lenders and Construxn (otherwise than in connection with Inruse) from which it is to be inferred that Equity Lenders had obtained substantial information about Construxn; (d) the Creditorwatch and National Personal Insolvency Reports which Equity Lenders had been given by Bransgroves on 12 July 2021, 17 August 2021 and 10 December 2021: CB500; 884, 1576; (e) the valuations which Mr Kirk obtained and passed on to Mr Swain, which were detailed and evidently used by Equity Lenders in calculating the relevant LVRs and putting forward the loans for Inruse's consideration; (f) the Terms sheets relevant to each of the loans which revealed at least a part of Equity Lenders' assessment, including amongst other things: the property values of the properties the subject of the proposed second or third mortgages and the LVR which had been calculated; the interest and fees which would be earned by Inruse; and (albeit in short form) the proposed "exits" of the loans. 156 Lending Policy Representations (c) to (h) - which are cast in absolute and unqualified terms - would have been misleading if they had been conveyed. For the reasons given earlier, they were not.
Causation 157 As noted earlier, the Guide and FAQs did not convey Lending Policy Representations (c) to (h). It was admitted that the Guide and FAQs conveyed Lending Policy Representations (a) and (b). However, those representations were not misleading or deceptive. Accordingly, there was no breach of s 18(1) of the ACL. In any event, for the reasons which follow, any misleading conduct was not the cause of loss. 158 The question under s 236 of the ACL is whether the claimed loss was suffered "because of" the impugned conduct. This is a question of causation, which is answered by reference to the purpose of the statute as it relates to the circumstances of the particular case: Henville v Walker [2001] HCA 52; 206 CLR 459 at [100] to [103] (McHugh J); I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; 210 CLR 109 at [30] (Gleeson CJ); Travel Compensation Fund v Tambree [2005] HCA 69; 224 CLR 627 at [45] (Gummow and Hayne JJ). A liability for loss under s 236 is not demonstrated solely by establishing that the loss would not have occurred absent the conduct, although that would generally be necessary. 159 Reliance - whilst it is often a critical matter in determining whether loss was suffered "because of" the impugned conduct - is not a substitute for the statutory question, which is one of causation: Campbell at [143]. A close analysis of the facts and the inferences which can properly be drawn from those facts is required where the issue is what action or inaction would have occurred if the true position had been known: Campbell at [143].
Reliance 160 Mr Swain's reliance on the Lending Policy Representations (on the assumption they were made) was a central issue and the focus of the submissions of both parties. Mr Swain's case was that he dealt with Equity Lenders because of the "promises" (see [117] above) he considered Equity Lenders made in the Guide and FAQs and that he relied on those promises or representations in making decisions to enter into the loans. 161 Mr Swain had many years of banking experience and experience in providing business and wealth management services and was experienced in private lending. He read the Guide and FAQs carefully: Swain at [91] and [95]. He did so on the evening of 10 May 2021 and into the morning of 11 May 2021 and again at some time between 11 and 17 May 2021: Swain at [88] to [97] and [100]. The FAQs stated (CB339): Risks to lenders include:
Process, preliminary due diligence and assessment against criteria 180 In closing submissions, it was contended that the Guide and FAQs conveyed representations or promises that a "process" would be followed which mitigated the risks. The process relied upon appears in its clearest terms in the FAQs under the heading "Is lending to a Company or a Corporate Trustee safe?", set out at [19] above. It should be observed at the outset that the content of that part of the FAQs, which addresses the question of whether such loans are "safe", is based on the LVR not exceeding 70%. 181 In substance, the submission was that it was represented that certain steps would be undertaken as part of the "preliminary due diligence" before a loan would be put to Inruse for consideration. These submissions are of particular relevance to Lending Policy Representation (b). It is also convenient to address in this context, Mr Swain's evidence that he understood that Equity Lenders was only presenting loans which "met an assessment against [Equity Lenders'] criteria and … due diligence". Mr Swain stated the following in his affidavit at [180] (see also [117]-[119]; [134]-[136]; [146] and [179]): At that time [when considering whether to enter into the Third Loan], I understood that Robert was only presenting that loan to me after it had met an assessment against their criteria and their due diligence. I held that view with all of the proposals Robert made to me. 182 Mr Swain knew that Equity Lenders' "process" (as it was put in submissions for Inruse) for mitigating risk was not followed by the parties from the outset, if it could have been applicable at all, in that Mr Swain wanted Inruse to lend at LVRs up to 90%. 183 Equity Lenders' "process" or strategy for mitigating risk, and the lending "criteria" to the extent they are set out in the Guide and FAQs, were based on loans with a maximum LVR of 70%. The FAQs, in explaining why a second mortgage had a higher risk compared to a first mortgage explained that the lender could "nominate the maximum lvr you are comfortable with", but that "EquityLenders does not exceed 70% lvr which means at least 30% of the remaining equity is available as buffer": CB339 (emphasis in original); see also CB342 (item 8). The Guide referred to LVRs between 60% and 70%. The content of the Guide and FAQs, and the observations about risk mitigation in them, were founded upon loans at a maximum LVR of 70% with a 30% "buffer". 184 Mr Swain expressly sought loans at an LVR up to 90%. From the very outset, Mr Swain wanted to maximise the interest rate return by seeking loans at an LVR above that specified in the Guide and FAQs. 185 Equity Lenders followed Mr Swain's instructions, as Mr Swain must have known it would. The LVR in respect of the First Loan was over 85.7% and well exceeded the 70% LVR which had been referred to in the Guide and FAQs. Especially in the context of non-code loans in the private market, the difference is significant. 186 Mr Swain was aware that Equity Lenders was not following Equity Lenders' "criteria" as set out in the Guide and FAQs in its dealings with Inruse in that a critical integer in any such criteria, of central importance to risk of default and prospect of recovery, was one which Inruse instructed Equity Lenders not to use for the loans to be sourced for Inruse. The First Loan did not meet Equity Lenders' criteria and Mr Swain could not have thought it did, contrary to Mr Swain's evidence at [180] of his affidavit. The First Loan met Mr Swain's criterion of being close to 90% LVR. 187 Mr Swain was proposing to lend on, and instructed Equity Lenders to seek to source, second mortgage loans of a materially different kind to those which the Guide and FAQs addressed in that he wanted to lend up to 90% LVR. No reasonable reader of the Guide and FAQs could have thought that those documents were attempting to address the position (in particular the risk position) where the LVR was materially above 70%. 188 Further, on the question of "process" and "due diligence", Mr Swain knew that the Creditorwatch reports and National Personal Insolvency Index reports were being obtained by Bransgroves rather than Equity Lenders. 189 Bransgroves provided credit reports to Mr Swain in relation to each of the loans. Equity Lenders did not provide such reports to Mr Swain in relation to any of the loans, contrary to what was suggested in the Guide (at CB357) and FAQs (at CB345). In any event, the content of those reports were known to Mr Swain before entering into each loan. Mr Kirk had also been provided with such reports on 12 July 2021 and 17 August 2021: CB500; 884. And Mr Swain made his own inquiries. 190 It may be accepted, as Inruse submitted by reference to Ackers v Austcorp International Ltd [2009] FCA 432 at [203] (Rares J), that the provision of credit reports by Bransgroves cannot remedy a breach of s 18(1) by Equity Lenders. But that is not the point. The point is that Mr Swain knew that the "process" identified in the FAQs, for example at CB342, was not being followed when Inruse entered into each of the loans in that he was not being provided the credit reports by Equity Lenders. Nor, because of Inruse's instructions, was Equity Lenders putting forward loans with a maximum LVR of 70%. 191 Equity Lenders furnished Mr Swain with the relevant material it obtained, including valuations, and informed him what it had relevantly been told by Construxn in relation to the loans. Equity Lenders provided the application form (containing information provided by Construxn) and Equity Lenders' "Terms sheets". Bransgroves furnished additional information, including that deeds of priority had been refused in relation to the Second and Third Loans. In relation to the Third Loan, Equity Lenders informed Mr Swain that he could speak directly with a lawyer who could provide further relevant due diligence information if Mr Swain wished - see: [91] above. Mr Swan could not have understood that Equity Lenders would do anything more than it in fact did by way of preliminary due diligence and assessment. 192 Mr Swain entered into the loan transactions understanding the instructions he had given and, as noted earlier, understanding the risks. 193 Inruse did not enter into the transactions because Mr Swain thought Equity Lenders was "only presenting … loan[s] to [him] after [they] had met an assessment against [Equity Lenders'] criteria and [Equity Lenders'] due diligence" if, by that, Mr Swain means that he understood Equity Lenders would only present loans after doing something more than it in fact did: Swain at [180]. 194 As mentioned, I also do not accept Mr Swain's evidence that he did not press for a deed of priority in relation to the Second Loan because he had "formed a view that Equity Lenders had already assessed Construxn and the loan and found that Construxn would be able to repay the loan" - see: Swain at [146]. There was no reasonable basis for such an unqualified conclusion and the evidence is inconsistent with what Mr Swain in fact did in relation to the First Loan, namely press for a deed of priority because of the risks.
The decision to engage Equity Lenders to source loans up to 90% LVR 195 I accept that one of the reasons Mr Swain decided to contact, and later provide instructions to Equity Lenders to source loans up to 90% LVR, was that he read the Guide and FAQs. Even if the Guide and FAQs were in some way misleading in a way which caused Mr Swain to contact and later instruct Equity Lenders, this would not of itself necessarily be sufficient to establish that the losses were sustained "because of" Equity Lenders' conduct. This would only establish that the conduct, as a matter of fact, led to an opportunity for the loss which ultimately eventuated, but it would not necessarily constitute a cause of the loss for the purposes of s 236. The causal connection might not be established if the conduct did not mislead the person in entering the loss causing transaction itself - see: Knezevic v Perpetual Trustees Victoria Ltd [2013] NSWCA 199 at [37] (Meagher JA). 196 Conduct which merely provides the opportunity for a claimant later to enter into a transaction will not necessarily be sufficient to constitute the legal cause of loss arising from the transaction - see, for example: Henville at [100] to [103] (McHugh J). It would only do so if it could be said that it was a purpose of s 18(1) and s 236 to provide recompense for loss where what was created by the misleading conduct was no more than the opportunity to enter into the transaction without regard to the materiality of the representation to the claimant's decision to enter into the transaction and without regard to more immediate and direct factual causes of the decision to enter into the transaction. A similar point was made by Giles JA in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; 73 NSWLR 653 at [19] to [21] in relation to ss 995 and 1005 of the Corporations Act 2001 (Cth), being an analogue to s 18(1) of the ACL. 197 The combined purpose of s 18(1) and s 236 can be described as establishing a standard of behaviour in business by proscribing misleading and deceptive conduct, whether or not the misleading or deception is deliberate, and by providing a remedy in damages: Henville at [18] (Gleeson CJ). It might also be said that there is an underlying broader purpose of promoting competition, fair trading and the protection of consumers: Henville at [96] (McHugh J). 198 It is not a purpose of s 18(1) and s 236 to provide recompense to a consumer who enters into a transaction where the immediate and direct factual cause of the loss is the informed decision-making of the consumer, and the consumer's acceptance of the associated risks, as opposed to the fact that a consumer had the opportunity to enter into the transaction by having read material which led the consumer to engage with a service provider but which, apart from opportunity, played no substantial factual role in the materialisation of the loss.
Conclusion on causation 199 I do not accept that Mr Swain relied on Lending Policy Representations (a) or (b) or, if they had been conveyed, (c) to (h) in entering into any of the loans. 200 I do not accept that Mr Swain held the understanding that "promises" to the effect of those representations had been made as pleaded at [10(b)] to [10(g)] of the SOC. In respect of the understanding pleaded at [10(a)], I do not accept that Mr Swain had an understanding that Equity Lenders would do anything more than it in fact did by way of preliminary due diligence and assessment. 201 Mr Swain was not induced to enter into the loans by any misleading conduct on the part of Equity Lenders and none of Equity Lenders' conduct was a cause of Inruse's loss for the purpose of s 236. 202 To the extent the next topic relates to causation the matters next referred to have been taken into account in reaching these conclusions.
CROSS-COLLATERALISATION 203 It is desirable at this point to deal with a submission made by Inruse, which is relevant to whether losses were sustained "because of" any misleading conduct and also to the claims for breach of contract and failure to provide services with due skill and care (addressed below). 204 In closing submissions, Inruse submitted that, if proper due diligence had occurred, it would have revealed that the security properties were cross-collateralised in a way which rendered any equity illusory. It was submitted (T50): [I]n fact, what happened - or we suspect what happened - is that by virtue of the cross-collateralisation that occurred later, there was no equity. The equity in the properties was illusory. 205 Inruse later submitted in relation to the Second Loan (T52): What we say at that point [around the time of the Second Loan], if indeed Equity Lenders had turned their mind to verifying and checking those documents [being the valuation for the Second Loan and Construxn's application form], they would have known, and they would have been in a position to tell Inruse that those properties are already cross-collateralised to debts much larger than the property's valuation. 206 Four observations should be made about these submissions. 207 First, there was no representation that preliminary due diligence of a kind which would reveal the full extent of any cross-collateralisation which might affect the relevant security property would be conducted. Nor was it established that there was a contractual term to that effect or that due skill or care required such an exercise to be carried out. 208 Secondly, Inruse did not seek to establish by evidence or explanatory submissions that any such hypothetical cross-collateralisation was reasonably discoverable as at the dates Equity Lenders put forward the loans. 209 Thirdly and relatedly, Inruse did not identify by evidence or submissions what particular searches or inquiries would have furnished relevant information or why not undertaking such searches or inquiries resulted in a breach of a contractual term or failure to exercise due care and skill or established that a representation was misleading. 210 Fourthly, when asked where the evidence was that the relevant properties were "already cross-collateralised to debts much larger than the property's valuation" at the relevant times, the Court was taken to [38] of the SOC which was admitted in the Defence and which provides ([39] and [40] of the SOC which were also admitted in the Defence have been added for context): [38] On or about 12 July 2022, Inruse learned that: a. Construxn had gone in to default on its debts to ASCF Funding Solutions Pty Limited; b. That the debts Construxn owed to ASCF Funding Solutions Pty Limited were cross-collateralised and otherwise secured against all the properties ASCF Funding Solutions Pty Limited held security over; and c. those debts were greater than the market value of: i. 40 Glenmore Crescent, Rochedale in the state of Queensland; and ii. 47 Edward Street, Brisbane in the state of Queensland. [39] As a result of the magnitude of the prior ranking secured debts, including the cross-collateralisation of other debts, the mortgage securities held by Inruse did not and would not satisfy any of the monies then outstanding from Construxn to Inruse. [40] Inruse did not recover any of the monies then outstanding from Construxn to Inruse. 211 Inruse submitted that [38] of the SOC comprised a "sworn statement" which could be treated as evidence: T78. That submission cannot be accepted. 212 Inruse did not establish that, as at the time Equity Lenders did what it did by way of preliminary due diligence, or as at the time of the three loans, Construxn had cross-collateralised its debt such the security obtained by Inruse was "illusory".
THE CLAIM AGAINST MR KIRK 213 It is not strictly necessary to determine this claim given that the claim for misleading and deceptive conduct fails. The claim would have failed whether or not Inruse had succeeded in its misleading conduct claim against Equity Lenders. 214 It is necessary to begin by noting that the misleading and deceptive conduct case was framed by reference to the Guide and FAQs which were said to convey absolute and unqualified representations as pleaded in the Lending Policy Representations. Inruse did not establish what involvement Mr Kirk had in the preparation of those documents. The definition of "involved" for the purposes of s 236 is supplied by s 2 of the ACL, as follows: "involved": a person is involved, in a contravention of a provision of this Schedule or in conduct that constitutes such a contravention, if the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. 215 A pleading that a person is involved, or knowingly concerned, in a contravention is a serious one, akin to a pleading of dishonesty - see: Stefanovski v Digital Central Australia (Assets) Pty Ltd [2018] FCAFC 31 at [70] (McKerracher, Robertson and Derrington JJ). Their Honours stated: In this case, where much of the liability of the appellants is founded upon them being "knowingly concerned" in [an entity's] statutory contraventions, there are no pleaded allegations of the knowledge which is a necessary prerequisite to such a claim. It is well established that accessorial liability rests upon the intentional participation by a party in the contravention and such knowledge must be expressly pleaded against the party from whom relief is sought. The allegation that a person was "knowingly involved" in a contravention is a serious one and is akin to dishonesty. A party against whom such a claim is made is entitled to have the allegation clearly pleaded such that they might defend it. 216 A pleading that a person was involved in or knowingly concerned in a contravention, exposes the person to personal liability. It should be drafted with considerable care. It should plead the material facts said to establish that the person was knowingly concerned in the contravention. This includes an identification of the elements of the contravention and a pleading that the person had knowledge of each of the essential elements constituting the contravention. It should identify the material facts said to establish knowledge or from which such knowledge is to be inferred. The pleading should generally also identify the material facts said to constitute the relevant acts or omissions of the person which are relied upon as establishing any practical connection with or link to the contraventions - see, albeit in a different statutory context: Whitby v ZG Operations Australia Pty Ltd (No 2) [2019] FCA 201 at [29] (Thawley J). 217 The case as pleaded at [49] of the SOC was: Mr Kirk was a person "involved in" the contraventions of section 18 of the Australian Consumer Law, as that phrase is defined in the Australian Consumer Law. 218 Equity Lenders and Mr Kirk did not have legal representation until shortly before the hearing and no point was taken about the inadequacy of Inruse's pleading in this respect. 219 Consistently with the slender pleading on the topic, no submissions were advanced in relation to the essential elements which would need to be established in order to reach a conclusion of involvement. The written opening submission was: The evidence will show Mr Kirk was a person involved in the conduct. 220 That proposition was not elaborated upon in closing submissions. Mr Kirk's "involvement" and knowledge of the essential elements of the central alleged contraventions (principally concerning the Guide and FAQs) is not obviously addressed in the evidence. 221 The claim against Mr Kirk must be dismissed. As mentioned, it would have been dismissed even if Inruse had been successful in a claim for damages against Equity Lenders.
BREACH OF CONTRACT 222 Inruse alleged that Equity Lenders breached the following "Loan Terms" in each of the First, Second and Third Loans: a. a term that Equity Lenders would undertake preliminary due diligence of any borrowers, including speaking with borrowers, assessing their credit worthiness, assessing the value of real estate security and the level of equity, and repayment exit-strategy; b. a term that Equity Lenders would only present loans to be made to reputable borrowers; c. a term that Equity Lenders would only present loans to be made where the Lenders funds would be secure; d. a term that any funds advanced by a lender through Equity Lenders would be safe and secured; e. a term that Equity Lenders would only advance proposals where there was sufficient equity in any security property(ies) to repay any amounts lent and interest, fees and charges incurred on that loan; f. a term that in assessing the equity position of the borrower and the proffered security, Equity Lenders would consider the indebtedness of the borrower and would advise the lender of the equity position of the security, including any prior ranking securities and their amount, including where those securities cross-collateralised other debts; g. a term that in packaging the loan application, Equity Lenders would assess the application, undertake necessary investigations in to the value of the asset, the credit history of the borrower, the loan to value ratio and the equity position of the borrower and would advise a panel lender of any relevant information, including whether the borrower was currently in default, and would not propose loans where there was a risk of the lenders funds not being repaid; and h. an implied term, and/or a statutory guarantee, that Equity Lenders would provide the services of lending broker and mortgage originator to Inruse with reasonable care (or due care and skill) … 223 By its Defence, Equity Lenders admitted that terms (a) and (h) were terms of the contract. Terms (b) to (g) - in the full and absolute unqualified terms in which they were pleaded - were not contended to be express terms and they do not appear in any relevant document. 224 Nor can those terms be implied on any basis, in particular business efficacy reasons. Indeed, each of those terms involve some element which is inconsistent with the contractual arrangements as evidenced by the parties' conduct. This is not a case where the parties' relationship was governed by a formal written agreement. Inruse engaged Equity Lenders to source loans up to 90% LVR, preferably on a second mortgage basis, and gave Equity Lenders further and additional instructions from time to time. None of terms (b) to (g) have been shown to have been terms applicable at any time in the relationship. 225 As to admitted term (a), Inruse has failed to prove that there was any breach of that term. Inruse did not establish that Equity Lenders did not undertake "preliminary due diligence" for the reasons given earlier. 226 As to admitted term (h), there was no breach of that term for the reasons given below in relation to the claim under s 60 of the ACL and for negligence at common law. 227 The claim for breach of contract has not been made out.
FAILURE TO EXERCISE DUE CARE AND SKILL 228 This claim was made at common law, for negligence, and by reference to s 60 of the ACL, which provides: 60 Guarantee as to due care and skill If a person supplies, in trade or commerce, services to a consumer, there is a guarantee that the services will be rendered with due care and skill. 229 Inruse is a consumer pursuant to s 60 because the amount payable for Equity Lenders' services was less than $100,000 - see: s 3(3) ACL; reg 77A of the Competition and Consumer Regulations 2010 (Cth). 230 In Wade v J Daniels and Associates Pty Ltd [2020] FCA 1708 at [329] to [332], O'Bryan J said of ss 60 and 61: [329] Sackville AJA further observed [in Scenic Tours Pty Ltd v Moore [2018] NSWCA 238; 339 FLR 244] that the consumer guarantees in ss 60 and 61 are integral components of the statutory scheme designed to afford protection to consumers who do not receive the services they reasonably expect to receive from a supplier (at [182]). Nevertheless, the legislation does not seek to impose impossible burdens on service providers; the guarantees require that the supplier will provide services with due care and skill and that services are reasonably fit for the purpose made known by the consumer (at [183]). [330] The phrase "due care and skill" in s 60 of the ACL is equivalent to the common law duty to take reasonable care: Let's Go Adventures Pty Ltd v Barrett [2017] NSWCA 243 at [6] (Basten and Gleeson JJA). [331] The phrase "particular purpose" in s 61 of the ACL has been construed broadly in the predecessor provisions in legislation governing the sale of goods. A particular purpose is a definite purpose that has been expressly or impliedly communicated, but it need not be a purpose that is special or individual to the consumer concerned: David Jones Ltd v Willis (1934) 52 CLR 110 at 121 (Starke J); and at 128 (McTiernan J); Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49 at 60 (Lord Wright). [332] The phrase "particular purpose" in s 61 of the ACL has been construed broadly in the predecessor provisions in legislation governing the sale of goods. A particular purpose is a definite purpose that has been expressly or impliedly communicated, but it need not be a purpose that is special or individual to the consumer concerned: David Jones Ltd v Willis (1934) 52 CLR 110 at 121 (Starke J); and at 128 (McTiernan J); Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49 at 60 (Lord Wright) 231 Equity Lenders rendered its services with due care and skill and in accordance with the instructions given to it by Inruse. 232 In any event, even if Equity Lenders had breached the guarantee in s 60 or breached its common law duty of care, the cause of Inruse's losses was not any breach of duty by Equity Lenders. Rather, the cause of losses was Mr Swain's calculated and informed decision-making which was not relevantly influenced by any action or inaction on the part of Equity Lenders which failed to meet a relevant legal standard.
DAMAGES 233 It is unnecessary to determine loss because no entitlement to damages has been established. Nevertheless, I will address the issue briefly. 234 Equity Lenders observed that no evidence had been adduced that Inruse would have been able to enter into loans at 24% through some other broker and that, if it were to be inferred that it could have entered into such loans, it should equally be inferred that: (a) those loans would have been of roughly equal risk to the loans Inruse did enter into; and (b) Mr Swain would have taken those risks just as he did in the present case. Equity Lenders submitted that Inruse is effectively "seeking an indemnity in respect of the risky investments it made": RS at [75]. 235 Had it been necessary to assess damages, I would have concluded that Inruse's losses were confined to repayment of the loan principal with interest at Court rates from the dates the loans were repayable. Mr Swain did not advance a case that, had Inruse engaged a broker other than Equity Lenders, Inruse would have deployed the funds loaned in some safer investment, such as a loan secured by a first mortgage. I would not infer that to be the case as Mr Swain wanted to lend at a high LVR to maximise the interest rate achieved and his evidence was inconsistent with such an inference: Swain at [207]. Mr Swain was willing to lend to borrowers who were in financial distress. If Mr Swain had decided to enter into loans of the kind he entered into in this case, then Inruse is just as likely to have lost its "investment" as have it returned. In those circumstances, interest at Court rates would have been appropriate. 236 I would not have allowed the balance of the various claims for losses set out in MFI-1 and referred to earlier. 237 Inruse expressly did not differentiate between the different causes of action for the purposes of quantification of loss.
CONCLUSION 238 The application must be dismissed. The parties agreed that costs should follow the event and that those costs should be payable as a lump sum. The Court is particularly grateful to the legal representatives of the parties for agreeing the quantum of the appropriate lump sum costs order. Having regard to the methodology adopted by the parties for determination of the quantum of the appropriate order, the Court considers the agreed position to be entirely appropriate. The applicant is to pay the respondents' costs in the agreed lump sum of $80,137.72. I certify that the preceding two-hundred and thirty-eight (238) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Thawley.
Inruse Pty Limited as trustee for the 224 Hinxman Trust
Equity Lenders Pty Ltd
(1934) 52 CLR 110
(1935) 54 CLR 49