Latol Pty Limited v Gersbeck

The relationship between the parties, the representation and the loan.

1. There is no dispute that the defendant, through his company P2P, brokered various loans for Mrs Ribbera and her parents-in-law over the previous two or three years. The evidence established that the negotiations in relation to those various loan agreements were conducted by Mrs Ribbera's husband Salvatori Ribbera ("Sam"). At the relevant time Sam was bankrupt. Property was owned by Mrs Ribbera and also by Sam's parents Carmelo and Anucia Tina Ribbera. From time to time, P2P (and the defendant) organised loans at Sam's request but in the names of his wife and his parents.
2. Counsel for the plaintiff put to the defendant and submitted that the defendant was aware, or must have been aware, that Sam was bankrupt. The defendant denies this allegation. While I have some suspicions about this given his involvement in the previous loans and the fact that they were taken out in names other than the person with whom he was dealing, I am not satisfied on balance that the plaintiff has established knowledge in the defendant that Sam was bankrupt at the relevant time.
3. There is no dispute that the plaintiff also used the services of P2P for the purpose of arranging loans including motor vehicle leases. These vehicles were for use in the plaintiff's business as a baker. On at least one occasion, P2P arranged a loan in which the plaintiff lent money to a borrower in the restaurant industry. That transaction is unrelated to the present matter but it places the events that followed in context. In other words, it explains why the defendant might approach the plaintiff to finance a loan to members of the Riberra family.
4. In around June 2007, the defendant approached the plaintiff and asked whether he had any interest in lending some money to long-standing clients of his. Mr Slater says that the conversation included the defendant saying: "They are clients with a construction company, building roof trusses. I have been dealing with them for years. It's a family. They need a short-term loan at $130,000 to fill an order that has been placed for some roof trusses. The contract is to be completed within 3 months and it's worth $900,000. They are three quarters through that they ran short of materials to finish the contract. They don't want to go to a bank as it will take too long. They are good clients with credibility."
5. The defendant's version of this conversation is somewhat different although it bears some similarity to evidence given by Mr Slater: "When at the beginning of June 2007 or thereabouts Mr Slater and I were again talking at the bakery, this time about the proposed Volkswagen. The Ribbera loan happened to be on my desk so I said to Mr Slater 'Are you still lending? I'm looking for a lender for a business that I have organised lending for before,' or words to that effect. He asked me what was needed and I told him 'They're looking to borrow up to about $120,000' and that 'they're in construction'. He said 'How long do they need the money for?' and I said 'About three months', to which he replied: KS: 'Look, I'm happy to lend on a letter, I don't need to complicate it.' RG: 'When it comes to this sort of value it's better to have the loan documented by solicitors and a caveat registered to reflect the security in the land. Talk to your solicitors about that.' That was where the conversation was left. I suggested to him that he talk to his solicitors because he had told me solicitors had acted for Latol before. At a prior meeting between us he had said 'Latol was going to be wound up because it didn't pay worker's compensation premiums, so I got solicitors involved to fix it up' or words to that effect. It is simply wrong for Mr Slater to suggest that I phoned him cold about this loan (his pars 10-12). And I did not say anything to Mr Slater about the Ribberas' construction work being 'worth $900,000' or 'three-quarters through' or that they had 'credibility' (his par 12). That is not the type of language I use and, other than through an invoice, mentioned below, I did not know the value of the construction work in question."

THE defendant'S CONDUCT WAS MISLEADING AND DECEPTIVE

1. What cannot be disputed is that on 7 June 2007 the defendant sent a letter to Mr Slater under the letterhead of P2P in the following terms: "Dear Keith, RE: Ribbera Loan Further to recent discussions the outline of the proposal is as follows: - The Ribbera family have been clients of mine for 2 ½ years. - They are involved in manufacturing for the construction industry. - They require short term funding to complete a pre-ordered lot of materials (roof-trusses). - Amount required: $130,000.00 - Term: 3 months - Rate to Client: 5% per month - Calculation: Capital and interest paid at end of term - Security: Caveat and interest repaid at end of term - LVR: Total facility not to exceed 75% - Set up costs: To be borne by borrower Return to Latol on this would be 5% X 3 = 15% 15% of $130,000.00 = $19,500.00 Total repayment at settlement $149,500.00"
2. A deed setting out the terms of the loan was created later and signed by the parties. On its face, that deed is dated 2 July 2007, that is to say after the loan monies were advanced. The plaintiff says, and I accept, that it was signed initially by Mrs Ribbera and then sent to him for signature. Whether it was as long as 3 months later that he signed it (as the plaintiff initially suggested in evidence) I am not sure. However, I am comfortably satisfied that the deed post-dated the actual loan transaction.
3. Another matter that cannot be disputed is that the loan money was distributed as follows: 1. For Mango Media Pty Limited loan $2,200.00 2. For Mango Media solicitor costs $2,970.00 3. For MJMAC loan of 23 November 2006 $58,000.00 4. For MJMAC loan of 19 December 2006 $30,000.00 3. For MJMAC interest for 2 July 2007 $4,400.00 4. For CNL costs on abortive extension of loan $330.00 5. For CNL costs on discharge $660.00 6. Bank cheques for 1 & 2 above $30.00 Sub-Total $98,590.00 Add our costs and disbursements for acting For Latol Pty Limited $3,346.55 Victorian Titles office (3 caveat fees) $148.50 Available at your direction $27,914.95 Total funds available $130,000.00
4. Those figures come from a letter sent by the solicitors acting for the plaintiff (Clinch Neville Long) to Mrs Ribbera on 29 June 2007. There was a deal of evidence about the various items in that schedule. I am satisfied that the MJMac loans were not directly associated with the construction business with which the Riberra family was allegedly engaged. Further, I am satisfied that very little, if any, of that money was to be used to purchase or construct trusses for pre-existing orders. The bulk of the money was used to pay out previous loans and expenses incidental to those loans.
5. Further, and significantly, the amount said to be "available at your direction" ($27,914.95) coincided approximately with an amount of money owed by the Ribberas to the defendant (or P2P) for previous financial services provided in those earlier loans. There is a "direction to pay" document dated 12 June 2007 (signed 13 June 2007). This was sent by Mrs Ribbera to Clinch Neville Long with reference to the "Caveat loan from Latol Pty Limited" and comprised a direction to disperse the "balance of funds" to "Person to Person Financial Services P/L" at a nominated bank account. That direction to pay was followed by a letter from Mr Ribbera dated 13 June 2007 in which she said "please note attached direction to pay for the available balance of $37,340.40". The amount of the balance is obviously incorrect but it coincides with the evidence of the direction to pay the balance of the Latol loan to P2P.
6. I accept the plaintiff's evidence that he was unaware of the previous loans that were to be paid out of the $130,000 that he advanced and that he did not know that the Ribberas owed money to the defendant (or his company) and that part of the loan was to be used to reduce or liquidate that debt.
7. A simple mathematical approach to this evidence establishes that the money advanced by the plaintiff was not used to purchase trusses for the construction industry based on pre-existing orders. It was used to repay existing loans and the outstanding fees owed by the Ribbera family to the defendant's company, P2P.
8. This material establishes that the letter dated 7 June 2007 was misleading and deceptive in that it suggested that the Ribera family "require short-term funding [$130,000] to complete a pre-ordered lot of materials (roof trusses)". The letter infers that the $130,000 was to be used for that purpose not for some other or mixed purpose, let alone that it would be used to pay outstanding fees to the defendant's company and to liquidate existing loans that the evidence shows were due and unable otherwise to be serviced.
9. The defendant pointed me to one document said to support the proposition that the loan was concerned with orders for roof trussers. This was a tax invoice from "SMR Supplies" to "JAB Developments". The document was dated 20 January 2007 and the total amount "to be paid by the due date" was $268,669.50. There was a paucity of evidence as to the relevance and provenance of this document. The defendant was unable to say in cross-examination when he received the invoice. He was asked whether he had in in "May or June of 2007" and he replied "I don't think so, no." In re-examination (or, more accurately, further evidence in chief with leave) the defendant said he "didn't know anything about SMR Supplies." He said that the address on the invoice was "one of Ribbera's earlier addresses". He then gave the following evidence: "Q. What do you know about this document? A. Other than it was sent to me by Sam as one of the invoices that was outstanding to him."
10. The evidence of and surrounding this invoice has little impact on a rational assessment of the purpose of the loan. It is not evidence that, as at June 2007, the Ribberas needed finance to fund "a pre-ordered lot of materials (roof trusses)". The evidence is very clear that the purpose of the loan was to pay out existing loans then about to fall due along with fees and charges for other proposed loans along with the defendant's outstanding fees.
11. The plaintiff has established that the defendant engaged "in conduct in relation to financial services that [was] misleading or deceptive". Such conduct was in breach of s 12DA(1) of the ASIC Act.

RELIANCE AND CAUSATION

1. To recover damages under s 12GF of the ASIC Act the plaintiff must establish that it suffered loss or damage "by" the misleading or deceptive conduct. There is a similar requirement in s 12GM which allows the Court to make an order for compensation to a party who suffers loss or damage by such conduct. The plaintiff seeks to rely, alternatively, on ss 12GF and 12GM and there is a subsidiary issue as to which section is the appropriate one under which to make any order or judgment. The defendant says that, in either case, the plaintiff failed to establish that any loss that it suffered was caused by his conduct.
2. The defendant's case on causation is pitched in different ways. First, it asserts that the plaintiff was motivated by greed, rather than by the representations made by the defendant. That is, the plaintiff lent the money in order to earn the extremely high interest rates on offer. It was put in opening that the plaintiff was out to "make a fast buck". Secondly, it is asserted that the plaintiff's failure to make enquiries and lack of due care in advancing the loan broke the chain of causation. Similarly, it is put that the neglect of the plaintiff's solicitor's broke the chain of causation.
3. Mr Slater gave evidence that "in deciding to make the loan he relied on the things said in [the defendant's] letter of [7 June 2007]". He remained firm on this issue in cross-examination.
4. He was asked about a letter dated 12 June 2007, in which it was said: "While I note that you relied on Robin Gersbeck's advice with regard to item 3 above, a search reveals that this property is the subject of a mortgage in favour of National Australia Bank Limited as well as two unregistered mortgages in favour of M J Mack Holdings Pty Ltd and Mango Media Pty Ltd do you recall receiving this letter?"
5. The following exchange occurred in cross-examination: "A. No, sir, we never received letter - that letter was returned to Clinch Neville Long which you'll see on page 144. We were never in receipt of that letter ever. If you go to page 144 that was when the letter was returned to Clinch Neville Long. Q. Right? A. See that at 144? Q. I do? A. Good. We were never in receipt of that whatsoever sir. Q. Right? A. If I'd have seen that on 12 June there was game off. Q. Right? A. Game off without a doubt."
6. Page 144 of Exhibit A was an envelope suggesting that the particular letter had been returned to the sender. Mr Slater's responses to this cross-examination were made without hesitation or prevarication. His evidence was convincing and believable. It is supported by the existence of the envelope marked "RTS not here".
7. He was also asked about a letter dated 2 July 2007 in which the solicitors set out the disbursal of the loan funds as follows: Paid off the loan made to Mrs Ribbera by Mango Media Pty Limited; Paid off the loan made to Mrs Ribbera by MJMAC Holdings Pty Limited; Deducted our costs from the rest of the $130,000.00 loan made by you; and Sent the balance to Robin Gersbeck in accordance with Mrs Ribbera's directions.
8. Mr Slater denied receiving that letter and again his responses were spontaneous and believable. In any event, by the date of that letter, the loan had been advanced and the money disbursed.
9. It was put to Mr Slater that his motivation was to benefit from the $10,400 per month in interest. The cross-examination was to the following effect: "Q. And if you read the final line in paragraph 4 it reads "one month's interest is $10,400"? A. Right, yeah. Q. You were motivated to loan the money weren't you? A. No sir, It wasn't for interest I didn't set the interest rate, Mr Gersbeck set the interest rate. Q. He didn't draft the loan agreement? A. Pardon? Q. He didn't draft the loan agreement? A. He proposed an interest rate that was 5% per [month]. Q. You stood to gain $10,400 per month, that's quite a windfall isn't it? A. I wouldn't think so. Q. You wouldn't think so? A. I haven't got anything; you might as well put a million dollars after what we got. Q. But at the time that's a substantial windfall, $10,400 per month? A. That was the terms what they agreed to, Mrs Ribbera, I didn't set the terms, I didn't ask for 5% per annum, 5% from us."
10. As to his relationship with the defendant, Mr Slater said: "Well you've got to remember Robin and I, I cast our relationship we were more friends than what we were business associates, to the extent that we'd exchange gifts of bread for wine and Christmas time I'd drop him over a present, at Christmas time - "
11. He failed to make further inquiries concerning the value of properties and the security of the loan because of his faith in the defendant: "A. No, sir. I relied on Robin's valuation; what he told me what it was worth, and I had no reason to doubt him because on our previous business dealings we'd done it was always 100%. Q. And he never let you down before that, did he? A. Never before. Q. Never let you down? A. Never before. Q. He'd never let you down? A. Never let me down before this deal. That was only for car finance though, leasing arrangements with vehicles. Q. You trusted him, didn't you? A. Impeccably."
12. The defendant relies on observations in I & L Securities v HTW Valuers [2002] HCA 41; 210 CLR 109 at [41] (McHugh J) that "intentionally refusing to make proper inquiries when advancing loan funds will usually be held to be a voluntary act that breaks the chain of causation". He also refers to the remarks of Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; 149 CLR 191 at [9] to the effect that similar provisions "cannot have been intended to be imposed for the benefit of persons who fail to take reasonable care of their own interests."
13. Ms Avenel of counsel, appearing for the plaintiff, reminded me that similar observations were made by Gordon J at [9]-[10] in ACCC v Dukemaster [2009] FCA 682 but submitted that what her Honour said was "not a complete statement of the law and is probably not a contemporary statement of the law." She relied on what was said by McFarlan JA in Perpetual Trustee v Milanex (In Liquidation) [2011] NSWCA 367 (at [60]-[63]): "60. As Wilson J stated in the following oft-cited passage in Gould v Vaggelas: 'The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract' (at 236). 61. I do not consider that it is significant in this case that Ms Pogson may, as the primary judge appears to have found (see Judgment [70] quoted in [21] above), have acted in some respects carelessly and otherwise than in conformity with the Operations Manual. 62. The correct approach is indicated by what Gaudron, Gummow and Hayne JJ said in I & L Securities v HTW Valuers as follows: 'In the present case, there were two events to which particular attention must be given - the contravention of the Act constituted by giving a misleading valuation of the land, and the lender's failure to act prudently by omitting to make adequate inquiries about the borrower's capacity to pay interest. It can be said of each of those events that, had it not happened, the loan would not have been made and the lender would, therefore, have suffered no loss. That is, it can be said of both events that, but for it happening, there would have been no loss. If the valuation had not been misleading, there would have been no loan. Likewise, if the lender had made adequate inquiries, there would have been no loan. But to show that, if either of two events had not occurred, a loss which has been suffered would not have been suffered, does not demonstrate that one rather than the other event was the cause of the loss, any more than it demonstrates that neither was a cause of that loss. But the fact is that both did happen and both contributed to the decision to make the loan" (at [58], original emphasis).' 63. The question to be addressed is whether the representations that Milanex made played a part in causing Ms Pogson to act as she did. The fact that she might have discovered the falsity of the representations, or some of them, if she had been more astute …"
14. She also took me to comments made in Suncoast Pastoral Company v Coburg AG (No 2) Pty Ltd [2012] QSC 157 at [54]-[59].
15. In the present case, it is clear that Mr Slater relied on the conduct and representations made by the defendant in deciding to advance the loan. He was no doubt attracted by the high interest rate and he could have made more thorough enquiries and displayed less trust in Mr Gersbeck. However, those things were "not so dominant in the causal chain as to constitute a novus actus interveniens": Pavich v Bobra Nominees Pty Ltd (1988) 84 ALR 285 per French J (as his Honour then was) cited by McHugh J in I & L Securities v HTW Valuers at [85].
16. The defendant also relies on the fact that the plaintiff's solicitors subsequently withdrew the caveat protecting the plaintiff's interests.
17. I accept the plaintiff's submissions that any conduct on its part, or on the part of a third party (Mr Slater or the previous solicitors), is not such as to break the chain of causation. The plaintiff advanced the money, and consequently suffered the loss, as a result of the misleading or deceptive conduct of the defendant.
18. The plaintiff has established that it suffered loss and damage "by", or as a result of, the misleading or deceptive conduct of the defendant. Accordingly, it is entitled to damages under s 12GF or compensation under s 12GM.

IS THE APPROPRIATE REMEDY UNDER SECTION 12GF OR 12Gm?

1. The ASIC Act provides two potential remedies for a person affected by conduct in breach of s 12DA. An issue arose at the hearing as to the relevant differences between those remedies and the appropriate section under which the plaintiff was entitled to recover damages.
2. Section 12GF(1) provides: "A person who suffers loss or damage by conduct of another person that contravenes a provision of Subdivision C (sections 12CA to 12CC) or Subdivision D (sections 12DA to 12DN) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."
3. Section 12GM provides another mechanism for compensation: "(1) Without limiting the generality of section 12GD, if, in a proceeding instituted under, or for an offence against, this Division, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division, the Court may, whether or not it grants an injunction under section 12GD or makes an order under section 12GF, 12GLA or 12GLB, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage. (2) Without limiting the generality of section 12GD or 12GNB, the Court may, on the application of: (a) a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division; or (b) ASIC in accordance with subsection (3) on behalf of such a person or persons; make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7)) if the Court considers that the order or orders concerned will: (c) compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage; or (d) prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person or persons."
4. An important distinction between the sections arises by the provision in s 12GF(1B): "(1B) Despite subsection (1), if: (a) a person (the claimant ) makes a claim under subsection (1) in relation to: (i) economic loss; or (ii) damage to property; caused by conduct of another person (the defendant) that was done in contravention of section 12DA; and (b) the claimant suffered the loss or damage: (i) as a result partly of the claimant's failure to take reasonable care; and (ii) as a result partly of the conduct referred to in paragraph (a); and (c) the defendant: (i) did not intend to cause the loss or damage; and (ii) did not fraudulently cause the loss or damage; the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks just and equitable having regard to the claimant's share in the responsibility for the loss or damage."
5. Ms Avenel very properly drew my attention to the case of BHPB Freight Pty Ltd v Cosco Oceanic Chartering (No 3) [2009] FCA 1087 concerning the equivalent provisions under the Trade Practices Act. Finkelstein J said at [62]: "For the sake of completeness on this issue, I should address an argument raised by BHPB that it could seek relief under s 87 for its s 52 claim and so avoid s 82(1B) because that section does not apply to claims under s 87. I cannot accept this argument. BHPB's claim for damages under s 82 and compensation under s 87 are essentially for the same loss. To obtain a compensation order under s 87 where damages under s 52 might be limited by s 82(1B), would be to use s 87 to circumvent the operation of s 82(1B). The power of a court to make an order under s 87 is discretionary. It would not be an appropriate exercise of that discretion to allow the section to be used in this way."
6. Ms Avenell also took me to the comments of Nicholas J in Khoury v Sidhu [2011] FCAFC 71 at [40] where his Honour observed that reliance on the equivalent of s 12GM would mean that the mischief that the proportionate liability provisions would intend to avoid would not be avoided.
7. I agree with the reasoning of both Finkelstein J and Nicholas J. I am grateful to counsel for bringing these authorities to my attention even though they run contrary to her submission that compensation could (or should) be ordered under s 12GM whereby the proportionate liability provision in s 12GF(1B) might be avoided.
8. The final, although perhaps not conclusive, reason to treat the claim as one under s 12GF is that the relief sought in the statement of claim is for "damages". Section 12GF provides for such an action. Section 12GM provides for a variety of remedies including orders that will "compensate" the injured party. Section allows for such orders "in a proceeding instituted under, or for a an offence against, this Division". Reading the Division as a whole, section 12GF is the more natural section under which to award damages in an action for damages. However, I say this is not conclusive because the provisions are somewhat opaque.
9. My conclusion is that the award of damages should be made under s 12GF rather than 12GM. Accordingly, it is necessary to consider the defendant's case that any such award should be reduced as a result of the plaintiff's failure to take reasonable care (s 12GF(1B)) or by reason of the actions of a concurrent wrongdoer (Mr Slater) (s 12GR).

proportionate liability: sections 12GF(1B) and 12GR

Can the defendant rely on the provisions of the ASIC Act allowing for proportionate liability or a reduction in the plaintiff's damages?

1. The defendant says that the plaintiff failed to take reasonable care and that its damages should be reduced in accordance with what is "just and equitable": s 12GF(1B). Further, the defendant submits that the damages should be apportioned under s 12GR and "limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss". Reliance on s 12GR is based on the submission that the owner of the plaintiff company (Mr Slater) is a concurrent wrongdoer for the purpose of Part 2, Division 2, Sub-division GA of the ASIC Act.
2. The wrongdoing of Mr Slater is essentially the same conduct that the plaintiff relies on in asserting that the plaintiff (company) failed to take reasonable care. I accept the submission of the plaintiff that, in those circumstances, if there were to be a reduction in the award of damages, it should not be accumulated by reference to both provisions in circumstances where the relevant conduct is the same.
3. However, I doubt that s 12GR is applicable in the circumstances. Section 12GP defines the terms "apportionable claim" and "concurrent wrongdoer" for the purpose of Sub-division GA and, relevantly, s 12GR. An apportionable claim is one for economic loss caused by conduct in contravention of s 12DA. Section 12DA proscribes conduct that is misleading or deceptive. A concurrent wrongdoer is a person who, independently or jointly, caused the damage or loss that is the subject of the claim. In Selig v Wealthsure Pty Ltd [2015] HCA 18 the High Court considered similar provisions in the Corporations Act 2001 (Cth). It was held that the "claim" referred to in each sub-section must be constituted by a breach of the relevant provision. French CJ, Kiefel, Bell and Keane JJ said at [29]: "Applying well-settled rules of construction, the same meaning should be given to the word 'claim' where it appears in sub-ss (1) and (2). The first and second respondents' construction of s 1041L(2) results in an inconsistency between the meaning given to the word "claim" in sub-ss (1) and (2). The 'claim' in s 1041L(1) is a claim for damages under s 1041I for damage caused by conduct in contravention of s 1041H. When s 1041L(2) speaks of a claim based on more than one cause of action, it cannot be speaking of a claim liability for which arises due to contravention of a norm of conduct different from that which creates liability to a claim for damages described in s 1041L(1), namely s 1041H."
4. See also Gageler J at [55]-[56]. The judgment of Gageler J may suggest that similar reasoning may apply to the reduction of damages under s 12GF(1B). However, according to the plurality at [14], this question was not necessary for the decision: "The appellants, by their Notice of Appeal, challenged that aspect of the Full Court's judgment which gave effect to a finding of contributory negligence against them under s 1041I(1B). In this Court, argument was not directed to any separate issue relating to the operation of s 1041I(1B), the parties evidently being content that success by the appellants on the issue of apportionability would result in the restoration in full of the judgment given by the primary judge in favour of the appellants.
5. The reference to "a failure to take reasonable care" in s 12GF(1B) suggests that there may be a reduction in the damages caused by a breach of s 12DA (ie misleading and deceptive conduct) even though the "norm of conduct" involved is different.
6. I note in passing (as did the plurality in Selig v Wealthsure) the provision s 12GR(3) which is not directly relevant because Mr Slater is not a defendant in the proceeding: "(3) In apportioning responsibility between defendants in the proceedings: (a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law; and (b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings."
7. For those reasons, I have concluded that the defendant is not entitled to rely on the "concurrent wrongdoer" provision in s 12GR but may rely on the contributory negligence provision ("failure to take reasonable care") in s 12GF(1B) if otherwise entitled to do so.

Did the defendant act fraudulently?

1. A reduction in the damages under s 12GF(1B) is only available if the defendant "did not intend the loss or damage and did not fraudulently cause the loss or damage": s 12GF(1B)(c). There is no suggestion that the defendant intended to cause the damage. However, the plaintiff submitted that it had established fraudulent conduct on the part of the defendant.
2. There was a lively debate at the hearing as to whether fraud had been pleaded properly or at all. I accept that the most appropriate course would have been for the plaintiff to have filed a reply in which it was clearly asserted that s 12GF(1B) did not apply because the defendant's conduct was fraudulent and excluded by the operation of s 12GF(1B)(c)(ii). The plaintiff submitted that fraud was effectively pleaded in paragraph 29 of the statement of claim in which it is alleged: "Mr Gersbeck knew that his statements in paragraphs 25 and 28 were false".
3. In order to plead fraudulent conduct, it is not necessary to refer, in terms, to the conduct being "fraudulent": see Banque Commerciale SA (in liq) v Akhil Holdings [1990] HCA 11; 169 CLR 279 at 295 (Dawson J, dissenting in the outcome) and Davy v Garrett (1877) 7 ChD 473 at 489. However, I doubt that the pleadings in this case were such as to clearly put the defendant on notice that he was to meet an allegation of fraud. Certainly, there was no pleading that the contributory negligence provisions did not apply as a result of the alleged fraudulent conduct.
4. However, rather than deciding the matter on the technical pleading point, it is appropriate that I consider the issue of whether the conduct was fraudulent as it was clearly raised in rebuttal of the defendant's case for a reduction in damages and was, obliquely at least, raised by paragraph 29 of the Statement of Claim.
5. While I am satisfied that the statements that induced the plaintiff to lend the money to Mrs Ribbera were false and misleading, I am not satisfied that the defendant acted fraudulently in making those statements. While I found parts of his evidence unconvincing, there is no clear and convincing evidence that allows me to conclude on the balance of probabilities that he acted fraudulently in making the statements concerning the purpose of the loan. I am not satisfied that he "held no honest belief in the truth of the representation": cf Forrest v Australian Securities and Investments Commission [2012] HCA 39; 247 CLR 486 at [26] French CJ, Gummow, Hayne and Kiefel JJ. The precise state and extent of his knowledge of the Ribberas' business dealings is not clear and there was at least some evidence of their involvement in the building industry.
6. Accordingly, it is open to the defendant to seek a reduction in damages because the plaintiff's loss was partly the result of its "failure to take reasonable care".

Was the plaintiff's loss partly the result of its failure to take reasonable care?

1. The defendant relies on the failure of the plaintiff to make his own inquiries and his rather lackadaisical approach to the transaction and his business dealings generally. The following examples emerged in the cross-examination: "Q. Do you recall reading this document before you executed it? A. No, sir, I didn't, no. Q. You didn't read it before you executed it? A. No, when I give him the money the document wasn't even prepared, it wasn't ready. Q. But did you read this document before you signed it? A. Did I read it? Q. Yes? A. No. Q. You didn't read it? A. No. Q. You just signed it blindly? A. I signed it, yeah. Q. Without reading it? A. No, this was three months after the loan. Q. Three months after the loan? A. Yeah. When I give him the money the document wasn't ready; you'll see in 2 July that's dated I give him the money on 26 June, I think. There was no document ready or prepared at that stage. Q. Did you not query with your solicitor "what were the terms of a written loan, I'm handing over in exchange for money"? A. See I didn't. On Robin's‑‑ Q. Just answer my question please? A. No. Q. You didn't? A. No. HIS HONOUR Q. You see on page 173 which is that deed that is signed by you and by Ms Ribbera? A. That's right, sir. Looks like it, yeah. Q. And then going back to 170 it says that the deed is made on 2 July 2007? A. That's what it says, 2 July, sir, yeah. Q. Was that the date that it was signed? A. No. Not by me. FAGAN Q. Sir, do you normally execute documents without reading them, on behalf of your company? A. No, the only documents I ‑ no I don't know, I trust solicitors, my solicitors to do that. Q. Just answer my question sir, do you normally execute documents on behalf of your company without reading them? A. Normally, yeah. Q. You do? A. Yeah. Q. Without reading them? A. Without reading them. Q. Do you understand the importance of legal advice in terms of‑‑ A. I've never ‑ the only legal advice I've sought previously in my life is purchased a home and ‑ never had cause for any other action for legal advice. Q. Right? A. Leasing documents, they get the documents they say, "tab sign here, sign here" and we sign the leases, we sign the property purchases, that's it. I don't read‑‑ Q. You don't read them? A. I don't read them, no. Q. Do you know about laws, about people who sign documents of this nature, loan agreements, about people being given the opportunity to seek independent legal advice, have you heard about those laws? A. Yeah, that's available. Q. It's important isn't it? A. Well I think it only has a perspective, sir, you know. Q. What perspective? A. Well you've got to remember Robin and I, I cast our relationship we were more friends than what we were business associates, to the extent that we'd exchange gifts of bread for wine and Christmas time I'd drop him over a present, at Christmas time‑‑ Q. I'm just asking you about the importance of independent legal advice? A. Right. Q. You accept that it's important and it's warranted? A. In perspective, yes. Some cases, yes.
2. I am satisfied that Mr Slater, as the principal of the plaintiff, had a careless approach to his business dealings. That carelessness manifested itself in his dealings with the defendant. However, the majority of the actions relied on by the defendant occurred after the loan money had been advanced and distributed. For example, the deed to which the cross-examination set out in the preceding paragraph relates, was not signed until after 26 June 2007. It bears the date 2 July 2007 but I accept that it was not forwarded to the plaintiff until some time after that.
3. Another matter relied on by the defendant was the letter dated 12 June 2007 in which Clinch Neville Long advised the plaintiff of the interests of other parties in the property to be subject of the caveat. The evidence establishes that the plaintiff did not receive that letter and it seems that it was sent to a previous address. There seems to have been a distinct breakdown of communication between the plaintiff and its solicitor, not all of which can be blamed on the lawyers. Mr Slater's evidence as to why he did not receive the correspondence was rather vague, although his vagueness may be explicable through the effluxion of time.
4. The defendant also relies on a handwritten note of the plaintiff's solicitor dated 14 June 2007. It records a conversation in which the solicitor told Mr Slater: "You put a hold on cash. You'll make enquiries [of Gerbach] about equity available to satisfy/secure your loan."
5. Mr Slater gave evidence that he did "not recall the specific conversation" but acknowledged that "it could have taken place". Asked whether he had made any enquiries he said: "I didn't because on the letter of presentation and oral confirmation with Mr Gersbeck that 75% was the LVR of the loan with the NAB bank. Q. So you didn't make any inquiries? A. None whatsoever. Q The property in Victoria, you didn't ascertain a search? A. None whatsoever."
6. It is also clear that the plaintiff failed to remain in contact with his solicitors and seemed to proceed on the basis of his blind faith in the integrity of the information provided to him by the defendant.
7. I am satisfied by this evidence that there should be some adjustment to the damages pursuant to s 12GF(1B). However, in determining the extent of that reduction, by reference to what "the court thinks just and equitable having regard to the [plaintiff's] share in the responsibility for the loss and damage", I have taken into account that his conduct was somewhat neglectful and naive but there was nothing misleading, deceptive or wilfully blind in what he did. That is to say, he did not proceed in the knowledge that there may be some problem with the repayment of the loan or that the statements made by the defendant may be false or misleading.
8. In assessing what is "just and equitable" I consider that the predominant cause of the plaintiff's loss was the false or misleading conduct of the defendant. I consider that the plaintiff's neglect was a minor cause of its own loss. My evaluative judgment is that the damages should be reduced by 20%.

orders

1. At this stage I make the following orders: 1. Judgment for the plaintiff. 2. The damages will be reduced by 20% pursuant to s 12GF(1B) of the Australian Securities and Investments Commission Act 2001 (Cth). 3. The parties are directed to attempt to reach agreement as to the quantum of damages and appropriate orders as to costs. 4. If agreement is not reached in accordance with (3) above, the parties are directed to file with my Associate schedules in which the different methods of calculating the plaintiff's loss are clearly articulated. 5. The case is adjourned until 27 November 2015 for mention when, if necessary, a further timetable will be set for submissions concerning the quantum of damages.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 November 2015