Newman v Financial Wisdom Limited; Newman v Hold Pty Ltd [2004] VSC 216

5. It will be convenient to use the following abbreviations.

Dale Newman, a selected plaintiff in both proceedings

Roger Lee Duncan, a selected plaintiff in both proceedings

Allan Collins, a selected plaintiff in both proceedings

Neville Balding, a selected plaintiff in the Financial Wisdom proceeding

Loris Balding, a selected plaintiff in the Financial Wisdom proceeding

Edward Bullock, a selected plaintiff in the Financial Wisdom proceeding

Frank Noble, a selected plaintiff in the Financial Wisdom proceeding

Yvonne Noble, a selected plaintiff in the Financial Wisdom proceeding

Carmelo Giuffrida, a selected plaintiff in the Financial Wisdom proceeding

Thomas Gray, a selected plaintiff in the Financial Wisdom proceeding

Jean Gray, a selected plaintiff in the Financial Wisdom proceeding

Jillian Smith, a selected plaintiff in the Financial Wisdom proceeding, in her capacity as executrix of the will of Eric Smith, deceased ("Mr Smith")

Hold Pty Ltd (formerly Pamacorp Holdings Pty Ltd), the first defendant in the Pamacorp proceeding

Ambridge Securities Ltd (formerly Pamacorp Securities Ltd), the second defendant in the Pamacorp proceeding

Pamacorp Holdings and Pamacorp Securities collectively

Financial Wisdom Ltd, the first defendant in the Financial Wisdom proceeding

Twenty-First Australia Inc, the second defendant in the Financial Wisdom proceeding

Guard Finance Pty Ltd and/or Guard Finance (Vic) Pty Ltd

Wesley Andrew McMaster, Adjunct Professor (Financial Planning), RMIT University

Sentinel and the group of companies associated with it, which included Sentinel Accounting Services Pty Ltd, Kantell Pty Ltd, Development Corporation Ltd, Bond Pty Ltd, First Finance Ltd, Guard Finance Pty Ltd, Guard Finance (Vic) Pty Ltd and Sentinel Management Services Pty Ltd

the Sentinel promoters OR the Sentinel advisers OR the representatives

One or more of Quarrell, Healy, Schimana, Hughes and Lye

Brochure entitled "Sentinel Professionals Management" and subtitled "A Pamacorp programme"

16. The investments which are the subject of these proceedings may be conveniently listed as follows:

20. The plaintiffs in the Pamacorp proceeding number some 49 individuals, but by an order dated 21 March 2003, three of those plaintiffs were selected for the purpose of having their cases heard and determined prior to the hearing and determination of the cases of any of the other plaintiffs. The three selected plaintiffs are Mr Newman, Mr Duncan and Mr Collins. The first defendant in the Pamacorp proceeding is Hold Pty Ltd, known as Pamacorp Holdings Pty Ltd between 26 February 1991 and 21 October 1997. The second defendant is Ambridge Securities Limited, known as Pamacorp Securities Limited between 2 June 1994 and 23 October 2001 (and as Pamacorp Financial Planning Pty Ltd between 17 November 1993 and 1 June 1994). At all relevant times, Pamacorp Securities held a dealers licence.

23. Hold Pty Ltd (Pamacorp Holdings) was represented and defended the proceeding at all times prior to the commencement of the trial on 5 August 2003, but was unrepresented at the trial. The solicitor for Hold Pty Ltd attended on the first day and informed the Court that administrators had been appointed by the company. Those administrators were Simon Wallace-Smith and Salvatore Algeri. The plaintiffs, by summons dated 7 August 2003, sought leave pursuant to s.440D(1) of the Corporations Act 2001 (Cth) for the plaintiffs to proceed against Hold Pty Ltd (Pamacorp Holdings). The application was served on the administrators who advised that they neither consented to nor opposed the application and did not intend to appear. By order made 11 August 2003, leave was granted to the plaintiffs to proceed with this proceeding until further order. There was no representation of Ambridge Securities Ltd (Pamacorp Securities) during the trial. On 14 August 2003, the solicitors for the plaintiffs were informed that Ambridge Securities Ltd (Pamacorp Securities) had gone into a members' voluntary liquidation on 8 August 2003 and that John Adams, a partner at Horwarths, Accountants, had been appointed the liquidator.

26. The plaintiffs in the Financial Wisdom proceeding are numerous, but by an order dated 21 March 2003, twelve of those plaintiffs were selected for the purpose of having their cases determined prior to the hearing and determination of the cases of any of the other plaintiffs. The twelve selected plaintiffs are Mr Newman, Mr Duncan, Mr Collins, Mr and Mrs Balding, Mr Bullock, Mr and Mrs Noble, Mr Giuffrida, Mr and Mrs Gray and Mrs Smith.

29. The defendants in the Financial Wisdom proceeding are Financial Wisdom and Twenty-First Australia.

32. Financial Wisdom conducts a financial planning business. It is the holder of a dealers licence and was, at all relevant times, a licensed securities dealer pursuant to the former Corporations Law. Its ultimate holding company is Commonwealth Bank of Australia Limited, and its previous ultimate holding company was Colonial Limited.

35. Twenty-First Australia was represented until shortly before the commencement of the trial, but its solicitors sought leave to file a notice of ceasing to act in circumstances described in an affidavit of Andrew Collis Blogg sworn 27 June 2003 and leave was obtained by order of that date. A notice that the solicitor had ceased to act was filed on 30 June 2003 and Twenty-First Australia was not represented at the trial. As a result, Financial Wisdom was the only defendant left standing, as it were, and it was represented throughout the trial by Mr M Sifris SC and Ms C Mavroudis of Counsel.

39. At the commencement of his opening, Dr Pannam QC, who appeared with Mr B Quinn of Counsel for the plaintiffs, said that the volume of paper which had been generated by these proceedings was awesome and forbidding. He was referring to the large number of lengthy witness statements and the vast collection of documents filed with them. It is neither necessary nor possible, in what follows, to refer to or even summarise all of the evidence. The substance of the factual material will however be found in this introduction and in the accounts of each of the selected plaintiffs' claims. There is a substantial body of evidence in relation to the structure of the various investment schemes. It is unnecessary to refer to that evidence which was not controverted, although it underlies a number of the legal conclusions reached. There is also a good deal of evidence in relation to the outcomes of the various investment schemes. Again, it is unnecessary to refer to that evidence although it underlies many of the factual findings as to damages.

42. The particular individuals who advised the plaintiffs in relation to their various investments[1 ]

are not defendants but the plaintiffs contend that the defendants are in various ways liable for the conduct of those individuals. The individuals are: Quarrell, Healy, Schimana, Hughes and Lye. Healy was called as a witness for the plaintiffs and the following account of the development of investment advice businesses of which the plaintiffs were clients is derived from his affidavit sworn 9 June 2003. Healy had worked in the banking and insurance field for about 10 years until, in about March 1991, he was approached by the principals of Pamacorp, who told him that the group was in the process of hiring consultants and agents to promote and sell investment and accounting services to potential clients.

47. Healy joined Pamacorp as a financial consultant and, when he joined, Quarrell was also working for Pamacorp in the same capacity. Pamacorp had created a special program or package of services for its clients, the Sentinel Program. Each client would pay a fixed monthly subscription fee and Pamacorp would provide comprehensive investment and financial management advice and services, supposedly tailored to the needs of each client. As part of the Sentinel Program, Pamacorp also offered all of the incidental services required to completely manage each client's financial affairs, including insurance packages, superannuation fund management services and the preparation of annual income tax returns.

50. The job of each of Quarrell and Healy was to sell Pamacorp's Sentinel program to "high income individuals" and advise on the management of the investment portfolios and financial affairs of those clients who subscribed. The job involved the following main tasks:

* contacting potential clients or speaking to new clients who approached them; * interviewing clients to ascertain their current income and assets, their financial commitments and their taxation position; * creating a profile of each client's investment history, current financial position and short, medium and long term financial goals; * providing advice to each client about how to achieve identified financial goals including how each client could reduce his or her non-tax-deductible debt; * promoting the particular types of tax effective and income producing investments which Pamacorp was endorsing and which it could offer to those clients.

54. Quarrell and Healy worked independently of each other, with their own clients, but were regularly in contact with each other and with the principals of Pamacorp.

57. Pamacorp provided each of its consultants with a copy of a brochure, the Pamacorp brochure. That brochure set out the key features of the Sentinel program and the nature and standard of the services which Pamacorp was to provide. Every new client subscribing to the Sentinel program was given a copy of the Pamacorp brochure by their consultant and usually taken through it at an initial meeting.

60. The Pamacorp brochure informed the reader that Pamacorp worked under a concept of total business management and that its professional staff encompassed trained and experienced accountants, tax specialists, merchant and investment bankers, financial analysts, insurance and superannuation advisers and a marketing division, and announced that the interaction between these departments meant that Pamacorp could provide professional advice from a total financial management perspective. The brochure stated that Pamacorp's corporate philosophy was to provide a fully integrated financial services facility to clients, to provide an uncompromised level of technical skill, knowledge and creative application and to respond rapidly and effectively to clients' needs and so on. The brochure pointed out that clients did not have time, inter alia, "to wade through the entire tax code, individually assess the inherent strengths and weaknesses of Australia's blue chip companies or compare the performances of the multitude of fund managers over the last five years." The brochure asked whether the clients' accountant had been "working with you to structure your salary in such a way as to minimise tax" and "assisting you in making informed and timely decisions on investment planning". The brochure said that Pamacorp had developed a comprehensive service tailored to clients' individual needs and that the "Sentinel package" would effectively and efficiently work with the client to "create worth by maximising...disposable income with...tax planning", "build your net worth within informed investment advice and solid financial planning using the best information and software applications, and our active experience in this field" and "reduce tax with effective planning" and so on.

63. The Pamacorp brochure further said that the Sentinel package would consist of the following basic features and elements, inter alia:

* detailed initial assessment and report on your financial status; * your annual tax return; * meeting to review, discuss and advise on your tax position and tax plan; * investment advice and wealth creation - ie, financial planning.

67. Under the heading "Investment", the brochure stated that Pamacorp's investment philosophy was "focussed on quality and unbiased assessment of all the available opportunities in the market-place at any particular time" and that "Pamacorp advocated a policy of quality income producing investments". The brochure then described the kinds of investments of various classes which Pamacorp would recommend. It is sufficient to say that each class of investment as described was in the nature of a blue chip investment. The single annual fee for the package was specified.[2]

70. Notwithstanding the conservative tone of its brochure, Pamacorp over a number of years offered clients the opportunity to invest in various "Division 10BA" films. The Pamacorp consultants were required to provide to their clients an information sheet about the film with a cash-flow sheet demonstrating the benefits of an investment in the film scheme.

73. During the financial years ending 30 June 1992 and 30 June 1993, Pamacorp was promoting investments in the Lucky Country Film Fund. During the financial year ending 30 June 1994, Pamacorp was promoting investments in the Bearfire and Grand Hotel Film Funds.

76. In early 1994, Pamacorp became interested in the investment opportunities presented by a number of stage show productions proposed by one Peter Boyle, a producer with considerable experience in the film industry. A number of clients of Pamacorp invested in the Cabaret scheme promoted by Boyle.

79. In or about May and June 1994, the principals of Pamacorp decided that they wanted to focus on its accounting business and to divest the Sentinel program business. According to Healy, most of Pamacorp's Sentinel program clients at that time were dealing either with him or with Quarrell and they had between them about 80 - 100 clients. The Pamacorp principals suggested that Quarrell and Healy take over that part of Pamacorp's business and run it as a business in their own right. Quarrell and Healy discussed the matter and agreed to set up their own business for this purpose:

"We decided to utilise the key concept behind the Sentinel program which we believed in and which had proved so popular with the Pamacorp client base. That was to provide a "total financial management" package. We wanted to offer our clients a "one stop shop" of financial and investment advice. We intended to offer a comprehensive range of investment opportunities and also take care of all of our clients' tax planning and accounting needs."

83. Quarrell and Healy informed the Sentinel clients of their intentions and spoke to them in person or by telephone.

86. Sentinel was incorporated on 28 July 1994, and over time, Quarrell and Healy caused a number of other companies to be incorporated for the purposes of the business. These included: Sentinel Accounting Services Pty Ltd (for the provision of accounting services to clients); Kantell Pty Ltd (for the development of tax effective investments); Development Corporation Limited ("DCL") (to conduct property development and investment activities); First Finance Limited Guard Finance Pty Ltd and Guard Finance (Vic) Pty Ltd (to provide finance for the purposes of property developments engaged in by DCL and to provide cashflow to Sentinel) and Sentinel Management Services Pty Ltd (to be the administration company for clients' superannuation funds).

89. In June 1994, Quarrell and Healy informed Boyle that they were leaving Pamacorp and starting Sentinel and he introduced them to the Bolshoi Ballet Scheme, which involved an Australian tour of the Bolshoi ballet. At this time, Sentinel did not have its own office space, and Boyle informed Quarrell and Healy that there were vacant floors in an office building in Hobson Street, South Yarra, in which he was renting premises. As a result, Sentinel rented offices on the floor above Boyle's offices in Hobson Street, South Yarra.

92. By letter dated 19 October 1994 (or thereabouts), Quarrell and Healy also wrote on behalf of their new company, Sentinel, to each of their Sentinel clients about their new business. The letter read as follows:

"... We take this opportunity to welcome you to Sentinel Financial Management. Although our structure has changed, our commitment to you remains as strong as ever. Our aim is to help you optimise your personal financial position in both the long and the short term. Enclosed is a brief profile of the key members of our team, who between the four of us have had more than 80 years experience in financial services. We would like to stress that one of the major benefits available to you at Sentinel, is continuing access to our wide range of technical and professional resources. To reinforce our commitment to you, we have listed below the eight major areas of our service that we believe will continue to set us apart from any other financial services group:- * We specialise in looking after the individual. This means that our service and ideas are tailored to your own needs. * Our service is independent. We provide you with personal financial and accounting advice which is not based on selling financial products. * The use of effective tax planning to suit the individual is an integral part of our service. * We are able to provide you with prompt and efficient access to first class technical and professional resources. * We can offer you creation and administration of business structures, including Discretionary Trusts, Unit Trusts, Companies and Partnerships. * Independent structuring is available which will maximise the benefits of Superannuation and Roll-over Funds. * We will assist you to create wealth and enhance your net-worth, including continuous review of strategies which have been implemented. * Professional preparation of all your personal, business and investment Taxation Returns is assured. ..."

96. Enclosed with the letter was a description of "THE TEAM" which included a description of the experience and qualifications of Healy, Quarrell and Schimana and, in relation to Quarrell, stated that he was: "a licensed Proper Holder Authority [sic] and as such is able to advise in securities."

99. The clients who wished to retain Sentinel filled out a subscription form and a direct debit authority for the fixed fee of $70 per month. Sentinel created a file for each client in which was placed a financial profile of the client, compiled during the initial interview held with each client.

102. Schimana had been an accountant employed by Pamacorp to look after clients' tax returns and affairs and he was given a one-third share in Sentinel Accounting Services Pty Ltd and allocated primary responsibility for the management of that company's opportunities. However, Quarrell, Schimana and Healy agreed that they would all have contact with the clients and provide investment advice to them, and that there would not be any rigid demarcation of tasks within Sentinel.

105. After Sentinel commenced business, Quarrell and Healy continued to rely on Boyle to provide investment propositions. The Cabaret Scheme, to which later reference will be made, was an investment promoted to clients of Pamacorp and later promoted to clients of Sentinel. Boyle had told Healy that the Cabaret Scheme involved a partnership and did not require a prospectus. A later scheme promoted by Boyle was the Bolshoi Ballet Scheme. Again, Boyle told Healy and Quarrell that no prospectus was needed. Sentinel received a 5% commission on investments procured by them. The next scheme introduced by Boyle was the Me and My Girl Scheme. Again, Sentinel was to receive 5% commission. Healy began to think that a prospectus was required, but Boyle insisted that it was not. Healy asked Boyle to get independent legal advice on this question but, although no such advice was provided, Sentinel continued to accept investments. Healy was told of rumours that Boyle was using investors' moneys for private expenditure on luxury items. Quarrell, Schimana and Healy agreed not to inform their clients of their concerns, but put the rumours to Boyle, who denied them. They accepted Boyle's assertions that no prospectus was required. The next investment introduced by Boyle was the Copperfield Investment. Again, Sentinel was to receive a 5% commission and again, Boyle said that a prospectus was not required. In about September 1995, Healy told Boyle to provide either a prospectus or independent legal advice that one was not required. Boyle undertook to do so, but provided neither.

108. As the business grew, other members of staff were employed. In about April 1995, Sentinel employed Hughes, an accountant who also provided investment advice and promoted Sentinel investment schemes although his main function was to work as an accountant and complete tax returns.

111. Hemming was a person previously known to Healy. In early 1994, Hemming had told Healy that he had been involved in property development on the Gold Coast but a project had failed and he had lost everything. Healy discussed with Hemming the possibility of working together on small boutique property development projects such as units and houses. Healy and Hemming agreed that he would provide his property market knowledge to identify good potential projects in Queensland and that Healy would raise finance from investors for the projects. They decided to form a company ("Bond Pty Ltd") as the vehicle for their property developments. Quarrell and Healy decided to offer property development to Sentinel clients as an investment. They invited Hemming to join Sentinel and to do what he had been doing at Bond Pty Ltd for Sentinel. They set up DCL and Hemming became responsible for planning and managing Sentinel's property development activities through it.

114. In due course, Sentinel also retained Lye. Although Lye was retained initially to undertake Sentinel's real estate sales in Queensland, he also became a general financial adviser to Sentinel clients and promoted all of Sentinel's investments.

117. Sentinel produced a brochure, the form, subjects and text of which was heavily based upon the Pamacorp brochure. It was usual practice that a new client was given a copy of the Sentinel brochure at the initial interview. They would be taken through it, and the main points of it were explained.

120. In about March 1996, Healy became concerned about Boyle's capacity to pay Sentinel its commission when he heard that Boyle was desperately searching for money at moneylender rates from one Davis. In April 1996, Healy learned that Capital Investments Corporation Pty Ltd had purchased the Copperfield Investment loan book from Boyle's company. In early May 1996, Quarrell, Healy and Schimana got oral legal advice from a tax lawyer that the Copperfield Investment documentation was inadequate and that there may not be a basis for a tax deduction.

123. At about this time, Healy met Davis. Davis (who turned out to be no better) told Healy that Boyle was a crook and that Park of Capital Investments was also a crook. Davis said he would save the day with a quality investment scheme and would guarantee that Sentinel's clients received their tax deductions. Davis said that his schemes were different (but it transpired that they were not). Davis said that no prospectus was required because the partnerships were all less than 20 people and therefore there was not a prescribed interest. Healy accepted Davis' sales pitch without any independent advice or analysis of the investments recommended, the first of which was the Book Publishing Partnerships.

126. It is convenient here to mention how Twenty-First became involved. Twenty-First was a United States securities investment company. A representative of Twenty-First (Ben Adler) contacted Healy, hawking tax-effective investments called securities lending arrangements which involved franking credits. The investment involved a form of security and a securities dealers' licence was required. The Twenty-First representative that said Twenty-First would provide each of the Sentinel representatives with a proper authority. Twenty-First provided proper authorities for Quarrell, Schimana, Hughes and Lye in June 1996. Due to an adverse tax ruling from the ATO, the securities lending arrangements were not proceeded with and Sentinel found alternative investments for its clients. Although there was no further involvement with Twenty-First, the proper authorities were not revoked.

129. I will refer further to the particular investment schemes promoted by the advisers in the course of outlining the evidence concerning the investments of the selected plaintiffs in the period from about February 1992 to June 1997. During that period, some of the advisers held proper authorities from some defendants. Quarrell held a proper authority from Financial Wisdom from 31 March 1992 until 18 December 1996. Healy never held a proper authority from Financial Wisdom. Schimana and Hughes each held a proper authority from Financial Wisdom from 19 April 1995 until 18 December 1996. Quarrell, Healy, Schimana, Hughes and Lye all held a proper authority from Twenty-First Australia from 4 June 1996 until 30 June 1997.

132. In or about late June 1997, Sentinel's business "collapsed".[3] From that time onwards, the "bad news" progressively came in to the plaintiffs and their fellow investors concerning the fate of their investments and the stance of the ATO in relation to their claimed deductions. The plaintiffs and many of their fellow investors cooperated in taking a variety of steps and proceedings, and in obtaining advice and representation where appropriate, and various expenses were incurred in doing so.

C. THE STATEMENT OF CLAIM IN THE FINANCIAL WISDOM PROCEEDING

136. The principal issues to be decided by the Court arise in the Financial Wisdom proceeding. The Further Amended Statement of Claim dated 18 October 2002 ("Statement of Claim") comprises some 454 pages. There are a series of claims in relation to a number of different investments, but most of the claims take the same form and raise similar issues. Financial Wisdom's Defence to the Statement of Claim is dated 21 November 2002 and Twenty-First Australia's Defence is dated 19 November 2002. It is not necessary to refer in detail to the Statement of Claim in the Pamacorp proceeding, which is concerned with the liability of the Pamacorp companies for the conduct of servants and agents of Pamacorp Holdings in relation to five investments.[4] It will be sufficient to deal with the relevant causes of action, so far as necessary, when coming to the claims of the selected plaintiffs.

139. Paragraph 1 of the Statement of Claim in the Financial Wisdom proceeding alleges that Financial Wisdom was at all relevant times a company carrying on a securities and investment advice business and holding a dealers licence pursuant to Part 7.3 Division 1 of the Corporations Law. Paragraph 1 further alleges that, pursuant to Part 7.3 Division 3 of the Corporations Law, Financial Wisdom provided proper authority to the following persons to act as its representative:

* Quarrell, from 31 March 1992 until 18 December 1996 * Hughes, from 19 April 1995 until 18 December 1996 * Schimana, from 19 April 1995 until 18 December 1996

143. Paragraph 2 of the Statement of Claim alleges that Twenty-First was at all relevant times a company carrying on a securities and investment advice business and holding a dealers licence pursuant to Part 7.3 Division 1 of the Corporations Law. Paragraph 2 further alleges that, pursuant to Part 7.3 Division 3 of the Corporations Law, Twenty-First provided proper authority to the following persons to act as its representative from 4 June 1996 until 30 June 1997:- Quarrell, Healy, Hughes, Schimana and Lye.

146. Paragraph 3 of the Statement of Claim alleges that between about 31 March 1992 and about 9 September 1994, those of the plaintiffs named in Schedule A[5] ("the Pamacorp clients") subscribed to and entered an investment and financial advice program called the "Sentinel Professionals Management Program", by which each retained Pamacorp Holdings to provide, in return for an annual subscription fee, investment, financial and taxation advice and management services ("the Pamacorp retainer").

149. Paragraph 4 of the Statement of Claim alleges that Quarrell represented and warranted ("the Pamacorp representations") to each of the Pamacorp clients that:

"(a) Pamacorp Holdings provided, intended to provide and would provide a fully integrated financial services facility to its clients;

(b) Pamacorp Holdings provided, intended to provide and would provide an uncompromised level of technical skill, knowledge and creative application;

(c) Pamacorp Holdings responded, intended to respond and would respond rapidly and effectively to its clients' needs;

(d) Pamacorp Holdings presented, intended to present and would present only the highest standard of work at all times;

(e) Pamacorp Holdings provided, intended to provide and would provide professional advice from a total financial management perspective;

(f) Pamacorp Holdings through the Sentinel Professionals' Management Program, created and would create wealth by maximising clients' disposable income with salary packaging and tax planning;

(g) Pamacorp Holdings through the Sentinel Professionals' Management Program, built and would build its clients' net worth with informed investment advice and solid financial planning using the best information and software applications and its active experience in that field;

(h) Pamacorp Holdings through the Sentinel Professionals Management Program, protected and would protect its clients' assets and lifestyle;

(i) Pamacorp Holdings through the Sentinel Professionals' Management Program, reduced and would reduce its clients' tax with effective planning;

(j) Pamacorp Holdings informed, intended to inform and would inform its clients about legislative and economic changes that could affect the clients' financial position;

(k) Pamacorp Holdings provided, intended to provide and would provide the Sentinel Professionals' Management Program at a fixed subscription fee and guarantee to save each client that fee in tax savings or refund the subscription fee;

(l) Pamacorp Holdings recommended, intended to recommend and would recommend quality income producing investments that would compensate for a slow rate of capital growth;

(m) all real estate investments recommended by Pamacorp Holdings had and would have:

(n) all equities investments recommended by Pamacorp Holdings involved and would involve:

(o) all institutional investments recommended by Pamacorp Holdings showed and would show:

(ii) balance of Australian and offshore investments;

(iii) an emphasis on South East Asian portfolio investments; and

(p) fixed interest funds recommended by Pamacorp Holdings were and would be:

(q) Pamacorp Holdings strived and would strive to achieve the greatest possible taxation reductions for its clients in accordance with the spirit and intention of the law;

(r) Pamacorp Holdings provided, intended to provide and would provide an overall approach to investment and financial planning and offer informed advice taking into account all aspects and components of a client's financial affairs;

(s) the investments recommended to clients by Pamacorp Holdings were and would be secure and carry a low financial risk for clients;

(t) the investments recommended to clients by Pamacorp Holdings were and would be guaranteed to produce a sound return for clients;

(u) the investments recommended to clients by Pamacorp Holdings did and would minimise and defer payment of income tax."

185. Paragraph 5 of the Statement of Claim alleges that each of the Pamacorp clients, in reliance upon and induced by the Pamacorp representations, subscribed to, participated in and paid the annual subscription fee for, the Sentinel program and thenceforth accepted and acted upon investment, financial and taxation advice and recommendations provided by Quarrell (as thereafter pleaded).

188. The Statement of Claim is then divided into a number of sections in relation to each of the investments.

191. The first investment dealt with by the Statement of Claim is the Lucky Country Film Fund and this may be usefully regarded as giving rise to a set of claims which is typical of many of the claims contained in the pleading. Paragraphs 6, 7 and 8 of the Statement of Claim refer to the deeds and agreements setting up the Lucky Country Film Fund. Paragraph 9 of the Statement of Claim refers to the issuing of a prospectus for each of the financial years ending 30 June 1992 and 30 June 1993 inviting investment in the Lucky Country Film Fund by subscribing for units. Paragraph 10 of the Statement of Claim alleges that, between about 31 March 1992 and 13 October 1993, those of the plaintiffs named in Schedule B[6] invested in units in the Lucky Country Film Fund, executed loan and other agreements, borrowed finance for the purpose and paid interest on the loan moneys.

194. Paragraph 11 of the Statement of Claim alleges that, prior to each of the Lucky Country investors making their investments, Quarrell recommended the investment ("the Lucky Country recommendations") and represented and warranted ("the Lucky Country representations") to each of the Lucky Country investors as follows:

"(i) The Lucky Country Film Fund was, was intended to be and would be a quality income-producing investment;

(ii) The Lucky Country Film Fund was, was intended to be and would be guaranteed to produce a sound return for investors;

(iii) The Lucky Country Investors were, were intended to be and would be guaranteed to receive a return of 100% of the moneys which they invested in the Lucky Country Film Fund;

(iv) The Lucky Country Film Fund was, was intended to be and would be a secure investment which carried a low financial risk for clients;

(v) All moneys invested in the Lucky Country Film Fund were, were intended to be and would be 100% tax deductible;

(vi) The interest repayments on all loan moneys invested by the Lucky Country Investors in the Lucky Country Film Fund were, were intended to be and would be 100% tax deductible;

(vii) The persons responsible for the promotion and management of the Lucky Country Film Fund and the production and distribution of the Lucky Country film were, were intended to be and would be sufficiently skilled, expert and experienced to carry out their respective tasks to ensure that the Lucky Country would be produced without placing investors' funds at risk..."

The Lucky Country representations are particularised as being made orally by Quarrell in discussions with the various investors and to be implied from his recommendation and from "the fact that each Lucky Country Investor was a Pamacorp client subscribing to the Sentinel...program seeking low-risk, secure, income producing and tax deductible investments in accordance with the Pamacorp Representations."

205. Paragraphs 12 and 12A of the Statement of Claim allege that, at the time that Quarrell made the Lucky Country recommendations and the Lucky Country representations, Quarrell was a representative of Financial Wisdom within the meaning of s.820(1) of the Corporations Law and, in effect, that Financial Wisdom was therefore liable for Quarrell's conduct pursuant to s.817 of the Corporations Law, in the same manner and to the same extent as if the conduct was that of Financial Wisdom (a claim now abandoned).

208. Of particular importance in this proceeding, paragraph 13 of the Statement of Claim pleads further, or in the alternative, to the previous paragraph that:

"(a) the Lucky Country Recommendations and Lucky Country Representations were made by Quarrell at a time when he was a representative of Financial Wisdom within the meaning of s.819(1)(a) of the Corporations Law;

(b) each of the Lucky Country Investors made the Lucky Country Subscriptions and entered the Lucky Country Loans because they believed in good faith that Quarrell made the Lucky Country Recommendations and Lucky Country Representations:

(i) on behalf of Financial Wisdom or some other principal; and

(ii) in connection with a securities business or investment advice business carried on by Financial Wisdom or some other principal.

(c) in the premises, pursuant to s.819 of the Corporations Law, Financial Wisdom is liable in respect of the Lucky Country Recommendations and Lucky Country Representations in the same manner and to the same extent as if Financial Wisdom had made them."

216. Paragraphs 15 to 20 of the Statement of Claim plead, in relation to the Lucky Country recommendations and the Lucky Country representations, and also in relation to the Pamacorp representations, that Quarrell engaged in misleading and deceptive conduct in contravention of s.52 of the Trade Practices Act 1974 (Cth) and s.11 of the Fair Trading Act 1985 (Vic).

219. Paragraph 16 of the Statement of Claim alleges that the Lucky Country recommendations and Lucky Country representations were false or misleading in that:

"(a) the Lucky Country Film Fund was not and was not intended to be a quality income-producing investment;

(b) the Lucky Country Film Fund did not and was not intended to produce a sound return for investors;

(c) the Lucky Country Investors did not and were not intended to receive a return of 100% of the moneys which they invested in the Lucky Country Film Fund;

(d) the Lucky Country Film Fund was not and was not intended to be a secure investment that carried a low financial risk for investors;

(e) the moneys invested in the Lucky Country Film Fund were not and were not intended to be tax deductible;

(f) the interest payments on moneys invested by the Lucky Country Investors in the Lucky Country Film Fund were not and were not intended to be tax deductible;

(g) the persons responsible for promotion and management of the Lucky Country Film Fund and production and distribution of the Lucky Country were not and were not intended to be sufficiently skilled, expert and experienced to carry out their respective tasks to ensure that the Lucky Country would be produced without placing investors' funds at risk.

(a) The film The Lucky Country was never completed and produced no return for the Lucky Country Investors whatsoever.

(b) The Lucky Country Film Fund was wound up by order of the Federal Court of Australia of 25 October 1996. Subsequent to the winding up only some of the Lucky Country Investors received a distribution of only some of the funds which they had invested in the Lucky Country Film Fund. Further particulars of the proportion of moneys invested retrieved by each Lucky Country Investor will be provided at trial.

(c) The Lucky Country Film Fund was not secure and carried a high financial risk for the Lucky Country Investors and such risk was realised by the non-completion of the film.

(d) The Australian Taxation Office conducted an investigation into the Lucky Country Film Fund and, in about November 1996, disallowed any tax deductions claimed by Lucky Country Investors on the moneys invested in the Lucky Country Film Fund or the interest payments on moneys borrowed for those purposes."

235. Paragraph 17 of the Statement of Claim alleges that the Pamacorp representations were misleading and deceptive in that, in making the Lucky Country representations and recommendation, Pamacorp Holdings did not and did not intend to:

"(a) provide a fully integrated financial services facility to its clients;

(b) provide an uncompromised level of technical skill, knowledge and creative application;

(c) respond rapidly and effectively to its clients' needs;

(e) provide professional advice from a total financial management perspective;

(f) create wealth by maximising clients' disposable income with salary packaging and tax planning;

(g) build its clients' net worth with informed investment advice and solid financial planning using the best information and software applications and active experience in that field;

(i) reduce its clients' tax with effective planning;

(j) inform its clients about legislative and economic changes that could affect the clients' financial position;

(k) save each client the Pamacorp subscription fee in tax savings;

(l) recommend quality income producing investments that would compensate for a slow rate of capital growth;

(m) strive to achieve the greatest possible taxation reductions for its clients in accordance with the spirit and intention of the law;

(n) pursue an overall approach to investment and financial planning or offer informed advice taking into account all aspects and components of a client's financial affairs;

(o) recommend a secure investment carrying low financial risk;

(p) recommend an investment guaranteed to produce a sound return for clients;

(q) recommend an investment which would minimise and defer payment of income tax."

255. Paragraph 20 alleges that as a consequence of Quarrell's said conduct, each of the Lucky Country investors had suffered loss and damage, which is particularised as follows:

"(a) The annual subscription fee for the Sentinel Professionals Management program.

(b) Each of the Lucky Country Investors has lost all or part of the moneys which each invested in the Lucky Country Film Fund.

(c) Each of the Lucky Country Investors has suffered loss of the interest paid at commercial rates under the Lucky Country Loans.

(d) Each of the Lucky Country Investors lost the use of that part of the moneys which they invested not derived from a Lucky Country Loan from the time of the investment until such moneys were recovered, if at all.

(e) Each of the Lucky Country Investors has paid or is liable to pay statutory interest to the Australian Tax Office on unpaid tax as a result of the disallowance by the Australian Tax Office of tax deductions claimed by each.

(f) Further, each Lucky Country Investor has expended significant time and resources in investigating the outcome of, and rectifying the damage caused by, their investment and in assisting various statutory authorities such as the Australian Tax Office and the Australian Securities Commission (now the Australian Securities and Investment Commission) in their investigations of the investment, including:

(i) holiday and other leave taken from usual paid employment;

(ii) professional accounting, legal and taxation advice and assistance.

(g) Further, each Lucky Country Investor has suffered severe emotional stress and trauma as a consequence of the financial pressures placed upon them and their families by the financial losses which they have sustained."

267. The particulars of loss and damage claimed in relation to the Lucky Country Film Fund are in substance repeated, with appropriate amendments, in the case of each investment subsequently dealt with in the Statement of Claim. The damages claimed cover losses of moneys invested, loss of interest and/or loss of use of moneys invested, interest and other payments to the ATO, other expenses in time or money and "severe emotional stress and trauma as a consequence of the financial pressures placed upon them and their families by the financial losses which they have sustained".

270. Paragraphs 21 to 23 of the Statement of Claim make alternative claims based upon the alleged negligence of Quarrell in making the Lucky Country recommendations and the Lucky Country representations. Paragraphs 24 to 28 of the Statement of Claim make alternative claims based upon alleged contraventions by Quarrell of s.851 of the Corporations Law. Paragraphs 29 to 32 of the Statement of Claim make alternative claims based upon alleged contraventions by Quarrell of s.995 of the Corporations Law. Paragraphs 33 to 37 of the Statement of Claim make alternative claims based upon alleged contraventions by Quarrell of s.999 of the Corporations Law. Paragraphs 41 to 44 of the Statement of Claim make alternative claims based upon an alleged breach of fiduciary duty owed to each of the Lucky Country investors by Quarrell.

273. Paragraphs 46 to 48 of the Statement of Claim plead that Financial Wisdom is liable pursuant to s.817 of the Corporations Law, alternatively s.819 of the Corporations Law, for all loss and damage suffered by the Lucky Country investors in the same manner and to the same extent as if Financial Wisdom had engaged in the alleged conduct of Quarrell as pleaded in all of paragraphs 15 to 44 of the Statement of Claim.

276. The Statement of Claim then proceeds to make substantially the same allegations and claims in relation to further investments, namely the Bearfire Film Fund (paragraphs 53-95) and the Grand Hotel Film Fund (paragraphs 100-143).

279. Paragraphs 148 to 194 of the Statement of Claim contain somewhat similar allegations in relation to the Cabaret Scheme. In addition, there are claims as to alleged negligence and alleged contraventions of the Corporations Law by Quarrell, based upon an allegation that the Cabaret Scheme was a "prescribed interest" and no prospectus or Approved Deed had been lodged with ASC.[7] Substantially similar claims and allegations as are made in relation to the Cabaret Scheme are made in relation to the Bolshoi Ballet Scheme (paragraphs 199-245).

282. Paragraphs 250 to 259 of the Statement of Claim deal with the commencement of the Sentinel Group. Paragraph 251 alleges that from about early September 1994, the Sentinel promoters commenced conducting a business of providing financial and investment and securities advice and management through the Sentinel Group. Paragraph 252 alleges that Sentinel was the controlling entity in the Sentinel Group, and that Quarrell and Healy were its directors. Paragraph 254 alleges that, on or about 14 September 1994, each of the Pamacorp clients were informed by Pamacorp Holdings of the formation of the Sentinel Group and that the principals of the Sentinel Group were Healy and Quarrell, who had a combined experience in banking, accounting and financial service totalling more than 50 years and who would continue to provide excellence in advice ("the endorsement"). Paragraph 255 alleges that, between about September and late October 1994, Sentinel, through Quarrell and Healy, confirmed the endorsement and made further representations to the Pamacorp clients, which are pleaded as follows:

(b) Quarrell and Healy, through the Sentinel Group intended to and would strive to help each Pamacorp Client optimise their personal financial position in the long and short term;

(c) between the members of the Sentinel Group's team, including Quarrell, Healy and Schimana there was over 80 years of experience in financial services;

(d) the Sentinel Group specialised in and would specialise in looking after the individual such that its services and ideas would be tailored to client's needs;

(e) the Sentinel Group's service was and would be independent;

(f) the Sentinel Group would provide and intended to provide clients with personal financial and accounting advice which was not based upon selling financial products;

(g) the use of effective tax planning to suit the individual was and would be an integral part of the Sentinel Group's service;

(h) the Sentinel Group would and intended to provide clients with prompt and efficient access to first class technical and professional resources;

(i) the Sentinel Group would offer creation and administration of business structures, including discretionary trusts, unit trusts, companies and partnerships;

(j) independent structuring was available which would maximise the benefits of superannuation and roll-over funds;

(k) the Sentinel Group would and intended to assist clients to create wealth and enhance net worth including continuous review of strategies which had been implemented;

(l) professional preparation of all personal, business and investment taxation returns was assured;

(m) the Sentinel Promoters were extremely well qualified, experienced, competent and trustworthy professionals

The transfer representations were made by Quarrell and Healy in a letter in identical terms sent to each of the Pamacorp Clients during September or October 1994. A copy of the letter is in the possession of the Plaintiff's solicitors and may be inspected by prior appointment.

Further, the transfer representations were repeated by Quarrell and Healy in discussions with each Pamacorp Client during September or October 1994."

303. Paragraph 256 of the Statement of Claim alleges that each of the Pamacorp clients, in reliance upon and induced by the endorsement and the transfer representations, became a client of Sentinel and continued to seek, receive and rely upon financial and investment advice and management services from the Sentinel promoters.

306. Paragraph 257 of the Statement of Claim alleges that between about September 1994 and July 1997, each of the plaintiffs named in Schedule G thereto (including all of the Pamacorp clients) became clients of Sentinel ("the Sentinel clients") and retained Sentinel to provide, in return for a subscription fee, investment, financial, taxation and securities advice and management services ("the Sentinel Package").

309. Paragraph 258 of the Statement of Claim alleges that prior to or at the time of each Sentinel client subscribing to the Sentinel Package, Sentinel, through the Sentinel promoters, repeated the transfer representations and made further representations to each of the Sentinel clients, which were pleaded as follows:

(b) Sentinel provided, intended to provide and would provide professional advice from a total financial management perspective;

(c) Sentinel provided, intended to provide and would provide a fully integrated financial services facility to clients;

(d) Sentinel provided, intended to provide and would provide an uncompromised level of technical skill, knowledge and creative application;

(e) Sentinel responded, intended to respond and would respond rapidly and effectively to client's needs;

(f) Sentinel presented, intended to present and would present only the highest standard of work at all times;

(g) Sentinel fostered, intended to foster and would foster an environment where it encouraged and acknowledged the pursuit of further skill, integrity of service, outstanding effort and loyalty;

(h) Sentinel created, intended to create and would create wealth for the clients by maximising their disposable income with salary packaging and tax planning;

(i) Sentinel built, intended to build and would build the net worth of its clients with informed investment advice and solid financial planning;

(j) Sentinel protected, intended to protect and would protect its client's assets and lifestyle;

(k) Sentinel reduced, intended to reduce and would reduce its client's tax with effective planning to suit the individual;

(l) Sentinel informed, intended to inform and would inform clients about legislative and economic changes that may affect their position;

(m) Sentinel created, intended to create and would create asset growth from unique private structuring of superannuation and roll-over moneys;

(n) Sentinel created, intended to create and would create and administer business structures including discretionary trusts, unit trusts, companies and partnerships;

(o) Uppermost, Sentinel provided, intended to provide and would provide clients with totally independent advice which was not based upon the sale of financial products;

(p) Sentinel provided, intended to provide and would provide prompt and efficient access to highly specialised professionals in the fields of law, medicine, tax, investment and economics;

(q) Sentinel's investment philosophy was and would be focussed on unbiased assessment of all available opportunities in the market place at any one time;

(r) Sentinel did, intended to and would advocate quality income producing investments that would compensate for periods of slow capital growth;

(s) all real estate investments recommended by Sentinel were, were intended to be and would be in a first class geographic location; produce secure, quality cash flow; and have quality tenants or occupants;

(t) all equity investments recommended by Sentinel involved, were intended to involve and would involve companies with strong balance sheets; involve companies in mainstream industries; have strong net asset backing; and have a strong dividend stream;

(u) all institutional investments recommended by Sentinel showed, intended to show and would show an appropriate mix of Australian and off-shore investments and have a sound performance record.

(v) Sentinel strived, intended to and would strive to achieve the greatest possible taxation reduction in accordance with the spirit and intention of the law;

(w) the Sentinel package was available to clients at a fixed fee which would be tax deductible.

(x) Each of the Sentinel Promoters were holders of and would continue to be holders of proper authorities from one or more licensed securities dealers and were, accordingly, able to lawfully advise Sentinel Clients in relation to securities.

(a) Each of the Sentinel Representations apart from those set out in sub-paragraphs (a) and (x) above, were contained within a brochure provided by the Sentinel Promoters to each Sentinel Client at the time of or before subscription to the Sentinel Package. A copy of the brochure is in writing and in the possession of the Plaintiffs' solicitors where it may be inspected by appointment.

(b) Further, each of the Sentinel representations, including those set out in paragraphs (a) and (x) above were made to each Sentinel Client during discussions with the Sentinel Promoters at the time of or before subscribing to the Sentinel Package."

341. Paragraph 259 of the Statement of Claim alleged that each of the Sentinel clients, in reliance upon and induced by the Sentinel representations, became clients of Sentinel, subscribed to the Sentinel Package and henceforth accepted and acted upon investment, financial and taxation advice and recommendations provided by the Sentinel promoters.

344. The first investment dealt with by the pleading, after the date of the formation of the Sentinel Group, is the Me and My Girl Scheme (paragraphs 260-308 of the Statement of Claim). Paragraphs 260 to 263 refer to the documentation involved with the Me and My Girl Scheme during the financial year ending 30 June 1995, including "the Me and My Girl Memorandum", which memorandum described an opportunity to invest in a fund for the production, marketing and general exploitation of the stage show "Me and My Girl" in New Zealand, commencing July 1995 and which outlined the structure, arrangements and benefits of the scheme.

347. Paragraph 262 of the Statement of Claim alleged that the following representations were contained in the Me and My Girl Memorandum:

"(a) Me and My Girl represented a unique opportunity to be involved in the production of a major international theatrical event;

(b) Investors would receive a minimum income return of 100% of participation moneys payable on 15 July 1999 secured by an irrevocable letter of credit, government bonds or similar securities;

(c) Investors would receive tax advantages in the year of investment by way of tax deduction for the whole of the theatrical services moneys contributed;

(d) Investors would receive fee incomes on two levels:

(i) base theatrical services fees being a minimum fee income secured by the security equal to 100% of theatrical services moneys payable on 15 July 1999;

(ii) further theatrical services fees payable as and when earned and accounted from any profits from Me and My Girl."

356. Paragraph 264 of the Statement of Claim alleges that, prior to each of the Me and My Girl investors making their investment, the Sentinel promoters recommended the investment ("the Me and My Girl recommendations"), provided the Me and My Girl Memorandum to each investor, and made representations and warranties ("the Me and My Girl representations") to each investor, which were pleaded as follows:

"(i) each of the representations in the Me and My Girl Memorandum were true and correct;

(ii) the Me and My Girl Scheme was, was intended to be and would be a quality, income-producing investment;

(iii) the Me and My Girl Scheme was, was intended to be and would be guaranteed to produce a sound return for investors;

(iv) Me and My Girl Investors were, were intended to be and would be guaranteed to receive a return of 100% of the moneys which they invested in the Me and My Girl Scheme;

(v) the Me and My Girl Scheme was, was intended to be and would be a secure investment which carried a low financial risk for clients;

(vi) all moneys invested in the Me and My Girl Scheme were, were intended to be and would be 100% tax deductible;

(vii) the interest repayments on all loan moneys invested by the Me and My Girl Investors in the Me and My Girl Scheme were, were intended to be and would be 100% tax deductible;

(viii) Sentinel had obtained or would obtain a private ruling from the Australian Tax Office to the effect that the moneys invested in the Me and My Girl Scheme and interest on the Me and My Girl Loans was tax deductible.

(ix) the persons involved in the promotion and management of the Me and My Girl Scheme and the production and marketing of Me and My Girl, namely SKH Management Pty Ltd and Griffin Entertainment Australia Pty Limited were, were intended to be and would be sufficiently skilled, qualified, experienced and reputable with theatrical productions to carry out their respective tasks without putting the Me and My Girl Investors' funds at risk;

(x) in promoting the Me and My Girl Scheme, SKH Management Pty Ltd had complied, would comply and intended to comply with all relevant provisions of the Corporations Law such that the Me and My Girl Scheme was approved by the Australian Securities Commission;

Each of the Me and My Girl Recommendations and Representations was made by the Sentinel Promoters in discussions with each of the Me and My Girl Investors prior to each making their respective Me and My Girl Subscriptions and executing their respective Me and My Girl Loans.

Further, each of the Me and My Girl Representations was implied:

(b) from the fact that the Sentinel Promoters provided the Me and My Girl Memorandum to each Me and My Girl Investor without providing any qualifications or warnings about the content thereof thereby adopting and endorsing the representations therein; and

(c) from the fact that each Me and My Girl Investor was a Sentinel Client subscribing to the Sentinel Package seeking low risk, secure, income producing and tax deductible investments in accordance with the Sentinel representations, as was known by the Sentinel Promoters."

377. The pleading then follows the already established pattern of alleging a variety of causes of action which attach to Financial Wisdom by virtue of s.817 of the Corporations Law, alternatively (and importantly), s.819 of the Corporations Law.

380. The first cause of action alleged in relation to the Me and My Girl Scheme is misleading and deceptive conduct under s.52 of the Trade Practices Act and/or s.11 of the Fair Trading Act. Paragraph 271 of the Statement of Claim alleges that the Me and My Girl representations were false or misleading, in that:

"(a) The representations contained in the Me and My Girl Memorandum were false;

(b) the Me and My Girl Scheme was not and was not intended to be a quality income-producing investment;

(c) the Me and My Girl Scheme did not and was not intended to produce a sound return for investors;

(d) the Me and My Girl Investors did not and were not intended to receive a return of 100% of the moneys which they invested in the Me and My Girl Scheme;

(e) the Me and My Girl Scheme was not and was not intended to be a secure investment that carried a low financial risk for investors;

(f) the moneys invested in the Me and My Girl Scheme were not tax deductible;

(g) the interest payments on moneys invested by the Me and My Girl Investors in the Me and My Girl Scheme were not tax deductible;

(h) Sentinel had obtained no private ruling with respect to the Me and My Girl Scheme from the Australian Tax Office and never intended to obtain one;

(i) the persons responsible for promotion and management of the Me and My Girl Scheme and production and marketing of Me and My Girl were not and were not intended to be sufficiently skilled, expert, experienced and reputable to carry out their respective tasks to ensure that Me and My Girl would be produced without placing investors' funds at risk;

(j) in promoting the Me and My Girl Scheme SKH Management Pty Ltd had not complied, did not comply and did not intend to comply with the relevant provisions of the Corporations Law such that the Me and My Girl Scheme was approved by the Australian Securities Commission.

(a) The only involvement which investors had in the Me and My Girl Scheme was the provision of moneys for the purported production fund by entry into the Me and My Girl Loans and the payment of interest thereon.

(b) Me and My Girl Investors did not receive a minimum income return of 100% of their investment because while they paid interest payments on Me and My Girl Loans they received no return above the principal borrowed for the investment.

(c) The Me and My Girl Investors received no tax deductions for their investment as deductions claimed by Me and My Girl Investors were disallowed by the Australian Tax Office.

(d) Me and My Girl Investors received no income by way of theatrical services fees over and above the base theatrical services fee of 100% of principal invested.

(e) Moneys invested by the Me and My Girl Investors were not incurred to gain assessable income or to carry on any business and there is no evidence that Me and My Girl was ever produced. As a result, invested funds and interest payments on the Me and My Girl Loans were not tax deductible and any deductions claimed on such moneys were disallowed by the Australian Tax Office.

(f) None of the companies involved in the Me and My Girl Scheme had experience or skill in theatrical productions or the human or financial resources to produce Me and My Girl. In particular, SKH Management was a company controlled by Peter Boyle, who also controlled Entercorp Finance Pty Ltd. The business in which Boyle engaged was not the production of Me and My Girl but the sale of the Me and My Girl Loans on which the Me and My Girl Investors paid him interest. The Sentinel promoters knew this as SKH Management Pty Limited had also promoted the Bolshoi and Cabaret Schemes both of which were unsuccessful and caused losses to investors.

(g) No written reports or information were provided to Me and My Girl Investors about the progress of Me and My Girl or the financial outcome of it.

(h) The Me and My Girl Scheme was not secure and carried a high financial risk for the Me and My Girl Investors and such risk was realised by the losses suffered by the Me and My Girl Investors.

(i) The Me and My Girl Scheme was a "prescribed interest" within the meaning of the Corporations Law to which Part 7.12 Division 2 of the Corporations Law applied. Contrary to s. 1018(1) of the Corporations Law no prospectus in relation to the Me and My Girl Scheme had been lodged with the Australian Securities Commission. Contrary to s. 1065 of the Corporations Law no Approved Deed in relation to the Me and My Girl Scheme was in force."

404. Paragraph 272 of the Statement of Claim alleges that the Sentinel representations were misleading and deceptive, in that, in making the Me and My Girl representations and recommendations, Sentinel did not and did not intend to:

"(a) provide a fully integrated financial services facility to its clients;

(b) provide an uncompromised level of technical skill, knowledge and creative application;

(c) respond rapidly and effectively to its clients' needs;

(e) provide professional advice from a total financial management perspective;

(f) foster an environment which encouraged and acknowledged the pursuit of further skill, integrity of service, outstanding effort and loyalty;

(g) create wealth by maximising clients' disposable income with salary packaging and tax planning;

(h) build its clients' net worth with informed investment advice and solid financial planning using the best information and software applications and active experience in that field;

(j) reduce its clients' tax with effective planning;

(k) inform its clients about legislative and economic changes that could affect the clients' financial position;

(l) recommend quality income producing investments that would compensate for a slow rate of capital growth;

(m) strive to achieve the greatest possible taxation reductions for its clients in accordance with the spirit and intention of the law;

(n) provide uppermost, totally independent advice not based upon the sale of financial products;

(o) provide unbiased assessment of all available opportunities in the marketplace;

(p) recommend an investment involving companies with strong balance sheets in mainstream industries with strong net asset backing and a strong dividend stream;

(q) recommend an investment with a sound performance record."

424. Paragraph 275 of the Statement of Claim alleges that as a consequence of the said conduct of the Sentinel promoters, each of the Me and My Girl investors had suffered loss and damage, the particulars of which are substantially the same as those provided in relation to the Lucky Country Film Fund[8]

and numerous of the other investments. The Statement of Claim goes on, in relation to the Me and My Girl Scheme, to allege causes of action based upon negligence, breach of fiduciary duty and various contraventions of the Corporations Law, much as are pleaded in relation to the Lucky Country Film Fund or the Cabaret Scheme and numerous other investments.

429. The Statement of Claim goes on to make substantially the same allegations and claims in relation to the Copperfield Scheme (paragraphs 319 to 366).

432. Next is a section concerned with the Superannuation Schemes (paragraphs 377 to 402). Paragraph 377 alleges that, during the course of 1995, Sentinel provided advice to clients about the establishment of a personal superannuation plan and the management of superannuation moneys. Paragraph 378 alleges that certain of the clients applied for membership of AS Nominees and engaged it to establish a superannuation plan and act as a trustee of the superannuation fund and transferred existing superannuation moneys to that plan. Paragraph 379 alleges the making of the "Super Recommendations" by the Sentinel advisers and there follows the pleading of a series of causes of action as previously, including under the Corporations Law and in negligence.

435. The next investment dealt with is the Book Publishing Partnerships. Paragraph 309 of the Statement of Claim alleges that, during the financial year ending 30 June 1996, Sentinel offered to the Sentinel clients the opportunity to invest in partnerships for the production, marketing and distribution of a series of books about minority peoples and cultures of Asia. Paragraphs 410 and 411 deal with the documents entered into by the Sentinel clients ("the Publishing Partners") who invested in the Book Publishing Partnerships. Paragraph 412 of the Statement of Claim makes allegations concerning the making of "the Publishing Recommendations" and "the Publishing Representations" along similar but not identical lines to the allegations which I have already detailed in relation to earlier. The pleading then goes on to rely upon s.817, alternatively s.819 of the Corporations Law, and then again sets out various causes of action, the nature of which I have mentioned a number of times already.

438. The Statement of Claim continues in the same vein, dealing with the Video Documentary Partnerships (paragraphs 469 to 518).

441. The next investments dealt with are the Guard Finance Investments (referred to as the "Finance Entities") (paragraphs 529 to 554). Paragraph 529 alleges that, between the beginning of 1996 and about July 1997, certain Sentinel clients (the "Finance Investors") invested moneys into one or more of First Finance Limited, Guard Finance Pty Ltd and Guard Finance (Vic) Pty Ltd by way of a direct investment of funds. Paragraph 530 makes allegations concerning the making of the "Finance Representations", which include an alleged representation that the invested moneys would be on-lent for property transactions and secured by first mortgage, and that the investors could not lose their moneys. Then the same causes of action are pleaded as with previous sections of the pleading (apart from negligence) but, in addition, there are allegations of fraudulent misrepresentation.

444. The next investment dealt with is the DCL Shares Investment (paragraphs 561 to 607). Paragraph 561 alleges that, between about late 1994 and July 1997, certain of the investors purchased shares in DCL, a company in the Sentinel Group involved in property development. Paragraph 562 alleges the making of the "DCL Recommendations" and the "DCL Recommendations" and the pleading goes on to allege the same series of causes of action as with earlier investments.

447. The next investments referred to are the property trusts, the Stanley Street Unit Trust (paragraphs 618 to 688) and the Clendon Street Unit Trust (paragraphs 679 to 730). The pleading refers to the execution of a trust deed and the setting up of a property trust in each case and the proposal to form or forming of a joint venture with DCL to develop properties in Richmond and Toorak respectively. The pleading alleges misleading and deceptive conduct, fraudulent misrepresentation, negligence and again relies upon various provisions of the Corporations Law.

450. The next investment dealt with is the Timber Investment (paragraphs 741 to 789). Paragraph 741 alleges that during the financial year ending 30 June 1997, Sentinel clients were offered the opportunity to invest in the business of the production of timber from a pine plantation in South Australia. Save for reference to the particular structure of that investment and the specific representations made about, the pleading follows the same general pattern in relation to the series of causes of action alleged.

453. The next section of the Statement of Claim deals with the Botanical Script Book Publishing Partnership and follows much the same pattern as in relation to the other investments (paragraphs 800 to 849).

456. Next comes the Ostrich Schemes (paragraphs 860 to 908). Paragraph 860 alleges during each of the financial years ending 30 June 1996 and 30 June 1997, Sentinel clients were offered the opportunity to invest in enterprises engaged in the business of breeding ostriches and exploiting ostrich products. Again, subject of the particularities of this investment, a similar series of allegations are made and causes of action raised.

459. The Statement of Claim concludes by claiming damages in respect of each of the investments, including damages under the Trade Practices Act and/or Fair Trading Act, damages for negligent misrepresentation and/or negligence, and damages under various provisions of the Corporations Law and damages for breach of fiduciary duty and aggravated damages.

463. It was common ground that the Corporations Law regime applicable to the events in this proceeding is to be found in the provisions of the Corporations Law of the State of Victoria ("the Law") in the form which it took in the period from 1991 to 1997. Of course that Law has since been repealed, but it is convenient here to refer to the relevant provisions in the present tense.

466. The plaintiffs contended, and I accept, that most of the investments that they made and which are the subject of this proceeding constituted securities within the meaning of the Law. The plaintiffs also primarily relied upon certain provisions of the Law to establish the liability of Financial Wisdom and Twenty-First Australia. It is appropriate at the outset to refer to those provisions as a background to what follows.

469. Chapter 7 of the Law is concerned with securities and Part 7.3 thereof headed "Participants in Securities Industry" contains a number of relevant provisions. In Division 1, headed "Dealers and Investment Advisers", s.780, so far as relevant, provides that a person must not carry on a securities business without holding a dealers licence. A "securities business" is defined as a business of dealing in securities,[9] and a "dealer" is defined as a person who carries on a securities business.[10] "Securities" are defined by the Law to mean, inter alia, shares, debentures and prescribed interests.[11] I will deal later with the relevance of "prescribed interests". "Deal" in relation to securities is defined to mean, inter alia, making or offering to make, or inducing or attempting to induce a person to make or to offer to make, an agreement with respect to acquiring the securities.[12]

472. Section 781, so far as relevant, provides that a person must not carry on an investment advice business unless the person is a licensee (ie, the holder of a dealers licence or an investment advisers licence). An "investment advice business" is defined as a business of advising other persons about securities[13] and an "investment adviser" is defined as a person who carries on an investment advice business.[14]

475. Section 782 provides for applications for dealers licences and investment advisers licences. The term "securities licence" is defined to mean a dealers licence or an investment advisers licence.[15] Sections 783 and 784 deal with the granting of such licences by the Commission (at that time the ASC). Section 786 deals with licence conditions and provides, inter alia, that the ASC may impose:[16]

"(e) conditions about what the holder of the licence is to do, by way of supervision and otherwise, in order to prevent the holder's representatives from contravening:

(f) conditions about what the holder of a licence is to do to ensure that each presentative of the holder has adequate qualifications and experience having regard to what the representative will do on the holder's behalf in connection with a securities business or investment advice business carried on by the holder."

482. Division 3 of Part 7.3 is concerned with "Representatives". Section 809 provides that a body corporate shall not do any act as a representative of a dealer or of an investment adviser. Natural persons are dealt with by ss.806 and 807. Section 806 provides that a natural person shall not do an act as a representative of a dealer unless the dealer holds a dealers licence and the person holds a proper authority from the dealer. Section 807 provides that a natural person shall not do an act as a representative of an investment adviser unless the investment adviser is also a dealer holding a dealers licence, or holds an investment adviser's licence, and the person holds a proper authority from the investment adviser. A licensee must establish a register of holders of proper authorities[17] and a licensee must notify the ASC of the contents, commencement and termination of each proper authority granted by it.[18] Section 816 empowers a licensee to require the holder of a proper authority to return it.

485. A "proper authority", in relation to a securities licensee, is defined to refer to:[19]

(a) a statement:

(i) certifying the copy to be a true copy of the license;

(ii) stating that the representative is employed by, or acts for or by arrangement with, the principal; and

(iii) signed by the principal; and

(b) in relation to each licensee (if any), other than the principal, of whom the representative is a securities representative, a statement that:

(i) sets out the name of the licensee;

(ii) states that the representative is employed by, or acts for or acts for or by arrangement with, the licensee;

(iii) states that the licensee consents to the representative being employed by, or acting for or by arrangement with, the principal; and

(iv) is signed by the licensee."

492. A "securities adviser" is defined to mean "a dealer, an investment adviser or a securities representative of a dealer or of an investment adviser".[20]

495. Section 94[21] defines a "securities representative" as follows:

"(1) Subject to subsection (2), a person is a securities representative of another person if, and only if, the first-mentioned person:

the other person in connection with a securities business or investment advice business carried on by the other person.

(2) Except for the purposes of paragraph 88 (1) (b):

(a) a person who holds a proper authority from a securities licensee is a securities representative of the licensee; and

(b) a person who holds an invalid securities authority from another person is a securities representative of the other person.

(3) Subject to subsection (4), a person does an act, or engages in conduct, as a securities representative of another person if, and only if, the first-mentioned person does the act, or engages in the conduct:

(a) in connection with a securities business or investment advice business carried on by the other person;

(b) while the first-mentioned person is a securities representative of the other person;

(c) as employee or agent of, or otherwise on behalf of, on account of, or for the benefit of, the other person; and

(d) otherwise than in the course of work of a kind ordinarily done by accountants, clerks or cashiers.

(4) Except for the purposes of Division 4 of Part 7.3, a person who holds himself, herself or itself out to be a securities representative of another person does an act as a securities representative of the other person.

511. In relation to securities advisers, s.849 of the Law requires a securities adviser who makes a securities recommendation to a client to disclose to the client any benefit that the securities adviser will or may receive in connection with such recommendation. Section 851 of the Law defines certain contravening conduct by a securities adviser.[22] Section 852 of the Law provides a remedy in damages for a contravention of s.849 or s.851.

514. Part 7.11 of the Corporations Law is concerned with "Conduct in Relation to Securities". The subject of Division 2 of that part, which contains ss.995 and 999, is "Prohibited Conduct".

(b) without limiting the generality of paragraph (a):

(ii) any prospectus issued, or notice published, in relation to securities;

(iii) the making of takeover offers or a takeover announcement, or the making of an evaluation of, or of a recommendation in relation to, takeover offers or offers constituted by a takeover announcement; or

(iv) the carrying on of any negotiations, the making of any arrangements or the doing of any other act preparatory to or in any other way related to any matter referred to in subparagraph (i), (ii) or (iii);

engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

999 False or misleading statements in relation to securities A person must not make a statement, or disseminate information, that is false in a material particular or materially misleading and:

(aa) is likely to induce other persons to subscribe for securities; or

(a) is likely to induce the sale or purchase of securities by other persons; or

(b) is likely to have the effect of increasing, reducing, maintaining or stabilising the market price of securities;

if, when the person makes the statement or disseminates the information:

(c) the person does not care whether the statement or information is true or false; or

(d) the person knows or ought reasonably to have known that the statement or information is false in a material particular or materially misleading."

537. A breach of the above provisions gives rise to a claim for any resultant loss and damage under ss. 1005(1) and/or 1324(1) and 1324(10) and/or 1325(1).

540. Central to the legal argument in this proceeding is the proper construction of s.819 of the Law, which is found in Division 4 of Part 7.3, a division headed "Liability of principals for representatives' conduct". The relevant provisions in Division 4 are as follows:

"817 Conduct engaged in as a representative Where a person engages in conduct as a representative of another person (in this section called the "principal"), then, as between the principal and a third person (other than the Commission), the principal is liable in respect of that conduct in the same manner, and to the same extent, as if the principal had engaged in it. 818 Liability where identity of principal unknown

(1) This section applies for the purposes of a proceeding in an Australian court where:

(a) a person (in this section called the "representative") engages in particular eligible securities conduct while the person is a representative of 2 or more persons (in this section called the "indemnifying principals"); and

(b) it is proved for the purposes of the proceeding that the representative engaged in the conduct as a representative of some person (in this section called the "unknown principal") but it is not proved for those purposes who the unknown principal is.

(2) If only one of the indemnifying principals is a party to the proceeding, he, she or it is liable in respect of that conduct as if he, she or it were the unknown principal.

(3) If 2 or more of the indemnifying principals are parties to the proceeding, each of those 2 or more is liable in respect of that conduct as if he, she or it were the unknown principal.

819 Liability of principals where act done in reliance on representative's conduct (1) This section applies where:

(a) at a time when a person (in this section called the "representative") is a representative of only one person (in this section called the "indemnifying principal") or of 2 or more persons (in this section called the "indemnifying principals"), the representative:

(i) engages in particular eligible securities conduct; or

(ii) proposes, or represents that the representative proposes, to engage in particular eligible securities conduct;

(b) another person (in this section called the "client") does, or omits to do, a particular act because the client believes at a particular time in good faith that the representative engaged in, or proposes to engage in, as the case may be, that conduct:

(i) on behalf of some person (in this section called the "assumed principal") whether or not identified, or identifiable, at that time by the client; and

(ii) in connection with a securities business or investment advice business carried on by the assumed principal; and

(c) it is reasonable to expect that a person in the client's circumstances would so believe and would do, or omit to do, as the case may be, that act because of that belief; whether or not that conduct is or would be within the scope of the representative's employment by, or authority from, any person.

(2) If:

(a) subparagraph (1) (a) (i) applies; or

(b) subparagraph (1) (a) (ii) applies and the representative engages in that conduct; then:

(c) as between the indemnifying principal and the client or a person claiming through the client, the indemnifying principal is liable; or

(d) as between any of the indemnifying principals and the client or a person claiming through the client, each of the indemnifying principals is liable; as the case may be, in respect of that conduct in the same manner, and to the same extent, as if he, she or it had engaged in it.

(3) Without limiting the generality of subsection (2), the indemnifying principal, or each of the indemnifying principals, as the case may be, is liable to pay damages to the client in respect of any loss or damage that the client suffers as a result of doing, or omitting to do, as the case may be, the act referred to in paragraph (1) (b).

(4) If:

(a) there are 2 or more indemnifying principals;

(b) 2 or more of them are parties (in this subsection called the "indemnifying parties") to a proceeding in an Australian court;

(c) it is proved for the purposes of the proceeding:

(i) that the representative engaged in that conduct as a representative of some person; and

(ii) who that person is; and

(d) that person is among the indemnifying parties; subsections (2) and (3) do not apply, for the purposes of the proceeding, in relation to the indemnifying parties other than that person.

(1) Where it is proved, for the purposes of a proceeding in an Australian court, that a person (in this subsection called the "representative") engaged in particular conduct while the person was a representative of:

(a) only one person (in this subsection called the "indemnifying principal"); or

(b) 2 or more persons (in this subsection called the "indemnifying principals"); then, unless the contrary is proved for the purposes of the proceeding, it shall be presumed for those purposes that the representative engaged in the conduct as a representative of:

(d) as a representative of some person among the indemnifying principals;

(2) Where, for the purposes of establishing in a proceeding in an Australian court that section 819 applies, it is proved that a person did, or omitted to do, a particular act because the person believed at a particular time in good faith that certain matters were the case, then, unless the contrary is proved for those purposes, it shall be presumed for those purposes that it is reasonable to expect that a person in the first-mentioned person's circumstances would so believe and would do, or omit to do, as the case may be, that act because of that belief.

821 No contracting out of liability for representative's conduct

(1) For the purposes of this section, a liability of a person:

(a) in respect of conduct engaged in by another person as a representative of the first-mentioned person; or

(b) arising under section 819 because another person has engaged in, proposed to engage in, or represented that the other person proposed to engage in, particular conduct; is a liability of the first-mentioned person in respect of the other person.

(2) Subject to this section, an agreement is void in so far as it purports to exclude, restrict or otherwise affect a liability of a person in respect of another person, or to provide for a person to be indemnified in respect of a liability of the person in respect of another person.

(3) Subsection (2) does not apply in relation to an agreement in so far as it:

(b) provides for a representative of a person to indemnify the person in respect of a liability of the person in respect of the representative; or

(c) provides for a licensee from whom a person holds a proper authority to indemnify another such licensee in respect of a liability of the other licensee in respect of the person.

(4) A person shall not make, offer to make, or invite another person to offer to make, in relation to a liability of the first-mentioned person in respect of a person, an agreement that is or would be void, in whole or in part, by virtue of subsection (2).

(1) Where 2 or more persons are liable under this Division in respect of the same conduct or the same loss or damage, they are so liable jointly and severally.

(a) affects a liability arising otherwise than by virtue of this Division;

(b) notwithstanding paragraph (a) of this subsection, entitles a person to be compensated twice in respect of the same loss or damage; or

577. I will deal specifically with the last mentioned sections, especially s.819, in the course of dealing with the claims of Roger Duncan, to which I now turn.

582. I will deal first with the claims of Mr Duncan because he invested in seven of the schemes which were recommended to clients and the general conclusions which I have reached about the conduct of Pamacorp, Sentinel and their retained advisers are to a great extent applicable to the claims of each of the other plaintiffs. In the course of dealing with Mr Duncan's claim, I will state a number of conclusions and findings which are applicable to the claims of all plaintiffs.

585. Mr Duncan was initially a client of Pamacorp Holdings and a subscriber to the Sentinel Program. He was subsequently a client of the Sentinel Group. I found Mr Duncan to be a truthful witness. Contrary to the submissions of Financial Wisdom, I found Mr Duncan's evidence to be neither generally inconsistent nor unconvincing. In considering the probabilities as to what was said to Mr Duncan (and to each of the other plaintiffs), I have considered and taken into account the detailed written submissions of Financial Wisdom concerning the probabilities and the evidence generally. With only minor exceptions, I have accepted Mr Duncan's evidence as follows.

* the Lucky Country Film Fund (June 1993) * the Bearfire Film Fund (June 1994) * the Bolshoi Ballet Scheme (July 1994) * the Ostrich Schemes (June 1995, March 1997) * the Copperfield Investment (December 1995) * a Book Publishing Partnership (June 1996) * a Video Documentary Partnership (November 1996)

592. Mr Duncan was born on 16 December 1941 in the USA and is a retired airline pilot. He became an Australian citizen in 1992. He is married with one adult son. During his youth, his family had various small businesses and he worked in them, doing a variety of jobs. While at school, he began taking flying lessons. From 1959 to 1963, he undertook general studies at the University of Minnesota while continuing to work in the family businesses, and he also began to fly charters. In 1966, he joined Braniff Airlines as a pilot, and during the Vietnam War he flew on charters for the United States Military, taking personnel and equipment to and from Vietnam. He married in 1969. He and his wife purchased their first home in 1970 (US$35,000) and their second home in 1975 (US$90,000). In 1982, Braniff Airlines collapsed, and Mr Duncan's superannuation was partly rolled over into an annuity and partly paid out to Mr Duncan (US$75,000). Mr Duncan then commenced a office supply and printing business, which began to grow, but which, by 1984, became unprofitable. Braniff Airlines had resumed operation, and Mr Duncan resumed employment with it until, in 1989, it collapsed again. Mr Duncan moved to Australia and obtained employment with Ansett as a Captain. In 1994, he purchased a house in Eltham ($390,000) and in the following year sold their house in Texas (US$110,000). He sold the Eltham house in 2001 ($615,000) when administrators were appointed to Ansett and his income was substantially reduced. He ended his flying career when Ansett collapsed in March 2002. Over the years, Mr Duncan had invested small amounts in shares, but did not engage in share trading.

595. When employed by Ansett, Mr Duncan's employer made contributions on his behalf to the AMP superannuation fund. In about 1991, he was introduced to John Bertram (an ex-pilot) of John Bertram Associates, financial advisers. Mr Bertram formed the R L Duncan superannuation fund for him, into which he rolled over his superannuation. Mr Bertram informed Mr Duncan that he was the "Holder of a Proper Authority" and explained to Mr Duncan that in order to give financial and investment advice and to promote and sell securities, he either had to be securities dealer or operate under the authority of one. For various reasons, Mr Duncan became dissatisfied with Mr Bertram's services, and a fellow pilot told him about Pamacorp.

599. The Lucky Country Film Fund was an investment in a fund for the production of a film promoted by Pamacorp Holdings to the Pamacorp clients during the financial year ending 30 June 1993. It is unnecessary, save as hereafter appears, to refer to the details, structure and outcome of the scheme.[23]

602. On 18 June 1993, Mr Duncan met by appointment with Quarrell and Healy at Pamacorp's offices in Russell Street, Melbourne. While in the waiting room, Mr Duncan thoroughly read the Pamacorp brochure, which was also used by Quarrell and Healy during the course of the meeting which followed. Quarrell told Mr Duncan that his expertise was in accounting and Healy said that his experience was in commercial banking. Quarrell and Healy said in substance to Mr Duncan that:

(a) Pamacorp would provide a fully integrated financial services facility to him;

(b) Pamacorp would provide an uncompromised level of technical skill and knowledge;

(c) Pamacorp would respond rapidly and effectively to his needs;

(d) Pamacorp would provide a high standard of work at all times;

(e) Pamacorp would provide professional advice from a total financial package perspective;

(f) Pamacorp would create wealth for him by maximising his disposable income with salary packaging and tax planning;

(g) Pamacorp would build his net worth with informed investment advice and solid financial planning;

(h) Pamacorp would reduce his tax with effective planning;

(i) Information would be provided to him about legislative and economic changes that could affect his financial position;

(j) Pamacorp provide services at a fixed subscription fee, and would guarantee to save this fee for him in tax deductions. If it was not saved, Pamacorp would refund the subscription fee to him;

(k) Pamacorp would recommend quality income producing investments;

(l) The investments recommended would be secure, and would carry a low financial risk;

(m) The investments recommended would be guaranteed to produce a sound return; and

(n) The investments recommended would minimise a payment of income tax, which could be used for further investments.

608. Quarrell told Mr Duncan that he had a proper authority from Financial Wisdom and was licensed to deal in securities. Mr Duncan said to Quarrell words to the effect "Financial Wisdom? That's good, because that's what I'm looking for!" Quarrell told Mr Duncan that Financial Wisdom was a solid company that was owned by Colonial Bank.

611. In answer to their questions, Mr Duncan told Quarrell and Healy that he would have to retire as a pilot at 60 and that he only had a limited time to acquire enough wealth to retire on, and he was deeply concerned about that. I am satisfied on the evidence of Mr Duncan, and that of Healy, that Mr Duncan was a man of little commercial experience who was conservative and not a risk taker, and who trusted his advisers.

614. Mr Duncan was asked various questions from a personal questionnaire sheet. On a risk scale from 1 to 5, Mr Duncan told Quarrell and Healy that he was about a 2 or a 3. Mr Duncan told them that he needed to stay on the conservative side because he could not afford any losses between then and retirement. Quarrell and Healy said that that was not a problem, and one of them told him that they had an opportunity for him to invest in a film called The Lucky Country which would enable him to take advantage of Division 10BA of the Income Tax Assessment Act, which they said allowed a dollar for dollar tax deduction for investment in Australian films. They told Mr Duncan that he could get 100% of any investments back in tax refunds, but that it was a "tax deferment program" and that eventually he would have to pay income tax on the income that he earned on the investment. They showed him a prospectus and pointed to several parts of it. They talked about the storyline for the film (about an outlaw during the Ballarat gold rush) and said that the film would be very profitable and that it was an exciting opportunity for him. They said that all of the investors could go to the premiere and that they could all earn income from the film.

617. Quarrell and Healy told Mr Duncan that there was no financial risk associated with the investment in Lucky Country because it was 100% guaranteed. They pointed to the distribution guarantee in the prospectus, which said that the distributor had agreed to provide a distribution guarantee equal to 100% of the moneys subscribed by investors. They took Mr Duncan through the prospectus. When they came to page 25, where the prospectus refers to the possible risks and speculative nature of the investment, Mr Duncan queried this. Healy and Quarrell said to him that that was included because the promoters had to put in a disclaimer by law for ASC to approve of the prospectus.

620. Quarrell made some calculations which he informed Mr Duncan he was making to ascertain how much Mr Duncan should invest in Lucky Country to maximise his tax deduction. Quarrell told Mr Duncan that he should obtain a loan of $145,000 to make the investment. Healy said that, through his connections, he could get Mr Duncan a loan. Healy told Mr Duncan that the loan would be interest only and that the principal would be paid off from the profits on the film. They said that he did not need to worry about the principal but would have to make the interest payments, which were also tax deductible. Mr Duncan signed the form retaining Pamacorp to provide him with investment and taxation advice, and to prepare his taxation return. At that first meeting, Mr Duncan told Quarrell and Healy that he would have to think about what they had suggested. After discussing the matter with his wife, Mr Duncan decided to make the investment, on the basis of "each of the things that...Quarrell and...Healy had told me about". I am satisfied that Mr Duncan decided to make the investment on the basis of the recommendations and representations made to him by Quarrell (and Healy). He was influenced by the "tax deferment" benefits of the investment as explained to him, which facilitated the making of the investment (as was also the case in respect of the subsequent investments which he made). He was also influenced by the predictions of profit and by the assessment of the level of risk which was conveyed to him. This was also the case with the subsequent investments which he made.

623. On 21 June 1993, Mr Duncan met again with Healy and Quarrell and told them that he had decided to go ahead with the investment, paid a number of fees and applied for 145 units at $1000 per unit in the Lucky Country Film Fund. He also applied for a loan from Barclays Bank in the sum of $145,000.

626. On 28 June 1993, Mr Duncan, having been informed that a loan of $130,000 was available from Barclays Bank, applied for a loan of $15,000 from another company in the course of a further meeting with Healy and Quarrell. Quarrell told Mr Duncan that he would arrange for a "section 221D" notice to be filed which would reduce the amount of tax that Ansett was taking out of his pay (which in fact occurred). Soon thereafter, Mr Duncan commenced making regular payments of interest on the two loans. In relation to his income tax for the year ended 30 June 1993, Mr Duncan subsequently received a tax refund for over $62,000.

629. Subsequently, Mr Duncan made a number of further investments (see below). In December 1994, he made some inquiries with Quarrell about what was happening with the "Lucky Country" film and by letter dated 21 December 1994 from Sentinel, signed by Quarrell and Healy, he was informed a "Master Tape" of the film had been completed, and that "the most important aspects for compliance" had been adhered to (ie, to satisfy the ATO requirements). Later, Quarrell told Mr Duncan that the Master Tape was in a locked box in the Adelaide and that the person who had the key to the box was in hospital and was incoherent, but that they were trying to find a key.

632. On 20 September 1996, Mr Duncan received the minutes of a meeting of investors (of which he was unaware) in the Lucky Country Film Fund, the gist of which was that the Fund would be wound up and the securities (ie, for the repayment of loans) be cashed in. In November 1996, Mr Duncan was advised by a financier that after the security had been applied against his loan, there was a balance of some $25,000 owing by him. In 1997, Mr Duncan arranged finance for repayment of this outstanding balance.

635. On or about 12 November 1996, Mr Duncan received a letter from the ATO that income tax deductions in relation to the Lucky Country Film Fund would be disallowed. He spoke to Schimana about the letter, who told him that because the film had not been produced, he could not get a tax deduction, but that he was not to worry about the letter because Sentinel had retained a lawyer to work on it. Mr Duncan considered that his interests were being looked after.

638. In or about May 1997, Mr Duncan received a letter of advice from the lawyer retained by Sentinel on his behalf to the effect that the ATO was correct in disallowing the deductions and that the ATO had indicated that it would be imposing penalties, including late payment penalties. Schimana told Mr Duncan that he agreed with him that he should not have to pay any penalties, but that he should not get concerned about the letter and let the lawyer sort it out.

641. In late September 1997, Mr Duncan's lawyer advised him that the ATO had ascertained that the Lucky Country film had in fact not been made at all. The lawyer outlined the state of negotiations with the ATO, and informed Mr Duncan that, whatever was the amount of the settlement arrived at with the ATO, he would suffer a substantial loss. In February 1998, a settlement was reached with the ATO by a number of investors in the Lucky Country Film Fund involving, in essence, the loss of all tax deductions for both capital contribution and interest payments and the remission of some additional tax and tax penalties. In the end, Mr Duncan had to pay substantial income tax and some additional tax and penalties.

645. The Bearfire Film Fund was an investment in a fund for the production of a film promoted by Pamacorp Holdings to the Pamacorp clients during the financial year ending 30 June 1994. It is unnecessary, save as hereafter appears, to refer to the details, structure and outcome of the scheme.[24]

648. In early June 1994, someone from Pamacorp telephoned Mr Duncan and said that Quarrell wanted to meet with him to discuss what he was going to do for that financial year. On 22 June 1994 and again on 28 June 1994, Mr Duncan met Quarrell and Healy at Pamacorp's offices. At the second meeting, they took him through a prospectus in relation to the Bearfire Film Fund. Quarrell and Healy said to Mr Duncan in substance that:

(a) The film had the potential to produce considerable extra assessable income in the future if successful;

(b) He was guaranteed to receive a return of 100% of the money that he invested;

(c) Bearfire would be a secure investment which carried a relatively low financial risk;

(d) The profits from the film would be assigned to the lender, to repay the principal amount of the loan;

(e) His interest in the Bearfire Film Fund would be assigned to the lender as security for the loan;

(f) All money he invested would be 100% tax deductible if everybody complied with their obligations under the relevant agreements;

(g) All interest repayments on the loan money would be 100% tax deductible;

(h) If the film was successful, a 50% share of the net profit would be received after the distributor was paid its fees and expenses; and

(i) All persons involved in the production of the film were skilled, qualified and experienced to carry out the production without putting the investment at risk.

654. Healy told Mr Duncan that he would organise funding for the investment so that Mr Duncan would not have to put any money upfront. Mr Duncan accepted what he was told by Quarrell (and Healy), and decided to make the investment. Quarrell, after making some calculations, told Mr Duncan that he would need to invest $130,000 and this would reduce the tax withheld by Ansett to zero. Mr Duncan signed the necessary forms and paid the requested fees. In September 1994, Mr Duncan discussed with Quarrell some tax advice which Mr Duncan had obtained from a US attorney concerning the interaction of United States and Australian taxation law in relation to his investment in the Lucky Country Film Fund. Quarrell in effect generally assured Mr Duncan that he had no problem under Australian taxation law in relation to Division 10BA films.

657. Subsequently, on a number of occasions, including in July 1996 and July 1998, Mr Duncan received letters advising that distributions had been made in relation to the Bearfire film and applied in reduction of his outstanding loan balance.

660. The relevant film was completed, but no profit was generated. The tax deductions claimed by Mr Duncan and other investors were partially disallowed, and penalty tax and interest was imposed. In January 1999, Mr Duncan was advised that the ATO had determined that only 14.6% of his contribution to the Bearfire Film Fund was tax deductible. In February 1999, Mr Duncan received a demand for arrears of interest payments on his loan which he had ceased paying due to his financial position.

664. The Bolshoi Ballet Scheme was an investment in a fund for the production of the 1994 Australian tour of the Bolshoi Ballet. It was formulated by Boyle and promoted to clients of Pamacorp Holdings who were subscribers to the Sentinel program in the weeks immediately before Quarrell and Healy left Pamacorp Holdings to set up Sentinel. It is unnecessary, save as hereafter appears, to refer to the details, structure and outcome of the Scheme.[25]

667. During the same meeting on 22 June 1994, Quarrell and Healy mentioned a possible investment in the Bolshoi Ballet's tour of Australia, which they would be promoting. They said they could arrange financing if Mr Duncan was interested. They told Mr Duncan that there would be a huge profit from the tour as it had been very successful when it had last come to Australia. They said there would be an additional tax benefit because an overseas investor had not been able to get tax deductions for its investment and that, as a result, all of the domestic investors would be able to get the benefit of a $3 tax deduction for every $1 invested.

670. In late June or early July 1994, Mr Duncan met again with Quarrell and Healy, at their suggestion. They provided him with an information memorandum relating to the Bolshoi Ballet Australian Tour. Quarrell and Healy took him through the information memorandum and said to him in substance:

(a) The Bolshoi Ballet Scheme would be a quality, income producing investment;

(b) The Bolshoi Ballet Scheme was guaranteed to produce a sound return due to the massive profits they had generated from their previous tour;

(c) Profits would be distributed to the investors on a pro-rata basis to pay off the principal of the loan;

(d) All money invested would be 100% tax deductible;

(e) All interest payments on loans which were obtained to make the investment would be 100% tax deductible;

(f) Approval for the tax deductibility of the investment and interest payments had already been obtained from the ATO;

(g) The Bolshoi Ballet Scheme was a secure investment and carried a low financial risk;

(h) Persons involved in the promotion and management of the Bolshoi Ballet Scheme were sufficiently skilled, qualified, experienced and reputable to carry out the promotion and management without putting Mr Duncan's funds at risk; and

(i) The investment had been approved by the ASC.

676. Apparently based on a tax deduction of three times the amount invested, Quarrell and Healy worked out how much Mr Duncan would need to invest to get his assessable income down to zero. Accepting what he was told by Quarrell (and Healy), Mr Duncan signed the necessary agreements and forms and invested the sum of $50,000. Quarrell and Healy told Mr Duncan that, unlike the previous investment, the loan would not be a non-recourse loan. He would be required to repay the principal. They told him that there would be no difficulty in paying both principal and interest because the tour was guaranteed to make enormous profits. Mr Duncan made the required interest payments over time, and eventually repaid the loan.

679. In about September or October 1994, Mr Duncan attended the premiere of the Bolshoi Ballet. He saw Quarrell and Healy there, and after the performance, went backstage to meet the cast. In December 1994, Mr Duncan received a letter from Sentinel signed by Quarrell and Healy informing him that they had been advised by the manager for the Australian tour of the Bolshoi Ballet that there had been a delay in forwarding reports and dividend cheques.

682. On or about 31 December 1994, Mr Duncan received a letter from the manager of the Bolshoi tour informing him that the box office returns were extremely disappointing. "Additional losses" were sustained totalling approximately 23.5% of the original contribution. The losses would be distributed to the partners and provide an additional tax deduction. In January 1995, Mr Duncan saw Quarrell, Healy and Schimana, and told them that he was very disappointed with the outcome of the investment as he "had gone into the scheme not just for the tax benefits, but was anticipating a very good return...due to the previous success of the show."

686. At about the time when Mr Duncan made the Bolshoi Ballet Scheme investments, Quarrell and Healy told him that they were setting up their own company, Sentinel. They told him that he would be receiving the same standard of financial, taxation and investment advice as he had been receiving from Pamacorp. He signed the necessary form and agreed to pay the necessary fees.

689. In about September 1994, Mr Duncan visited Sentinel's new offices in South Yarra just after Quarrell and Healy had moved in. He was shown around the new offices and had coffee with Quarrell, Healy and Schimana. Schimana said to Mr Duncan that he looked forward to the day when Mr Duncan would be paying a million dollars in tax. Quarrell and Healy said to him that they had some exciting new investments on the horizon. Schimana subsequently prepared Mr Duncan's taxation return for the year ended 30 June 1994 and a s.221D notice for him.

693. The Ostrich Schemes were ostrich breeding schemes involving two separate enterprises (Wallco Ostrich and Ostco). The structure of the investments was much the same.[26]

696. By about mid-1995, Mr Duncan had funds from the sale of his and his wife's home in the USA, part of which was used to pay off the loan for the Bolshoi Ballet Scheme. He had a number of meetings with Quarrell, Healy and Schimana to discuss possible further investments. They dissuaded Mr Duncan from investing in a Queensland real estate project about which he had made some inquiries, but instead mentioned an investment opportunity in a tour by a magician, David Copperfield (see further below), and gave him a brochure.

699. On 19 June 1995, Mr Duncan met with Quarrell, Healy and Schimana. Quarrell and Healy told him that they had an opportunity for him to use some of the sale proceeds of his home to invest in ostriches. They gave him a Sentinel promotional brochure and they looked through it together. They told him that the investment opportunity was a "great deal" because ostriches were being sold in New South Wales for considerably more than the price that was available to him. They said that they were all buying ostriches themselves. They said to Mr Duncan, in substance:

(a) Ostrich breeding was one of the fastest growing investment opportunities in the 20th and 21st centuries;

(b) There was a huge world wide demand for ostrich products and only 10% of world demand was currently being satisfied;

(c) Ostrich farming compared favourably to the cattle and sheep industry in terms of the likely return on money invested;

(d) If two pairs of ostriches were purchased at a total investment of $46,000, he would get a tax deduction of $10,000. He could keep one pair as breeders and retain the progeny, and sell the progeny from the other pair for a projected return of $90,000 on the basis that he would get about five chicks at a sale price of $18,000 each between 2-3 years;

(e) Ostriches were a quality income producing investment;

(f) He would be guaranteed a sound return from the investment;

(g) He would be guaranteed to receive a return of all of the money that he had invested;

(h) Ostriches were a secure investment which carried a low financial risk;

(i) The investment would be tax deductible;

(j) Interest repayments on all loan money would be tax deductible;

(k) The companies responsible for the promotion and management of the investment were skilled, expert and experienced to carry out their respective tasks to ensure that the ostriches would be produced and managed without placing his funds at risk;

(l) The investment was approved by the ASC; and

(m) Sentinel and the promoters of the investment had complied with the relevant provisions of the Corporations Law.

705. Quarrell and Healy told Mr Duncan that ostriches would be an excellent way for him to diversify his investment profile with a component of primary production. Schimana and Quarrell told him that he should buy the ostriches with his money, but transfer ownership of the ostriches into a trust, which in effect would be a personal loan from himself to the trust. Schimana and Quarrell told him that this would enable him to obtain further tax benefits when the ostriches began producing income, because he could distribute the income to a number of different beneficiaries.

708. Accepting what he was told by Quarrell, Healy and Schimana, Mr Duncan signed an agreement to purchase ostriches and an ostrich agistment agreement through his family trust. He subsequently paid some $43,000 to purchase ostriches and for agistment fees and insurance.

711. In March 1997, Mr Duncan received a letter from Wallco Ostrich offering some additional ostriches to existing investors. Mr Duncan telephoned Schimana about the offer, who told him that he should invest in it through his superannuation fund. Accepting Schimana's recommendation, Mr Duncan took $20,000 from his superannuation fund, borrowed another $10,000 (subsequently repaid by him) and purchased another two ostriches through his superannuation fund. Based on what he had originally been told by Quarrell, Healy and Schimana, Mr Duncan believed that ostriches were a suitable form of investment for him in that they were low risk and would generate a substantial return.

714. In April 1998, Mr Duncan was advised that a provisional liquidator had been appointed to Wallco Ostrich and that, unless a replacement manager was found, the project would have to be terminated. Wallco Ostrich was placed in liquidation on 13 May 1998. In June 1998, Mr Duncan was informed that another company was taking over the management of the ostrich project but, after a couple of months of paying further management fees, Mr Duncan transferred his ownership in the ostriches for no consideration.

718. The Copperfield Investment was an investment in a fund for the production and marketing of the 1996 Australian and South East Asian tour by the stage show magician, David Copperfield.[27] The tour was to be called "The Magic of David Copperfield". The investment structure was similar to other schemes relating to theatrical productions in which the plaintiffs invested, eg. the Bolshoi Ballet Scheme, the Me and My Girl Scheme and the Cabaret Scheme.

721. At his request, Mr Duncan had been receiving from time to time bulletins concerning the Copperfield Investment. On 4 December 1995, he met with Schimana at Sentinel's offices. Schimana told him, in substance, that:

(a) investors would be entitled to 50% of the amounts by which the gross proceeds from the David Copperfield tour exceeded the budget, and that such income would be paid on a pro-rata basis;

(b) the Copperfield Investment was a quality, income producing investment;

(c) He was guaranteed to receive a return of 100% of the money that he invested by way of an irrevocable letter of credit;

(d) the Copperfield Investment was a secure investment and carried a low financial risk;

(e) all money invested in the David Copperfield tour would be 100% tax deductible;

(f) the interest repayments on the money that he borrowed would be 100% tax deductible;

(g) the persons involved in the David Copperfield tour were sufficiently skilled, qualified, experienced and reputable to carry out their tasks without putting his investment money at risk; and

(h) the Copperfield Investment was approved by the ASC.

727. Schimana told Mr Duncan that he should invest $135,000 and borrow that sum from Entercorp. Accepting what he was told by Schimana, Mr Duncan signed the necessary documents and paid various fees.

730. In June 1996, Mr Duncan was asked to come to Sentinel's offices for a meeting. He there met with Quarrell, Healy and Schimana. They told him that there were irregularities with the Copperfield Investment, and that the investment had not turned out to be what the promoters had represented that it would be. They said that investors had put in money on the basis that their investment would cover the entire Australasian tour, but it turned out that it was only going to be for the Australian portion of the tour. They said, that as a consequence, the prospects of profit from the investment would be significantly diminished.

733. Mr Duncan subsequently received a letter confirming that his investment in the Copperfield Investment had been transferred to a Book Publishing Partnership (see below). The letter was accompanied by a "deed of assignment" which he signed and returned.

736. On or about 30 September 1996, Mr Duncan received a letter from Quarrell and Healy stating that arrangements with respect to the Copperfield Investment had been determined to their satisfaction, but on or about 1 October 1996 he received a letter from the Capital Group of companies (loan manager for Entercorp) demanding payment in respect of substantial arrears of his loan account in respect of the Copperfield Investment. On or about 7 November 1996, Mr Duncan received a solicitor's letter threatening legal proceedings to recover the arrears. Subsequently, Sentinel organised a proceeding to be commenced in order to protect the position of the investors in the Copperfield Investment. Mr Duncan was advised by Sentinel that he would be indemnified against all costs and expenses relating to this matter. The legal proceeding against the Capital Group of companies was ultimately settled at or after trial.

740. The Book Publishing Partnerships[28] involved an investment in partnerships formed for the production and marketing of a series of "coffee table" reference textbooks regarding peoples and cultures of Asia. The scheme was promoted by Sentinel under circumstances of urgency and as a replacement for the Copperfield Investment in the weeks prior to June 1996.

743. At the meeting in June 1996 Quarrell, Healy and Schimana told Mr Duncan that he should enter into a Book Publishing Partnership which they had arranged as a substitute for the Copperfield Investment. They said that there was a world wide demand for documentary books on ethnic minority groups, and the partnership that he had the opportunity to be involved in would be for the production of documentary books on ethnic minority groups in the Asia/Pacific region. They gave him a brochure, a memorandum and some other documents and said to him, in substance, that:

(a) if he entered into the investment, he would have a share in the profits of the partnership and would be guaranteed an income stream;

(b) there would be ten books produced, with approximately 19 to 20 partners in each partnership, each partnership producing one book;

(c) the Book Publishing Partnership would be a quality, income producing investment;

(d) the Book Publishing Partnership would be guaranteed to produce a sound return;

(e) there would be a guaranteed return of 100% of the money he invested;

(f) the investment would be a secure investment, which carried a low financial risk;

(g) the sale of the books would pay off the principal of the loan, and all profits above the repayments would be paid to him;

(h) tax would have to be paid from the profits received from the partnership;

(i) all money invested by him would be 100% tax deductible;

(j) all interest repayments on the money that he borrowed to invest in the Book Publishing Partnership would be 100% tax deductible;

(k) Sentinel would obtain a private ruling from the ATO that all money invested would be tax deductible;

(l) the persons responsible for the production of the books would be sufficiently skilled, expert and experienced to carry out their tasks to ensure that the books would be produced without placing his funds at risk;

(m) the Book Publishing Partnership was approved by the ASC.

749. Accepting what he was told, and trusting their recommendations, Mr Duncan signed the necessary documents and his investment of $135,000 in the Copperfield Investment was "transferred" to a Book Publishing Partnership.

752. In September 1997, Mr Duncan was informed that the promoter and manager of his Book Publishing Partnership was in liquidation, but a new manager was appointed.

755. In August 1998, Mr Duncan was informed that the ATO had advised that the deductions claimed by the investors in the Book Publishing Partnerships for partnership losses and interest on loan were being disallowed, and that penalties and interest on unpaid tax would be imposed. The investors in the Book Publishing Partnerships were obliged to obtain advice and representation for the purposes of challenging the ATO's decision.

758. In November 1998, Mr Duncan received a proposal with a number of alternatives, including the one which he accepted, namely, to refinance his investment in the Book Publishing Partnership. Mr Duncan still believed that the books were being produced and thought that a successful investment might get him out of his financial difficulties. Indeed, in December 1998, Mr Duncan received legal advice that he should make himself bankrupt, but he declined to do so.

761. In late December 1998, Mr Duncan attended a meeting of the Book Publishing partners at which a legal proceeding against the ATO was discussed, but he decided not to participate because he could not afford it.

764. By March 1999, Mr Duncan was in arrears with his interest payments in relation to the Book Publishing Partnership due to his financial position.

768. The Video Documentary Partnerships were investments in a number of partnerships for the production and marketing of a series of video documentaries about minority groups and peoples of Asia. The structure of the investment[29] was similar to that of the Book Publishing Partnerships, save that each investor provided a cash contribution of 20% of the value of their investment. This investment was promoted by Davis and recommended by Sentinel from about October 1996 onwards, when it had become apparent to Sentinel that there were tax problems with an investment promoted by Twenty-First.

771. In late November 1996, Mr Duncan was asked to come to a meeting at Sentinel's offices, which he did. Quarrell, Healy and Schimana told him that they had an opportunity for him to invest in a Video Documentary Partnership. They gave him a brochure and said that the people behind the investment were the same people involved in the Book Publishing Partnership that he had already entered into. They said that there was a huge inventory of films from which the videos could be produced, and that the videos could be seen on Foxtel (they referred to the videos during the course of the meeting as "Foxtel Documentaries". They made statements, in substance, that:

(a) the videos would involve the production of quality television documentary programs about ethnic minorities in South East Asia;

(b) the proprietary rights to the documentaries were to be held under licence by Asia Film House Pty Ltd. Asia Film House would enter into a production services agreement with him, under which he would undertake to produce a film. Asean Film Distributors Ltd would then be sub-contracted by the partnership, for a fee, to manage the production of the film on his behalf;

(c) finance for the investment would be obtained through a loan with Hemisphere Finance, with the security being the rights and interests in the film and documentaries under the partnership and production services agreement;

(d) there would have to be a 20% cash contribution towards his total contribution of the partnership, which he would have to arrange himself;

(e) the end product, being the documentaries, would be produced and marketed internationally, initially in English, Chinese and Thai, and later in other languages;

(f) the demand for the end product over time would be such that Asean would provide a performance guarantee with a supporting letter of credit;

(g) the documentaries would be marketed to stations such as the ABC, Special Broadcasting Service, Discovery Channel, and pay television;

(h) the Video Documentary Partnership would be a quality, income producing investment;

(i) the Video Documentary Partnership would be guaranteed to produce a sound return;

(j) he would be guaranteed to receive a return of 100% of the money he invested in the partnership;

(k) because of the guarantee, and supporting letter of credit, the partnership would be a secure investment which carried a low financial risk;

(l) all money invested by him would be 100% tax deductible;

(m) interest repayments on any loan that he took out to invest in the partnership would be 100% tax deductible;

(n) the person responsible for the production of the video documentaries was sufficiently skilled, expert and experienced to carry out their tasks without placing his funds at risk; and

(o) the Video Documentary Partnership was approved by the ASC.

777. Accepting what he was told (in particular by Quarrell), and continuing to trust their recommendations, Mr Duncan signed the necessary documents, organised a substantial cash contribution, and a loan for the balance of his investment of about $83,000. This investment produced no return for the investors, and it subsequently transpired that significant amounts of money provided by investors for both this investment and the Book Publishing Partnerships had been misappropriated and used for other purposes.

780. In September 1999, Mr Duncan was advised that the ATO had disallowed the deductions which he had claimed in respect of the Video Documentary Partnership.

783. In November 1999, Mr Duncan received letters of demand for principal and interest in relation to the Video Documentary Partnership.

786. In January 2000, Mr Duncan was informed that the ATO had disallowed certain objections he had lodged against the disallowance of his deductions claimed in relation to the Video Documentary Partnership.

790. In about April 1999, Schimana (who had left Sentinel, but who continued to advise Mr Duncan on taxation matters) introduced Mr Duncan to some individuals (Henke and Joose) connected with an organisation called the "Institute of Taxation Research", who Schimana said could help him negotiate with the ATO. Henke told Mr Duncan that the Institute of Taxation Research could prove that all taxation legislation in Australia was unconstitutional and unenforceable. Mr Duncan retained this body to make submissions to the ATO on his behalf, and wasted further funds in doing so. With all due respect to Mr Duncan, his willingness to engage an organisation which was prepared to put forward these preposterous propositions is indicative of Mr Duncan's gullibility and naïveté (in addition to his desperation) and demonstrates the need which he must have had at all times for professional financial and investment advice - something he never received from the Sentinel promoters.

793. The saga continued with the ATO but it is unnecessary to recount all the details. On 22 September 2000, Mr Duncan signed a proposal for a composition under Part X of the Bankruptcy Act, and this proposal was accepted by his creditors at a meeting held on 12 October 2000. In May 2002, Mr Duncan executed settlement agreements with the ATO in relation to his investments in the Lucky Country Film Fund, the Bearfire Film Fund, the Book Publishing Partnership and the Video Documentary Partnership.

796. Mr Duncan did not earn any profit from any of the investments that he made on the recommendation of Pamacorp or Sentinel. Mr Duncan has, needless to say, endured considerable stress and spent a good deal of time and money in dealing with the consequences of the failed investments and his related taxation liability.

799. From 1993 onwards, Mr Duncan had informed Quarrell and Healy that he was interested in investing in real estate, including residential units in Melbourne, but at first they advised him that this was not an appropriate investment for him. Subsequently, Sentinel provided him material concerning real estate investments, both in Melbourne and in Queensland, but at the time when this information was received, he was too heavily committed in relation to the other investments which they had recommended.

803. It is necessary to make some general findings on the evidence as a whole (including, in particular, the evidence of Mr McMaster and Healy) before turning to the specifics of the conduct of the representatives in relation to each of Mr Duncan's investments.

806. In general, no independent evaluations or assessments were made of the various recommended investments. Nor was any attention paid to the giving of advice to individual clients tailored to their particular circumstances and requirements or taking account of their level of knowledge and expertise (which was generally rudimentary). The investment advisers generally accepted what they were told by the various scheme promoters at its face value and without question. To the extent that they did raise questions with the promoters, they did not follow them up and proceeded in any event to recommend the investments. The plaintiffs were not advised of the financial and taxation consequences and risks of their investments, either taken singly or in combination.

809. To the extent that, in some cases, individual plaintiffs were referred to warnings concerning risks and concerning the speculative nature an investment contained in a prospectus or other document, I am satisfied that in each case these warnings were either played down by the advisers or had little impact in the circumstances. The circumstances to which I refer are those created by the contents of the Pamacorp brochure and the Sentinel brochure (and the contemporaneous oral representations along the same lines), which induced investors to place their continuing trust in the advisers and in their skill and expertise, and the investors' consequent reliance upon recommendations made to them by those advisers in the succeeding months and years. The plaintiffs were induced to pay, and did pay, a monthly fee for independent and considered financial advice which met their needs and requirements. This they did not receive.

812. The foregoing findings are of particular significance having regard to the evidence of Mr McMaster, a witness called on behalf of the plaintiffs. It is convenient at this point to refer to his evidence.

815. Wesley Andrew McMaster is an Adjunct Professor (Financial Planning) at RMIT University, a certified financial planner, a fellow of the Financial Planning Association of Australia Limited, a fellow of the Australian Institute of Company Directors and a director of McMaster Securities Pty Ltd, which conducts a consulting business. Mr McMaster, who is 55 years of age, has conducted this consulting business since July 2000, but has experience in financial planning and in other areas of business over many years. Mr McMaster had experience in advising clients on "tax-effective" investments dating back to the mid-1980s.

818. Mr McMaster provided a written opinion dated 8 July 2003. In addition to the plaintiffs' witness statements, Mr McMaster was supplied with relevant documentation, as listed in his opinion, relating to each of the investments which he referred to in his opinion.

821. Mr McMaster expressed his opinions in the light of the standards adumbrated by s.851 of the Corporations Law, which provides as follows:

(a) makes a securities recommendation to a person who may reasonably be expected to rely on it; and

(b) does not have a reasonable basis for making the recommendation to the person;

(2) For the purposes of subsection (1), a securities adviser does not have a reasonable basis for making a securities recommendation to a person unless:

(a) in order to ascertain that the recommendation is appropriate having regard to the information the securities adviser has about the person's investment objectives, financial situation and particular needs, the securities adviser has given such consideration to, and conducted such investigation of, the subject matter of the recommendation as is reasonable in all the circumstances; and

(b) the recommendation is based on that consideration and investigation. ..."

831. Mr McMaster said that investment advisers could either carry out research and analyse investment products themselves or use research and analysis generated from external sources. The extent of the research and the analysis which it would be reasonable to expect the adviser to do depended on the nature of the product which formed the basis of the particular recommendation and the needs of the client being advised. He said that advisers often relied on information being supplied by external research organisations, in which case, the adviser should evaluate the overall quality and effectiveness of the analyses so provided so as to ensure that reliance placed on any such information was reasonable in all the circumstances. For the purpose of advising a client, the adviser should take into account general economic and other information in relation to markets, industries and securities so as to be in a position to make judgements about future income and growth expectations and risk factors associated with particular securities. An adviser should provide written reports to the client about recommended securities so that the client can understand the basis on which those securities are recommended. The reports should cover such matters as risks associated with the issuer of the security, risks associated with the product, market and economic risks, capital and income prospects and so on.

834. Mr McMaster said that a financial adviser should have conducted a detailed interview in which data was collected on the client's present financial position and their objectives were identified and agreed. The financial adviser should have prepared a written financial plan so as to position the client to achieve an efficient use of their resources. The plan would also advise on immediate and future strategies to achieve the client's objectives. The document would record the advice given and the reasons for the advice. The document would disclose any interest of the adviser and would also refer to the research undertaken on any recommended investment. Before recommending an investment, the adviser should either carry out research and analyse the investment or use research and analysis generated from external sources. The extent of the research and analysis would depend on the nature of the investment product and the needs of the client. The adviser should be able to provide and should normally provide to the client sufficient written information about the investments recommended so that the basis on which they were considered appropriate for the client could be understood. Both risk factors and return expectations should be addressed, including risks associated with the issuer, risks associated with the product, market and economic risks and capital and income prospects.

837. On the assumption that the plaintiffs were conservative investors, Mr McMaster said that a prudent financial planner would have advised a mix of investments to provide some capital growth, low volatility, low risk and some income - varied according to the needs of the particular client. He provided what he said was a typical conservative investment portfolio with appropriate asset allocations for investors such as the plaintiffs.

840. In cross-examination, it was put to Mr McMaster that if a promoter assured a financial planner that a prospectus was not needed and told the financial planner that the promoter had legal advice to that effect, that would be sufficient for the purposes of a reasonable financial adviser. Mr McMaster disagreed and added that financial advisers who operated as authorised representatives of licensees were generally restricted to giving advice on investments which did require a prospectus.

843. It was put to Mr McMaster in cross-examination that whether a reasonable financial adviser conducted or obtained a detailed market and commercial viability analysis of the proposed investment depended on the client's instructions, the amount of money the client was investing and the client's risk profile. Mr McMaster said that a reasonable and prudent financial adviser would nevertheless obtain such analysis from the licensee. It would not make any difference that the client was prepared to enter into a "tax-effective high risk investment" or that the amount that the client wished to invest was small. He added that if the licensee did not have the internal capacity to undertake such analysis, it was very common for the licensee to outsource the analysis to appropriately skilled people. Further, in the case of the investments where he had expressed the view that independent legal advice concerning the contractual arrangements should have been obtained, Mr McMaster said that that view did not depend on the amount of the proposed investment.

846. It was put to Mr McMaster that in the case of those investments where there was a prospectus, the reasonable and prudent financial adviser was entitled to rely on the contents of the prospectus. Mr McMaster said that generally speaking, an adviser could rely on the contents of a prospectus, but, in effect, if questions were raised or matters were omitted, a "due diligence" might still be required, irrespective of the amount which a client proposed to invest.

849. Mr McMaster said that a reasonable and prudent financial adviser would advise a client of the degree of risk involved in a particular investment, irrespective of the client's risk profile or the client's wish to obtain an immediate tax deduction and if, because of the nature of the investment, the financial adviser was not prepared to recommend it but the client insisted on going ahead, the adviser would have the client sign a written indemnity.

852. In further cross-examination, Mr McMaster said that there was room for a prudent investment adviser to recommend speculative investments if the client so requested, provided that the circumstances of the client were such that any loss of capital involved would have no material effect on their achieving their goals and objectives.

855. In re-examination, Mr McMaster testified that the normal position was that the licensee whom the investment adviser represented would make the initial choice of investment products after conducting a due diligence examination of those potential products, and the licensee would then restrict its representatives to giving advice on those products. Mr McMaster said that it was highly unusual in the case of high-risk speculative investments (where capital might well be lost) for the return of capital to be guaranteed. Therefore, a reasonably prudent investment adviser would want to know the source of the funding for, and the basis of, the guarantee for return of capital. He added that "common sense causes you to ask, how can they possibly guarantee it? Who is going to take that risk?"

858. I accept Mr McMaster's evidence. I found it to be sensible and inherently credible. Indeed there would be little point in a client who required financial advice, having recourse to a financial adviser, if the kind of precautions that Mr McMaster said were appropriate were not undertaken before giving such advice. No witness was called to contradict his evidence. No expert evidence relating to these matters was called on behalf of Financial Wisdom. It follows from an acceptance of Mr McMaster's evidence, when applied to the facts of this case, that, generally speaking, the Sentinel promoters, when acting in their capacity as investment advisers to the plaintiffs and in recommending the various investments, acted in breach of their duty to the plaintiffs to act with reasonable professional care and skill. Generally speaking, they should not have recommended any of the investments. That is my general conclusion subject to what needs to be decided concerning any specific submissions made on behalf of Financial Wisdom in relation to particular investments by particular plaintiffs.

861. Mr McMaster was asked to provide a specific opinion in relation to each of the investments on the basis of the witness statements and documentation provided. Mr McMaster said that the advisers had failed to act in accordance with the standards which he enunciated in relation to each of the investments. I will refer to his views about each investment at the appropriate point, but it should be said that he concluded that, assuming the appropriate assessments were not carried out in relation to any of the investments (and they were not), then none of the investments was one which a reasonable and prudent investment adviser should have recommended to a client such as any one of the plaintiffs. It was submitted on behalf of the plaintiffs that, if accepted and factually based, this evidence of Mr McMaster made it entirely unnecessary for the Court to investigate the details of each scheme and its failure. The investments simply should not have been recommended as appropriate for these plaintiffs. I agree.

868. Mr McMaster noted that the Lucky Country Film Fund prospectus contained statements, inter alia, that investment in the film was subject to a high degree of risk and the investment was considered speculative and that there was a possibility that tax deductions would not be available or that the film would not be completed. Mr McMaster also pointed to a number of matters in the prospectus which should have raised concern with a prudent reader, including the question of funding the 100% guarantee as to return of capital.

871. Mr McMaster considered that, having read the prospectus, a reasonable and prudent financial adviser[30] would either "discard the investment as unsuitable for their clients or undertake an investigation and due diligence process to gain a more informed view of the risks associated with the investment."[31] Mr McMaster said that film investments were generally regarded as "tax-driven" investments where tax deductions were a primary attraction and it was therefore routine to obtain independent advice on the tax effect of the investment. Mr McMaster said that a number of matters required further investigation or information, including the type of film and the market for it, the roles and relationships of the various companies involved and their common directors, the absence of an auditor and any information on financial controls and reporting, the absence of a projected cash-flow and forecast profit and loss calling for an analysis of commercial viability of the project.

874. Mr McMaster considered that the Lucky Country Film Fund did not fall within the class of "low risk, secure income-producing and tax deductible investments" referred to in the Pamacorp documentation. Mr McMaster said that this was a high risk speculative investment with no known income and the opposite of the investments which the clients were said to be seeking. On a scale of investment risk upon which Australian Government fixed interest securities might be regarded as the lowest risk, this investment sat close to the highest risk end of the scale. A reasonable and prudent financial adviser would not have recommended this investment to clients wanting low risk, secure income-producing investments.

877. I accept Mr McMaster's evidence concerning the Lucky Country Film Fund. I am further satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Duncan, or at least would not have done so without conducting the investigations and assessments referred to by Mr McMaster (which I am satisfied did not take place).

880. I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell and Healy each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that there was no financial risk associated with the investment in the Lucky Country Film Fund.

884. Mr McMaster considered the Bearfire Film Fund prospectus which contained statements as to the speculative nature of the investment and the possibility that the film would not be eligible for Division 10BA deductions. Mr McMaster noted the concern which a reasonable and prudent financial adviser should hold in relation to the lack of a detailed budget, the commercial risk in the offer of a guaranteed capital return on fixed dates before the film was funded or made and a number of other matters.

887. Mr McMaster also expressed the Adverse Opinion concerning this investment, and made substantially the same comments in relation to it as he made in relation to the Lucky Country Film Fund. I accept Mr McMaster's evidence concerning the Bearfire Film Fund.

890. I am further satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Duncan. Indeed, the investment should not have been recommended to anyone without conducting the investigations and assessments referred to by Mr McMaster (which I am satisfied did not take place).

893. I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell and Healy each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that the Bearfire Film Fund carried a relatively low financial risk.

897. Mr McMaster's evidence was that a reasonable and prudent financial adviser would have questioned the status of the memorandum dealing with the Bolshoi Ballet Scheme. A reasonable and prudent financial adviser would have determined whether a prospectus was required for the investment. A reasonable and prudent financial adviser would also have obtained an independent tax opinion and would have questioned other aspects of the financial arrangements. Mr McMaster expressed the Adverse Opinion concerning the Bolshoi Ballet Scheme. In addition, he said that a reasonable and prudent financial adviser would have wanted advice about the legal relationships between the various parties involved, independent advice about the financial controls, reporting and how the funds would be managed and the process of applying investors' funds to achieve tax deductibility. He said that there should have been some analysis of the commercial viability of the project either made available or conducted by a financial adviser. He emphasised the high risk involved with theatrical productions. I accept Mr McMaster's evidence.

900. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Duncan.

903. Furthermore, for reasons which I will express elsewhere,[32]

I am satisfied that the memorandum in relation to the Bolshoi Ballet Scheme was an offer to subscribe for a "prescribed interest" within the meaning of the Corporations Law for which a prospectus was required. Pamacorp Holdings should have known this and, in the absence of a prospectus, should not have recommended the investment. I note that, in the end, Counsel for Financial Wisdom did not seek to contend that a "prescribed interest" was not involved.

908. I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Duncan that the Bolshoi Ballet Scheme was guaranteed to produce a sound return, was a secure investment and carried a low financial risk, that approval for the tax deductibility of the investment and interest payments had already been obtained from the ATO and that the investment had been approved by the ASC.

912. Mr McMaster said that the memoranda supplied to investors in relation to the Ostrich Schemes should have raised with a reasonable and prudent investment adviser the question of whether a prospectus was required, and further that the memoranda did not provide sufficient information to enable an assessment of the investment offered. Mr McMaster expressed the Adverse Opinion in relation to the Ostrich Schemes. In addition, he noted that breeding and managing ostriches was a specialised business requiring professional skills and that no expert reports were provided or mentioned. He said that the market and value for the product was not proven and that the sustainability of the capital value of the birds was questionable, because common sense would indicate that the value would clearly diminish as more birds were bred.

915. I accept Mr McMaster's evidence concerning the Ostrich Schemes. I also note Healy's evidence that he told Schimana and Quarrell of his view that the Ostrich Schemes were a poor investment and a bit "Mickey Mouse". That view was not conveyed to Mr Duncan. Further, I accept the evidence of Jeffrey Morris[33] that the Ostrich Schemes were inherently risky and attracted additional risks having regard to their character as investments in livestock, none of which risks were disclosed or explained to Mr Duncan. I am satisfied in any event that a reasonable and prudent investment adviser would not have recommended this investment to Mr Duncan, or at least would not have done so without conducting the investigations and assessments referred to by Mr McMaster (which I am satisfied did not take place). I am further satisfied that the Ostrich Scheme was an offer to subscribe for a "prescribed interest" for which a prospectus was required.

918. I am therefore satisfied that Quarrell, Healy and Schimana, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell, Healy and Schimana each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that he would be guaranteed a sound return from the investment, that it was a secure investment and carried a low financial risk, that the investment was approved by the ASC and that Sentinel and the promoters of the investment had complied with the relevant provisions of the Corporations Law.

922. Mr McMaster testified that a reasonable and prudent financial adviser should have considered that the memorandum concerning the Copperfield Investment appeared to be in breach of the Corporations Law and should have inquired as to whether a prospectus was required. Further, Mr McMaster expressed the Adverse Opinion concerning the Copperfield Investment, and other views similar to those which he expressed in relation the Bolshoi Ballet Scheme and other theatrical production schemes. I accept his evidence. I am satisfied that a reasonable and prudent financial adviser would not have recommended investment in the Copperfield Investment to Mr Duncan.

925. I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell and Healy each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that it was a secure investment and carried a low financial risk and that the investment was approved by the ASC.

929. Mr McMaster gave evidence that the memorandum concerning the Book Publishing Partnerships should have raised with a reasonable and prudent financial adviser the question whether a prospectus was required because the document appeared to be in breach of the Corporations Law. He added that the memorandum did not provide sufficient information to enable an assessment of the investment offered. Mr McMaster expressed the Adverse Opinion concerning the Book Publishing Partnerships. He said that the investment was offered as a tax driven investment, and it was routine to obtain independent advice on the tax effect of the investment. He said that publishing the type of books that were promoted was high risk and speculative. He said that a reasonable and prudent financial adviser would want advice about the complex contractual relationships involved and independent advice as to the financial controls, reporting and how the funds would be managed, in addition to tax advice. He said there was need for an analysis of the commercial viability of the investment. He said that the investment risk was at the highest risk end of the scale and that a prudent publisher would have undertaken market research with distributors before publishing a book and that there was no evidence of any such research. I accept Mr McMaster's evidence.

932. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Duncan, or at least would not have done so without obtaining the information and advice and conducting the analyses referred to by Mr McMaster (none of which, I am satisfied, occurred). I am further satisfied that the Book Publishing Partnership was an offer to subscribe for a "prescribed interest" for which a prospectus was required.

935. I am therefore satisfied that Quarrell, Healy and Schimana, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell, Healy and Schimana each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that the investment would be guaranteed to produce a sound return, that it was a secure investment and carried a low financial risk, that Sentinel would obtain a private ruling from the ATO, that all money invested would be tax deductible and that the Book Publishing Partnership was approved by the ASC.

939. Mr McMaster expressed the Adverse Opinion concerning this investment and made virtually identical comments in relation to it as I have noted above were made by him in relation to the Book Publishing Partnerships.

942. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Duncan, or at least would not have done so without obtaining the information and advice and conducting the analyses referred to by Mr McMaster (none of which, I am satisfied, occurred). I note the evidence that Schimana sought advice from a specialist taxation lawyer in relation to the tax consequences of the Video Documentary Partnerships and that advice was received in early February 1997. The advice was based on numerous assumptions, and there were so many caveats in it that it could not be regarded as advice about this particular scheme, but simply about tax law as generally applicable to such schemes. Further, the advice says that the ATO would take a "robust interest" in any such scheme. It should be inferred from the advice that "due diligence" in respect of numerous of the matters mentioned in it would have had to be undertaken before the prospects of tax deductibility could be properly assessed. Such due diligence did not occur. Indeed, this investment was recommended to Mr Duncan (and a number of other investors) prior to the receipt of the advice.

945. I am further satisfied that the Video Documentary Partnership was an offer to subscribe for a "prescribed interest" for which a prospectus was required.

948. I am therefore satisfied that Quarrell, Healy and Schimana, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Duncan in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Duncan was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell, Healy and Schimana each engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Duncan that the investment would be guaranteed to produce a sound return, that it was a secure investment and carried a low financial risk, that all money invested would be tax deductible and that the Video Documentary Partnership was approved by the ASC.

952. The uncontradicted evidence is that Financial Wisdom authorised its representatives to sell on its behalf only financial and investment products approved by Financial Wisdom. None of the investments made by Mr Duncan, or any of the other plaintiffs, were products which were approved by Financial Wisdom and Financial Wisdom had no knowledge of them. Financial Wisdom permitted individual representatives to carry on other businesses which were not associated in any way with Financial Wisdom but Financial Wisdom was not in any way related to or connected with Pamacorp or any of the Sentinel companies or with any of the principals or promoters involved in the various investment schemes recommended by Pamacorp and/or Sentinel. The only case sought to be made against Financial Wisdom is vicarious or derivative and is based on the conduct and notional liability of each of the persons who held its proper authority. The conduct of those persons was not carried out in any way on behalf of Financial Wisdom and was not connected with the securities business or investment advice business carried on by Financial Wisdom.

955. The plaintiffs' case against Financial Wisdom therefore, in essence, depends upon the proper interpretation of s.819 of the Corporations Law. It is necessary at this stage to go again to the relevant provisions, which I set out earlier above.[34]

Liability of principals for representatives' conduct

961. Part 7.3 of Chapter 7 of the Law is concerned with participants in the securities industry. Division 1 deals with dealers and investment advisers. Division 2 deals with agreements with unlicensed persons. Division 3 deals with the representatives. Division 4 is concerned with the liability of principals for representatives' conduct.

964. Section 817[35] appears to do no more than broadly state a basic principle of the law of agency, namely, that where a person engages in conduct "as a" representative of another person (the principal), then the principal is liable to a third person in respect of that conduct in the same manner and to the same extent as if the principal had engaged in it. However, s.817 appears to be strengthened by s.820(1)(a), which provides that, if it is proved that the representative engaged in the conduct at the time when ("while") the person was a representative of an indemnifying principal, then, unless the contrary is proved, it is presumed that the representative acted "as a" representative of the indemnifying principal. Section 820(1)(b) deals with a situation where the representative engages in conduct at a time when he was a representative of two or more indemnifying principals, and provides that, unless the contrary is proved, it is presumed that the representative acted "as a" representative "of some person among the indemnifying principals". The intent and effect of s.820(1)(b) is hard to ascertain.

967. Section 818 extends the liability of the principal in a situation where a person (the representative) engages in conduct at a time when the person is a representative of two or more persons (the indemnifying principals) and the representative engaged in that conduct "as a" representative of "some person" (the unknown principal) but it is not proved who the unknown principal is. In those circumstances s.818 makes each indemnifying principal who is a party to the proceeding liable in respect of the conduct as if such indemnifying principal were the unknown principal. The section appears to be based on a policy that if the representative is acting "as a" representative of some principal, then it is not incumbent on the plaintiff to prove that the particular defendant indemnifying principal (or defendants indemnifying principals) was or were the actual principal for whom the representative was acting.

970. Section 819 is concerned to create liability of a principal for the conduct of a representative "whether or not that conduct is...within the scope of the representative's employment by, or authority from, a person" [emphasis added]. So s.819 overlaps with s.817. Section 819 operates where the "client" acts in a particular way in reliance upon conduct of the representative. Section 819(1) says that the section applies where the representative is, at the time of the particular conduct,[36] in fact the representative of a person (the indemnifying principal) or persons (the indemnifying principals) and, at that time, the client does (or omits to do) a particular act because the client believes that the representative engaged in the conduct:

"(i) on behalf of some person (...the "assumed principal") whether or not identified, or identifiable at that time by the client; and

(ii) in connection with a securities business or investment advice business carried on by the assumed principal..."[37]

975. There is a further condition for the application of s.819 which is contained in s.819(1)(c): in effect (without setting out the full verbiage), that the client's belief is reasonable. However, proof of this aspect is assisted by the presumption contained in s.820(2) which, again without setting out the full verbiage, provides that the reasonableness of the belief is presumed unless the contrary is proved.

978. If s.819 applies in accordance with the conditions mentioned above, then s.819(2)(a) renders the indemnifying principal, or each of the indemnifying principals, liable to the client in respect of the representative's said conduct in the same manner, and to the same extent, as if the indemnifying principal (or principals) had engaged in it. Further, s.819(3) makes the indemnifying principal, or each of the indemnifying principals, liable to pay damages to the client in respect of any loss or damage that the client suffers as a result of acting on the basis of the relevant belief (ie, in this case, accepting an investment recommendation).

981. The key requirement of s.819, for present purposes, is the requirement of s.819(1)(b) that a particular plaintiff did or omitted to do a particular relevant act because the plaintiff believed that the representative engaged in his conduct on behalf of "some person" in connection with a securities or investment advice business carried on by that person. In other words, for the purposes of the case against Financial Wisdom, each plaintiff has to prove that he or she made the investment because the plaintiff believed that Quarrell (or another representative of Financial Wisdom) made his recommendation or other representation (or otherwise relevantly conducted himself) on behalf of some person, whether or not identified, in connection with a securities or investment advice business.

984. The purpose of s.819 is to render liable any person who was an indemnifying principal, at the time of the representative's conduct which is complained of, provided that the client had a belief that the representative was so acting (whether or not he was in fact so acting) on behalf of someone conducting a securities or investment advice business and the client relevantly acted because of that belief. Any contemporaneous indemnifying principal is liable for a representative's offending conduct, whether or not the conduct was in fact engaged in on behalf of such principal, where the client acts in reliance on the conduct as being engaged in by the representative on behalf of some principal.

988. In relation to s.817, Mr Sifris said that it was uncontested that Quarrell and the other "representatives" did not at any relevant time act "as a" representative of Financial Wisdom. The section was capable of applying to Pamacorp during the period that the representatives were employed by Pamacorp. Mr Sifris submitted, however, that s.817 was not capable of applying to Sentinel because the indemnifying principal had to be licensed.

991. Whereas s.817 applied to conduct as a representative of a known principal, s.818 applied to conduct as a representative of an unknown principal. Again, it was submitted that each principal who is liable under s.818 must be a licensed principal "because conduct can only be engaged in as a representative if the principal is licensed".

994. In relation to s.819, Mr Sifris said that the critical difference with ss.817 and 818 was that the representative was "on a frolic of his own" - there was no conduct engaged in "as a representative". This submission seems to be incorrect because s.819 applies "whether or not" the conduct was within the scope of the representative's employment or authority.

997. Mr Sifris submitted that, because the conduct of the representative was not as a representative, there had to be a belief that a principal was involved, although the principal was not. This argument stems from a false premise. The section turns on the belief of the client, whether or not a principal is involved. In any event, Mr Sifris accepted that if the representative was on a frolic of his own and the client believed that the representative was engaging in conduct on behalf of Financial Wisdom, then Financial Wisdom was liable to the client. If there was more than one indemnifying principal (whether identified or not), for example, Financial Wisdom and Pamacorp, then both were liable under s.819(2). Sentinel would not be liable because it was unlicensed, it was submitted. However, Mr Sifris submitted that to render all of the indemnifying principals liable, there must be a belief that the conduct was engaged in on behalf of one of them. This submission is in my view incorrect because s.819(1) refers to the client's belief that the representative engaged in the conduct on behalf of some person "whether or not identified, or identifiable at that time by the client". The submission that there must be a belief that the conduct was engaged in on behalf of one of the indemnifying principals (if more than one) is therefore incorrect, in my opinion.

1000. Mr Sifris finally made two submissions. The first was that, to the extent that the conduct of the representative was engaged in "as a" representative of Pamacorp and Pamacorp was liable under s.817, there could be no liability of Financial Wisdom under s.819. In my opinion, this is fallacious. The second submission was that, to the extent that the conduct of the representative was engaged in as a representative of Sentinel, a known principal (in fact unlicensed), s.819 had no application because it was "concerned with ostensible authority and unknown principals". In my opinion, this is also fallacious. I do not think that the fact that the conduct of the representatives was engaged in by them as representatives of Sentinel or that the plaintiffs so believed (as they did) means that there can be no liability of Financial Wisdom under s.819.

1003. The above submissions by Financial Wisdom were contained in a sheet handed up during the course of oral argument. Written submissions from Financial Wisdom had already been supplied along the same lines. However, in those written submissions, it was accepted that, under s.819, by way of example, Financial Wisdom would be liable for the conduct of Quarrell if the client reasonably believed that Quarrell engaged in the conduct on behalf of Financial Wisdom and in connection with Financial Wisdom's securities or investment advice business OR if the client reasonably believed that Quarrell engaged in the conduct on behalf of an unidentified principal and in connection with the unidentified principal's securities or investment advice business. Financial Wisdom therefore submitted that, because the plaintiffs had pleaded that they each believed that Quarrell was acting for Financial Wisdom and they were unable to give evidence to that effect, they had not made out their case. I note that that last point did not deal with the "second branch" of the plaintiffs' construction of s.819, namely, where the client believed that the representative was engaging in conduct on behalf of "some person" (whether or not identified or identifiable) and in connection with that person's securities or investment advice business. The way that Mr Sifris ultimately dealt with this "second branch" was to say that the belief that the representative engaged in the conduct on behalf of "some person" could only refer to some licensed person. The reason he gave for advancing that construction was that the legislation was concerned with the liability of licensed persons, but was not intended to make licensed principals liable where the client believed that the representative was acting on behalf of an unlicensed principal. In my opinion, this flies in the face of the natural meaning of the provisions without any justification.[38]

1006. That the submission on behalf of Financial Wisdom is misconceived further appears from the definitions of "securities business" and "investment advice business" in s.93 and s.77 of the Corporations Law respectively. The definitions refer to particular types of businesses. It is true that the Law requires that licences be held in respect of conducting those businesses, but the existence of those licences is not part of the definition of the business. The reference in s.819(1)(ii) is simply to "a securities business or investment advice business carried on by the assumed principal". Moreover, if it was required that the client's belief related to the existence of a licensed principal, it would be virtually impossible for the section to have any practical operation.

1009. In my opinion, a plaintiff in this proceeding can make out his or her case under s.819 if it is proved that:

1. At the time of the representative's conduct, the representative was in fact a representative of Financial Wisdom and it is sufficient for this purpose that the representative held a proper authority from Financial Wisdom at that time.

2. At that time, the plaintiff acted (or omitted to act) because the plaintiff reasonably believed that the representative engaged in that conduct on behalf of some person in connection with a securities or investment advice business carried on by that person.

3. To prove that the plaintiff acted because of the said belief it is sufficient to show that the belief was the reason or one of the reasons which induced the plaintiff to so act (ie, it was the cause or one of the causes of the plaintiff's act or omission).

4. If the plaintiff so acted because of a belief that the representative was engaging in the conduct on behalf of Pamacorp in connection with a securities or investment advice business carried on by Pamacorp, or on behalf of Sentinel in connection with a securities or investment advice business carried on by Sentinel, that belief falls within the requirements of s.819(1).

5. The belief must be reasonable in the way set out in s.819(1)(c) subject to s.820(2) at to the onus of proof.

1017. In essence therefore, s.819 renders any licensed principal liable for the conduct of a person holding that principal's proper authority if the client reasonably believes,[39] at the time of the representative's conduct, that the representative is acting on behalf of some person (ie, any person whether identified or not and whether licensed or not) carrying on a securities or investment advice business.[40]

1020. The interpretation of s.819 advanced on behalf of the plaintiffs, which I accept, is, I think, supported by the policy of the legislation as disclosed by the provisions of the Law and Regulations which were then applicable and which imposed a high level of responsibility on securities dealers for the conduct of their representatives.[41]

1023. Mr Sifris advanced an alternative argument on behalf of Financial Wisdom which he said would apply in a narrow category of cases. This argument was based on s.819(4) of the Law and applied where, first, a relevant representative, at the time of his offending conduct, held a proper authority from both Financial Wisdom and Pamacorp Securities[42] and, second, Pamacorp Securities was also a party "to a proceeding in a court"[43] and, third, it was proved for the purposes of the proceeding that the representative engaged in that conduct as a representative of Pamacorp Securities.[44] If those matters were made out, then s.819 did not apply to any indemnifying party other than Pamacorp Securities and Financial Wisdom would not be liable in those instances.

1026. A difficulty facing this alternative argument is that Pamacorp Securities is not a party in the Financial Wisdom proceeding unless the word "party" includes a Third Party. Pamacorp Securities is not a defendant in the Financial Wisdom proceeding, but there is a Third Party proceeding by Financial Wisdom against Pamacorp Securities (commenced by Third Party Notice dated 5 March 2003). The plaintiffs submitted that the words "a proceeding" were confined in the context of the Corporations Law to claims which were directly made by one party against another.[45] It was further submitted that the primary meaning of the term was the invocation of the Court's jurisdiction by some person against another.[46] The plaintiffs submitted that the Third Party proceeding was a separate proceeding[47] - the plaintiffs were not "proceeding" against Pamacorp Securities nor was it "proceeding" against the plaintiffs. Financial Wisdom had not sought to have Pamacorp Securities added as a defendant. It was submitted on behalf of Financial Wisdom in answer that it was sufficient for the purposes of s.819(4) if all relevant parties were before the Court in a proceeding, but that, in any event, "you can always join a Third Party as a defendant if required". However, I note that no such application was made. I prefer the submissions of the plaintiffs. For the reasons advanced by them, which I adopt, Pamacorp Securities is not a party to the relevant proceeding.

1029. It was also submitted on behalf of the plaintiffs that Financial Wisdom had failed to prove that any of the relevant representatives were acting "as a" representative of Pamacorp Securities. On the contrary, the plaintiffs submitted, such evidence as there was indicated that the relevant representatives were acting as representatives of Pamacorp Holdings and not Pamacorp Securities. Although they held proper authorities from Pamacorp Securities, the business in which they were employed was conducted by Pamacorp Holdings. There is considerable evidence supporting this submission. On the other hand, there is some evidence which Financial Wisdom adduced from Healy that Pamacorp Securities was "marketing" the relevant investments. I am not satisfied on the evidence as a whole that any of the relevant representatives were acting as representatives of Pamacorp Securities. The failure to add Pamacorp Securities as a defendant highlights the point that this issue was not properly raised for determination and, perhaps, shows why it is appropriate to interpret the words "parties...to a proceeding" in the strict sense.

1032. It is convenient here to note that I cannot locate any submission, written or oral, on behalf of Financial Wisdom in relation to the relief sought in the Third Party proceeding. This matter may require some attention.

1035. I now return to an application of the foregoing conclusions to Mr Duncan's particular claims.

1038. I consider that all of the necessary prerequisites for the liability of Financial Wisdom to Mr Duncan under s.819 of the Law have been established. At the times relevant to all but one part of the claims of Mr Duncan, Quarrell and Schimana held a proper authority from Financial Wisdom and it is clear that Mr Duncan believed that they were engaged in their relevant conduct on behalf of Pamacorp or Sentinel (as the case may be) in connection with a securities and investment advice business carried on by Pamacorp or Sentinel (as the case may be). I am satisfied that Mr Duncan acted (ie, accepted the various investment recommendations) because of his said belief, in the sense that one of the reasons for him accepting the recommendations was his belief that Quarrell and Schimana were acting on behalf of Pamacorp or Sentinel in connection with a securities or investment advice business of Pamacorp or Sentinel. Mr Duncan's said belief was reasonable. Apart from the second investment in the Ostrich Schemes, Financial Wisdom is therefore liable for the conduct of Quarrell and Schimana pursuant to s.819 of the Law,

1042. Twenty-First is liable to Mr Duncan on the same basis as Financial Wisdom in respect of the conduct of Quarrell, Healy and Schimana during the period in which they held proper authorities from Twenty-First. Twenty-First is therefore liable to Mr Duncan in respect of the Book Publishing Partnership, the Video Documentary Partnership and the second investment in the Ostrich Schemes (March 1997).

1046. Pamacorp Holdings is liable to Mr Duncan in respect of the conduct of Quarrell and Healy in relation to the Lucky Country Film Fund, the Bearfire Film Fund and the Bolshoi Ballet Scheme. It is clear that Pamacorp Holdings is liable upon an "agency" basis, in that Quarrell and Healy were each employees and/or agents of Pamacorp Holdings or were held out as by Pamacorp as such.

1050. Healy and Quarrell were holders of proper authorities from Pamacorp Securities from 28 April 1994 to 9 September 1994. Pamacorp Securities is liable to Mr Duncan in respect of the conduct of Quarrell and Healy pursuant to s.819 of the Law (on the same general factual and legal basis as Financial Wisdom is liable) in relation to Mr Duncan's investments in the Bearfire Film Fund and the Bolshoi Ballet Scheme.

1054. I note that there is evidence that some moneys invested by Mr Duncan were derived from his trust funds. An application was made, which was not opposed by Financial Wisdom, for leave to amend the schedules to the writs and to amend the Statements of Claim to permit Mr Duncan to additionally sue in his capacity as trustee of such trust funds. I am satisfied that leave should be granted as sought so as to permit him to additionally sue in his capacity as trustee of the ATF Duncan Family Trust and the Roger Lee Duncan Superannuation Fund.

1058. In relation to all of the plaintiffs, I do not accept the general submissions of Financial Wisdom that the plaintiffs have failed to prove causation of their losses by the negligence (and also the misleading and deceptive conduct) alleged by them, to the extent that I have found those allegations to have been proven. Obviously none of their losses would have occurred had the investments not been made in reliance upon the advisers' recommendations (as they were). The negligent recommendations (and also the misleading and deceptive conduct) therefore caused the losses in that sense, unless any subsequent events can be identified as the "real" cause of such losses. However, the losses incurred all flowed from the realisation of risks which were inherent in the investments from the beginning, the very risks identified by Mr McMaster as the reasons why the investments should not have been recommended. In addition, the matters which Mr McMaster said should have been investigated in relation to the each of the investments may be fruitfully compared with the matters which led to the failures of such investments and the disallowance of the tax deductions, in whole or in part.

1061. I am satisfied that Mr Duncan has suffered loss and damage as a result of the conduct of the representatives to which I have referred. Mr Duncan would not have made any of these investments without the recommendation of the relevant representatives and he was further induced to do so by their misleading and deceptive conduct, which I have specifically identified. Each of the defendants is liable to the extent that such defendant is liable for the conduct of the relevant representative. I will deal more specifically with the nature and quantum of the damages suffered in the section below dealing with the damages of the plaintiffs.

1066. Mr Collins was initially a client of Pamacorp Holdings and a subscriber to the Sentinel Program. He was subsequently a client of the Sentinel Group. I agree with the submission of Financial Wisdom that Mr Collins' evidence was somewhat lacking in detail, but I did not find it "unconvincing". I accept the evidence of Mr Collins as follows.

* the Grand Hotel Film Fund (mid-1994); * the Bolshoi Ballet Scheme (August 1994); * the Me and My Girl Scheme (late 1994); * the DCL Shares Investment (second half 1995); * the Copperfield Investment (February 1996); * a Book Publishing Partnership (June 1996); * a Video Documentary Partnership (late 1996); and * a Guard Finance Investment (March 1997).

1073. Mr Collins was born on 13 April 1950. He was raised in Hamilton in the Western District of Victoria, where his family ran a sheep and cattle farm. After school, he joined the Victoria Police Force in 1969. In 1974, he married his wife Annette and they have one adult son. He began flying with the Police Force and in 1976 he joined the Victoria Police Air-Wing. He left the Police Force towards the end of 1980 and obtained a position as Captain at Kendall Airlines, and later was employed as a corporate pilot by Elders IXL. He joined Ansett in December 1989 as a First Officer, flying Boeing 767s, and in 1991 was promoted as a Captain and was flying Boeing 737s until the demise of Ansett in November 2001.

1076. Prior to seeking advice from Pamacorp, his only investments had been superannuation contributions and repayment of his home mortgage. By September 1993 he was receiving a relatively high income as a captain with Ansett and wanted to pay off his mortgage and invest for his retirement. The evidence shows that Mr Collins was a relatively unsophisticated investor with little investment experience. I accept the evidence of Healy that Mr Collins was conservative and not a risk-taker and that he trusted his financial advisers. After seeing promotional material about the Pamacorp Group in his correspondence box at work, Mr Collins first met with Quarrell on 23 September 1993. He told Quarrell that he wanted to retire at 60 to 65 years of age, to pay off his mortgage as soon as possible, and in the medium term to purchase an "investment" property (say a holiday home) and to travel. On a risk profile scale of 1 to 5 (with 5 representing high risk and 1 representing low risk), Mr Collins told Quarrell that he was "about a 3".

1079. At this initial meeting, Quarrell explained to Mr Collins the services offered by Pamacorp. Quarrell said that Pamacorp could provide services which would be totally in-house and performed by the one company (namely, Pamacorp).

1082. Quarrell also provided Mr Collins with the Pamacorp brochure. Quarrell continually referred to the Pamacorp brochure and said that with the Sentinel package, Pamacorp would be able to provide to Mr Collins total financial management. Quarrell told Mr Collins that Pamacorp would specifically consider his financial goals and requirements.

1085. Quarrell told Mr Collins that Pamacorp, under the Sentinel program, would provide only the highest standard of work at all times. He said that it would provide professional unbiased advice from a total financial package perspective and that Pamacorp would provide a service to create wealth by maximising disposable income with salary packaging and tax planning. Quarrell said that Mr Collins would be provided with regular information about legislative and economic changes that could affect his financial position and that there would be a fixed fee for the services provided by Pamacorp. Quarrell told Mr Collins that the investments recommended by Pamacorp under the Sentinel program would produce sound returns.

1088. Quarrell then took Mr Collins through the flow chart in the brochure which described the services available at Pamacorp. He told Mr Collins that he was not maximising his disposable income. Quarrell said that Pamacorp could create income for Mr Collins, and that all the investments that Pamacorp recommended would be thoroughly checked by it to ensure the investments were legal and accepted by the appropriate government authorities.

1091. Mr Collins told Quarrell that he was interested in purchasing investment property, and Quarrell took him through that part of the Pamacorp brochure dealing with real estate.

1094. Mr Collins told Quarrell that he did not want to go into anything that was high risk or not approved by the relevant government authorities and Quarrell responded by saying that Pamacorp only operated in accordance with the law which was the philosophy of Pamacorp. Quarrell then told Mr Collins to go away and have a think about it.

1097. As a result of what Quarrell said to him at the meeting and the material contained in the Pamacorp brochure, Mr Collins decided that Pamacorp would be able to provide the service that he was looking for. Mr Collins decided to retain Pamacorp to manage his financial affairs and to use Quarrell as his Pamacorp adviser, and he subsequently informed Quarrell and Healy of his decision on 27 September 1993. Mr Collins saw Quarrell on occasions in October 1993 and provided him with material for his income tax return.

1100. In the course of his dealings with Pamacorp (and later Sentinel), Mr Collins was not aware of the existence of Financial Wisdom. In his dealings with Pamacorp (and later with Sentinel), Mr Collins believed that such company was engaged in the provision of investment advice in relation to the areas set out in the Pamacorp brochure (and later, the Sentinel brochure), and that Quarrell and Healy were acting on behalf of Pamacorp (and later Sentinel) when recommending the various investments into which he entered.

1103. In relation to each of the investments described below, as with all of the other investors in such investments, Quarrell recommended to Mr Collins that he should make applications pursuant to s.221D of the Income Tax Assessment Act for the variation of tax instalment deductions from his salary. These applications were successfully made in the years 1995 to 1997. Mr Collins would not have made the various investments that he did if he had been advised or warned that there was a chance or possibility that the associated tax deductions would be disallowed.

1107. The Grand Hotel Film Fund[48] was a "Division 10BA" film investment promoted by Pamacorp Holdings during the financial year ending 30 June 1994.

1110. In early 1994, Quarrell contacted Mr Collins and told him of a potential investment in the Grand Hotel Film Fund. Mr Collins saw Quarrell on 20 January 1994. Quarrell showed Mr Collins a bundle of newspaper clippings in relation to investments in films and theatrical productions and he said that the Government was encouraging people to invest in the film industry.

1113. Quarrell told Mr Collins that he did not have any promotional material for "Grand Hotel" but had material on "Lucky Country", which he said was identical, and he showed Mr Collins the Lucky Country Film Fund prospectus. Mr Collins did not recall seeing the sentence in the Lucky Country prospectus (which was described to him as being identical to the Grand Hotel prospectus) which said that investment in the film should be considered speculative.

1116. Quarrell told Mr Collins that the government was offering tax advantages so that investors would invest in the film, theatre and arts industry and that it was a "10BA film". Mr Collins had never heard of this type of investment. Quarrell said that it was "tax effective" and had the potential, if successful, to make money. I find that no risk factors were mentioned. Quarrell told him that there was "a 100% tax deduction on your money". Quarrell explained that the tax deduction involved the deferral of tax, and that at some stage Mr Collins would have to pay the tax that was deferred. Quarrell told Mr Collins that he could make an application pursuant to s.221D (of the Income Tax Assessment Act) which would provide him with funds (ie, by reducing or eliminating the tax instalment deductions from his salary). This was all new to Mr Collins, but he understood from what was said to him that "the tax part of it" was in part to "finance" his investment and that if, at a later stage, the film made money, then he was going to be paying tax. It was explained to him as being "tax deferral", a reduction in tax allowing him to service his investment (ie, not for the loan principal but for the interest and other costs). I am satisfied that Mr Collins also understood at the time that he would have additional disposable income as a result of making the investment and that this was one of the factors which induced him to make the investment.

1119. Quarrel gave Mr Collins a document providing him with details of a "distribution guarantee". Quarrell proceeded to calculate the amount that Mr Collins should invest based on his income and tax level and he advised Mr Collins to invest $90,000 in the Grand Hotel Film Fund. Quarrell prepared a diagram, which he gave to Mr Collins, which in substance showed that Mr Collins would obtain an unsecured loan of $90,000 from a bank which he would then invest in the film scheme, thereby obtaining a 100% tax deduction, and that he would ultimately receive distributions from profits, and that repayment to the bank of his unsecured loan would be guaranteed under the scheme and that such guarantee would be backed by security. Thus he would not, in any event, have to repay the loan.

1122. Quarrell told Mr Collins that the investment would be successful and profitable and that "you could not lose". Quarrell told Mr Collins that, if the film was as successful as "Crocodile Dundee", he should make quite a lot of money out of it. Quarrell said that the management company for the production would be Phillip Emanuel Productions Limited and the investor's representative would be Robert Finnigan.

1125. Mr Collins decided to invest in the Grand Hotel Film Fund, and testified that a few days later he returned and signed the relevant documents, including an application for a loan. I am satisfied that Mr Collins made his decision to invest in the Grand Hotel Film Fund before receiving the relevant prospectus and other promotional material. The evidence shows that the prospectus and the other material was not received by him until in or about May 1994. Mr Collins probably signed the relevant documents after receiving the prospectus, but I am nevertheless satisfied that he had made his decision to invest before receiving them. I accept Mr Collins' evidence that when he received the Grand Hotel prospectus, he would have flicked through it and had a brief read of it, but that in his mind he had already "gone into the investment" or "agreed to go into the investment". I accept that he did not notice anything in the prospectus about investment in the film being speculative. Mr Collins testified that he did not recall reading anything in the prospectus about the high degree of risk in the investment or the speculative nature of the investment. I accept Mr Collins' evidence that his understanding of a prospectus was that it was "something that just detailed, went into greater detail if you wanted to go in depth into it, what the investment was about, but I had already been over that face to face with Colin Quarrell" and that he did not go back to Quarrell and ask about the prospectus because "I didn't feel I had a need to, it had already been explained to me." I find that his reasons for investing in the Grand Hotel Film Fund were that it was low risk, that there was a guarantee that any moneys borrowed would be repaid, that there was a potential for considerable extra income and there were tax benefits. In fact, he received a large tax deduction which enabled him to use the money for other purposes.

1128. I am satisfied that, in reliance upon the representations made to him by Quarrell concerning Pamacorp generally, and the Grand Hotel Film Fund specifically, Mr Collins paid the relevant fees, obtained a loan (in fact, for $70,000) and arranged for his bank account to be debited monthly for payment of interest on the loan, all prior to 30 June 1994. Over the next couple of years, Mr Collins received documents from the Investors' Representative, Mr Finnigan, indicating that the production of the film was proceeding.

1131. In December 1998, Mr Collins received a letter from the Manager of the film, informing him that the ATO was completing an audit of Grand Hotel as part of an extensive audit into all Division 10BA feature films produced in the 1990s.

1134. On 16 August 1999 Mr Collins received another letter from the Manager informing him that, as a result of the ATO audit, it was of the opinion that the ATO might disallow all or part of his tax deduction with respect to this investment.

1137. The Grand Hotel Film Fund produced no return for Mr Collins. Further the tax deductions claimed by Mr Collins for funds invested in the Grand Hotel Film Fund were partially disallowed, and penalty and interest was imposed on unpaid tax. Mr Collins made unsuccessful objections against the disallowance of his deductions.

1140. The reasons that the ATO disallowed tax deductions claimed by investors in the Grand Hotel Film Fund are set out in a letter which was sent from the ATO to Mr Rickards, another investor in the Grand Hotel Film Fund. Underlying the ATO's decision was its finding that out of a total of $5,332,000 invested by investors in the Grand Hotel Film Fund, $3,693,686 was expended in acquiring the security guarantee to secure the investors' funds.

1144. On 19 August 1994 Mr Collins attended the Pamacorp premises and there saw Quarrell and Healy. On this occasion, he was provided with a brochure relating to a Bolshoi Ballet tour, and he was taken through it. Quarrell said that the investment related to an internationally-known ballet company and had the potential to be a huge success in Australia. There was a potential for the investment to produce income. It was generally explained to him that the investment involved a partnership agreement for providing services in relation to the Bolshoi production and that a company was going to be a manager for the partnership. Mr Collins did no more than glance through the documents and did not read them at any stage. He had a broad idea of what was involved and he understood it was to be tax effective. I accept that his dealings were primarily with Quarrell. Quarrell told him that there was a tax deduction available, in that the money invested (plus interest payable thereon) would be 100% tax deductible. Quarrell told Mr Collins that it was in his financial interest to invest in this scheme and if the production was not successful there would be an indemnity. Quarrell advised Mr Collins to invest $50,000. This investment interested Mr Collins. He trusted Quarrell's advice. He immediately decided to proceed with the investment and completed, with Quarrell's assistance, the necessary documentation that day. Mr Collins borrowed $50,000 and made monthly payments of interest on the loan.

1147. At the end of 1994, Mr Collins received a notice from the Manager advising him of an income distribution in the amount of $4,579.54.

1151. In September 1994, Mr Collins learned of the move by Quarrell and Healy to the new Sentinel Group.

1154. Mr Collins received the letter from Sentinel dated 19 October 1994.[49]

I accept Mr Collins' evidence that he noticed that an enclosure with the letter stated that "...Quarrell is a licensed Proper Holder Authority [sic] and is able to advise in securities", and that this information reinforced his belief that that Quarrell was totally qualified and able to advise in securities.

1159. Some time in later 1994, Mr Collins attended the new Sentinel office and saw Quarrell and Healy, who told him that they would be providing the same service as Pamacorp, namely financial planning, taxation and accounting services. They also said that would Sentinel would operate under the concept of "total financial management". On this visit, Mr Collins was also introduced to Schimana.

1162. Mr Collins was given the Sentinel brochure which provided him with information about the services offered by Sentinel, and Quarrell and Healy told him that they were licensed to provide advice.

1165. Mr Collins was told by Quarrell and Healy that there would be individual specialised attention and that Sentinel would give personalised assistance for wealth creation and that effective tax planning and wealth creation would be specific services provided by Sentinel.

1168. Mr Collins was also told by Quarrell that Sentinel would provide a service with respect to the administration of businesses including trusts and the establishment of superannuation funds. In particular, Sentinel would create wealth by maximising a client's disposable income with salary packaging and tax planning. Mr Collins had previously been given advice in relation to tax effective investments, in particular, advice in relation to maximising income with proper tax planning and had formed the opinion that Quarrell was extremely competent and knowledgeable in this area.

1171. Quarrell told Mr Collins that, as Sentinel provided a specific service in relation to tax planning and maximising disposable income, its advisers would only promote investments that would be approved by the Commissioner for Taxation. Quarrell then told Mr Collins that Sentinel had a number of exciting investments that would be offered to clients, one being property. This interested Mr Collins as this was the type of investment in which he had initially been wanting to invest.

1174. As a result of the said oral and written representations made to him, Mr Collins decided to become a client of Sentinel. He considered that Sentinel was a company that would properly manage his financial affairs and assist him with an investment portfolio by offering various types of investments.

1178. The Me and My Girl Scheme[50] was an investment in a fund for the production and marketing of the stage show "Me and My Girl" which was to tour New Zealand in the second half of 1995.

1181. On the occasion upon which Mr Collins first visited the new Sentinel offices, Quarrell and Healy told Mr Collins about a stage show called "Me and My Girl". They gave him some promotional material entitled "Confidential Me and My Girl". Quarrell and Healy took him through this document and pointed out the major benefits and particular details of the investment. The document contained numerous press releases containing glowing reviews of previous "Me and My Girl" productions.

1184. Quarrell and Healy told Mr Collins that the investment would provide an opportunity to be involved in the production of a major international theatrical event which was to be staged in New Zealand. Quarrell and Healy told Mr Collins that he would receive a minimum income return of 100% of his moneys invested. Mr Collins asked them how he could obtain a tax deduction in Australia if the production was staged in New Zealand. They replied that, as the financial and business arrangements with respect to this investment had been examined by and approved by the ATO, he would be able to claim deductions regardless of it being staged in New Zealand. They told him that it was a tax effective scheme, that it was legal and approved by all the appropriate authorities. They added that the investment would be 100% tax deductible and that his interest repayments on his loan amount would be 100% tax deductible but that any subsequent profits would be assessable income. They said that the investment involved a partnership arrangement similar to the Bolshoi Ballet Scheme, and that the investment would be tax deductible because the partnership would be carrying on a business. They said it would be structured as a partnership of 20 or less investors, and that SKH Management would manage the production. They said that the Me and My Girl Scheme had the potential to make a profit. Quarrell and Healy did not suggest to Mr Collins that that there was any possibility of the ATO disallowing the tax deductions.

1187. Mr Collins was told, in substance, that if the stage show was unsuccessful or failed to produce sufficient profits to repay the principal of his loan, an irrevocable letter of credit would be in place to ensure that the loan could be repaid.

1190. I note here that Mr Collins was cross-examined in relation to an interview by the ATO which he subsequently underwent in which he named Healy but not Quarrell as the source of statements and recommendations to him concerning the Me and My Girl Scheme. It was also, in effect, put to Mr Collins that he was tailoring his evidence so as to emphasise Quarrell rather than Healy, because he knew that Healy did not have a proper authority from Financial Wisdom, whereas Quarrell did. However, I am satisfied on the whole of the evidence that both Quarrell and Healy were present when the Me and My Girl Scheme was introduced, and that Mr Collins primarily relied upon Quarrell's advice in relation to this scheme, and generally.

1193. After Mr Collins left the offices of Sentinel, he considered the material and what he had been told by Quarrell and Healy, and decided to proceed with the investment in the Me and My Girl Scheme. He subsequently signed relevant documents and made relevant payments, and commenced making monthly payments of interest on the loan. He knew that a s.221D application was being put in by Sentinel for him. He used the funds "to pay back some of the previous investments I had been into as well" (ie, as well as for his house).

1196. I am satisfied that Mr Collins' reasons for investing in the Me and My Girl Scheme were partly in order to earn future income (which he recognised might or might not occur) and partly because it was "tax effective".

1199. The loan in relation to the Me and My Girl Scheme was interest only and Mr Collins paid interest over four years but did not have to repay the loan. He did not complain that big profits were not made because he knew it depended on the market.

1202. In October 1995, Mr Collins received a letter from SKH Management dated 10 October 1995 informing him that the season had been completed, that the partnership accounts were being finalised and that the show had been a success and that he would receive a distribution on or before 1 November 1995. He received another letter from SKH Management dated 23 November 1995 informing him that on 3 November 1995 a distribution of $1,020 had been applied to his loan principal and that there would be a reduction in his monthly interest payments.

1205. Some time after 28 September 1998, Mr Collins received a notice from the ATO pursuant to section 264 of the Income Tax Assessment Act dated 28 September 1998 requiring him to give evidence and produce documents.

1208. Mr Collins subsequently received a letter from the ATO dated 4 June 1999 and a position paper informing him that the deductions were not allowable deductions under the Income Tax Assessment Act and that any profit distributions were not considered to be assessable income. An objection was prepared and submitted to the ATO on 26 June 1999. He was subsequently informed by a letter dated 29 June 1999 from the ATO that his objection did not constitute a reviewable objection. He was then issued with amended assessments with respect to the Me and My Girl Scheme on 4 August 1999. Subsequent attempts to review and further objections were also unsuccessful. The ATO told him that the reason for disallowance was that the moneys contributed were not used to produce the show.

1212. This "investment" involved the purchase of shares in DCL.[51] DCL was incorporated on 27 September 1994 and the initial directors were Quarrell, Healy and Hemming. Hemming was responsible for the property development projects conducted by DCL and Quarrell and Healy were to raise finance from clients. Hemming, Quarrell and Healy owned a founder's share, entitling them to 50% of the profits after DCL had repaid client shareholders' capital. Until then, investors were to receive 100% of profit. A brochure was provided to each client, and a folder of information. No prospectus was issued in relation to the DCL shares purchased by Sentinel clients because it was intended to have 20 or less shareholders. However, DCL ended up with about 23 or 24 shareholders.

1215. Early in the second half of 1995, Mr Collins met with Quarrell and Healy in order to discuss setting up his own superannuation fund. Quarrell had previously recommended to Mr Collins that Sentinel should set up a superannuation fund for him, and that he should roll over entitlements from his existing superannuation fund (with Ansett) into this new fund. Quarrell and Healy told him that a unit trust would have to be established and that the fees incurred would be regarded as an accounting fee which would be tax deductible. They said the superannuation fund would be managed by Sentinel.

1218. Quarrell told Mr Collins that he could make investments through the unit trust in order to achieve a higher retirement income.

1221. Quarrell and Healy told Mr Collins that once the superannuation fund was set up, he could invest through it into what they said was an exciting new property development investment called DCL. At this meeting Mr Collins was provided with a document entitled "Development Corporation Limited Policy and Objectives".

1224. Quarrell and Healy told Mr Collins that Sentinel had set up DCL and that other investors were involved in the company. They said that the plan was to buy vacant blocks of land or land with old homes on it which would be demolished so that high rise apartments could be constructed (either on the Gold or Sunshine Coasts). Quarrell and Healy told Mr Collins that half the capital raised would go to purchasing and building the units and the remaining half would remain in trust and they would not proceed with the next development until 50% of the units were sold off the plan. They said that the land and demand for units on the coast was booming and that that there would always be a demand. They said to Mr Collins that he could not lose on

1225. Quarrell and Healy told Mr Collins that the sale of the books would pay off the principal of the loan and there was a potential for additional profits and that he would have to pay tax on any profits received. Quarrell and Healy told Mr Collins, in substance, that Sentinel had obtained some kind of approval from the ATO to the effect that all moneys invested would be tax deductible and that the investment was "above board".

1228. Quarrell and Healy told Mr Collins about the organisations involved in publishing, financing and marketing the books and that the books would be high quality illustrated reference books and would retail for no less than $100 per copy and would be marketed to institutional buyers such as universities, libraries, schools and special interest groups. They told Mr Collins that it was estimated that the once the market was established there would be approximately 10,000 to 12,000 copies sold per year and that the books would be written by a specialist PhD writer and that this would be a viable business investment.

1231. Quarrell and Healy said to Mr Collins that the management of the partners' interest would be carried out by a company named Kantell Pty Ltd, a company of which they were both directors. Based on the advice of Quarrell and Healy, and his trust in them, Mr Collins decided to invest in the book publishing partnership.

1234. I find that Mr Collins thought that the investment had a potential for income and also had tax benefits and that he believed that he really had no choice but to invest the moneys "transferred" from the Copperfield Investment in this alternative investment, which was recommended by Quarrell.

1237. In or about mid-June 1996 Mr Collins signed the relevant loan and partnership agreements (and related documents) for the Book Publishing Partnership.

1240. In July 1996, Mr Collins commenced making monthly interest payments on the loan of $140,000, which continued until December 1998.

1243. In or about October 1996, Mr Collins was informed by the marketing company that the book would be produced in mid-1997.

1246. In August 1998, Mr Collins received a letter from the ATO, dated 11 August 1998, informing him that the ATO had concluded that deductions for the production, publication and marketing of the books and for related interest expenses in subsequent years did not qualify for deduction under subsection 51(1) of the Income Tax Assessment Act because he was not considered to be carrying on a business. The ATO's letter further stated that expenditure in relation to production, publication, marketing and interest expenditure had not been incurred.

1249. The partnership subsequently made an unsuccessful submission to the ATO, and thereafter Mr Collins "withdrew" from the partnership and financing arrangements.

1252. The ATO issued an amended assessment, and Mr Collins received a Final Notice dated 11 February 1999. Mr Collins then engaged the dubiously named Institute of Taxation Research, which I have already mentioned, to prepare an objection on his behalf. The objection was unsuccessful.

1256. On or about 7 November 1996, Mr Collins met with Quarrell, Healy and Schimana, at which time he was introduced to a proposed investment in a Video Documentary Partnership.

1259. I interpolate that Mr Collins testified that, by this time, "[m]y investment portfolio was moving along and I was comfortable with the investments promoted to me by Sentinel and the services that had been provided to me." This piece of evidence is at first blush not easy to believe, and it was challenged in cross-examination. However, I have concluded that it is truthful evidence and I think that it demonstrates Mr Collins' continuing naïveté and his trust in Quarrell and in Quarrell's advice.

1262. Mr Collins was provided with promotional material in relation to the Video Documentary Partnership and was taken through it.

1265. Among other things, Mr Collins was told that there had been an in-depth case study into the programming and acquisition policy of Australian free-to-air and pay-TV networks and other purchasers of documentaries in Australia. He was also told that the videos would be marketed internationally and that this investment was similar to the book partnership investment. The videos would involve the production of "quality television documentary programs" about ethnic minorities of South East Asia.

1268. Mr Collins was told that Asean Film Distributors Limited would be sub-contracted by the partnership, for a fee, to manage the production of the video documentaries. He was told that a loan would be available from another company, but that Asean would be guaranteeing the loan. Mr Collins was also told that he would have to make a 20% cash contribution to the partnership from his own finances.

1271. Mr Collins was told, in substance, that there would be a guarantee of the return of 100% of moneys invested and that it would therefore be a secure investment which would be low risk. He was told that all moneys invested would be 100% tax deductible and interest payments would be 100% tax deductible. Mr Collins testified that, to the best of his recollection, he was told that the Video Documentary Partnership was approved by ASC and that it had ATO approval.

1274. Quarrell and Schimana recommended that Mr Collins invest an amount of $127,273 and make a cash contribution of $38,182. They told him that it was in his best interests to make this investment. He accepted their advice and decided to make the investment.

1277. In due course, Mr Collins signed the relevant documents in the presence of Schimana. His cash contribution (which in the event was $36,016.78) was derived from a number of sources, including a loan of $25,000 from Outlook Credit Union. A further sum of $101,818 was "invested" by way of a non-recourse loan.

1280. In or about June 1997, Mr Collins received a letter from Sentinel dated 20 June 1997 informing him that representatives of Sentinel had met with officers from the ASC, who had expressed the view that the video partnership investment was a prescribed interest, and a prospectus was required to be registered. The letter went on to say that: "At the time of your investment, we were of the view that the investment was not the acquisition of a prescribed interest."

1283. After the collapse of Sentinel, the Video Documentary Partnership continued under other auspices, but ultimately Mr Collins "withdrew" from the partnership.

1286. Mr Collins later received a letter from the ATO dated 30 April 1999 informing him that deductions would not be allowed with respect to the video documentary partnership investment. The letter from the ATO set out, inter alia, the factors relied upon in reaching its decision.[52]

1289. Mr Collins subsequently lodged an objection with the ATO which was unsuccessful.

1293. First Finance was incorporated on 17 February 1995 to obtain finance to start the DCL real estate developments and also to deal with Sentinel's cash-flow problems arising from overheads and administrative costs associated with its large client base. Clients deposited money with First Finance by way of loan. These deposits were allegedly secured by way of a debenture over Bond Pty Ltd. First Finance was (for reasons which are immaterial) replaced by Guard Finance Pty Ltd (incorporated on 22 April 1996) and Guard Finance (Vic) Pty Ltd (incorporated on 24 January 1997). It was intended by the Sentinel directors to have no more than 20 investors in each company without publishing a prospectus. Security for the investors was overlooked and moneys were used to address cashflow problems and finance property developments. Despite this, Quarrell and Healy agreed to tell clients that their money was to be applied to investments secured by debenture or mortgage, earning fixed interest at about 12% per annum paid quarterly. In fact, the two companies had no assets and no security was obtained. Between May 1996 and 21 March 1997, clients of Sentinel invested large sums of money into Guard Finance. In relation to dishonesty and like offences connected with Guard Finance, Healy was convicted and sentenced to 5 years imprisonment with a minimum of 3 years.

1296. On 19 March 1997, Mr Collins received a telephone call from Healy. Healy said that he had just been going through Mr Collins' files and noticed that he had approximately $11,000 sitting in his St George superannuation fund account and that it was only earning approximately 4.5% interest per annum. Healy told him that Sentinel could do better than that, namely, on term deposit for 3 months at call with Advance Bank at 11% interest. Mr Collins said that he thought that this interest seemed high but Healy assured him that it was correct. The company, Guard Finance, was never mentioned.

1299. Mr Collins agreed to go ahead with this investment.

1302. On 20 March 1997, Mr Collins received a fax from Sentinel including a letter of authority for transfer of the funds from his account with St George Bank which was dated 21 March 1997. This was an authority to transfer $10,000 from his superannuation fund account into "Guard Finance". Mr Collins was told that a Loan Agreement would follow, but it never did.

1305. Mr Collins testified that he thought on receipt of this fax that Guard Finance was an arm of the Advance Bank.

1308. Mr Collins assumed that this investment was totally secure because he was under the impression it had been deposited into a bank. Healy did not tell Mr Collins that the deposit was an unsecured loan to Guard Finance, or that Sentinel had an interest in Guard Finance. It was only much later that Mr Collins became aware that Guard Finance was in fact a company operated by Healy and Quarrell. Had he known this at the time and had he known that Guard Finance was not an arm of the Advance Bank, as he was led to believe, he would not have made this investment.

1312. I have already referred to the evidence of Mr McMaster, which is generally applicable to each of the plaintiffs.

1316. Mr McMaster expressed the Adverse Opinion concerning this investment and made substantially the same comments in relation to it and its prospectus as he made in relation to the Lucky Country Film Fund (see the claims of Mr Duncan). In addition, Mr McMaster pointed out that the management company had very limited assets and had been appointed to manage $6M of investors' money, and that a reasonable and prudent financial adviser should have questioned the capacity of the management company to fulfil its role. I accept Mr McMaster's evidence.

1319. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Collins, or at least, would not have done so without conducting the investigations and assessments referred to by Mr McMaster (which I am satisfied did not take place).

1322. I am therefore satisfied that Quarrell, by recommending the investment, acted in breach of a duty of care which he owed to Mr Collins in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Collins was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Collins that the Grand Hotel Film Fund would be successful and profitable and that "you could not lose".

1326. Apart from the specific findings as to misleading and deceptive conduct, I make the same findings of fact and law concerning the conduct of Quarrell in relation to this investment as I made in the case of Mr Duncan in relation to this investment.

1330. Mr McMaster's evidence, which I accept, concerning the Me and My Girl Scheme was substantially the same as his evidence concerning the Bolshoi Ballet Scheme (see the claims of Mr Duncan). Mr McMaster expressed the Adverse Opinion concerning the Me and My Girl Scheme.

1333. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Collins. I am further satisfied that the memorandum in relation to the Me and My Girl Scheme was an offer to subscribe for a "prescribed interest" for which a prospectus was required.

1336. I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Collins in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Collins was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell and Healy engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Collins that the Me and My Girl Scheme had been examined by and approved by the ATO, and was legal and approved by all of the appropriate authorities. I note Financial Wisdom's submission that it was Healy and not Quarrell who made the relevant recommendations and representations to Mr Collins. Although Mr Collins could not recall who of the two said what, I am satisfied in this case, as in all other cases, when a number of the advisers were together in a meeting, that each of them is to be taken as having adopted and endorsed what was being said to the client and that the client was taking what was said as the advice of all of the advisers present. In the present instance, both Quarrell and Healy were present and, whoever made the statements, I am satisfied that Mr Collins relied on the statements as endorsed by each of them.

1340. In my opinion, any reasonably skilled investment adviser would have realised that the investment in shares in DCL was inherently risky. The security of the investment obviously depended upon adequate liquidity, the sources of which were sales "off the plan", any secured borrowings and moneys obtained from investors. The investment was in its nature speculative. The viability of the investment further depended upon the skills of the Sentinel Group in relation to development projects and corporate finance and administration. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Collins or to any investor seeking low risk, income generating investment opportunities. In any event, a reasonable and prudent financial adviser should have clearly informed the client of the risks involved with such an investment and this was never done. Furthermore, it is clear that the shares in DCL were "securities" and a prospectus was required.

1343. I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Collins in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Collins was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am further satisfied that Quarrell and Healy each were negligent and, indeed, engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Collins that he could not lose on this investment, that the investment would be totally secure because it would not proceed unless 50% of the units had been sold "off the plan" and that investors would never lose their money, and at worst, would get their money back on the investment. Those representations were obviously careless and they did not have a reasonable basis for making them.

1347. Apart from the specific findings as to misleading and deceptive conduct, I make the same findings of fact and law concerning the conduct of Quarrell in relation to this investment as I made concerning the claims of Mr Duncan in relation to this investment. Further, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Collins that the Copperfield Investment was going to be a huge success and that Sentinel had obtained a private ruling or approval from the ATO that moneys invested would be tax deductible.

1351. Apart from the specific findings as to misleading and deceptive conduct, I make the same findings of fact and law as to the conduct of Quarrell in relation to this investment as I made concerning the claims of Mr Duncan in relation to this investment. Further, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Collins that there was very little risk, that it was a "real good investment" and that Sentinel had obtained some kind of approval from the ATO to the effect that all moneys invested would be tax deductible and that the investment was "above board".

1355. Apart from the specific findings as to misleading and deceptive conduct, I make the same findings of fact and law as to the conduct of Quarrell in relation to this investment as I made concerning the claims of Mr Duncan in relation to this investment. Further, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Collins that the Video Documentary Partnership would be low risk and that it was approved by the ASC and had ATO approval.

1359. Although the plaintiffs advanced a strong case in negligence in relation to this investment, negligence was not pleaded and the only party affected by this claim by Mr Collins (Twenty-First) was not represented at the trial. However, I am satisfied that Healy engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions (and indeed, made a fraudulent misrepresentation) when he said to Mr Collins that the investment was a deposit at call with Advance Bank.

1363. It was conceded by the plaintiffs that Financial Wisdom had no liability to Mr Collins in relation to the Guard Finance Investment because it was recommended by Healy, who did not hold a proper authority from Financial Wisdom. In relation to the other investments made by Mr Collins, I consider that all of the necessary prerequisites for the liability of Financial Wisdom to Mr Collins under s.819 of the Law have been established. At all times relevant , Quarrell held a proper authority from Financial Wisdom and it is clear that Mr Collins believed that he was engaged in relevant conduct on behalf of Pamacorp or Sentinel (as the case may be) in connection with a securities and investment advice business carried on by Pamacorp or Sentinel (as the case may be). I am satisfied that Mr Collins acted (ie, accepted the various investment recommendations) because of his said belief, in the sense that one of the reasons for him accepting the recommendations was his belief that Quarrell was acting on behalf of Pamacorp or Sentinel in connection with a securities or investment advice business of Pamacorp or Sentinel. Mr Collins' said belief was reasonable. Financial Wisdom is therefore liable for the conduct of Quarrell pursuant to s.819 of the Law.

Mr Collins: Liability of Twenty-First Australia

1367. Twenty-First is liable to Mr Collins on the same basis as Financial Wisdom in respect of the conduct of Quarrell and Healy during the period in which they held proper authorities from Twenty-First. Twenty-First is therefore liable to Mr Collins in respect of the Book Publishing Partnership, the Video Documentary Partnership and, in addition, the Guard Finance Investment (on the basis of misleading and deceptive conduct).

1371. Pamacorp Holdings is liable to Mr Collins in respect of the conduct of Quarrell in relation to the Grand Hotel Film Fund and the Bolshoi Ballet Scheme. It is clear that Pamacorp Holdings is liable upon an "agency" basis, in that Quarrell was an employee and/or agent of Pamacorp Holdings or was held out as such by Pamacorp Holdings.

1375. Quarrell was a holder of a proper authority from Pamacorp Securities from 28 April 1994 to 9 September 1994. Pamacorp Securities is liable to Mr Collins in respect of the conduct of Quarrell pursuant to s.819 of the Law (on the same general factual and legal basis as Financial Wisdom is liable) in relation to Mr Collins' investments in the Grand Hotel Film Fund and the Bolshoi Ballet Scheme.

1379. I note that there is evidence that some moneys invested by Mr Collins were derived from his superannuation trust fund. An application was made, which was not opposed by Financial Wisdom, for leave to amend the schedules to the writs and to amend the Statements of Claim to permit Mr Collins to additionally sue in his capacity as trustee of such trust fund. I am satisfied that leave should be granted as sought so as to permit him to additionally sue in his capacity as trustee of the Allan Collins Superannuation Fund.

1383. I am satisfied that Mr Collins has suffered loss and damage as a result of the conduct of the representatives to which I have referred. Mr Collins would not have made any of these investments without the recommendation of the relevant representatives and he was further induced to do so by their misleading and deceptive conduct, which I have specifically identified. Each of the defendants is liable to the extent that such defendant is liable for the conduct of the relevant representative. I will deal more specifically with the nature and quantum of the damages suffered in the section below dealing with the damages of the plaintiffs.

1388. Mr Bullock was a subscriber to the Sentinel Program and a client of the Sentinel Group. I found Mr Bullock to be a truthful witness. I have accepted his evidence as follows.

* the Me and My Girl Scheme (June 1995) * the Copperfield Investment (October 1995) * a Book Publishing Partnership (June 1996) * a Botanical Script Book Publishing Partnership (27 June 1997)

1395. Mr Bullock was born in 1948 and is married with three adult children. After leaving school, he joined the RAAF and served for six years as an aircraft engineer, during which time he learned to fly. After flying and other employment, he was employed continuously as a pilot with various airlines from 1979 onwards, and has been employed as a pilot by Qantas since 1992. Mr Bullock's principal residence was subject to a mortgage. Prior to engaging Sentinel, he had other financial advisers through whom and upon whose recommendation he had invested $120,000 in Banker's Trust investment units. In 1995 and 1996 Mr Bullock made other real estate investments on borrowed funds but these investments were not made through Sentinel.

1398. During 1993 - 1994, a number of his colleagues told him that Sentinel financial planners were able to advise on investments which provided capital growth and minimised taxation. As a result, Mr Bullock, who is a resident of Queensland, arranged a meeting with Quarrell at the Keilor Motor Inn on 4 November 1994. Quarrell told Mr Bullock that Sentinel could provide him with a total financial management and advice service so that he would not have to go anywhere else for any advice or services in relation to his financial affairs. Quarrell said that Sentinel could offer him advice, and had all of the necessary authorities to be able to advise, about all types of investments available in the financial market. Quarrell told Mr Bullock that Sentinel's aim would be to advise him as to which of those various investments would best suit his needs and to organise for him to invest in them. Quarrell also told Mr Bullock that Sentinel staff included certified practising accountants who could do all his taxation work. Further, Quarrell said that Sentinel would build his net worth with investments which ensured he received a large tax deduction as well as a good return on the investments. The investments would minimise income tax and would provide a substantial lump sum return of income tax each year. This would allow him to use his equity to enter into further investments which would in turn increase his net wealth in the short term. Mr Bullock could not recall receiving the Sentinel brochure. Mr Bullock believed what Quarrell told him and, on that basis (in addition to the advice and documentation he received in relation to specific investments) decided to invest (as appears below) in the Me and My Girl Scheme, the Copperfield Investment and the Book Publishing Partnership.

1402. Mr Bullock asked Quarrell what Sentinel could do for him regarding specific investment opportunities for profit and taxation purposes. Quarrell referred to the Me and My Girl Scheme and said that, if Mr Bullock borrowed and invested $130,000, he could deduct the interest and loan as well as making profit on the investment itself.

(a) The investment was for the New Zealand production of "Me and My Girl" which had already been a great success in Australia.

(b) It would be a very sound profitable investment and the producers were skilled at putting on these shows.

(c) If he invested, he and his wife would be flown to New Zealand to see the show.

(d) All money invested would be legally tax deductible.

(e) If he went into the investment before 30 June 1995, he would receive a large lump sum return on the tax paid by him during the 1994/95 financial year.

(f) All interest payments on loan moneys would be 100% tax deductible.

1411. Mr Bullock went away to consider Quarrell's proposal and during that time he received from Quarrell a memorandum relating to the Me and My Girl Scheme, which he read and considered. Towards the end of the 1995 financial year, Mr Bullock telephoned Quarrell and told him that he had decided to proceed with the investment. Quarrell said that, to obtain the maximum benefit from the investment, Mr Bullock should invest $145,000. By arrangement, they met at the Flight Deck Club in Melbourne on 30 June 1995. Quarrell produced the relevant documents (including an application for a loan of $145,000) which were signed by Mr Bullock, who gave Quarrell cheques for the loan establishment fee, stamp duty and the first month's interest.

1414. Shortly after Mr Bullock invested in the Me and My Girl Scheme, he was telephoned by Quarrell, who said that a further benefit of entering into the investment was that the ATO would allow him to pay his ongoing tax instalments on the basis that the amount of the investment together with his yearly interest payments were immediately deducted from his yearly income (ie, for tax instalment purposes).

1417. In late July 1995, a number of investors including Mr Bullock (with his wife) went to see the production of Me and My Girl in Auckland. Their airfares and accommodation were paid for. Mr Bullock then received a letter from Sentinel, signed by Quarrell, dated 1 August 1995, reading:

"Good morning Ted, WOW what a weekend! On behalf of the Sentinel team I just wanted to drop you a line to say thank you for being part of the Auckland contingent at the weekend. We hope that you enjoyed it immensely. We hope that the weekend will be one of a number of special opportunities for our most cherished clients. Naturally, not all activities will involve such an impact on your time or our mutual health! It is our intention however to ensure that they will always have considerable long term positive impact on your financial well being. We will be in touch shortly with some follow up advice, words for the wise and food for thought. Yours sincerely..."

1421. Mr Bullock paid interest on the loan from time to time, claimed the relevant tax deductions and applied for variations of tax instalment deductions.

1425. In about October 1995, Quarrell telephoned Mr Bullock and said that he should be making a further investment of $145,000 to ensure that he maintained the benefit of entering into investments which would allow ongoing tax reductions as well as being a profitable investment. Quarrell told him that Sentinel now had a Brisbane office and he would be able to deal with Lye, who was the manager. Quarrell then said that the Copperfield Investment would be a good investment for the 1995/96 financial year. Quarrell said to Mr Bullock that:

(a) David Copperfield was a quality investment which would produce income.

(b) Payment of the loan would be ensured by an irrevocable letter of credit.

(c) It was a low risk and secure investment.

(d) All moneys invested would be 100% tax deductible.

(e) Interest repayments on all loan moneys would be 100% tax deductible.

(f) Approval had been obtained from the ATO that moneys invested would be deductible.

(g) The people involved in the David Copperfield tour were experienced and reputable and would not put funds at risk.

(h) This was an excellent investment and if he wanted to invest he would have to do so as soon as possible as there were very few places left for investment in the David Copperfield tour.

1431. On the basis of what he was told by Quarrell, Mr Bullock said that he would invest in the Copperfield Investment. On or about 4 October 1995, Lye came to his home, and Mr Bullock completed an application form. In about early December 1995, Mr Bullock signed other relevant documents.

1435. In May or June 1996, Quarrell telephoned Mr Bullock and told him of some problems with the Copperfield Investment and that Sentinel was advising its clients not to remain in that investment. Quarrell told Mr Bullock that he had a better opportunity than the Copperfield investment, and that he had made arrangements to protect Mr Bullock's interests and to ensure that Mr Bullock's loan in relation to the Copperfield Investment would not be called up. Quarrell said that the $145,000 could be transferred to another investment, and that he would send him some brochures concerning a Book Publishing Partnership. In that or a subsequent telephone conversation, Quarrell advised Mr Bullock that, to obtain the maximum tax benefit, he should reduce his investment from $145,000 to $120,000. In relation to the Book Publishing Partnership, Quarrell told Mr Bullock that:

(a) Mr Bullock would be a partner and would have a share of the profits and would be guaranteed an income stream.

(b) There would be 10 books produced with 20 partners in each partnership, each partnership producing one book. In Mr Bullock's case, the book would be in relation to the Akha people.

(c) The book partnership would be a quality income investment as the books would be required by universities and research centres as a reference book in relation to the different cultures in Asia.

(d) The books would be of very high quality.

(e) The principal of the loan would be paid at the end of the loan term through a bank letter of credit.

(f) It would be a secure investment with low financial risk.

(g) The sale of the books would pay off the principal of the loan and all profits above the repayments would be paid to Mr Bullock.

(h) Tax would have to be paid from the profits received.

(i) All money invested and interest repayments on the loan money would be legally tax deductible.

1441. In June 1996, Lye brought to Mr Bullock the relevant documents (including a partnership agreement and a loan agreement) and Mr Bullock signed them. By letter dated 3 July 1996 signed by Quarrell, Sentinel advised Mr Bullock that his participation in the Copperfield Investment had been terminated, and he was requested to sign an enclosed assignment document, which he did.

Mr Bullock: the Botanical Script Book Publishing Partnership

1445. The Botanical Script Book Publishing Partnership[53] was an investment in the production of a series of books and a scheme similar to the Video Documentary Partnerships.

1448. After the collapse of Sentinel, and Schimana's departure from Sentinel, Mr Bullock had a meeting with Schimana on 27 June 1997. Schimana told Mr Bullock about a possible investment in a Botanical Script Book Publishing Partnership. Schimana said that:

(a) The investment was a quality income producing investment and would produce a sound return.

(b) Mr Bullock would be guaranteed to receive a return of 100% of money invested.

(c) It was a secure investment with low financial risk.

(d) All money invested and interest payments on loan moneys would be 100% tax deductible.

1454. Mr Bullock said to Schimana that, if things had gone wrong at Sentinel, he did not want to enter into any further investments like the investments recommended by Sentinel. Mr Bullock also told Schimana that he was concerned about the large amount of the interest payments that he was required to make on each of his previous investments. Schimana told him that those investments were fine and that to maintain the tax benefits of those investments, he would be required to make a further investment for the financial year 1996/97 but that, to lessen the amount of interest payments that needed to be made, Mr Bullock should also invest some moneys in cash. Schimana recommended an investment of $100,000, about one-quarter of which would be paid in cash. Mr Bullock accepted Schimana's advice.

1457. Mr Bullock signed a loan agreement for $76,364 and gave Schimana personal cheques (made payable as requested) totalling $30,893.

1460. Mr Bullock made interest payments on his loan, but received no return from his investment. The ATO disallowed the tax deductions claimed by Mr Bullock on the basis that it could find no evidence of the loan money being advanced or the cash contribution invested in the production of books.

1464. I have already referred to the evidence of Mr McMaster, which is generally applicable to each of the plaintiffs.

1468. I have referred to this investment in the course of considering the claims of Mr Collins and I make the same general findings concerning it. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Bullock.

1471. I am therefore satisfied that Quarrell, by recommending the investment, acted in breach of a duty of care which he owed to Mr Bullock in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Bullock was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell was negligent and engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Bullock that the Me and My Girl Scheme was a very sound profitable investment.

1475. I have referred to this investment in the course of considering the claims of Mr Duncan and I make the same general findings concerning it. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Bullock.

1478. I am therefore satisfied that Quarrell, by recommending the investment, acted in breach of a duty of care which he owed to Mr Bullock in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Bullock was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Bullock that the Copperfield Investment was a quality investment which would produce income, that it was a low risk and secure investment and that approval had been obtained from the ATO that moneys invested would be deductible.

1482. I have referred to this investment in the course of considering the claims of Mr Duncan and I make the same general findings concerning it. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Bullock.

1485. I am therefore satisfied that Quarrell, by recommending the investment, acted in breach of a duty of care which he owed to Mr Bullock in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Bullock was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Bullock that the Book Publishing Partnership was a quality income investment and secure, with low financial risk.

1489. Mr McMaster expressed the Adverse Opinion concerning this investment and made virtually the same comments in relation to it as he made in relation to the Book Publishing Partnerships (see the claims of Mr Duncan).

1492. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Bullock.

1495. I am therefore satisfied that Schimana, by recommending the investment, acted in breach of a duty of care which he owed to Mr Bullock in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Bullock was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However, I am satisfied that Schimana was negligent and engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Bullock that the Botanical Script Book Publishing Partnership was a quality income producing investment which would produce a sound return and that it was a secure investment with low financial risk.

1499. In relation to the investments made by Mr Bullock in the Me and My Girl Scheme, the Copperfield Investment and the Book Publishing Partnership, I consider that all of the necessary prerequisites for the liability of Financial Wisdom to Mr Bullock under s.819 of the Law have been established. At all times relevant to those investments, Quarrell held a proper authority from Financial Wisdom and it is clear that Mr Bullock believed that he was engaged in relevant conduct on behalf of Sentinel in connection with a securities and investment advice business carried on by Sentinel. I am satisfied that Mr Bullock acted (ie, accepted the three investment recommendations) because of his said belief, in the sense that one of the reasons for him accepting the recommendations was his belief that Quarrell was acting on behalf of Sentinel in connection with a securities or investment advice business of Sentinel. Mr Bullock's said belief was reasonable. Financial Wisdom is therefore liable for the conduct of Quarrell pursuant to s.819 of the Law.

Mr Bullock: Liability of Twenty-First Australia

1503. Twenty-First is liable to Mr Bullock on the same basis as Financial Wisdom in respect of the conduct of Quarrell and Schimana during the period in which they held a proper authority from Twenty-First. Twenty-First is therefore liable to Mr Bullock in respect of the Book Publishing Partnership and the Botanical Script Book Publishing Partnership. In relation to the latter investment, I note that Schimana's recommendation to Mr Bullock was made and accepted on 27 June 1997 and that Schimana's proper authority remained operative until 30 June 1997.

1507. I am satisfied that Mr Bullock has suffered loss and damage as a result of the conduct of the representatives to which I have referred. Mr Bullock would not have made any of these investments without the recommendation of the relevant representatives. Each of the defendants is liable to the extent that such defendant is liable for the conduct of the relevant representative. I will deal more specifically with the nature and quantum of the damages suffered in the section below dealing with the damages of the plaintiffs.

1512. Mr Newman was initially a client of Pamacorp Holdings and a subscriber to the Sentinel program. He was subsequently a client of the Sentinel Group. I found Mr Newman to be a truthful witness. I have accepted his evidence as follows.

* the Cabaret Scheme (June 1994) * the Bolshoi Ballet Scheme (August 1994) * a Book Publishing Partnership (June 1996) * a Video Documentary Partnership (October 1996)

1519. Mr Newman was born on 27 November 1961 and is now a Captain employed by Qantas. He grew up and attended school in Hobart and after Year 12, worked as a sales representative. He was trained and then employed in Melbourne as an air traffic controller from 1981 to 1986. He then took leave without pay to train as an airline pilot, financing his course from borrowed funds. He obtained a commercial pilot's licence in 1986 and worked for a number of general aviation operators and then for Australian Airlines Limited. He saved for a deposit and then purchased a house in Essendon in 1993 (for $225,000), subject to mortgage, at which time his salary was about $98,000 per annum. Before approaching Pamacorp, Mr Newman had shown an interest in developing a share portfolio, which he discussed with another investment adviser.

1522. In 1994, a fellow pilot recommended to him the services of Quarrell at Pamacorp. At that time Mr Newman's aim was to pay off his house mortgage as quickly as possible. He also needed to have someone prepare his income tax returns. In about April or May 1994, he attended the offices of Pamacorp and met Quarrell. Mr Newman told Quarrell that he wanted someone to prepare his income tax returns. Quarrell said Pamacorp could do this, and Quarrell then asked what Mr Newman was seeking to achieve with his finances. Mr Newman told Quarrell that he had not considered investing at that stage but that he ultimately wanted to be in a financial situation where he could assist his family, who had assisted him in the past. Quarrell asked Mr Newman questions about the risks he was prepared to take with potential investments. Quarrell also asked what Mr Newman's interests were. Mr Newman told Quarrell that he was interested in theatre, film and the arts. Quarrell asked Mr Newman whether he would be interested in investing in Australian films, and Mr Newman said that he would. Quarrell gave him the Pamacorp brochure and outlined the services provided by Pamacorp.

1525. Quarrell referred to an opportunity to invest in "an Australian qualifying film" and also made reference to "10BA tax films", of which Mr Newman was totally unaware. Quarrell explained that it was a way in which the government supported the Australian film industry by encouraging investment in these films by way of a 100% taxation deduction. This was the first time Mr Newman had ever heard of tax deductibility other than for work expenses. Mr Newman asked Quarrell for more information and asked him "to verify the legitimacy of it all". Quarrell showed Mr Newman the text of Division 10BA of the Income Tax Assessment Act and took him through it. Mr Newman told Quarrell that he knew nothing about this and that taxation was something "you do not muck around with". Quarrell said at some stage that one had to pay tax but that this was the way the government used the tax law to encourage investors in the Australian film industry works. Quarrell referred to it as "tax planning". All this was new to Mr Newman. I accept the evidence of Healy that Mr Newman was inexperienced in relation to investments and put his trust in his advisers. It was submitted on behalf of Financial Wisdom that Mr Newman entered into all four investments "willingly and after careful consideration of the appropriateness of the investments". If that submission is intended to convey that Mr Newman did not rely on the recommendations of the Sentinel advisers, then I have found to the contrary.

1528. Quarrell showed Mr Newman a prospectus for a film called "Night of the Wolf". Quarrell also drew a flow chart diagram to show Mr Newman how the Division 10BA tax deduction would work. After doing some calculations in relation to Mr Newman's income, Quarrell suggested a figure of $70,000 for investment in a film in order to achieve a 100% tax deduction under Division 10BA.

1531. In the light of this information, Mr Newman considered that it would be possible for him to invest earlier than envisaged and in a way that he had not contemplated. Mr Newman expressed caution to Quarrell, who said that it was possible to drive one's taxable income to zero but that he would not be comfortable with that and it was not ethical to do so. Mr Newman said that was good and that he agreed with this. Mr Newman began to feel comfortable in dealing with Quarrell, as he considered that he had shown a degree of conservatism and felt "motivated to begin investing". Prior to his meeting with Quarrell he did not think that he had sufficient funds to begin a portfolio of investments.

1534. Mr Newman went away to think about what he had been told and obtained written advice from a firm of solicitors, John Beckwith & Associates. Mr Beckwith's letter dated 7 June 1994 pointed out that the type of venture described in the "Night of the Wolf" prospectus was speculative and that the return obviously could not be guaranteed by the promoter. Mr Beckwith referred Mr Newman to the pages in the prospectus where the risks were set out, and said that he should view the investment "as being capable of total loss both of capital and income".

1538. The Cabaret Scheme[54] was an investment in a fund for the production and marketing of the stage show Cabaret promoted by Pamacorp Holdings during the financial year ending 30 June 1994.

1541. Shortly after receiving the advice from Mr Beckwith, Mr Newman saw Quarrell again. Quarrell told him that "Night of the Wolf" was not going ahead, but that the stage show, "Cabaret", was due to be performed in Melbourne shortly, and there was an opportunity to invest in this. Quarrell said that Division 10BA was specifically applicable to films, but there were similar provisions in the Income Tax Assessment Act making it possible to invest in live productions such as Cabaret. He explained s.51(1) of the Income Tax Assessment Act to Mr Newman and said that it was "more of a tax deferral", which he explained by saying that although Mr Newman would receive a tax deduction, he would eventually have to pay it back, but would have the use of the money in the meantime, and that it would be best to invest that money into other investments or his mortgage. It was not suggested to Mr Newman in respect of this investment (or the investments which he subsequently made), and he did not think, that there was any real doubt or risk that claimed deductions might be disallowed by the ATO. Quarrell also spoke to Mr Newman of the "section 211D variation" which would enable him to "free up [his] tax money to pay for a subsequent investment". At this meeting, Mr Newman was also briefly introduced to Healy.

1544. Quarrell gave Mr Newman a brochure relating to the Cabaret Scheme and said that if he wanted to proceed and "maximise the investment", it would have to be entered into before the end of the financial year. Quarrell took Mr Newman through the brochure and told him that he would be responsible for a loan backed by an irrevocable letter of credit, but that if Cabaret did not make any money or operated at a loss, the irrevocable letter of credit would protect him. Quarrell added that all interest payments on the loan would be 100% tax deductible.

1547. Mr Newman went away and considered the brochure, and then had a number of telephone conversations with Quarrell about matters which concerned him, and then another meeting. Quarrell told him that the irrevocable letter of credit was similar to a government bank guarantee and that it meant that the principal of the loan would not have to be repaid by him. In reliance upon Quarrell's recommendation, and in reliance upon the expertise of Quarrell and his organisation, as represented in the Pamacorp brochure, Mr Newman decided to invest the sum of $75,000 (to be borrowed) in the Cabaret Scheme. He returned to the Pamacorp offices and signed the necessary documents and paid various fees and expenses. He made monthly interest payments on the loan.

1550. In January 1995, the ATO wrote to Mr Newman, care of Pamacorp, requiring an explanation and documentary evidence in relation to a deduction of $75,195 claimed by him in his income tax return for the year ended 30 June 1994. The ATO letter was answered by Schimana on behalf of Sentinel. Schimana's letter, dated 17 February 1995, explained that the claim related to expenditure incurred by Mr Newman in the Australian production of Cabaret and was deductible under s.51(1) (alternatively, s.82KZM) of the Income Tax Assessment Act. Schimana did not inform Mr Newman of this correspondence.

1553. On 17 April 1997, Mr Newman received a letter from Sentinel advising that the ATO was investigating the area of tax deductions in relation to film and live theatre, and that some of Sentinel's clients were to be interviewed. It was noted in the letter that the production of "Cabaret" did not take place and that the promoter (Entercorp) was involved in a number of breaches of the law. A further letter from Sentinel dated 23 April 1997 advised Mr Newman of a meeting at the ATO Cheltenham branch on 30 April 1997. Mr Newman attended the interview, having been assured that it did not relate to his own affairs, and it was only later that Mr Newman began to suspect that he had placed too much trust in the advisers of Sentinel.

1557. In July 1994, Mr Newman attended the offices of Pamacorp and met with Quarrell (Healy attended the meeting for a short time). Quarrell told him that there was a good opportunity in that financial year to invest in the Bolshoi Ballet Scheme, which was a similar investment to the Cabaret Scheme. He gave him a brochure and took him through it. Quarrell told Mr Newman that the Bolshoi investment would be a quality, income producing, low risk investment and that he could expect to "pay a bit of tax on Bolshoi". Quarrell said that he could expect a good return and, in addition to the box office proceeds, a fairly healthy amount of income from other products associated with the Ballet (t-shirts and other paraphernalia). Quarrell outlined to him the basis of a further s.221D application for that income year which would enable him to pay the interest on the Cabaret and Bolshoi loans and repay the Bolshoi loan.

1560. Mr Newman went away and read the brochure and made notes about matters on which he wanted further clarification. On 3 August 1994, he met with Quarrell and raised his queries and Quarrell's answers satisfied him. Quarrell suggested an amount of $30,000 should be invested, and told Mr Newman that he would have to organise his own loan[55] for this amount, and suggested that he approach Piccol Credit Union (which he did). The loan was approved and on 17 August 1994, Mr Newman signed the relevant documents and paid relevant fees and expenses.

1563. In or about September or October 1994, Mr Newman attended the Bolshoi Ballet performance in Melbourne. Sentinel (which had been incorporated in July 1994) had a stand in the foyer, with its logo on it, where Mr Newman met Quarrell and Healy and obtained the tickets for the performance. He attended a post-performance party at which members of the cast were present. By this stage, Mr Newman had great confidence and trust in Quarrell and his advice. In November 1994, Mr Newman was advised by a letter from Sentinel, signed by Quarrell and Healy, that the financial accounts for the tour were being finalised and audited and that a full report together with a dividend cheque would forwarded on or about 7 December 1994. In December 1994, he was advised by a letter from Sentinel, signed by Quarrell and Healy, that there had been a delay in forwarding reports and dividend cheques, as information about some costs was still outstanding, but it would be finalised as soon as possible. Mr Newman testified about a number of letters and cheques received, but the details are unnecessary to mention here. Subsequently Mr Newman ascertained that a large loss had been incurred, which entitled him to a substantial tax deduction.

1567. In September 1994, Quarrell and Healy sent a letter advising Mr Newman (as he recalled it) that they had obtained the Sentinel arm of Pamacorp and were setting it up as a business of their own to be located in South Yarra.

1570. Mr Newman had a number of meetings at Sentinel's new offices in South Yarra prior to making his next investment, and at one of those meetings, he was introduced to Schimana. Quarrell and Schimana told Mr Newman that the Sentinel Group "would specialise its services so that it would be tailored to meet my needs". They told him, in substance, that the Sentinel advisers were well-qualified, experienced, competent and trustworthy professionals and that Sentinel would be a "one-stop shop" for financial organisation, providing him with the same services as formerly provided by Pamacorp, including, for the agreed fee, the unlimited provision of financial advice. During these meetings, Mr Newman was introduced to other staff, including Hughes. He was informed that there were a range of choices of investment available, ranging from ostriches to property development. Mr Newman considered investing in property, but did not proceed with the Sentinel suggestions.

1574. In or about May or June 1996, at a meeting at the Sentinel offices, Quarrell and Schimana informed Mr Newman of an opportunity to invest in a Book Publishing Partnership. Brochures were shown to him, and he was told that there would be a series of books with a number of investors forming separate partnerships of 19 investors each for the production of individual books. They suggested that Mr Newman invest $80,000 and take out an interest-only 5 year loan at an interest rate of 13.5% per annum. Quarrell and Schimana told Mr Newman that the investment amount was determined by the projected tax payable by him over the forthcoming financial year and his cashflow ability to service the interest. Mr Newman was aware that the venture was not a guaranteed financial success, but required to be satisfied, and was satisfied, that he would have no liability for production costs if the venture was unsuccessful. They also told him "that there would be mechanisms in place to ensure that the principal amount would be repaid at the end of the loan by an income guarantee". Quarrell and Schimana described the venture in some detail, and were enthusiastic about the prospect of high book sales and the expectation of high returns. Quarrell and Schimana told Mr Newman that all moneys invested, both principal and interest, would be 100% tax deductible. Mr Newman attended the Sentinel offices on three more occasions to have his queries answered about the structure of the Book Publishing Partnership investment and how it related to his own financial position. These further explanations were provided by Schimana and Hughes. At the third meeting, Mr Newman signed the relevant documents, including a partnership agreement, a loan agreement and a guarantee and indemnity. He commenced making the interest payments.

1578. In October 1996, Mr Newman attended a meeting at the Sentinel offices at which Schimana and Hughes informed him of an investment opportunity in a Video Documentary Partnership, along similar lines to the Book Publishing Partnership. He was provided with a brochure. They recommended an investment of $80,000.[56] Mr Newman was told that the partnership would generate a guaranteed income stream and that the moneys invested, both principal and interest, would be 100% tax deductible. After a further meeting or meetings with Schimana or Hughes, at which details of the product and of Mr Newman's involvement were discussed, Mr Newman's investment was finalised, apparently in May 1997, and he commenced making interest payments.

1581. By letter dated 20 June 1997 from Sentinel, Mr Newman was advised that the ASC had expressed the view that his investment in the Video Documentary Partnership was an acquisition of a prescribed interest under the Corporations Law, and that, as such, a prospectus was required to be registered and a deed approved by the ASC. The letter said that "[a]t the time of your investment, we were of the view that the investment was not the acquisition of a prescribed interest". The letter went on to say that Sentinel was seeking a refund of his investment and was also seeking advice as to his tax position. Nothing of this nature occurred, because Sentinel "collapsed" a few days later.

1585. After the collapse of Sentinel, Mr Newman was advised that the book and video investments were continuing. In about June 1998, Mr Newman received correspondence from the ATO indicating the possible disallowance of deductions and imposition of penalties. Meetings of investors were subsequently held, and various consultants retained by the investors as a group and by Mr Newman as a individual to deal with the problems which arose. Objections were lodged and disallowed, and numerous submissions were made to and negotiations took place with the ATO and the office of the Chief Tax Counsel. Mr Newman also applied to the Administrative Appeals Tribunal and incurred further expenditure. His application was dismissed, but Mr Newman ultimately achieved remission of a number of penalties and interest charges. A settlement deed with the ATO was executed dated 21 October 2002. In essence, the settlement involved the disallowance of deductions claimed save in respect of interest and some expenses paid in cash.

1589. I have already referred to the evidence of Mr McMaster, which is generally applicable to each of the plaintiffs.

1593. Mr McMaster said that the first question that a reasonable and prudent financial adviser would raise was the status of the memorandum dealing with the Cabaret Scheme. A reasonable and prudent financial adviser should have determined whether a prospectus was required for the investment. A reasonable and prudent financial adviser should also have obtained an independent tax opinion and should have questioned the source of funding for the irrevocable letter of credit, the capacity of the manager to indemnify the contractors and the like. Mr McMaster expressed the Adverse Opinion concerning the Cabaret Scheme and expressed views similar to those expressed by him in relation to the various film schemes already mentioned. In addition, he said that the reasonable and prudent financial adviser would want advice about the legal relationships between the various parties involved, independent advice about the financial controls and reporting and as to how the funds would be managed and the process of applying investors' funds to achieve tax deductibility. There should have been some analysis of the commercial viability of the project either made available or conducted by a financial adviser. Mr McMaster emphasised the high risk involved with theatrical productions. I accept Mr McMaster's evidence.

1596. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Newman. I am further satisfied that the memorandum in relation to the Cabaret Scheme was an offer to subscribe for a "prescribed interest" for which a prospectus was required.

1599. I am therefore satisfied that Quarrell, by recommending the investment, acted in breach of a duty of care which he owed to Mr Newman in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Newman was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim.

1603. Apart from the specific findings as to misleading and deceptive conduct, I make the same findings of fact and law concerning the conduct of Quarrell in relation to this investment as I made in the case of Mr Duncan in relation to this investment. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Newman. However, I am further satisfied that Quarrell was negligent and engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Newman that the Bolshoi Ballet Scheme was a quality income-producing low risk investment.

1607. I have referred to this investment in the course of considering the claims of Mr Duncan and I make the same general findings concerning it. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Newman.

1610. I am therefore satisfied that Quarrell and Schimana, by recommending the investment, acted in breach of a duty of care which they owed to Mr Newman in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Newman was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim.

1614. I have referred to this investment in the course of considering the claims of Mr Duncan and I make the same general findings concerning it. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Newman.

1617. Apart from the specific findings as to misleading and deceptive conduct, I make the same findings of fact and law as to the conduct of Schimana and Hughes in relation to this investment as I made as to the conduct of the advisers when dealing with the claims of Mr Duncan in relation to this investment. Further, I am satisfied that Schimana and Hughes were negligent and engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when they represented to Mr Newman that this investment would generate a guaranteed income stream.

1621. I consider that all of the necessary prerequisites for the liability of Financial Wisdom to Mr Newman under s.819 of the Law have been established. At all times relevant to Mr Newman's claims, Quarrell held a proper authority from Financial Wisdom and it is clear that Mr Newman believed that he was engaged in relevant conduct on behalf of Pamacorp or Sentinel (as the case may be) in connection with a securities and investment advice business carried on by Pamacorp or Sentinel (as the case may be). I am satisfied that Mr Newman acted (ie, accepted the various investment recommendations) because of his said belief, in the sense that one of the reasons for him accepting the recommendations was his belief that Quarrell was acting on behalf of Pamacorp or Sentinel in connection with a securities or investment advice business of Pamacorp or Sentinel. Mr Newman' said belief was reasonable. Financial Wisdom is therefore liable for the conduct of Quarrell pursuant to s.819 of the Law in relation to Mr Newman's investments in the Cabaret Scheme, the Bolshoi Ballet Scheme and the Book Publishing Partnership. In relation to the Video Documentary Partnership, Schimana and Hughes held a proper authority from Financial Wisdom at the relevant time, and I make the same findings as to the s.819 prerequisites, in relation to them, as I have made above in relation to Quarrell. Financial Wisdom is therefore liable for the conduct of Schimana and Hughes pursuant to s.819 in relation to Mr Newman's investment in the Video Documentary Partnership.

1625. Twenty-First is liable to Mr Newman on the same basis as Financial Wisdom in respect of the conduct of Quarrell, Schimana and Hughes during the period in which they held proper authorities from Twenty-First. Twenty-First is therefore liable to Mr Newman in respect of the Book Publishing Partnership and the Video Documentary Partnership.

1629. Pamacorp Holdings is liable to Mr Newman in respect of the conduct of Quarrell in relation to the Cabaret Scheme and the Bolshoi Ballet Scheme (on the "agency basis" referred to earlier).

1633. Pamacorp Securities is liable to Mr Newman in respect of the conduct of Quarrell pursuant to s.819 of the Law (on the same general factual and legal basis as Financial Wisdom is liable) in relation to Mr Newman's investments in the Cabaret Scheme and the Bolshoi Ballet Scheme.

1637. I am satisfied that Mr Newman has suffered loss and damage as a result of the conduct of the representatives to which I have referred. Mr Newman would not have made any of these investments without the recommendation of the relevant representatives and he was further induced to do so by their misleading and deceptive conduct, which I have specifically identified. Each of the defendants is liable to the extent that such defendant is liable for the conduct of the relevant representative. I will deal more specifically with the nature and quantum of the damages suffered in the section below dealing with the damages of the plaintiffs.

1642. Mr and Mrs Balding were subscribers to the Sentinel Program and clients of the Sentinel Group. I found Mr and Mrs Balding to be truthful witnesses. I have accepted their evidence as follows.

* the Guard Finance Investments (before May 1996) * a Video Documentary Partnership (December 1996) * the Clendon Street Unit Trust (May 1997)

1649. Mr Balding was born on 7 November 1944 and married his wife Loris in July 1967. Mrs Balding was born on 25 November 1945. They have two children in their thirties. Mr Balding is an air-safety investigator with National Air Support and Mrs Balding is a registered nurse.

1652. Mr Balding commenced his career in the Public Service, and then was with the Victoria Police Force for about 7 years. After this, and after appropriate training, he was employed as an instructor and survey pilot, and later in corporate flying. In 1975, he rejoined the police force as the Officer in Charge/Chief Pilot. He set up the Victorian Police Air Wing and remained in the Police Force for about 3 and a half years. He was then employed by Pacific Aviation as a Captain on corporate and charter operations for 7 years. He was a corporate pilot with Esso from 1985 to 1991, after which time, his position was made redundant and he received a pay-out of about $100,000 (constituting superannuation and a redundancy payment). He saw investment advisers who "diversified [his] roll-over investments...to blue-chip low risk investments". He and his wife had a small farm from 1985 to 1991. His career continued with a number of flying or flight-related occupations. Throughout his career, Mr Balding said that he was generally in the middle income bracket. The Baldings invested small amounts in blue-chip public companies as long term investments. In 1992, they sold the farm and purchased a property at Greenvale, Victoria for $215,000 with a mortgage of about $80,000 which was paid off by late 1996, early 1997 (the property has subsequently been used to raise further funds by mortgage, which have now almost been repaid).

1655. Prior to the early 1980s, Mrs Balding worked in hospitals and nursing homes and in the early 1980s she worked as a supervisor in an aged care hostel. She later worked in other medical support occupations. In June 1991, she was employed as a supervisor and administrator at a hostel in Pascoe Vale, and worked there until she retired in May 2002. She returned to employment in general nursing in November 2002.

Mr and Mrs Balding: the Guard Finance Investments

1659. In March 1996, Mr Balding was dissatisfied with the performance of his investments in roll-over funds, and the plaintiff Mr Collins, who was a friend of his, recommended that he see Quarrell of Sentinel. On 16 April and 1 May 1996, Mr and Mrs Balding had meetings with Quarrell at the offices of Sentinel in South Yarra. At the first meeting, they told Quarrell that they had approximately 10 years until retirement and needed improved returns to provide adequate retirement funding. Quarrell took details of their financial position, and asked them how they were prepared to deal with their money, and whether they were prepared to take any risks with their capital. The Baldings told Quarrell that they understood that profit levels might be variable, but that all of their capital had to be totally secure. Mr Balding stressed to Quarrell that he was not, and never had been, in a high salary bracket, and that they were not prepared to risk their capital in any way. Quarrell spoke to them of sound financial management practices and funds management with good profits. He gave them a book about creating wealth, which they discussed as referring to secure property investments, and Quarrell said that this was the type of capital-secure investment into which they should invest their superannuation payments.

(a) Healy and Quarrell were principles of the Sentinel Group;

(b) Quarrell and Healy had banking, accounting and financial services experience;

(c) Quarrell and Healy would provide appropriate advice to them and Quarrell would be their personal adviser;

(d) Sentinel specialised in looking after individuals so that its services would be tailored to their needs;

(e) Effective tax planning was an integral part of the Sentinel Group service including the preparation of taxation returns;

(f) Sentinel would maximise the benefits of superannuation and rollover funds;

(g) The Sentinel Group would assist them to create wealth and enhance their net worth;

(h) Sentinel would provide professional preparation of their personal tax returns;

(i) Sentinel personnel were extremely well qualified, experienced, competent and trustworthy;

(j) If given the administration of the Baldings' funds, Sentinel could use flexibility to take advantage of various investment opportunities Sentinel either created or which they were well positioned to become aware of;

(k) Over time, with careful management, Sentinel could improve their final retirement fund position from the existing $140,000 - $170,000 to around $400,000, even up to $600,000;

(l) Investments in residential housing was one of the ways that Sentinel handled client funds;

(m) The type and location of investment property were the most important criteria and Sentinel was already involved in the construction of some well located luxury units;

(n) They could establish a superannuation trust fund in their name which would be under the management of Sentinel.

(o) All proposed investments would be subject to their consultation and approval;

(p) They should transfer existing funds to the Superannuation Trust Fund which would be created. With their approval the money would then be temporarily lent to Guard Finance, until June 1997 while awaiting the first suitable vehicle such as some proposed units to invest all or part of their funds;

(q) Guard Finance could pay 12% interest capital guaranteed and that the moneys were lent to Sentinel clients for various developments and mortgage bridging type deals that banks were less likely to fund but which were both safe and fully viable;

(r) For an ongoing fee of $70.00 a month Sentinel would provide all accounting services such as tax returns and appropriate planning and advice which would improve their tax position while remaining within ATO Guidelines.

1668. Mr and Mrs Balding were also provided with the Sentinel brochure, which they read. Mr Balding saw the reference to Quarrell as a proper authority holder, which, he deposed, meant to him that there was some structure and government regulation covering Quarrell's and Sentinel's activities, that Quarrell represented Sentinel and that Quarrell was authorised to provide investment advice to them about all types of investments. Mr Balding deposed that the whole brochure reinforced this and gave him confidence in Sentinel. After discussing the matters between themselves, Mr and Mrs Balding decided to engage Sentinel's services, and in the second meeting, they signed the necessary application form and organised the payment of various fees for Sentinel's services.

1671. At the second meeting, both Quarrell and the Baldings repeated and conveyed to each other the essential elements of what they had discussed at the first meeting. Then Quarrell told them of various investments which Sentinel had to offer. Mr Balding said that they were interested in the residential property proposals as possible investments. Quarrell told them that they should create their own superannuation trust fund, so that they could use that money for investment in property and for any other good opportunity which might arise.

(a) The sole purpose of Guard Finance was to raise money from existing clients of the Sentinel Group at a rate of 12% for deposits from 30 days to 180 days;

(b) Guard Finance would on-lend moneys on a secured basis against property transactions;

(c) The loans would be secured by first mortgage over the property;

(d) You could not lose any of the moneys invested and it was capital secure;

(e) Guard Finance was a reputable finance company with a proven track record and strong asset backing;

(f) Guard Finance was a separate entity.

1680. I am satisfied that Quarrell did not tell Mr or Mrs Balding that Guard Finance was a Sentinel company, and that they only became aware of this fact as a result of ASC investigations.

1683. Accepting and trusting in Quarrell's recommendations and representations, Mr Balding instructed Quarrell to set up the Balding Superannuation Fund and Mr and Mrs Balding completed the necessary documents and cheques for the transfer of amounts totalling $152,384 to the superannuation fund and, in turn, $150,000 to Guard Finance. In late May 1996, Mr Balding moved to Darwin for work purposes, and later in 1996, Mr and Mrs Balding purchased a home unit in Darwin. Not without some difficulty, they withdrew $38,200 from the deposit with Guard Finance (and later, a further $5000) to purchase the home unit. They were unaware that the title to the home unit was registered in the name of Sentinel Management Services Pty Ltd as trustee of the Balding Unit Trust (subsequently, after expenditure of considerable money and time, they had the property transferred into their own names as trustees).

1686. In about December 1996, Mrs Balding transferred her own superannuation moneys in the sum of $19,919 into the Balding Superannuation Fund. At one of the meetings with Quarrell, he recommended that this money be deposited with Guard Finance for one year at an interest rate of 11% per annum, which, he said, was a better interest rate than she was receiving, and that it was a safe investment. In May 1997, Mrs Balding lent this amount to Guard Finance.

Mr and Mrs Balding: the Video Documentary Partnerships

1690. In late 1996, Quarrell recommended an investment in a Video Documentary Partnership to Mr and Mrs Balding. He said that the films would involve the production of quality documentary programs about ethnic minorities of South East Asia. He said that finance for the investment would be obtained through a loan, and the profits would pay off the principal of the loan. The moneys invested and interest payments, Quarrell said, would be 100% tax deductible and the investment carried a low financial risk. Quarrell said that Sentinel had obtained advice that the ATO would accept tax deductions on the moneys invested and that there would be no question about the ATO approving tax deductibility. He said that the investment was legal and that similar investments had been accepted before. The investment involved a cash contribution by Mr and Mrs Balding of $6818 and a loan of $18,182, a total investment of $25,000 to be applied to partnership contributions ($22,727) and pre-paid interest ($2273). I note the submission of Financial Wisdom that Quarrell's proper authority had been terminated prior to Mr and Mrs Balding making this investment. Although I think that the documents which are dated in 1997 were in fact signed by the Baldings in December 1996, I am not satisfied that the recommendation was made by Quarrell or the documents signed prior to Quarrell's proper authority being terminated.

Mr and Mrs Balding: the Clendon Street Unit Trust

1694. On 24 March 1997, while on holiday from his employment in Darwin, Mr Balding met Quarrell by previous arrangement at the new offices of Sentinel at Level 3, 135 Collins Street, Melbourne, for the purpose of a general discussion and review. Quarrell told him that everything was in order and on track. He advised leaving the money invested in Guard Finance for the time being. Mr Balding told Quarrell that they were close to making the final payment on their mortgage of the home at Greenvale, and were interested in possibly purchasing another investment property in their own right. Quarrell asked if Mr Balding would be interested in a project involving a syndicate being formed to build a block of apartments on a property presently owned by Sentinel in Malvern Road, South Yarra. Quarrell showed Mr Balding plans and elevated drawings for a block of apartments to be named "Clendon". Quarrell told Mr Balding that the builders would complete the construction on an already agreed cost plus contract. The costs would therefore be totally contained with the exception of the rise and fall of material prices during the building period.

1697. Quarrell said that the moneys borrowed by the investors would be invested for about 10 months, that all of the units would be pre-sold and that accordingly, the early return of borrowed moneys was guaranteed. Quarrell said that the whole project would be administered by an already-established trust management group and that the cost for Mr and Mrs Balding to become part of the syndicate was a loan to the Clendon Trust of $150,000 for a period of between 10 to 12 months. He said that although the profit, which was expected to be about 30% for the period, could not be guaranteed, the loan of $150,000 was capital guaranteed and was therefore totally and absolutely safe. Mr Balding asked if the money to be lent was to come from the Balding Superannuation Trust, but Quarrell said that that money was better left with Guard Finance and that Baldings would be far better off by borrowing $150,000 against their home through the existing almost paid off mortgage. Quarrell said this would be safe as it was a short-term capital guaranteed investment.

1700. Quarrell said that this was a secure investment carrying low financial risk. Quarrell said it was to be a joint venture with another entity independent from the Sentinel Group with whom the Sentinel promoters had no personal connection. The title to the Clendon Property would be held jointly by the Clendon Street Unit Trust and the joint entity so that the Clendon investors would have security for their investment. The trustee and manager would not be able to invest money with or lend any money from the trust fund to any related company in the Sentinel Group and it was purely for the purpose of investing in Clendon Street.

1703. Relying on what they were told by Quarrell (and some subsequent conversations with Healy), the Baldings obtained a loan of $150,000 from the Commonwealth Bank which was paid to Sentinel on 23 May 1997. Mrs Balding delivered to cheque to Healy, who said to her, "It's a totally safe investment". Mrs Balding executed the loan documents on her own behalf and on behalf of Mr Balding under a power of attorney. Shortly thereafter, Sentinel "collapsed".

Mr and Mrs Balding: Conduct of the representatives

1707. I have already referred to the evidence of Mr McMaster, which is generally applicable to each of the plaintiffs.

1711. Although the plaintiffs advanced a strong case in negligence in relation to this investment, negligence was not pleaded. Having regard to the way the case was conducted and the absence of any objection by the defendant affected in this instance, Financial Wisdom, I am prepared to disregard this departure from the Statement of Claim.

1714. I consider that it is obvious that any reasonably skilled investment adviser would have known that the Guard Finance Investment was not an investment to be recommended to any client, or at least, could not be recommended without informing the client that it was totally unsecured and that the companies receiving the moneys were without assets. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr and Mrs Balding or to any other investor. Further, this investment should never have been recommended to Mr and Mrs Balding given their instructions to Quarrell that all of their capital had to be totally secure. I am satisfied that Quarrell, by recommending the investment acted in breach of duty of care which he owed to Mr and Mrs Balding. Furthermore, the Guard Finance Investments constituted "securities" (debentures) and a prospectus was required.[57]

1717. In any event, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions (and indeed, made fraudulent misrepresentations) when he said to Mr and Mrs Balding that loans to Guard Finance would be secured by first mortgage, that they could not lose any of the moneys invested and it was capital secure and that Guard Finance was a reputable finance company with a proven track record and strong asset backing.

1721. Apart from the specific findings as to misleading and deceptive conduct, I make the same findings of fact and law as to the conduct of Quarrell in relation to this investment as I made concerning the claims of Mr Duncan in relation to this investment. Further, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr and Mrs Balding that the investment carried a low financial risk, that the ATO would accept tax deductions on the moneys invested and that there would be no question about the ATO approving tax deductibility.

1725. I am satisfied that the Clendon Street Unit Trust constituted an offer to subscribe for a "prescribed interest" within the meaning of the Corporations Law for which a prospectus was required. In the absence of a prospectus, the investment should never have been recommended to Mr and Mrs Balding. In addition, contrary to the requirements of Mr and Mrs Balding, the investment was very risky. The title to the Clendon Street property was held by DCL alone and the investors' moneys were not secured by any mortgage over the property. The only "security" offered to investors was the fact that the construction of units was not to commence until they had been sold "off the plan", but this did not necessarily provide any security when the investors' funds depended upon the financial viability of DCL (and the Sentinel Group as a whole). Furthermore, the Sentinel advisers knew that the management of the financial and administrative affairs of DCL and the Sentinel Group was in disarray. Accordingly, a reasonable and prudent financial adviser would not have recommended an investment in the Clendon Street Unit Trust.

1728. I am therefore satisfied that Quarrell, by recommending the investment, acted in breach of a duty of care which he owed to Mr and Mrs Balding in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence, having regard to the matters I have mentioned in the previous paragraph. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment and in the failure to explain the risks involved and to ensure that they were within the risks which Mr and Mrs Balding were prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. However I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Balding that his investment was a secure investment carrying low financial risk and that the title to the property would be held jointly by the Clendon Street Unit Trust and the other entity involved.

Mr and Mrs Balding: Liability of Financial Wisdom

1732. I consider that the necessary prerequisites for the liability of Financial Wisdom to Mr and Mrs Balding under s.819 of the Law have been established, but only in relation to the Guard Finance Investment. At the time relevant to that investment, Quarrell held a proper authority from Financial Wisdom and it is clear that Mr and Mrs Balding believed that he was engaged in relevant conduct on behalf of Sentinel in connection with a securities and investment advice business carried on by Sentinel. I am satisfied that Mr and Mrs Balding acted (ie, accepted the investment recommendation) because of their said belief, in the sense that one of the reasons for them accepting the recommendation was their belief that Quarrell was acting on behalf of Sentinel in connection with a securities or investment advice business of Sentinel. Mr and Mrs Balding's said belief was reasonable. Financial Wisdom is therefore liable for the conduct of Quarrell pursuant to s.819 of the Law in relation to the Guard Finance Investment.

Mr and Mrs Balding: Liability of Twenty-First Australia

1736. Twenty-First is liable to Mr and Mrs Balding on the same basis as Financial Wisdom in respect of the conduct of Quarrell during the period in which he held a proper authority from Twenty-First. Twenty-First is therefore liable to Mr and Mrs Balding in respect of the Video Documentary Partnership and the Clendon Street Unit Trust.

1740. I note that there is evidence that some moneys invested by Mr and Mrs Balding were derived from their family superannuation trust fund. An application was made, which was not opposed by Financial Wisdom, for leave to amend the schedule to the writ and the Statement of Claim to permit Mr and Mrs Balding to additionally sue in their capacity as trustees of such trust fund. I am satisfied that leave should be granted as sought so as to permit them to additionally sue in their capacity as trustees of the Balding Superannuation Fund.

1744. I am satisfied that Mr and Mrs Balding have suffered loss and damage as a result of the conduct of Quarrell to which I have referred. Mr and Mrs Balding would not have made any of these investments without the recommendations of Quarrell and they were further induced to do so by his misleading and deceptive conduct, which I have specifically identified. Each of the defendants is liable to the extent that such defendant is liable for the conduct of Quarrell. I will deal more specifically with the nature and quantum of the damages suffered in the section below dealing with the damages of the plaintiffs.

1749. Mr and Mrs Gray were subscribers to the Sentinel Program and clients of the Sentinel Group. I found Mr Gray to be a truthful witness. His evidence was corroborated in some material respects by his wife, Jean Gray. I have accepted their evidence as follows.

* a Guard Finance Investment (November 1996) * the Stanley Street Unit Trust (November 1996)

1756. Mr Gray was born on 30 December 1943, and a self-employed automotive draftsman. He left school at the age of 16 and commenced a motor mechanic's apprenticeship with the State Electricity Commission of Victoria. At 21, he married his wife Jean, who was born on 24 August 1945. In 1966 he commenced employment as a motor mechanic with General Motors Holden ("GMH"). They initially lived with his wife's parents. They purchased a block of land in Altona, and borrowed the money necessary to build a house. In 1969, they moved into the house with their young son Andrew. Shortly afterwards, their daughter Sue was born. Over the years they bought themselves a number of homes (one in Mornington, one in Williamstown and the present house in Altona in 1984). Mrs Gray obtained part-time work. By 1990, they had paid off their home loan. In 1990, Mr Gray left GMH and obtained employment elsewhere. He rolled over his superannuation benefits, totalling $42,000, into three other funds. By 1991 - 1992, they were accumulating some extra money as the children were independent. Mrs Gray purchased her first car in 1992. After another change of employment, Mr Gray set up his own automotive drafting business in about 1995. Mrs Gray inherited $75,000. They decided that they might be in a position to retire when he reached the age of 55. Towards the end of 1995, Mr Gray rolled over the money in various superannuation accounts into a cash management account in the name of his Automotive Drafting Services Pty Ltd Superannuation Fund. Mr Gray was dissatisfied with the interest earned by the superannuation fund, namely bank interest. He was referred to Healy of Sentinel in November 1996.

1759. On 1 November 1996, he attended the Sentinel office and, because Healy was unavailable, he met Hughes. Hughes obtained his personal details and information about the Grays' financial position. In answer to the question "Are you concerned with security of investment or are you prepared to take higher risk to achieve higher returns?" (where 1 = low risk and 5 = high risk), Mr Gray nominated 3. Mr Gray informed Hughes that his objectives were to increase the earnings on their savings ($105,000 superannuation and $75,000 inheritance) and to invest in a good rental property. Mr Gray said that he was not really interested in investing in shares.

1762. Mr Gray told Hughes that he would like to be in a position to retire in about 5 years. Hughes said that he would need capital of between $600,000 to $700,000. Mr Gray told Hughes that the money that they had was hard-earned, and that he was looking forward to building on this base for their retirement, and was not interested in high risk investment. Hughes gave him the Sentinel brochure and other information about the services available from Sentinel.

1765. Hughes told Mr Gray that Sentinel would be able to structure a suitable investment plan to ensure that his financial needs were realised and also offered accounting and taxation advice, and outlined the fees involved.

1768. Mr Gray told Hughes that he would like to purchase investment properties, especially ones with a water outlook, such as an apartment they had been looking at in Williamstown.

1771. Hughes told Mr Gray that he would discuss his financial management with Healy, and that within a short time Sentinel would provide them with a structured plan in relation to investments. Hughes said that Mr Gray would need to set up his superannuation fund in a different structure by means of a unit trust, and that he should be using their savings in part as a deposit for purchasing two properties and in part to be put into either shares or a bank facility. Hughes said that this would represent a good mixed investment portfolio and added that Sentinel was involved in property developments for clients. Hughes suggested investing in apartments at Peel Street, North Melbourne and The Boulevard, Hawthorn. A deposit of between $30,000 to $40,000 could be placed on each of the apartments, and a return of $200 -$300 week could be achieved, which would cover the interest on the loans required to purchase the apartments. Hughes said that the balance could then be invested in a share portfolio or placed in an investment fund such as DCL, which was managed by Sentinel and which would produce a 12% return.

1774. Hughes also told Mr Gray "You know all about automobiles. We know all about financial management; while you work, we make your money work for you. We are on call at any time and for this service you only pay a monthly fee of $70".

1777. Mr Gray was impressed with Hughes and the credentials of Sentinel's directors. He tentatively decided to use Sentinel. He took home the Sentinel brochure and he and his wife read it carefully, noting that Sentinel worked under a concept of total financial management, and that it had a specialist team of professionals to provide advice about all aspects of investment and financial affairs. Mr Gray read the profiles of the directors and noticed that Quarrell was a licensed proper authority holder, and as such, was able to advise on securities, which he believed meant that Quarrell could legally advise about every type of investment. After Mr Gray had discussed the matter with his wife and informed her of what he had been told, they made a final decision to engage Sentinel.

1780. Within the next week, Mr Gray was telephoned by Hughes who told him that Sentinel had prepared a financial plan for the Grays. On 7 November 1996, Mr and Mrs Gray went to the Sentinel office in South Yarra and met with Hughes who showed them into the boardroom and introduced them to Healy. A whiteboard was set up in the room and around the room were architect rendered sketches of a block of apartments. Healy led the presentation with Hughes backing up and agreeing with what they were told by Healy. Healy asked them for their thoughts on investment. Mr Gray said that they were not gamblers and that their superannuation and personal moneys were hard-earned and had to be secured for their retirement, and they were looking to build on this base. Mr Gray again said that they were thinking of the possibility of purchasing a unit in the $250,000 -$300,000 range in Williamstown.

1783. Healy said to Mr and Mrs Gray that Sentinel had a better plan for them than just purchasing one unit in Williamstown. They should purchase two properties both of which were in the $150,000 price range which would be fully serviced with a guaranteed monthly income. Healy drew a chart on the whiteboard which showed how they could use the inherited money of $75,000 as a deposit to purchase one property, and how Sentinel would set up a trust fund using some of the superannuation moneys for the deposit for the purchase of the other property. Healy said the inherited moneys should go into "I suggest something like Murphy Street", to which Hughes replied that "That will be ideal". Healy said that Murphy Street consisted of serviced apartments with a guaranteed payment. Hughes said that he would take them to look at the apartments and let them choose one. Healy then said that the sketches around the boardroom were the drawings for a block of apartments at 1 Peel Street, North Melbourne and that if they bought off the plan they would save money on stamp duty. He said they were being built and would be completed by mid-1997 and that they were a very good buy. He said the basic plan was that in 5 years, the Grays would own two apartments earning rental.

1787. Healy told Mr Gray to take the superannuation moneys out of the bank account, along with their personal savings, and put the money into Guard Finance. The money would be secured for a six-month period at 12% interest paid quarterly. He said that this would coincide with the completion of the Peel Street Apartments, at which time they could use $30,000 to pay the deposit on a Peel Street Apartment. Hughes said that he would organise the loans for the two apartments, one through private moneys and one through their superannuation trust fund.

1790. Healy said to Mr and Mrs Gray that he would organise setting up of the Gray Superannuation Trust through a solicitor used by Sentinel and would also organise a bank account for the trust. Healy suggested that they mortgage their home and invest those funds also, because their home was an asset which was not working for them, and that it should be. Mr Gray instructed him to set up the Gray Superannuation Trust, but that they did not want to mortgage their home and that investing in two properties was enough for them at that stage. Healy then left, and Hughes had them sign the necessary documents, including a personal cheque on their joint account for $75,000, payable to Guard Finance. Later that day, Mr Gray withdrew $105,000 from the bank account of the superannuation fund, and obtained a bank cheque for $105,000 payable to Guard Finance, which he delivered to Sentinel. He later received a letter from Sentinel dated 8 November 1996, confirming receipt of a deposit of $180,000 for six months, bearing interest at 12% per annum, payable quarterly.

1793. On 14 November 1996, Mr and Mrs Gray met Hughes at Murphy Street in North Melbourne, and they selected Apartment 17, 9 Murphy Street, North Melbourne. On 21 November 1996, they again met with Hughes at the Sentinel office and signed a contract to purchase the Murphy Street apartment. Mr Gray instructed Hughes to utilise the money with Guard Finance to pay the deposit, and he agreed to do so. At the same time, a contract was completed for the purchase of Lot 1, 198-208 Peel Street, North Melbourne for the sum of $149,500, with a deposit of 10% payable by way of a power bond. The vendor was DCL and the purchaser was Sentinel Management Services Pty Ltd as trustee for the Gray Unit Trust.

1797. The Stanley Street Unit Trust[58] related to a development of a block of units at 55 Stanley Street, Richmond. DCL owned the land and there was purportedly a joint venture with the Unit Trust. There was no security for the investors' moneys. There was no prospectus.

1800. After the above contracts had been completed, Healy joined Hughes in the room and said that Sentinel had a new development proposal for them and that they were very lucky that they were at the right place at the right time. Healy said that it was in Stanley Street, Richmond and involved a 50% investment from the directors of Sentinel and a 50% investment of unit holders of a trust called the Stanley Street Unit Trust. Healy said an investment of $100,000 would return 30% on completion of the property, which would be within the year. Healy said that other clients had invested and that the opportunity to invest was running out. Healy said that they could make this investment by mortgaging their home to invest in the Stanley Street Unit Trust. Mr Gray was persuaded that this was an opportunity to good to miss. They agreed to mortgage their home to make a $100,000 investment in the Stanley Street Unit Trust which was to invest in the Stanley Street, Richmond property. Healy left and Hughes said that he would arrange the mortgage of their house.

1803. Mr and Mrs Gray attended a subsequent meeting or meetings at Sentinel in December 1996 and January 1997 with Hughes (assisted by others) to finalise the foregoing transactions and their financing. A loan application for $119,000 was completed in relation to the Peel Street unit, but (as the Grays subsequently discovered) the loan was never approved. Some documents were completed in relation to a loan from the National Australia Bank (which was subsequently granted) of $125,000 on the security of their home to cover requirements for the Stanley Street Investment. In relation to the Stanley Street Investment, Hughes told Mr Gray that he should take out this loan of $125,000, which was to be comprised of a loan of $105,000 with a supplementary flexi-loan of $20,000, and that the loan repayments would be deducted from the flexi-loan. Hughes told Mr Gray that the Stanley Street Units would be built and sold within 6 - 12 months and that on their sale, the total loan would be repaid, so that Mr and Mrs Gray would not be required to make any actual payments out of their income on the National Australia Bank loan. This explanation was central to Mr Gray's decision to proceed with this investment.

1807. In relation to the Stanley Street development, plans had been prepared, all units were sold off the plan, construction had commenced and the development was half-complete when Sentinel and DCL were placed in administration.

1810. Despite some queries by Mr Gray, Guard Finance did not make the quarterly payments of interest when due on the deposit, and in fact, no interest was ever paid. In late June 1997, Mr Gray received a telephone call from Hughes informing him that Hughes and Schimana had resigned from Sentinel, and advising him to retrieve all moneys from Sentinel as soon as possible. Mr and Mrs Gray retained a solicitor to act on their behalf.

1813. On 1 September 1997, Mr and Mrs Gray received a report to creditors from the administrators of Guard Finance. The report showed a large deficiency in a group of Sentinel companies which included Guard Finance and DCL. On a best case scenario, the assets of Guard Finance and the Stanley Street Unit Trust, net of secured debt, were described as "nil". However, some distributions were subsequently received by Mr and Mrs Gray, falling well short of a full recovery.

1816. The Murphy Street apartment (which was subject to a long lease with no rent review) was difficult to sell, but was sold in January 2002 for $135,000.

Mr and Mrs Gray: Conduct of the representatives

1820. I have already referred to the evidence of Mr McMaster, which is generally applicable to each of the plaintiffs.

1823. Mr Gray made each of the investments recommended in the belief that the Sentinel advisers (principally Hughes and Healy) who made the recommendations were acting on behalf of Sentinel in doing so. Notwithstanding some contradictory evidence, I find that Mr Gray relied upon the relevant recommendations as being those of Healy and Hughes jointly, or as being those of Healy supported and adopted by Hughes because I am satisfied that Mr Gray regarded Hughes as his primary adviser and put his trust in him.

1827. Although the plaintiffs advanced a strong case in negligence in relation to this investment, negligence was not pleaded. Having regard to the way the case was conducted and the absence of any objection by Financial Wisdom, I am prepared to disregard this departure from the Statement of Claim so far as Financial Wisdom is concerned. I will not permit Mr and Mrs Gray to rely upon negligence as against Twenty-First, which was not represented at the trial.

1830. I consider that it is obvious that any reasonably skilled investment adviser would have known that the Guard Finance Investment was not an investment to be recommended to any client, or at least, could not be recommended without informing the client that it was totally unsecured and that the companies receiving the moneys were without assets. Further, this investment should never have been recommended to Mr and Mrs Gray given Mr Gray's instructions to Hughes concerning his risk profile, his investment intentions, and in particular, his statement that he was not interested in high risk investment. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr and Mrs Gray and that Hughes, by recommending the investment acted in breach of a duty of care which he owed to Mr and Mrs Gray.

1834. I am satisfied that the Stanley Street Unit Trust constituted an offer to subscribe for a "prescribed interest" within the meaning of the Corporations Law for which a prospectus was required. In the absence of a prospectus, the investment should never have been recommended to Mr and Mrs Gray. In addition, contrary to the investment requirements outlined to Hughes by Mr and Mrs Gray, the investment was very risky. The title to the Stanley Street property was held by DCL alone and the investors' moneys were not secured by any mortgage over the property. The only "security" offered to investors was the fact that the construction of units was not to commence until they had been sold "off the plan", but this did not necessarily provide any security when the investors' funds depended upon the financial viability of DCL (and the Sentinel Group as a whole). Furthermore, the Sentinel advisers knew that the management of the financial and administrative affairs of DCL and the Sentinel Group was in disarray. Accordingly, a reasonable and prudent financial adviser would not have recommended an investment in the Stanley Street Unit Trust.

1837. I am therefore satisfied that Hughes, by recommending the investment, acted in breach of a duty of care which he owed to Mr and Mrs Gray in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence, having regard to the matters I have mentioned in the previous paragraph. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment and in the failure to explain the risks involved and to ensure that they were within the risks which Mr and Mrs Gray were prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim.

1841. I consider that the necessary prerequisites for the liability of Financial Wisdom to Mr and Mrs Gray under s.819 of the Law have been established in relation to the Guard Finance Investment and the Stanley Street Unit Trust. At all relevant times, Hughes held a proper authority from Financial Wisdom and it is clear that Mr and Mrs Gray believed that he was engaged in relevant conduct on behalf of Sentinel in connection with a securities and investment advice business carried on by Sentinel. I am satisfied that Mr and Mrs Gray acted (ie, accepted the investment recommendations) because of their said belief, in the sense that one of the reasons for them accepting the recommendations was their belief that Hughes was acting on behalf of Sentinel in connection with a securities or investment advice business of Sentinel. Mr and Mrs Gray's said belief was reasonable. Financial Wisdom is therefore liable for the conduct of Hughes pursuant to s.819 of the Law.

Mr and Mrs Gray: Liability of Twenty-First Australia

1845. Twenty-First is liable to Mr and Mrs Gray on the same basis as Financial Wisdom in respect of the conduct of Hughes during the period in which he held a proper authority from Twenty-First. Twenty-First is liable to Mr and Mrs Gray in respect of the Stanley Street Unit Trust (but not the Guard Finance Investment).

1849. I note that there is evidence that some moneys invested by Mr and Mrs Gray were derived from their superannuation trust fund. An application was made, which was not opposed by Financial Wisdom, for leave to amend the schedule to the writ and the Statement of Claim to permit Mr and Mrs Gray to additionally sue in their capacity as trustees of such trust fund. I am satisfied that leave should be granted as sought so as to permit them to additionally sue in their capacity as trustees of the Automotive Drafting Services Pty Ltd Staff Superannuation Fund or the ADS Superannuation Fund, whichever be correct.

1853. I am satisfied that Mr and Mrs Gray have suffered loss and damage as a result of the conduct of Hughes to which I have referred. Mr and Mrs Gray would not have made any of these investments without such recommendations. Each of the defendants is liable to the extent that such defendant is liable for the conduct of the relevant representative. I will deal more specifically with the nature and quantum of the damages suffered in the section below dealing with the damages of the plaintiffs.

1858. Mr Giuffrida was a client of the Sentinel Group. I found Mr Giuffrida to be a truthful witness. I have accepted his evidence as follows.

* the Timber Investment (September 1996) * a Video Documentary Partnership (January 1997)

1865. Mr Giuffrida was born on 24 July 1940 and is married with 5 adult children, the youngest of whom is 20. After school, Mr Giuffrida attended Swinburne Technical College and graduated in Chemistry (1964) and Chemical Engineering (1968). He was then employed by Dow Chemical Australia Ltd ("Dow") as a process engineer. He and his wife purchased a house in Doncaster ($14,000). Mr Giuffrida received a number of promotions, and in 1976, went to Hong Kong as Dow's director of safety, and later became a project manager. They bought a residential property in Doncaster as an investment for about $14,000). In the 80s, Mr Giuffrida spent some time in the USA, some further time in Hong Kong and also some time in New Zealand and Korea. During this time, he and his wife borrowed $65,000 and invested about $110,000 for a share in a motel business (this business was successful for a time, but then declined and the interest was sold in 1999). They sold their properties in Doncaster. They purchased, and then later sold at a profit, a residential property in Templestowe. In 1989, they purchased a beach house in Sorrento ($250,000). In 1992, they returned to Australia where Mr Giuffrida was employed as operations director of Dow and they purchased a home in Mont Albert Road, Canterbury (about $460,000). In 1995, Mr Giuffrida became Managing Director of Dow. Mr Giuffrida retired in February 1999.

1868. In about 1994, Mr Giuffrida borrowed $50,000 and invested in a Hollywood movie through a firm of financial advisers. He claimed a tax deduction for the full amount of $50,000. The film did not produce a profit. Mr Giuffrida paid interest on the loan for 5 years and repaid the loan at the end of 5 years. Two years later, he received a refund of the principal $50,000, pursuant to the agreements which he had initially signed.

1871. In mid-1996, Mr Giuffrida came to hear of some investment advisers, namely, Sentinel and Schimana. In mid July 1996, he and his wife met with Schimana in Sentinel's office in South Yarra. Mr Giuffrida was provided with a copy of the Sentinel brochure during the course of the meeting and later read it through at home. Schimana told Mr Giuffrida that Sentinel was a group that had started a few years ago and was now very successful. He said that Sentinel achieved returns of about 20-30% for their investors and that it was possible that they could do the same for him. Schimana said that he was a certified practising accountant with approximately 10 years experience in accounting and in providing financial advice. He said that Healy and Quarrell, two other principals at Sentinel, had extensive banking, accounting and financial services experience.

1874. Schimana said to Mr Giuffrida in substance that the Sentinel representatives were extremely well qualified, experienced, competent and trustworthy professionals and that Sentinel could provide investment advice and professional preparation of taxation returns.

1877. Schimana obtained full details of Mr Giuffrida's financial position. When asked, Mr Giuffrida told Schimana that his risk profile was very low, and that it was about one or two on the scale of one to five. Mr Giuffrida said that at his age, he did not think that it was appropriate to take high risks because he would not be able to make up any losses. Mr Giuffrida added that he was doing well financially, so he did not need to take many risks in order to improve his financial position.

1881. The Timber Investment[59] was the investment of a substantial amount of capital in the business of producing timber from a radiata pine plantation at Penola in South Australia. The plantation was to be managed by a company, Malaysian Timber Suppliers Ltd. The Timber Investment was promoted by the Sentinel advisers in 1996.

1884. At the meeting in mid-July 1996, after Mr Giuffrida rejected some suggestions in relation to superannuation, Schimana recommended an investment in a pine plantation and called Quarrell in to explain it. Mr Giuffrida met Quarrell, who spoke of a proposed investment in a pine plantation and said that there would be a shortage of radiata pine in the future. Quarrell then showed Mr Giuffrida the agreements that he would have to sign if he wished to invest in a pine plantation. Quarrell said words to the effect that:

(a) The plantation was located in South Australia, and would be leased from a company called Bramsay Nominees Pty Ltd.

(b) He should take out a loan in the amount of $250,000, which Sentinel would arrange with a company called Monaro Ltd.

(c) $50,000 of the loan was to purchase trees on the land, and the balance of $200,00 would be pre-payment of management fees to Malaysian Timber Suppliers Ltd to manage the plantation for five years.

(d) The security for the loan was a timber crop lien, to be signed by Monaro Ltd and Mr Giuffrida.

(e) At the completion of five years, each investor had the choice to sell the trees, or continue with the plantation until sales could be secured.

(f) Each investor could also sell to a new investor to take over the investment. Alternatively each investor could continue to pay management fees, and potentially benefit from future sales of trees.

(g) Sales could be made initially by pruning the trees, which would provide minimal returns in the first five years.

(h) The return on his investment was guaranteed to be equivalent to the principal amount of the loan, that is, if proceeds from the sale of the trees were less than $250,000, then Monaro Ltd would not be able to claim the remainder of the loan from Mr Giuffrida.

(i) Monaro Ltd accepted the risk of this investment.

(j) After five years, Mr Giuffrida had a choice to stay in the investment and get big returns after about 20 years, or to get out of the investment entirely.

(k) Out of an investment of $250,000, $200,000 would be tax deductible.

(l) Interest payments on the loan from Monaro Ltd would also be tax deductible.

(m) All revenue raised from the investment would be "cream", because he had already obtained a tax deduction.

1890. Mr Giuffrida told Quarrell that he had concerns about entering into a loan for $250,000, and that he was not sure that the ATO would accept the claim for a deduction. Quarrell said that Sentinel had been in business for a number of years, and had done hundreds of these types of investments. He said that they had all gone through. He said that there was no problem with making a claim for a deduction for the full amount of the loan, and if the ATO knocked it back, Mr Giuffrida would not lose anything. Mr Giuffrida said that he would have lost something, because he would be committed to a $200,000 loan. Quarrell said that the tax deduction would be accepted, and there was no risk. He said that it would be like him handing Mr Giuffrida $120,000 on a plate, which he would not turn down.

1893. Quarrell said that the risk of the ATO refusing the tax deduction was nil, because Sentinel had obtained legal advice, and everything had been approved. He said that the risk of being stuck with a $250,000 loan repayment was also non-existent because of a clause in the loan agreement which said that the loan would be repaid from the sale of trees at the end of five years, and if that was not enough, the financier would pay the difference. Therefore, the only risk to Mr Giuffrida from the investment was the payment of the interest. Quarrell then did a quick calculation on paper of the interest payments over five years and then compared that with the value of the tax deduction that Mr Giuffrida would be obtaining from the investment. Quarrell said that when those two figures were compared, Mr Giuffrida was still ahead even if the investment did not make any returns. Quarrell then pointed to a provision in the loan agreement, and said that this was the clause that provided that the loan only had to be paid out of the profits of the investment.

1896. Mr Giuffrida then said to Quarrell that obtaining a tax deduction was one thing, but that he was also interested in a return on his investment. Quarrell said that after five years he could either stay in the investment, or sell out. He said that it could be a long term investment if Mr Giuffrida wanted it to be.

1899. Schimana said that if he wished to enter into the scheme, he would have to move very quickly as the financial year had already ended. He said that there was nothing illegal about this, because taxpayers have a few days' grace at the end of the year, and provided that they did not let too much time elapse, everything would be alright. Mr Giuffrida testified that he thought that this was a bit odd, but he accepted what was said.

1902. After discussing the matter with his wife, he decided to make the investment. He so decided on the basis of what he had read in the Sentinel brochure and on what he was told by Schimana about Sentinel and in particular, upon the basis upon what he was told by Quarrell about the Timber Investment. He arranged another meeting with Schimana, which took place on or about 28 August 1996. At this meeting, Mr Giuffrida said that he wanted to enter into the Timber Investment, but that he was concerned that he had "missed the boat". Schimana said not to worry about it, and that they could back-date documents to make sure that Mr Giuffrida could claim the deduction in the previous financial year. Mr Giuffrida testified that he did not know that this was illegal, and that he accepted Schimana's advice. Schimana gave Mr Giuffrida an application form for a loan, which Mr Giuffrida took away with him.

1905. In or about September 1996, Mr Giuffrida met again with Schimana and the documents were explained to him. Mr Giuffrida then said that he was still concerned abut the legality of the tax deductions. Schimana said that he would call in Sentinel's lawyer, Mr Sierakowski, to discuss that with him. Mr Sierakowski then came in, and told Mr Giuffrida that in his opinion there was nothing illegal about the investment he was about to enter into, and that it would be accepted by the ATO and gave some additional reasons why this was so.

1908. Mr Giuffrida then signed five agreements, being a loan agreement, a timber crop lien, a timber purchase agreement, a timber management agreement and a licence agreement. The agreements were backdated to 30 June 1996.

Mr Giuffrida: the Video Documentary Partnerships

1912. In about January 1997, Mr Giuffrida telephoned Schimana[60] and said that he was interested in entering into another investment for the financial year ended 30 June 1997. Mr Giuffrida told Schimana that he did not want to back-date any documents and did not want another huge loan. Mr Giuffrida asked Schimana whether he had an investment that might be suitable, one involving a revenue stream without raising a large debt. Schimana said that he would think about it, and get back to him.

1915. Later that month, Schimana telephoned Mr Giuffrida and arranged a meeting at the Sentinel office. At the meeting, Schimana said that he had an opportunity to invest in a partnership which would make documentary videos for cable TV networks. He said there was a big demand for content to satisfy the demands of cable channels. Schimana then showed Mr Giuffrida a number of informational and promotional documents, and took him through them.

1918. Schimana asked Mr Giuffrida what his estimated taxable income was, and he told him that it would be $190,000 for the year ended 30 June 1997. Schimana then said that he would require an income tax deduction of $160,000 and that in order to achieve this, Mr Giuffrida should invest in the Video Documentary Scheme, and obtain a loan from a company called Hemisphere to do so. Schimana said that Mr Giuffrida should borrow $116,364.00 from Hemisphere, which would then be provided to the partnership for the purpose of producing the documentaries. Mr Giuffrida would have to make a cash contribution of $29,091.00, which would also be provided to the partnership and would also have to pay $14,545.00 as prepaid interest. After the first year of the loan, he would be guaranteed an income stream of $12,727.00 per annum. The shortfall between this guaranteed income stream and the annual interest payment of $14,545.00 per annum was $1,818.00. Schimana said that Mr Giuffrida would be required to pay, at most, this sum of $1,818.00 for four years if he entered into the scheme. Schimana said that Mr Giuffrida could obtain a deduction of $160,000, because that was the sum of the cash contribution of $29,091.00, the loan amount of $116,364.00, and the first year's prepaid interest of $14,545.00.

1921. Schimana also made statements to the following effect:

(a) The investment in the Video Documentary partnership would be self-sustaining, because Asean Film Distributors Limited would pay a guaranteed amount of income;

(b) The investment was therefore like handing Mr Giuffrida money on a plate with no downside;

(c) Once the ATO approved of the deduction, then Mr Giuffrida was "home" and did not have to worry about the ATO disallowing the objection;

(d) There was no problem with this type of investment, and each investor would get a source of revenue;

(e) The market was hungry for the type of documentaries that the partnership would produce, because cable TV networks required more and more content;

(f) The investment would be guaranteed to produce an excellent return;

(g) The investment was better than the Timber Investment, because Mr Giuffrida could get a return on his investment much sooner;

(h) He would be guaranteed to receive 100% of the money that he invested in the partnership;

(i) The investment was secure and had no risks;

(j) All the money that he invested in the partnership would be 100% tax deductible;

(k) The interest payment on the loan would be 100% tax deductible;

(l) All he needed to do was to put in a tax return, and claim a deduction; and

(m) If the return was lodged and processed by the ATO, this was tantamount to the ATO approving of the scheme.

1927. After discuss ing the matter with his wife, Mr Giuffrida made the decision on the basis of the truth of what he had been told by Schimana. In due course, he signed the necessary documents and made the investment.

1930. I am satisfied that Mr Giuffrida made both investments because he believed what Schimana and Quarrell had told him about them. I am satisfied that Mr Giuffrida believed that they were legitimate investments which would earn him a profit and that there was no risk of any tax deductions that he claimed in respect of them being disallowed. I accept that Mr Giuffrida did not know that it was possible for the ATO to issue amended assessments, with penalties, after a deduction had been initially allowed, and no one at Sentinel told him of this possibility. I am satisfied that Mr Giuffrida believed Schimana and Quarrell because he thought that they and Sentinel were reputable, skilled, and experienced in giving investment advice.

1934. In or about June 1997, Mr Giuffrida was informed that there was a big problem at Sentinel and that Schimana had resigned.

1937. In mid-July 1997, Schimana told Mr Giuffrida that he could not trace the initial cash contribution ($44,974) which Mr Giuffrida had made to the Video Documentary Partnership but that everything should proceed as planned, provided he made his interest payments.

1940. In September 1998, Mr Giuffrida attended a meeting of the investors involved in the Video Documentary Partnership, at which he learned for the first time that there might be problems with the ATO in respect of the income tax deductions that had been claimed, and that it might be in the interests of the partners to pay the income tax involved in order avoid penalties and penalty interest. Mr Giuffrida told Schimana to prepare an amended return, in which he would not claim deductions in respect of the loan obtained to invest in the Video Documentary Partnership. This was done, his assessment was amended, and Mr Giuffrida paid the income tax involved.

1943. On 15 January 1999, Mr Giuffrida received a letter from the ATO informing him that the management fees, borrowing expenses and related interest expenses involved in the Timber Investment were not allowable deductions, for a number of reasons advanced in the letter. On 13 May 1999, Mr Giuffrida received a further letter from the ATO informing him that amended assessments for the years ended 30 June 1996 to 30 June 1998 would issue to him in the near future to disallow (based on Part IVA of the Income Tax Assessment Act) the deductions claimed in relation to his participation in the Timber Investment. These amended assessments were subsequently received.

1946. After he received these amended assessments, Mr Giuffrida stopped making payments on loans with respect to the Timber Investment and the Video Documentary Partnership. He had many telephone conversations with Tony Shaw, a representative of Hemisphere Finance (NZ) Limited in respect of these loans, who said that Mr Giuffrida would be sued unless he continued making payments. Mr Giuffrida replied to the effect that Mr Shaw could do that if he wished, as Mr Giuffrida would be very interested to see all the documents relating to how the investments were structured and what had happened to the money.

1949. Mr Giuffrida testified that he recalled later signing some documents with respect to the Timber Investment that released him from any obligations under the loan agreements that he had signed. He did not recall signing anything in relation to the Video Documentary Partnership, but Hemisphere had not pursued him for any outstanding debt.

1952. In about June 1999, Mr Giuffrida retained the so-called "Institute of Taxation Research" (which has already been mentioned) to act on his behalf in dealing with the ATO, and to lodge objections to the amended assessments, and incurred expenses in so doing. A number of objections lodged on Mr Giuffrida's behalf were disallowed by the ATO over the next two years.

1955. In or about December 1999 a number of investors, including Mr Giuffrida, retained solicitors to negotiate with the ATO, and, after negotiations, a settlement offer was signed by him in November 2000, which was accepted by the ATO in or about April 2001. A further settlement agreement was reached with the ATO in May 2002.

1959. I have already referred to the evidence of Mr McMaster, which is generally applicable to each of the plaintiffs.

1963. Mr McMaster gave similar evidence in relation to the information contained in the Timber Investment memorandum and the investment itself as he made concerning the Book Publishing Partnerships memorandum. In addition Mr McMaster noted that the period of investment was five years and that there was no explanation as to how investors would make a profit and no report from a forestry expert. Mr McMaster expressed the Adverse Opinion concerning the Timber Investment. Further, Mr McMaster said, in relation to softwood forestry, that on a risk scale of 1 to 10, it would sit at 7.5 because it was a long term investment with no liquidity.

1966. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Giuffrida, particularly having regard to his instructions to Schimana that his risk profile was very low and that he did not need to take many risks in order to improve his financial position, and certainly would not have recommended the investment without obtaining the information and advice and conducting the analyses referred to Mr McMaster (none of which, I am satisfied, occurred). Further I am satisfied that the Timber Investment was an offer to subscribe for a "prescribed interest" for which a prospectus was required.

1969. I am therefore satisfied that Schimana and Quarrell, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Giuffrida in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Giuffrida was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim. Further, I am satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Giuffrida that there was no risk of his tax deduction not being accepted and that the risk of the ATO refusing his tax deduction was nil because Sentinel had obtained legal advice and everything had been approved.

1973. Apart from the specific findings as to misleading and deceptive conduct, I make the same general findings of fact and law as to the conduct of Schimana in relation to this investment as I made in the case of Mr Duncan in relation to this investment. Further, I am satisfied that Schimana engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions, when he represented to Mr Giuffrida that the Video Documentary Partnership that the investment would be guaranteed to produce an excellent return, that the investment was secure and had no risks and that if the return was lodged and processed by the ATO, this was tantamount to the ATO approving of the scheme.

1977. In relation to the Timber Investment only, I consider that all of the necessary prerequisites for the liability of Financial Wisdom to Mr Giuffrida under s.819 of the Law have been established. At all times relevant to that investment, Schimana and Quarrell held proper authorities from Financial Wisdom and it is clear that Mr Giuffrida believed that they were engaged in relevant conduct on behalf of Sentinel in connection with a securities and investment advice business carried on by Sentinel. I am satisfied that Mr Giuffrida acted (ie, accepted the investment recommendation) because of his said belief, in the sense that one of the reasons for him accepting the recommendation was his belief that Schimana and Quarrell were acting on behalf of Sentinel in connection with a securities or investment advice business of Sentinel. Mr Giuffrida's said belief was reasonable. Financial Wisdom is therefore liable for the conduct of Schimana and Quarrell pursuant to s.819 of the Law.

Mr Giuffrida: Liability of Twenty-First Australia

1981. In relation to the Video Documentary Partnership, Twenty-First is liable to Mr Giuffrida pursuant to s.819 of the Corporations Law in respect of the conduct of Schimana. At all times relevant to that investment, Schimana held a proper authority from Twenty-First and it is clear that Mr Giuffrida believed that he was engaged in relevant conduct on behalf of Sentinel in connection with a securities and investment advice business carried on by Sentinel. I am satisfied that Mr Giuffrida acted (ie, accepted the investment recommendation) because of his said belief, in the sense that one of the reasons for him accepting the recommendation was his belief that Schimana was acting on behalf of Sentinel in connection with a securities or investment advice business of Sentinel. Mr Giuffrida's said belief was reasonable.

1985. I am satisfied that Mr Giuffrida has suffered loss and damage as a result of the conduct of the representatives to which I have referred. Mr Giuffrida would not have made any of these investments without the recommendation of the relevant representatives and he was further induced to do so by their misleading and deceptive conduct, which I have specifically identified. Each of the defendants is liable to the extent that such defendant is liable for the conduct of the relevant representative. I will deal more specifically with the nature and quantum of the damages suffered in the section below dealing with the damages of the plaintiffs.

1990. Mr and Mrs Noble were initially clients of Pamacorp Holdings and subscribers to the Sentinel Program, but no claims are made against Pamacorp. They were subsequently clients of the Sentinel Group. I found Mr and Mrs Noble to be truthful witnesses. I have accepted their evidence as follows.

* the Ostrich Schemes (March 1995) * the Guard Finance Investment (April, May, June 1996)

1997. Mr Noble was born on 31 December 1941 and his wife was born on 1 August 1942, and they have been married for 38 years. They have two children (twins) aged 27. Mr Noble was educated at Heidelberg Technical College and in 1956, obtained a position as a technician in training with the PMG (later Telecom Australia). He held various positions with the PMG over many years, ultimately, after obtaining professional qualifications, as an engineer. He accepted voluntary redundancy in 1993 at the age of 53. Mr Noble then undertook horticultural/rural studies at Outer Eastern College of TAFE for about 18 months.

2000. Mrs Noble attended East Camberwell Girls' Secondary School to Year 11 and then engaged in commercial studies at RMIT. She worked in a secretarial capacity for a woolbroking company for 8 years and held various other secretarial positions, interrupted by family responsibilities. She returned to work as professional assistant to the Manager, Student Administration, Victoria College (later Deakin University) for a period of 14 years.

2003. Mr Noble had been in retirement for a period of 4 years when Sentinel collapsed in June 1997. Because he had lost his superannuation savings and redundancy pay-out, he returned to the workforce, obtaining a number of casual jobs involving manual labour and is currently a labourer/factory hand. He and his wife also jointly run a farm. They had to sell stock at greatly reduced prices to pay their debts.

2006. Prior to 1993, Mr Noble had investments in stock deposits and tax-free bonds acquired through BT Investment, IOOF and Lifeplan. He and his wife had saving accounts with RESI (later Bank of Melbourne) and 444 shares in the Bank of Melbourne (obtained by purchasing 100 shares and reinvesting the dividends).

2009. In or about November or December 1992, Mr Noble attended a lunchtime retirement seminar conducted by Pamacorp at Telecom headquarters. Healy and Quarrell were the presenters. They gave a presentation on financial planning and ways to invest using retirement and redundancy funds. They said that they were always able to obtain better interest rates than banks. They told the meeting that they should not pay out their mortgages, as it was better to keep the mortgage and make other higher income producing investments. They said that the interest rate Pamacorp could obtain for them on investments was higher than the mortgage interest repayment rate. Mr Noble thought they were credible and appeared to know what they were talking about. Prior to this meeting, Mr Noble had been talking with a range of financial advisers.

2012. Mr Noble met with Quarrell at the office of Pamacorp in about March 1993. Prior to meeting with Quarrell Mr Noble had been researching retirement investment options for a number of years and had been looking at a diversified portfolio of investments including shares, property, annuities and registered first mortgages. Quarrell gave Mr Noble the Pamacorp brochure. Quarrell said that Pamacorp could assist Mr Noble, and asked him to provide his redundancy pay-out figure once it was confirmed. Mr Noble told Quarrell that he was looking at a diversified and well balanced investment portfolio. Quarrell completed a client profile analysis on this visit. The client profile analysis filled in by Quarrell showed net assets of $163,100 and an expected redundancy pay-out of about $90,000. In answer to the question "Are you concerned with security of investments or are you prepared to take high risks to achieve higher returns?", on a scale of 1 to 5 (where 1 = low risk and 5 = high risk), Mr Noble is recorded as having nominated 3. I note that Healy testified that the Nobles were not at all sophisticated investors and relied on advice.

(a) Pamacorp could provide a total financial service;

(b) investment options and proposals would be simple, flexible and secure;

(c) he would keep his retirement "nest egg" intact;

(d) services would be provided for a fixed monthly fee which would be tax deductible;

(e) investments offered would provide good returns and capital growth; and

(f) he would receive regular reports of his investments.

2021. Mr Noble carefully read the Pamacorp brochure, and he thought that the contents were consistent with what he had been told by Quarrell at the meeting. Mr Noble tentatively decided to use Pamacorp as his financial adviser.

2024. In or about May or June 1993 Mr Noble obtained his redundancy pay-out figure. To the best of his recollection, he was informed of a figure in the high $400,000s. Mr Noble then made an appointment for him and his wife to meet Quarrell. Mr Noble wanted there to be a joint decision on the choice of financial adviser. Mr Noble also wanted his wife to assess Quarrell's credibility and to ensure that she felt comfortable with him. They advised Quarrell of Mr Noble's redundancy pay-out figure and other financial details. Mrs Noble told Quarrell that it was her intention to retire within five years. Mrs Noble questioned Quarrell's credentials and the existence of professional indemnity. Quarrell replied in substance that all their investments would be in their own names, and that Pamacorp's public liability insurance was in the vicinity of either $1.6M or $3.6M (she could not recall which). Quarrell said that Pamacorp would provide regular reports, and Mrs Noble asked whether they would be written, to which Quarrell replied in the affirmative. Shortly after that meeting, Mr Noble confirmed with Quarrell that they would retain Pamacorp to manage their finances and other investments and that they would retain Quarrell as their personal financial adviser. At that time each of the Nobles believed that Quarrell was to be their financial adviser and would provide advice on behalf of Pamacorp. Quarrell told them at this or the next meeting that he was authorised to deal in all types of investments.

2027. Mr and Mrs Noble subsequently attended the office of Pamacorp on a number of occasions in 1993 and 1994, and there saw Quarrell. On one of those occasions, Mr Noble was provided with a copy of a Financial and Investment Plan dated 27 July 1993. The first page was endorsed "Recommendations prepared for Mr Frank Albert Noble". The second page had a similar endorsement with the additional words "by Colin F Quarrell, Authorised Representative of Financial Wisdom Ltd ACN 006 646 108". The next page was a letter to Mr Noble dated 27 July 1993, signed by Quarrell as "authorised representative of Financial Wisdom Limited". The letter read as follows:

"Thank you for allowing me the opportunity to provide you with this plan. I have prepared this plan on the basis of the financial information you provided, and consideration has been taken of the needs, aim and objectives you have expressed to me. In this report we have reviewed your income, expenditure, assets, liabilities and superannuation. The specific investment products which I have recommended in this report have been approved by Financial Wisdom, as a result of research carried out by and for them. This may not apply, however, to any product you have specifically requested. I have attached copies of the relevant prospectus(es), as well as brief summaries of each recommended product. Please advise me of any changes of your views, objectives, circumstances or information which since our interviews now appears relevant, as these may affect the nature of my advice and recommendations. To ensure that this plan continues to meet your ongoing requirements, it should be reviewed on a regular basis. This is an aspect I would like to discuss with you so that a suitable timetable can be organised. I look forward to presenting this plan to you and implementing it so that you can begin achieving your expressed financial objectives."

2031. There followed an introduction setting out Mr and Mrs Noble's circumstances and noting an anticipated "redundancy severance pay-out" of $520,556.43 (comprising long service leave of $42,584.19, redundancy payment of $91,800.46 and lump sum superannuation of $386,171.78). The document recorded Mr and Mrs Noble's aims and objectives. They wished to purchase a new motor vehicle, undertake some renovations to their home, provide funds for education expenses, travel in the future (both within Australia and overseas) and possibly purchase a holiday house, alternatively an income producing property. They needed the ability to access their investments at short notice for continued living expenses and ongoing liquidity or if other investment opportunities arose. They wanted to establish a share portfolio. They wished to be financially independent in retirement. The indicated "risk profile of 3" was noted, but the following expression of their attitude was quoted:

"You would consider taking a small risk if the returns on your investments were increased." [emphasis added]

2035. The investment plan went on to discuss in general terms a wide range of classes and categories of investments, and recommended an investment allocation of cash (5%), property (5%), Australian equities (25%), international equities (10%) and fixed interest (55%). The plan went on to make specific recommendations of a type which might legitimately be described as "conservative" and which it is unnecessary to mention in detail.

2038. For reasons which are unnecessary to mention, Mr Noble's pay-out to the extent of $466,665. 54 was, at the instigation of Quarrell, rolled over into an investment with Prudential Assurance Co Ltd Roll-Over Plan in December 1993.

2041. In early 1994, Mr Noble had a meeting with Quarrell in which he recommended that Mr Noble set up a self-managed superannuation fund. Quarrell recommended that in the meantime, Mr Noble roll-over his funds into an AM Life Limited Cashback Annuity. An application form dated 18 March 1994 was signed by Mr Noble and referred to the "Dealer/Broker" as Financial Wisdom Limited and the "Agent/Authorised Representative" as Colin F Quarrell. By letter dated 25 May 1994 to Mr Noble from AM Corporation Limited, the roll-over of the sum of $424,804.47 to an AM Life Limited Cashback Annuity account was confirmed, with a copy of the letter to "Mr Colin Quarrell, Financial Wisdom Limited". An account statement from AM Life Limited for the period ending 30 September 1994 shows a balance, after annuity payments tax and lump sum withdrawals, of $388,645.09 invested in a Capital Stable fund ($149,180.90) and a Balance Growth fund ($239,464.19). A series of cash withdrawals were subsequently made from this account by Mr Noble.

2044. Mr Noble followed Quarrell when he moved to Sentinel. On 23 September 1994, the Nobles faxed a letter to Quarrell, addressed to Sentinel's new South Yarra office. The letter informed Quarrell that the Nobles were interested in purchasing a small farm property, which they described, and they outlined their proposed method of financing the purchase. Shortly thereafter, the Nobles met Quarrell at the Sentinel office. Quarrell gave them a copy of the Sentinel brochure. Quarrell took them on a guided tour of the office, and introduced them to Schimana. Quarrell told the Nobles that Schimana would be looking after their taxation affairs, and that if Schimana could not save them more than the Sentinel taxation fees, he would not be performing his duty satisfactorily. The Nobles then returned to Quarrell's office, where Quarrell continued the meeting and Schimana took notes. Quarrell outlined legislative changes which were taking place in relation to superannuation. The Nobles asked for written advice on the investment of their superannuation moneys, and Quarrell said that he would get to work on it. Quarrell referred to the Sentinel brochure and, inter alia, mentioned the services that Sentinel could provide. Quarrell mentioned "wealth creation" and that he would always provide them with recommendations for investments and securities. Quarrell said that Sentinel would provide the kind of service and advice that Pamacorp had provided, and that he was not obligated to recommend any particular product. He said that they should not be bogged down by the financial side of their life and that they could "safely" leave that in Sentinel's hands. The Nobles later received a letter from Sentinel dated 20 October 1994.[61]

2049. Mr and Mrs Noble read the Sentinel brochure. I am satisfied that on the basis of the contents of the letter dated 20 October 1994 and of the Sentinel brochure, Mr and Mrs Noble believed that Quarrell was a principal of Sentinel, that Sentinel would provide the same services and investment advice as Pamacorp had provided and would be able to provide investment advice about every type of investment and financial product. In addition, Mrs Noble noted in the Sentinel brochure that Quarrell was described as a "licensed Proper Holder Authority [sic] and as such is able to advise in securities". This statement was reassuring and important to Mrs Noble because she knew that Quarrell was an accountant and considered that most accountants would not have the necessary expertise to provide the range of investment advice that they were looking for. On the foregoing bases, the Nobles retained Sentinel and continued to act on the advice of Quarrell and Schimana.

2053. In or about March 1995, the Nobles met Quarrell at the office of Sentinel. Schimana also attended the meeting. Quarrell and Schimana recommended that the Nobles invest in ostriches. They said there was high potential for capital growth with this investment. They said there was a developing domestic and export market for ostrich meat and leather and that Ostco was involved in that market. They said that ostrich farming would be better than cattle and sheep farming as potential capital earning.

2056. Quarrell and Schimana described the way the investment would work - they would purchase a pair of ostriches for $23,000 and obtain a tax deduction of $5,000. There would be sales of the progeny in the future. They were told that they could get $50,000 for the sale of chicks (sold to avoid inbreeding). Chicks would then be purchased from other investors' batches for $20,000.

2059. Quarrell and Schimana told them that when the chicks reached maturity, say 20 adult birds, there might be an imbalance of males to females. They could then sell off the excess for slaughter, for leather and ostrich oil. There would also be an assured sale of the progeny within Ostco. They said that the more you could produce, the more you would be able to sell off.

2062. The Nobles were told by Quarrell and Schimana that the ostriches would be agisted at established accredited ostrich breeding farms, which were contracted by Ostco to breed, incubate and raise birds on behalf of clients. They said that all expenses like agistment and insurance would be tax deductible. They said further that the people involved at Ostco were experts and had access to world class facilities.

2065. Quarrell drew a diagram of the broad outline of the investment and Schimana told them about the tax implications and funding. Quarrell explained the diagram and told them with 10 live chicks they could expect a return of $600 for each slaughtered bird. He said that at 12 months they would be able to earn $40,000. They were advised to invest $23,000 and that $5000 would be tax deductible. They were told that, in 18 to 24 months, they would be able to purchase a total of 4 birds and in a further 18 months, they would get a further 20 chicks from which they could keep 10 and sell 10. Quarrell also gave them some promotional material.

2068. Although they then made some inquiries of their own, I am satisfied that the Nobles decided to make the investment of $23,000 in reliance upon the recommendation of Quarrell and Schimana. The investment was made in the name of the Serendipity Investment Trust in July 1995. The funds were obtained from the moneys held by AM Life Limited. The Nobles signed various agreements including a purchase agreement and an agistment agreement, and received certificates of ownership. They purchased two ostriches for a total of $17,980 and paid agistment fees for 24 months totalling $2400. The balance was applied towards insurance costs. Subsequently they paid further amounts for insurance and agistment.

2071. At some stage, which does not appear to be disclosed by the evidence, but which would seem to have been in late 1997, Ostco went into liquidation, and in January 1998, the Nobles paid Eastcoast Ostriches (the owner of the agistment property) the sum of $80 "to have the birds disposed". In June 1998, the liquidator advised the Nobles that there would be no amount payable in the liquidation to investors or other unsecured creditors.

Mr and Mrs Noble: the Guard Finance Investments

2075. From mid to late 1995, the Nobles had a series of meeting with Quarrell and Schimana, in the course of which it was recommended that they invest in registered first mortgages, which they described as being "under a holding company". They said that such investments were safe. As a result, the Nobles invested $80,000 with First Finance. Those funds were subsequently repaid with interest and used by the Nobles towards purchase (in January 1996) of their farm at Tatong.

2078. In mid December 1995, Quarrell told Mr Noble that legislative changes which would enable them to use their superannuation moneys for investment would probably occur in the next few months, and that they should establish the Noble Superannuation Fund. On or about 20 December 1995, the Noble Superannuation Fund was set up.

2081. On or about 2 April 1996, on Quarrell's advice, they lent the sum of $25,000 to First Finance for a period of 12 months varying interest at the rate of 12% per annum, payable quarterly.

2084. In late April 1996, Mr Noble told Quarrell that they were disappointed with the small return from the investment with AM Life Limited. Quarrell advised them to withdraw these funds and invest through the Noble Superannuation Fund into a first mortgages holding company as a temporary mechanism prior to the preparation of an investment strategy. Quarrell told them that the investment was without risk and that the company only lent money for property investments that were secured by first mortgage. Mr Noble told Quarrell that he wanted to use some of the funds to develop the farm which they had recently purchased. Quarrell told them that they could withdraw the funds at any time. In mid May 1996, the balance invested with AM Life Limited ($287,554.80) was rolled over into the Noble Superannuation Fund. A letter from AM Corporation Ltd dated 16 May 1996 confirmed this transfer. By letter to St George Partnership Banking dated 22 May 1996, Sentinel instructed the bank to credit the proceeds of the cheque from AM Life Limited to the account of the Noble Superannuation Fund. On the next day, Quarrell asked the Nobles for written authority to invest $250,000 in Guard Finance, and on the same day, Mr Noble signed an authority as requested. Mr Noble received a letter dated 5 June 1996 from Guard Finance enclosing documentation relating to a loan by the Noble Superannuation Fund to Guard Finance of the sum of $250,000 for a period of 12 months, varying interest at the rate of 12% per annum payable quarterly.

2087. No investment advice was forthcoming from Quarrell despite a number of requests from the Nobles. Quarrell said that their funds were earning good interest, and were safe. Quarrell recommended that they move more funds from the Noble Superannuation Fund into first mortgages. As a result on 14 June 1996, the Noble superannuation fund lent a further sum of $30,000 to Guard Finance for a period of 12 months on the same interest terms.

2090. On 23 July 1996, the Nobles were advised of an interest payment by First Finance. Thereafter, they did not receive statements or interest payments. By late 1996, Mr Noble realised that they were not receiving statements with respect to interest from First Finance and Guard Finance. Quarrell always told them that these statements would be forthcoming.

2093. From time to time, Mr Noble arranged for the repayment of some moneys by First Finance/Guard Finance, and a total of $87,850 was transferred back into the Noble Superannuation Fund.

2096. In about March 1997 Mr and Mrs Noble met Quarrell at the new offices of Sentinel in Collins Street, Melbourne. Quarrell said to Mr Noble that he was spending too much of his superannuation moneys on the farm and that he should reduce the withdrawals to ensure that the funds would last throughout their retirement. After receiving that advice, Mr Noble only withdrew another $15,000 from the investments in Guard Finance Investments.

2099. Quarrell did not at any time draw to the attention of the Nobles that the investments with First Finance and Guard Finance were unsecured loans and not first mortgage investments. I am satisfied that the Nobles believed that they were investing in first mortgages, and would not otherwise have made the Guard Finance Investments. I note that the evidence shows that Quarrell from time to time recommended other investments to the Nobles, including the Copperfield Investment, the Book Publishing Partnership and the Video Documentary Partnership, but the Nobles indicated that they were not interested in such investments.

2103. After the collapse of Sentinel, the Nobles spent some time and money in ascertaining their losses. Proofs of debt were lodged by the Noble Superannuation Fund with the liquidator of First Finance in the sum of $29,024 and with the liquidator of Guard Finance in the sum of $229,007.89. A first and final dividend was received from First Finance in the sum of $13,352.49. A dividend was received from Guard Finance in the sum of $16,761.32.

Mr and Mrs Noble: Conduct of the representatives

2107. I have already referred to the evidence of Mr McMaster, which is generally applicable to each of the plaintiffs.

2111. I refer to and repeat the findings made in relation to the Ostrich Schemes when dealing with the claims of Mr Duncan. I am satisfied that a reasonable and prudent investment adviser should not have recommended this investment to Mr and Mrs Noble, particularly without conducting the investigations and assessments referred to by Mr McMaster (which I am satisfied did not take place). The recommendation was all the more inappropriate having regard to the fact that Mr and Mrs Noble had instructed Quarrell at an early stage that they would only consider taking a small risk for increased returns on their investments.

2114. I am therefore satisfied that Quarrell and Schimana, by recommending the investment, each acted in breach of a duty of care which they owed to Mr and Mrs Noble in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment, in the failure to make any proper inquiries or investigations concerning the investment and the persons involved in it and in the failure to explain the risks involved and to ensure that they were within the risks which Mr and Mrs Noble were prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim.

2118. I make the same rulings and general findings in relation to these investments by Mr and Mrs Noble as I made in relation to the claims of Mr and Mrs Gray concerning this investment. I am satisfied that a reasonable and prudent financial adviser would not have recommended these investments to Mr and Mrs Noble.

2121. In any event, I am further satisfied that Quarrell engaged in misleading and deceptive conduct, in contravention of the pleaded statutory provisions (and indeed, made fraudulent misrepresentations) when he represented to Mr and Mrs Noble that they were investing in registered first mortgages and that the investment was without risk.

Mr and Mrs Noble: Liability of Financial Wisdom

2125. I consider that all of the necessary prerequisites for the liability of Financial Wisdom to Mr and Mrs Noble under s.819 of the Law have been established in relation to the Ostrich Schemes and Guard Finance Investments. At all relevant times, Quarrell held a proper authority from Financial Wisdom and it is clear that Mr and Mrs Noble believed that he was engaged in relevant conduct on behalf of Sentinel in connection with a securities and investment advice business carried on by Sentinel. I am satisfied that Mr and Mrs Noble acted (ie, accepted the various investment recommendations) because of their said belief, in the sense that one of the reasons for them accepting the recommendations was their belief that Quarrell was acting on behalf of Sentinel in connection with a securities or investment advice business of Sentinel. Mr and Mrs Noble's said belief was reasonable. Financial Wisdom is therefore liable for the conduct of Quarrell pursuant to s.819 of the Law.

Mr and Mrs Noble: Liability of Twenty-First Australia

2129. Twenty-First is liable to Mr and Mrs Noble in relation to the Guard Finance Investments only, in respect of the conduct of Quarrell.

2133. I note that there is evidence that some moneys invested by Mr and Mrs Noble were derived from two trust funds. An application was made, which was not opposed by Financial Wisdom, for leave to amend the schedule to the writ and the Statement of Claim to permit Mr and Mrs Noble to additionally sue in their capacity as trustees of such trust funds. I am satisfied that leave should be granted as sought so as to permit them to additionally sue in their capacity as trustees of the Serendipity Investment Trust and the Frank Noble Superannuation Fund.

2137. I am satisfied that Mr and Mrs Noble have suffered loss and damage as a result of the conduct of the representatives to which I have referred. Mr and Mrs Noble would not have made either of these investments without the recommendation of the relevant representative and they were further induced to do so by the misleading and deceptive conduct, which I have specifically identified. Each of the defendants is liable to the extent that such defendant is liable for the conduct of the relevant representative. I will deal more specifically with the nature and quantum of the damages suffered in the section below dealing with the damages of the plaintiffs.

M. THE CLAIMS OF JILLIAN ANNE SMITH AS EXECUTRIX OF THE ESTATE OF ERIC SMITH

2142. Mr Smith was born on 15 April 1942 and died on 18 August 2002. His widow obtained probate of his estate on 12 December 2002. Mr Smith was a client of Pamacorp Holdings and a subscriber to the Sentinel program and subsequently a client of the Sentinel Group. Evidence was obtained from Mr Smith shortly before his death by way of a de bene esse examination on 9 August 2002. Financial Wisdom and Twenty-First were each represented by Counsel at the examination but elected not to cross-examine Mr Smith. At trial, a statement by Mr Smith was tendered on behalf of Financial Wisdom and admitted into evidence (Exhibit 16). In so far any matters in that statement are in conflict with Mr Smith's sworn evidence, I prefer his sworn evidence, and I note that none of the contents of the statement were put to Mr Smith at the time of his de bene esse examination. Mrs Smith also gave evidence at the trial.

* the Cabaret Scheme (December 1994) * the Guard Finance Investments (March 1995) * the DCL Shares Investment (April 1995) * the Superannuation Schemes (April 1995)

2149. Mr Smith was retired but had been employed by Pacific Dunlop or related companies for some thirty odd years. For many years he was employed as a marketing manager and his last occupation with the Group was as a General Manager of a joint venture company. Mr and Mrs Smith were married for 32 years. Mrs Smith testified that her husband was financially naïve and was not an experienced investor. I accept her evidence. I further accept the evidence of Healy who said that Mr Smith was an extremely honest and down-to-earth individual who trusted his advisers. Mr Smith was a client of Pamacorp, where he regarded Healy ("Mr Smooth") as the "main man". I would infer that Mr Smith was aware of and relied upon the representations which the evidence shows were made by Pamacorp as to the expertise of the Pamacorp advisers and the expert services provided by Pamacorp. In 1994, Healy told Mr Smith that he, Quarrell and Schimana were proposing to take their major clients with them to a new organisation called Sentinel. At that time, Mr Smith was employed by Pacific Dunlop. Mr Smith had a meeting with Healy, Quarrell and Schimana, probably on 22 August 1994, at Sentinel's premises in South Yarra. This was an introductory meeting, during which the services which they were offering to provide (including tax planning and investment advice) and their fees were discussed. The topic of tax-effective investments must have been raised, because Mr Smith testified that he said to them right from the beginning "I'm not in the business of cheating tax, or the tax man or anybody else, but if we can defer tax, or find another way to do it, let's go for it". Mr Smith said he visited the Sentinel premises in South Yarra about 15 times. On the first occasion, he received and read the Sentinel brochure, and the slips included in it with photographs of Quarrell and others. Mr Smith noticed the statements in the written material concerning the expertise of the Sentinel advisers, which was further reinforced by statements made to him at the meeting. He later received and read the letter from Sentinel dated 20 October 1994. I infer that Mr Smith thereafter acted in reliance upon the expertise of the advisers and in the expectation of the services that they were able to provide as represented in this written material.

2152. Mr Smith said that Healy was the major spokesman, but, in effect, the advice which he received was jointly given by Healy and Quarrell.

2156. Mr Smith was introduced to the Cabaret Scheme (by either Healy or Quarrell, he could not remember) and "their proposal" (ie, Healy and Quarrell's) was that he should take a fully non-recourse loan in the sum of $200,000, his commitment being to pay the interest in full "at which time the loan could be considered to be closed". He was given a memorandum in relation to the investment. He could not recall who showed him the document "because they sort of came in as a group or as a team" (ie, Healy, Quarrell and Schimana). Mr Smith said that he went through the document. The money was going to be used to put on the show "Cabaret". Asked about taxation effect, he said: "It was all based around tax at the end of the day." He was told that he was committed to two year's interest, which was 100% deductible. They told him that: "it was good investment from their point of view because the show was running round the world and they were getting good box office, and in the end all it really had to make was enough for me to get my interest back." Mr Smith accepted their advice and signed the relevant documentation in or about December 1994.

2159. By letter dated 24 June 1996, Mr Smith wrote to the financier as follows:

"My enquiries reveal that there has not been, nor is there any indication to suggest that there will shortly be, any production of the show "Cabaret". I view this with great concern and I can see no basis for my being required to continue to service a loan to fund the production costs for a show which does not exist. Accordingly I am suspending payments to your Company forthwith. Should there be some change in circumstances and a satisfactory explanation of any future plans I am prepared to review my position."

2163. Mr Smith suspended his payment of interest. He subsequently received a letter from solicitors advising of the assignment of the loan from the original financier to Capital Investments Corporation Limited. On 23 January 1997, Mr Smith paid the arrears of interest and resumed payment of interest, which he paid in full.

2167. In 1995 - 1996, Mr Smith received various payments in relation to his employment or former employment by Pacific Dunlop, including a redundancy package, a superannuation pay-out and consideration for executive shares. These payments were the source of the investments referred to below.

2170. In March 1995, on the recommendation of Healy and Quarrell, Mr Smith advanced $100,000 to First Finance, of which $60,000 was subsequently repaid. In respect of the balance of $40,000, Mr Smith later received a dividend from the liquidator in the sum of $18,402.

Mr Smith: the DCL Shares Investment and the Superannuation Schemes

2174. At or about the time of his retrenchment, Quarrell and Healy advised Mr Smith, as he put it:

"that $200,000 of the super should just go into a corner somewhere for the moment while we worked out what we're going to do. That $100,000 should go to DCL and that the other $200,000 - I was going to go and buy a Porsche[62] and a few stupid things like that."

2178. Mr Smith said that DCL had property on the Gold Coast and he "went up to have a look at one in particular, for which they just needed to buy the little corner." Mr Smith said that in the property area, Quarrell probably had a bit more to do with it than Healy did. In March 1995, on advice from Quarrell and Healy, the Eric T Smith Superannuation Fund was established and a cheque dated 30 March 1995 for $293,900 from Pacific Dunlop Group Staff Superannuation Fund was paid to Mr Smith's new superannuation fund, the trustee being AS Nominees. AS Nominees[63] was used by Sentinel as the trustee of personal superannuation which it advised its clients to establish.

2181. Mr Smith was advised by Quarrell and Healy to purchase 100,000 ordinary shares (of $1) in DCL and did so in about March 1995.

2185. Mr Smith's investment of $100,000 in the DCL Shares Investment was lost. His investment of $293,900 in the Superannuation Scheme was also lost. AS Nominees was wound up by the Federal Court on 17 November 1995 and Barry Taylor was appointed as liquidator. Evidence concerning the way in which AS Nominees had misconducted and mismanaged itself as trustee is contained or referred to in the witness statement of Barry Taylor, which was admitted as evidence of the truth of the contents.

2189. I have already referred to the evidence of Mr McMaster, which is generally applicable to each of the plaintiffs.

2193. Apart from the specific findings as to misleading and deceptive conduct, I make the same findings of fact and law concerning the conduct of Healy, Quarrell and Schimana in relation to this investment as I made in the case of Mr Newman in relation to this investment. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Smith.

2197. I make the same rulings and general findings in relation to this investment by Mr Smith as I made in relation to the similar investments by Mr and Mrs Noble. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Smith.

2201. I make the same general findings in relation to this investment by Mr Smith as I made in relation to similar investments by Mr Collins. I am satisfied that a reasonable and prudent financial adviser would not have recommended this investment to Mr Smith.

2205. I accept the evidence of Mr McMaster that a reasonable and prudent financial adviser, in order to protect a client against the risks of mismanagement and maladministration, would have undertaken appropriate due diligence in respect of AS Nominees before advising that it should be appointed as a trustee for a client's superannuation fund. Such an investigation, which did not occur, would have identified the administrative incompetence of AS Nominees. I am therefore satisfied that a reasonable and prudent financial adviser would not have recommended that Mr Smith invest his superannuation fund under the trusteeship of AS Nominees.

2208. I am therefore satisfied that Quarrell and Healy, by recommending the investment, each acted in breach of a duty of care which they owed to Mr Smith in the circumstances. In my opinion, the recommendation of the investment in itself constituted negligence, having regard to the matters I have mentioned in the previous paragraph. In addition, there was negligence in the failure to ensure that there were reasonable grounds for recommending the investment and in the failure to explain the risks involved and to ensure that they were within the risks which Mr Smith was prepared to accept. Given those findings, I do not propose to make findings about each of the many alternative causes of action alleged in the Statement of Claim.

2212. I consider that all of the necessary prerequisites for the liability of Financial Wisdom to the estate of Mr Smith under s.819 of the Law have been established. At all times relevant, Quarrell held a proper authority from Financial Wisdom. I am satisfied that Mr Smith: (1) believed that Quarrell recommended the investments on behalf of Sentinel in connection with a securities investment and advice business carried on by Sentinel and (2) accepted the various investment recommendations because of this belief, in the sense that one of the reasons for him accepting them was his belief that Quarrell was acting on behalf of Sentinel in connection with a securities and investment advice business of Sentinel. Mr Smith's said belief was reasonable. Financial Wisdom is therefore liable to Mrs Smith for the conduct of Quarrell pursuant to s.819 of the Law. It is true that there is no explicit evidence of the two above-numbered findings in Mr Smith's case. However, even in the absence of explicit evidence, there is, on the evidence pertaining to Mr Smith's conduct, a very strong inference thereof which I draw. Indeed, to the extent that the evidence is not entirely explicit in the case of some of the other plaintiffs, there are, in the case of each of them, very strong inferences of a like nature open on the evidence, which I would draw if necessary.

2216. Twenty-First is not liable to the estate of Mr Smith in respect of the conduct of Quarrell and Healy because they did not hold proper authorities from Twenty-First at the times when the relevant investments were recommended.

2220. I note that there is evidence that some moneys invested by Mr Smith were derived from his superannuation trust fund. An application was made, which was not opposed by Financial Wisdom, for leave to amend the schedule to the writ and the Statement of Claim to permit Mrs Smith to additionally sue in her capacity as trustee of such trust fund. I am satisfied that leave should be granted as sought so as to permit her to additionally sue in her capacity as trustee of the Eric T Smith Superannuation Fund.

2224. I am satisfied that Mr Smith suffered loss and damage as a result of the conduct of Quarrell to which I have referred. Mr Smith would not have made any of these investments without Quarrell's recommendations and Mr Smith was further induced to do so by Quarrell's misleading and deceptive conduct, which I have specifically identified. Financial Wisdom is liable for the conduct of Quarrell. I will deal more specifically with the nature and quantum of the damages suffered in the section below dealing with the damages of the plaintiffs.

2228. In the course of considering a number of the investments[64] made by the plaintiffs, I expressed the conclusion that the investment constituted a "prescribed interest" and that a prospectus should have been provided. In the way that I have approached the matter, that conclusion is not the foundation for a separate cause of action, but simply supports the conclusion in the case of each of the relevant investments that it should not have been recommended to an investor. In the end, Financial Wisdom did not seek to contend that a prospectus was not required in the case of these investments. I will briefly state my reasons for the conclusion reached.

2231. Part 7.12 of the Corporations Law regulates "Offering Securities for Subscription or Purchase". Division 2 includes s.1018 and is concerned with "Prospectuses" while Division 5 includes ss.1064 and 1065 and is concerned with "Prescribed Interests".

2234. These provisions[65] are in the following terms:

(1) A person shall not offer for subscription, or issue invitations to subscribe for, securities of a corporation unless:

(a) a prospectus in relation to the securities has been lodged;

(b) the prospectus complies with the requirements of this Division;

(c) if the prospectus is a registrable prospectus - the prospectus has been registered by the Commission under section 1020A."

"1064 Issue of prescribed interests restricted

(1) A person, other than a public corporation, must not make available, offer for subscription or purchase, or issue an invitation to subscribe for or buy, any prescribed interest."

(1) A person shall not issue, offer for subscription or purchase, or issue invitations to subscribe for or buy, any prescribed interest unless, at the time of the issue, offer or invitation, there is in force, in relation to the interest, a deed that is an approved deed for the purposes of this Division or a corresponding law.

(2) Where a deed would, but for this subsection, have ceased to be an approved deed for the purposes of this Division because there is no trustee or representative for the purposes of the deed or the approval of the trustee or representative has been revoked or because of any other circumstance relating to the trustee or representative, the Commission may, despite section 1066, direct that the deed is to continue to be an approved deed for such period and for such purposes as the Commission directs and, upon the giving of such a direction, the deed continues to be an approved deed accordingly.

(3) A person shall not, in any deed, prospectus, statement, advertisement or other document relating to a prescribed interest, make any reference to an approval of a deed, or an approval of a trustee or representative, granted under this Division, a corresponding law or a corresponding previous law."

2248. "Prescribed interest", which as I have said, is included in the definition of "securities", is defined to include a participation interest,[66] which in turn is defined as follows:[67]

"'participation interest' means any right to participate, or any interest:

(a) in any profits, assets or realisation of any financial or business undertaking or scheme, whether in Australia or elsewhere;

(b) in any common enterprise, whether in Australia or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party; or

whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset, but does not include:

(e) any share in, unit of a share in, or debenture of, a body corporate;

(g) an interest in a partnership agreement, unless the agreement or proposed agreement:

(i) relates to an undertaking, scheme, enterprise or investment contract promoted by or on behalf of a person whose ordinary business is or includes the promotion of similar undertakings, schemes, enterprises or investment contracts, whether or not that person is, or is to become, a party to the agreement or proposed agreement..."

2261. "Investment contract" is defined[68] by the Law to mean:

"any contract, scheme or arrangement that, in substance and irrespective of its form, involves the investment of money in or under such circumstances that the investor acquires or may acquire an interest in, or right in respect of, property, whether in this jurisdiction or elsewhere, that, under, or in accordance with, the terms of investment will, or may at the option of the investor, be used or employed in common with any other interest in, or right in respect of, property, whether in this jurisdiction or elsewhere, acquired in or under like circumstances".

2265. I am satisfied that each of the investments mentioned[69] was covered by the wide definition of a "participation interest" and was therefore a prescribed interest for which, inter alia, a prospectus was required. None of the investments which were in the nature of partnerships[70] fell within the exception contained in sub-paragraph (g)(i) of the definition of "participation interest" relating to "an interest in a partnership agreement" because, as the evidence shows, the schemes related to "an undertaking, scheme, enterprise or investment contract promoted by or on behalf of a person[71] whose ordinary business is or includes the promotion of similar undertakings, schemes, enterprises or investment contracts".[72]

2270. I note at the outset that, apart from the plaintiffs' own evidence, the principal evidence in relation to damages was provided by Geoffrey Ronald Sincock, an experienced chartered accountant with BDO Chartered Accountants & Advisers, who was retained by the plaintiffs to calculate their pecuniary loss and damage and their loss of opportunity damages. Mr Sincock looked at the witness statements of the plaintiffs and the annexures thereto and he investigated the plaintiffs' records. Mr Sincock prepared a report in relation to each plaintiff, in which he listed the total actual expenses which they had incurred with each of the investments. He also considered the income tax returns and assessment notices of each witness, and any payment arrangements that they had made with the ATO.

2273. Mr Sincock's reports set out the cash losses suffered by each plaintiff which comprised losses of principal (but only where the investment was made from their own funds or any loan was repayable), interest payments (which, in some cases, comprise the main losses) and other fees, costs and expenses directly associated with the investment. Mr Sincock also deducted amounts recovered by way of distributions from liquidators and the like.

2276. I have the impression, which may or may not be correct, that some of the costs, fees and expenses referred to in various of the plaintiffs' witness statements have not been included in Mr Sincock's calculations and hence are not included in the total damages claimed in the plaintiffs' final submissions. I have assumed that the plaintiffs have elected to confine their claims for damages to those items comprised in Mr Sincock's reports or which are otherwise expressly mentioned in the plaintiffs' final submissions. In that regard, I further note that although the Court was asked to make findings in relation to the Copperfield Investment, and I have done so, it does not appear that any claims for damages have been made in relation to that investment. Of course, the moneys invested in the Copperfield Investment were "transferred" to the Book Publishing Partnership, but to the extent that there were any other losses suffered, I do not that think that they have been claimed.

2279. Mr Sincock took into account the income tax consequences of each plaintiff's investments. These were both positive and negative. On the positive side, the plaintiffs enjoyed tax savings as the result of various tax deductions which they claimed from investments and also received refunds after settlements, and on the negative side, the plaintiffs were obliged to make various payments to the ATO as a result of relevant amended assessments.

2282. In cases where a particular defendant is not liable for all of the losses incurred by an investor, it will be necessary to calculate the losses (offset by any tax benefits) flowing from specific investments. In some cases, therefore, it will be necessary to apportion the total net tax benefit (or loss) between the particular investment losses so as to accurately reflect the separate tax consequences of each investment. The parties recognised[73] that, if the Court reached the stage of assessing damages, it would still be necessary for the parties to work out or, in default, for the Court to assess after a further hearing, this apportionment of the tax benefit (or loss) between the investment losses. For that reason, and to enable any other submissions as to damages to be made in the light of the findings hereunder, it is not possible to find a final damages figure in relation to each investment or against each defendant.

2285. I will refer further to Mr Sincock's evidence in the course of summarising the submissions made concerning damages.

2288. The claim for damages made on behalf of the plaintiffs fell into three categories.

2292. The first category was a claim for the losses actually suffered as a result of entering into each of the recommended investment schemes. In respect of this category, Financial Wisdom accepted that a successful plaintiff was entitled to recover all direct out-of-pocket expenses relating to any particular investment scheme. Those expenses might include interest payments, stamp duty and set up costs. Financial Wisdom submitted that other costs, such as the establishment of trusts and companies and engaging advisers and other incidental costs were too remote and not recoverable. However, Financial Wisdom did not point to any item or items falling into the latter class of costs, and it does not appear to me that the plaintiffs have claimed items other than those which they have described as "losses actually suffered as a result of entering into each of the investment schemes".

2296. The second category of the plaintiffs' claim for damages was a loss of opportunity claim based upon evidence by each plaintiff that, but for entering into the recommended investment schemes, they each would have invested in other investments which would have been profitable.

2299. The plaintiffs submitted that the cases[74] established the following principles in relation to loss of opportunity damages, which principles applied both to the plaintiffs' claims in the tort of negligence and their misleading and deceptive conduct claims (whether under the Fair Trading Act or the Corporations Law). The plaintiffs said that the principles were as follows. First, the existence of the opportunity must be proved on the balance of probabilities. Second, if the realisation of the opportunity depended upon a plaintiff's own decision to exploit it, as was the case here, it must be proved on the balance of probabilities that the opportunity would have been so exploited. Third, the plaintiff must establish on the balance of probabilities that as a result of not exploiting the opportunity, some loss or damage had been suffered.[75] Fourth, if the first three matters are satisfied, the Court then assesses the prospects of the opportunity being successfully exploited by the plaintiff. The value of the lost opportunity is then to be "ascertained by reference to the degree of probabilities or possibilities".[76] At this stage the Court is not concerned with proof on the basis of the balance of probabilities. Instead the Court is concerned to assess the likelihood of the plaintiff's realisation of the opportunity and to award damages reflecting that likelihood even if realisation was unlikely. A 1% chance of realisation is just as compensable as a 99% chance of realisation.[77]

2302. The plaintiffs submitted that the evidence showed in respect of each plaintiff that:

(a) Each of them required and was offered conservative investment advice. This was made clear by the individual risk assessment undertaken by the investment advisers during initial interviews.

(b) Each of them was looking for investment advice in relation to increasing the funds available to them to provide for their retirement.

(c) Each of them wanted to make much better use of the funds then available to them for relatively conservative investment purposes.

(d) The overwhelming probability was that, if they had not made the recommended investments, they each would have invested in alternative investments which they identified in their evidence and which would have been successful.

2308. The plaintiffs therefore submitted that, in addition to the individual specific and direct losses suffered, the plaintiffs also suffered a loss of the opportunity to invest their moneys in the relatively conservative investments which they were seeking. The plaintiffs submitted that they were entitled to be compensated to the full for the loss of the opportunity to invest in investments which should have been recommended to them by reasonable and prudent investment advisers.

2311. On the other hand, Financial Wisdom contended that each plaintiff had to prove on the balance of probabilities that a commercial opportunity of some value had as a matter of reality existed, which, but for the conduct of the advisers, they could have and would have acted upon. Financial Wisdom submitted that the evidence of the plaintiffs was insufficient and that there was no evidence that any of the plaintiffs either had the ability to take up the opportunity they claimed they had lost or that they would have exploited such opportunity. Financial Wisdom further submitted that the expert evidence did not take into account the substantial cash benefits received by some of the plaintiffs, as a result of reduced taxation obligations, which were used by them, in particular, in relation to property investments or to reduce or discharge mortgages. Financial Wisdom then submitted that the claim for loss of opportunity damages was predicated on the assumption that each of the plaintiffs would have had funds available to make the kinds of investments which they said they had lost the opportunity to make because, if the plaintiffs had not entered into the relevant schemes, they would not have had the disposable income available. Financial Wisdom further submitted that the evidence as to loss of opportunity related to the total losses of each plaintiff and was not split up scheme by scheme, which rendered it difficult to assess the liability of a particular defendant for such loss of opportunity where the defendant was liable to a plaintiff in respect of some only of the schemes entered into by that plaintiff.

2314. In response to Financial Wisdom's said submissions, the plaintiffs recognised that one further matter did arise in relation to the calculation of the plaintiffs' actual losses, namely, how those losses were to be adjusted to take into account any benefit that a plaintiff might have enjoyed by reason of having the cash benefit available for a period of time by reason of claimed income tax deductions.

2317. The plaintiffs continued by saying, in relation to loss of opportunity damages, that Mr Sincock identified some parameters which he said should be taken into account in the calculation of damages for each plaintiff in respect of a loss of opportunity to use the moneys actually expended, in relation to the recommended investments, in other investments of the type that they preferred or which should have been recommended to them by a reasonable and prudent financial adviser.

2320. The plaintiffs submitted that the question of the cash benefit from claimed tax deductions and the question of loss of opportunity were inextricably linked because each of the plaintiffs was seeking investment advice and intended to make investments of some kind. In other words, it was inappropriate to take into account the immediate benefits of the investments which they actually made without also taking into account the notional benefits of alternative investments which they would have made if these investments had not been recommended. It was unrealistic to think that any of the plaintiffs would have done nothing by way of investments. I agree generally with this reasoning. Of course, one of the answers advanced by Financial Wisdom to this reasoning was that, without the tax benefits of the schemes into which they entered, it was not shown that the plaintiffs would have had disposable income sufficient to make alternative investments. This contention will need to be taken into account in relation to each plaintiff. However, I should say at once that it is clear from the evidence that some of the plaintiffs would have had considerable resources to make alternative investments. These are the plaintiffs who invested superannuation and other moneys of their own in such investments as the Guard Finance Investments, the DCL Shares Investment, the Stanley Street and Clendon Street Unit Trusts and the Superannuation Scheme.

2323. The plaintiffs referred to cross examination of Mr Sincock, in which it was put to him that it would be possible to make calculations in relation to each plaintiff to show how they in fact used the moneys not paid in income tax and to assess any benefit derived from that use. Mr Sincock conceded the possibility of doing this, but stressed the complexity and difficulty of, and the multitude of variables involved in, any such exercise.

2326. The plaintiffs submitted that the fact that there may have been other possible approaches to assessing each plaintiff's loss went nowhere because:

(a) That was not the way the case has been conducted on the part of the plaintiffs.

(b) Financial Wisdom had not called any evidence in relation to rival methodologies or calculations.

(c) There was no detailed cross examination of individual plaintiffs directed to eliciting the detailed state of the finances of such plaintiff at any particular time or times and no discovery was sought in relation to such matters and no leave to interrogate in relation to such matters was sought.

(d) Financial Wisdom applied at a late stage to separate questions of liability from questions of loss and damage but that application was refused.

(e) The evidence was closed and, apart from the possible need for recalculations based on the present evidence and any findings of the Court, each of the plaintiff's damages are to be assessed on the basis of that evidence.

2332. The plaintiffs submitted that in these circumstances, unless it could be demonstrated that Mr Sincock's methodology was in some way fundamentally flawed, the Court should accept it as providing a general indicative guide to the assessment of the lost opportunity damages claimed by each of the plaintiffs.

2335. The plaintiffs said that the only controversial methodological aspect of Mr Sincock's evidence related to whether or not he had made appropriate adjustments to reflect the value of the temporary benefits enjoyed by each of the plaintiffs, in that for some period of time they enjoyed substantial reductions in their liability to pay income tax and may have used those tax benefits for other purposes which generated additional profits.

2338. I note that Mr Sincock's methodology was as follows. Mr Sincock made two calculations by reference to one or other or all of three indices: the bond rate, the share price index, and the residential property index. The first calculation made by Mr Sincock was to take each of the expenditures made by each plaintiff in relation to the recommended investments and to assume that each such expenditure was made, on a roughly comparable date, in bonds, real property or shares instead, depending upon each plaintiff's evidence. Mr Sincock then calculated the notional yield on each assumed investment. The other calculation made by Mr Sincock was to carry out the same exercise in relation to a similar notional investment of the amount derived from the tax benefits enjoyed by the plaintiffs over the period of time during which they were so enjoyed. This calculation was a substitution for the more difficult exercise which would have been involved in ascertaining the precise way in which each plaintiff utilised his or her tax benefits.

2341. Mr Sincock said that, in then setting off the two calculations, he had attempted to calculate the tax benefit enjoyed by each plaintiff upon the same basis as he had calculated the economic disadvantage suffered by each plaintiff in relation to the expenditures which they had made upon the recommended investments. Mr Sincock said that "[t]he purpose of this exercise was to determine the...value of each particular category, so that the opportunity range can be determined...the purpose of the report was to set the parameters."

2344. The plaintiffs submitted that the methodology adopted by Mr Sincock provided a useful starting point for the assessment of the loss of opportunity damages claimed by each plaintiff. They said that the methodology took into account the benefits enjoyed by each of the plaintiffs in relation to income tax savings on the same basis that it took into account the detriment suffered by them in relation to their expenditures upon the recommended investments. The plaintiffs contended that it was not to the point for Financial Wisdom to suggest that there may have been other possible approaches which focused on the precise facts as to what the plaintiffs did and did not do, when Financial Wisdom had not advanced to the Court what those approaches and their results were. The plaintiffs said, by way of example: if the landscaping expenses of Mr Collins were defrayed from tax savings, how would it be possible to assess what value, if any, the landscaping added to the property?

2347. The plaintiff submitted that there was sufficient evidence to generally make an assessment of the financial capacity of the plaintiffs to enter into the alternative investment to have entered into the alternative investments which they contended should have been recommended to them by the investment advisers.

2350. I bear in mind and will deal with the above competing contentions of the plaintiffs and Financial Wisdom (to the extent necessary) when I consider the damages of each plaintiff.

2354. The third category of damages claimed by the plaintiffs was general damages for mental anguish, personal insecurity and distress.

2357. The plaintiffs submitted that the evidence in one way or another demonstrated the deep mental anguish, distress and personal insecurity suffered by each of the plaintiffs, and its effect upon their personal relationships, caused by the conduct of the advisers which resulted in the loss of almost their entire capital and, in some cases, insolvency. Most of them were making plans for their retirement and were looking for conservative investment advice which would have enabled them to increase the relatively modest capital which they had available to them for that purpose, mainly in superannuation funds.

2360. The plaintiffs submitted that it was of critical importance to identify what each plaintiff was seeking[78] - in most cases, the sense of personal security and happiness which they could look forward to in their retirement.

2363. The plaintiffs submitted that the pleaded causes of action gave rise, on the evidence, to a liability to compensate the plaintiffs for the mental anguish and distress which they had suffered as a result of the advisers' conduct. This applied to the tortious causes of action[79] and the misleading and deceptive conduct statutory claims.[80]

2366. The plaintiffs submitted that the damages in this category for each plaintiff should be more than token. They submitted that there was a cruel intrusion by rogues into their lives. The plaintiffs were each ordinary people with limited assets and conservative attitudes towards the exploitation of those assets and had no knowledge as to how they might usefully be invested. They turned to Pamacorp and Sentinel for advice and each had made to them the reassuring representations and promises of the total Sentinel advice package. They were each vulnerable. Their lives had been shattered by what happened. The evidence demonstrated that from 1997, with the collapse of Sentinel, until the present day they had had to grapple with the problems created by the loss of the assets that they looked forward to enjoying in retirement.

2369. Financial Wisdom did not advance submissions in opposition to the plaintiffs' submissions upon the third category of damages.

2374. Most of Mr Duncan's investments were by way of loans which were not repayable and not repaid and, therefore, the bulk of his cash losses related to interest payments. However, he lost money from his own resources to the extent of about $18,000 in the Video Documentary Partnership and his investment in the Ostrich Schemes was also made from his own resources. Mr Duncan's total cash losses from his investments were as follows:

Financial Wisdom, Pamacorp Holdings, Pamacorp Securities

Financial Wisdom, Pamacorp Holdings, Pamacorp Securities

2378. Mr Duncan's total net income tax cash benefit from the investments was $58,738.69, but this will need to be apportioned between the various investment losses because, to some extent, different defendants are liable for different losses.

2382. Mr Duncan testified that, had he not made the recommended investments, he would have invested in residential real estate, and Mr Sincock calculated that if he had made alternative investments on comparable dates in residential real estate, his gains would have been considerable. Mr Sincock concluded:

"The after tax cash loss Mr Duncan suffered can be calculated as follows: $ Cash Loss 453,372.00 Less Net Cash Income Tax Benefit ( 58,738.69) Net Cash Loss 394,633.31 However, when Mr Duncan's loss of opportunity by investing in residential real estate is factored in, his loss can be summarised as follows: Residential Real Estate $ Cash Loss and Opportunity Loss 1,103,813.90 Less Income Tax Benefit ( 617,142.85) Net Loss/(Benefit) 486,671.05"

2386. I am not satisfied that Mr Duncan would have invested in residential real estate because it is not demonstrated that, without the tax benefits which he temporarily obtained, he would have had sufficient resources to do so in a meaningful way, and further because I am not satisfied on the balance of probabilities that real estate investment would have been Mr Duncan's preferred course of conduct. Accordingly, I do not award loss of opportunity damages to Mr Duncan. On the other hand, I am satisfied that Mr Duncan had sufficient resources to make reasonable investments of some kind and was deprived of the opportunity of doing so. Doing the best I can, I consider that the benefits from such investments would have been at least as good as the value of the time benefit which he gained from his tax deductions, together with any pecuniary benefits which he derived from the use of the additional cash flow provided by his reduced payments to the ATO. Accordingly, I see no need to reduce his damages for cash losses for that reason.

2390. As to stress and anxiety, Mr Duncan said in his witness statement:

"208. The stress that my involvement with Sentinel and Pamacorp has created has been enormous. At the time that I first went to meet with Mr. Healy and Mr. Quarrell, I had a good job, earning a high wage, an excellent credit rating and I was well on the way to setting myself up financially for retirement. Now at the age of 61, I am under a Part X arrangement pursuant to the Bankruptcy Act...

218. Since that time, I have spent every bit of my spare time seeking to prove my innocence to the ATO and to seek compensation for my losses through Corrs Chambers Westgarth. This included every day that I was not flying my trips at Ansett, holidays from Ansett, and all public holiday periods."

2395. Mr Duncan has been subjected to enormous stress and anxiety. The plaintiffs submitted that Mr Duncan should be awarded from $10,000 to $15,000 as general damages. In my view, Mr Duncan is entitled to an award in the circumstances of $15,000 as against Financial Wisdom which I have held to be liable for virtually all of his investment losses. The other defendants should also be liable in general damages for a part of that sum proportionate to the amount of the investment losses for which they are respectively liable.

2400. Many of Mr Collins' investments were by way of loans which were not repayable and not repaid and, in relation to those investments, his losses primarily related to interest payments. However, he lost substantial moneys which he raised from his own resources by his investments, primarily in the DCL Shares Investment and also in the Guard Finance Investment. Mr Collins' total cash losses from his investments were as follows:

Financial Wisdom, Pamacorp Holdings, Pamacorp Securities

Financial Wisdom, Pamacorp Holdings, Pamacorp Securities

2404. Mr Collins' total net income tax cash benefit from the investments was $202,309.54, but this will need to be apportioned between the various investment losses because, to some extent, different defendants are liable for different losses.

2408. Mr Sincock calculated what the position would have been if Mr Collins had made alternative investments on comparable dates in bonds or public company shares or residential real estate. Mr Sincock said:

"The after tax cash loss Mr Collins suffered can be calculated as follows: $ Cash Loss 439,793.84 Less Net Cash Income Tax Benefit (202,309.54) Net Cash Loss 237,484.30 However, when Mr Collins loss of opportunity by investing in either cash investments, public company shares or residential real estate is factored in, his loss can be summarised as follows: Cash Investments $ Cash Loss and Opportunity Loss 575,357.78 Less Income Tax Benefit (327,853.20) Net Loss 247,504.58 Public Company Shares $ Cash Loss and Opportunity Loss 511,098.49 Less Income Tax Benefit (297,545.08) Net Loss 213,553.41 Residential Real Estate $ Cash Loss and Opportunity Loss 893,502.10 Less Income Tax Benefit (646,602.25) Net Loss 246,899.85"

2412. I note that, according to Mr Sincock, if Mr Collins had invested in bonds or residential real estate, he would have been slightly better off, but if he had invested in public company shares, he would have been worse off. The amounts involved are not significant in the overall picture and I am not satisfied that Mr Collins has suffered any loss greater than that established by Mr Sincock's first calculation as to his net cash loss. However, it is clear that Mr Collins committed substantial resources of his own by his investment in the DCL shares investment, and was therefore deprived of the opportunity of using those resources for a reasonable investment or, to some extent, leaving the funds where they were. Doing the best I can, I consider that the benefits from alternative investments or from leaving the funds where they would otherwise have been would have been at least as good as the value of the time benefit which he gained from his tax deductions, together with any pecuniary benefits which he derived from the use of the additional cash flow provided by his reduced payments to the ATO. Accordingly, I see no need to reduce his damages for cash losses for that reason.

2416. As to stress and anxiety, Mr Collins said in his witness statement:

"183. After the collapse of Sentinel I was totally shattered and my whole life has been changed. I do not trust people any more. I was usually easy going, care free and had an attitude where nothing ever worried me. I am now always constantly suspicious of people and little things annoy me. I have become short tempered, depressed at times and withdrawn.

184. After the collapse of Sentinel I spent most of my time investigating my investments and attempting to mitigate my loss. During this time I isolated myself from my family in an attempt to rectify things, as I had blamed myself for this happening. Not only do I feel worried and depressed about losing my retirement savings, but I also feel embarrassed by allowing myself to trust my financial advisers. I feel like I have failed my wife and my family. There were nights when I would have only 2 hours sleep and some nights when I could not sleep at all. It is often the last thing I think about before I fall to sleep and the first thing that enters my mind when I wake. It has been totally all consuming. The worry is best described as despair for my financial future on my retirement.

185. My depressed state was exacerbated and compounded in that the ATO issued proceedings against me, notwithstanding my objections that had been lodged and my proceeding issued in the AAT. I had also assisted the ASC with its enquiries into the conduct of Quarrell and Healy. At the end of the day trying to understand how and why it happened was difficult.

186. At one stage I was prescribed sleeping tablets from my general practitioner. There was a total, absolute fear of being stood down from Ansett so I attempted to mask my emotions and depressed state during this time. I have not received any counselling at all and I have attempted to cope on my own.

187. Prior to the loss of my savings I had hoped to retire as early as 60 years of age. Because of my loss I cannot afford to do so and will have to remain in employment for as long as I am able. I am also still trying to pay off the loan I obtained to fund my investment of $90,000 in DCL.

188. As an airline pilot with only limited knowledge of superannuation and financial planning matters I retained what I thought were professional expert financial advisers. I placed complete trust in my financial advisers to give me sound financial advice. I will never trust or use the services of financial advisers and/or financial advising organizations again. The only investments that I will ever make in the future (if I am ever in a position again to be able to invest) are those investments without the involvement of anyone else. I will never again rely on the advice of my investments are "secure" or that "it suits my needs" or "it is approved by the regulatory authorities"."

2425. Mr Collins has also been subjected to enormous stress and anxiety. The plaintiffs submitted that Mr Collins should be awarded from $10,000 to $15,000 as general damages. In my view, Mr Collins is entitled to an award in the circumstances of $15,000 as against Financial Wisdom which I have held to be liable for virtually all of his investment losses. The other defendants should also be liable in general damages for a part of that sum proportionate to the amount of the investment losses for which they are respectively liable.

2430. Mr Bullock's investments were by way of loans which were not repayable and were not repaid, and therefore the bulk of his cash losses related to interest payments. Mr Bullock's total cash losses from his investments were as follows:

2434. Mr Bullock's total net income tax cash benefit from the investments was $8,090.61 but this will need to be apportioned between the various investment losses because, to some extent, different defendants are liable for different losses.

2438. I am satisfied on his evidence that Mr Bullock, if he had not made the recommended investments, would have made alternative investments in shares and/or property. However, I am not satisfied that Mr Bullock would have had sufficient resources to make significant investments. Mr Sincock testified, using his indices, that if Mr Bullock had invested in bonds, he would have achieved a slightly higher benefit than if he did not, whereas if he had invested in public company shares, he would have been worse off. On the other hand, if Mr Bullock had invested in residential real estate, he would have gained significantly. In my opinion, these matters are too speculative, and I do not think that Mr Bullock has established any damages from loss of opportunity. However, clearly Mr Bullock would have had some additional resources which would have earned some kind of income if he had not made the recommended investments. I take this into account in negativing the necessity to consider whether Mr Bullock might have derived any additional benefits from the tax deductions derived under the investment schemes.

2442. As to stress and anxiety, Mr Bullock said in paragraph 10 of his witness statement:

"The effect on my life by investing in Sentinel has been horrific. The stress on myself and my family has been devastating."

2446. The plaintiffs submitted that Mr Bullock should be awarded $10,000 to $15,000 in general damages. In my view, Mr Bullock is entitled to a moderate award in the circumstances of $15,000. Financial Wisdom and Twenty-First should each be liable in general damages for that part of the sum of $15,000 which is proportionate to the amount of the investment losses for which they are respectively liable.

2451. Most of Mr Newman's investments were by way of loans, which were not repayable and not repaid and, therefore, the bulk of his cash losses related to interest payments. However, he lost money from his own resources to the extent of about $20,000 in the Video Documentary Partnership. Mr Newman's total cash losses from his investments were as follows:

Financial Wisdom, Pamacorp Holdings, Pamacorp Securities