A. SUMMARY ACCOUNT OF THE FACTS RELATING TO EACH OF THE 23 INVESTORS 147 The evidence in relation to the Investors is to be found in their affidavits and cross-examination, the Citibank and NM documents relating to them, and, to a lesser extent, the affidavits and cross-examination of those few Advisers who were called. 148 I will give a summary account of the facts relevant to each Investor, omitting, or making only passing reference to, certain elements, such as the representations alleged to have been made. These appear in the copy extracts from Schedules 2 and 4, that constitute Annexure 1. 149 Part of the background to the following accounts is that there was a "Central Sales Unit" ("CSU") in the Melbourne office of Citibank and a "Central Processing Unit" ("CPU") in its Sydney office. Applications for Mortgage Power coming to Citibank through Kelly were processed through the CSU to the CPU which was the national approval centre for Mortgage Power loans. The CSU in Melbourne had an interest in maximising its sales of Mortgage Power and in having the CPU process them as quickly as possible. The CPU, on the other hand, was required to ensure that applications conformed to Citibank policy. Annexure 3 to these Reasons is a "Dramatis Personae - Citibank Officers". I will refer to them by surname.

Geoffrey Ian Alder and Susan Patricia Alder (introduced by Jones and Roberts) 150 In 1991 Mr Alder was a thirty-four year old salesman with Canon. He completed school at Year 10 and had no tertiary qualifications. 151 His taxable income for the year ended 30 June 1991 was approximately $78,000, dropping to around $52,500 for the year ended 30 June 1992. He and his wife owned their home at Frenchs Forest, New South Wales, which was valued by Citibank at $358,000 and was subject to a mortgage of around $55,000, leaving an "equity" of $303,000. 152 Shortly before meeting Roberts and then Jones as mentioned below, Mr Alder ceased to be employed by Canon on a salary and became a commissioned agent. He thought it desirable to arrange sickness and accident insurance and life insurance. Jones was a family acquaintance whom Mr Alder had known for twenty-five years, but the initial introduction came through Roberts, who was the insurance agent of Mr Alder's brother, Brian. Roberts was introduced to the Alders through the brother at Jones' NM office at Manly, where they had gone to arrange sickness and accident and life insurance. Instead, Jones gave him a whiteboard presentation of the Package. The Alders had never invested in shares or units and had no knowledge of negative gearing. 153 There was a series of presentations to, or discussions with, Mr Alder, or both Mr and Mrs Alder, by Roberts or Jones between November 1990 and April 1992. In December 1991, Roberts suggested the NM Equity Imputation Fund, rather than the Property Trust, as the more appropriate form of NM investment for the Alders. 154 It appears that all, or nearly all, of the representations allegedly made to the Alders by Jones and Roberts preceded the change in the recommended investment from the Property Trust to the NM Equity Imputation Fund. 155 The Mortgage Power application form signed by the Alders bears date 27 December 1991. It identified Mr Alder's occupation as a salesperson and his wife's as "home". It indicated that they had four dependants (she said four, he said five). The application was processed on 15 January 1992 by Bill Macrow in Citibank, Sydney who stated on the "TQC - Loan Cover Sheet" that the Alders required the facility to payout existing loans and invest in the "National Mutual Income/Equity Property Trust". (By this time, Jones was submitting his clients' applications directly to Citibank in Sydney rather than through Kelly in Melbourne, following the breakdown in relations between Kelly and Citibank in September/October 1991). 156 On the Alders' own estimated value of their home of $300,000 and a loan-to-security ratio of 53 per cent, which was lower than its maximum permissible loan-to-security ratio of 65 per cent, Citibank approved a Mortgage Power facility of $160,000. In fact Citibank had the property valued at $358,000. 157 The CPU processed and approved the facility of $160,000 on 16 January 1992. Citibank's letter of offer was sent on or about 28 January 1992. The CPU did a capacity test on 16 January 1992 based on a salary for Mr Alder of $73,396 per year or $6,116 per month. One third of this is approximately $2,039 per month (according to other Citibank documents, the capacity test was based on a figure of $2,018 per month). On the assumption of a drawdown up to the facility limit of $160,000 and an interest rate of 14.75 per cent (the actual rate of 12.75 per cent plus the usual 2 per cent margin), the Alders would need to be able to pay Citibank $1,966 per month. Accordingly, they "passed" the capacity test (by $52). If Mr Alder's taxable income of $52,482 for the year ending 30 June 1992 had been used, they would have failed the test. 158 The Citibank facility was settled on 2 March 1992 when the National Australia Bank was paid $53,203.24 and the following further amounts were drawn on the facility: $570 to Citibank Savings Ltd; $145.50 to the Land Titles Office; and $593 to the New South Wales Department of State Revenue. The total drawdown on settlement was $54,511.74. On 17 March 1992 the Alders also drew down $5,000 to pay NMLA for a "Key Person" life policy. This amount was debited to their Mortgage Power account on 24 March 1992. On 16 March 1993, the second annual premium of $5,000 was debited to that account. Mr Alder then borrowed $4,480 against that policy on 7 April 1993. 159 The Alders' "Application for units in the National Mutual Sharemarket Trust Funds" was dated 23 April 1993, that is, about a year after the refinancing, and was for 4,500 for units in the "Equity Imputation Fund". Exceptionally, the investment was financed, not from the Mortgage Power account, but by a borrowing from Permanent (the trustee of the Mortgage Trust) of $4,480.50 against the security of the insurance policy on which two years' premiums of $5,000 each had by then been paid. This amount of $4,480.50 was deposited into the Alders' Mortgage Power account on 23 April 1993. The borrowing accrued interest at 9.5 per cent per annum from 7 April 1993 to 20 September 1993 of $200.56. 160 At the time of entry into the earlier refinancing transaction with Citibank and the discussions about the Package (with which the Alders did not proceed), the Alders did not consult a solicitor. They claim they were not advised to do so, yet they signed a "Borrower's Acknowledgment" to the effect that they had been so advised but had decided not to employ a solicitor. 161 The Alders' solicitor in connection with their claim for compensation, Peter C Thompson, calculated the amount of their loss at $11,510. He submitted their claims to McDonald of NM by letter dated 25 March 1994. To this amount were added Mr Thompson's fees and accounting fees payable to Gleeson & Gordon totalling $1,875relating to the making of the claim. The total paid to the Alders was $13,385 and this is the amount in respect of which NM claims contribution from Citibank. 162 The Alders' case presents unusual features. The initial transaction was, in substance, a refinancing and the taking out of a NMLA "Key Person" life policy for which the drawdown was only $5,000. The Alders invested the modest sum of only $4,500. They invested, not in the Property Trust, but in the NM Equity Imputation Fund. But their complaint did not concern this investment. In fact, they chose to retain the units rather than have them redeemed as they were entitled to do. According to their solicitor, Mr Thompson, their complaint was that they were persuaded to invest in what they regarded as an expensive life policy being a Key Person policy involving premiums of over $5,000 per year and to take a Citibank Mortgage Power facility when there seemed to be no need for such a facility. 163 Mr Alder's affidavit testimony under the heading "REALISATION OF LOSS" was as follows: "52. I first became aware that the Negative Gearing Investment was a problem when I hadn't seen anything for my $5,000 investment. I would contact C Roberts but his response was always vague and to the effect of: 'You won't see anything until the second year. It will all happen in the later years'. 53. It was only after I was told in mid 1993 that D Jones was no longer involved in the agency, and was asked to review my investment with Martin Barnes, that I appreciated that perhaps there was something wrong with the investment. I spoke to C Roberts at that time and asked him where my money had gone. His words at that time were 'after 12 months you will start seeing it'. Craig Roberts thereafter went overseas and I have not heard from him since. 54. I then went to my accountant Mr David Gordon to determine if there was anything wrong with my investment. He said words to the effect: 'I can't enlighten you about it but I know a solicitor, Peter Thompson, who is handling the case'. I then contacted Mr Peter Thompson and made an appointment to see him." 164 Mr Alder claims never to have understood the scheme, and to have been always unsure whether the investment was in "an insurance policy, or the trust funds". He also said that Jones told him that there were "no risks" and that if anything went wrong, he (Jones) would "pay the money back". This statement related, however, to units in the Property Trust in which, as noted earlier, the Alders did not invest. 165 Mr Alder stated that he believed the initial drawdown of $5,000 on the facility would be invested in the NM Equity Imputation Fund, with a portion being used to pay the insurance premium, when in fact the whole $5,000 was used to pay the premium. However, in cross-examination he said he understood he was to use the Mortgage Power facility to take out the insurance policy against which, in turn, he would be able to borrow after having paid two years' premiums, in order to buy the shares in the Equity Imputation. This is consistent with the fact thatthe first payment of a premium of $5,000 was made on 17 March 1992 and the second on 16 March 1993, while the units in the Equity Imputation Fund were not applied for until April 1993. 166 Ultimately, Mr Alder's testimony was most unclear as to what he was told and as to what his understanding was. He did not complain until April 1993 about the two premiums of $5,000 each or the borrowing of $4,480 and as noted earlier, was content to retain the units in the Equity Imputation Fund. 167 The amount paid by NM to the Alders was made up as follows: Payment of two years' premiums @ $5,000 per year $10,000.00 Less borrowing from NM against policies (4,480.00) Interest on that borrowing 201.00 ------------- 5,721.00 Establishment and set up costs of Citibank facility calculated at 3,991.00 Interest (on loss of use of money on set up costs) - 10 per cent over two years 798.00 Interest on first $5,000 premium on policy of insurance (calculated at 10 per cent for two years) 1,000.00 ------------ 11,510.00 Legal and accounting fees on negotiation of settlement 1,875.00 ------------ 13,385.00 =======

168 NM seeks contribution from Citibank in the sum of $13,385.

Cornelius ANTHONY Appelman and Martina MARY Appelman (introduced by Kelly) 169 In 1991 Mr Appelman was a thirty-one year old subcontractor bricklayer who carried on business in partnership with his wife, who was a bookkeeper. They had two children. For the year ended 30 June 1992 Mr Appelman's taxable income was $16,541 and Mrs Appelman's was $17,196, a total of $33,737 (for the year ended 30 June 1993, their respective incomes were $14,014 and $14,888, a total of $28,902). The Appelmans owned their own home at Narre Warren North, Victoria, which was valued by Citibank at $285,000 and was subject to a mortgage to the ANZ Bank on which $20,150 was owing, giving them an "equity" in the home of $264,850. In addition, $13,550 was owing to the ANZ Bank on a personal loanthat had been used to acquire a car. They had not previously invested in shares or in units in a property trust. 170 Mrs Appelman's sister, Linda Bond, introduced them to Kelly. Kelly made whiteboard presentations to Mr and Mrs Appelman in his office at Cheltenham between August 1991 and 10 July 1992. The pleaded representations were allegedly made by Kelly in his office during that period. As the Appelmans were about to have their third child, their most immediate concern was the completion of their house. Accordingly they decided to take out the Mortgage Power loan immediately and to invest in the Trust later. They applied for the loan in September 1991 and the units in the Trust in June 1992. In cross-examination, Mr Appelman confirmed that the Citibank facility was initially used only to pay out their indebtedness to the ANZ Bank and to complete the renovation of their house which they could not otherwise have afforded. 171 In the completed application for the Mortgage Power facility, the Appelmans estimated the value of their home at $400,000 and of their motor vehicles at $35,000, and they sought a facility of $120,000. The form stated the total of the amounts owing to ANZ as $30,000. The application for Mortgage Power finance indicated that the Appelmans worked in their own business, he as a builder and she as a book-keeper. Citibank recorded the purpose of the loan as "refinance & investment". "Investment" did not accord with the Appelmans' immediate purpose of home renovation but they intended to draw on the facility later for investment purposes. Mr Appelman could not recall whether he signed the form in blank. 172 Citibank's capacity test recorded Mr Appelman's income for the 1990 financial year as $24,151 ($2,012 per month) and Mrs Appelman's as $5,664 for three months ($1,888 per month), a total monthly income of $3,900. One third of this was shown on the Mortgage Finance Capacity Test form to be$1,287 per month. The current Mortgage Power interest rate was 13.95 per cent per year and the form of capacity test required a "levy" or "margin" of 2 per cent to be added on. But 15.95 per cent of $120,000 was $19,140 or $1,595 per month, and so there was a problem to the extent of $308 per month. According to handwriting on the form, Citibank was prepared to apply 38 per cent rather than 33 per cent to the income figure which gave a monthly figure available of $1,482 rather than $1,287. Apparently, the low LSR in the case of the Appelmans was regarded as justifying this increase to 38 per cent and giving Citibank some comfort. But there was still a problem because even $1,482 was less than even $1,595 by $113. Someone within the CPU wrote on the capacity test form "only fails because of levy (2%)". Clearly this was a reference to Citibank's standard requirement that for the purpose of the capacity test, the interest rate be treated as being 2 per cent higher than it in fact was. Interest at the actual current rate of only 13.95 per cent on $120,000 was $16,740 per year or $1,395 per month less than $1,482. 173 A facility of $120,000 was only 30 per cent of the Appelmans' estimated market value of their home of $400,000. But Citibank's valuation came in at only $285,000. A facility of $120,000 was 42 per cent of that figure. A maximum loan to security ratio of 43 per cent was approved. As well, approval was given to an exception being made to the standard requirement that the capacity test be passed. The exception was authorised by Jennifer Boyd who was head of CPU at the time. 174 The application was processed in the CSU between 6 and 10 September 1991 and Citibank's letter of offer was sent on 16 October 1991. It was for a credit line of $120,000 at an initial interest rate of 13.95 per cent. The minimum insurable value of the home was set at $220,000. 175 The Citibank facility was settled on 30 October 1991 when the following amounts were drawn down: $1,220.80 to Citibank's solicitors, Lander & Rogers, for legal fees for acting for Citibank; $33,711.87 to ANZ Bank to discharge the home loan and car loan; $1,615.00 to LKFM as a reimbursement of Citibank application and valuation fees; $5,000 to NMLA for the premium on a NM Life insurance policy; $545.00 to Van Minnen for her fee for "acting for" the Appelmans; $4,000 to the Appelmans which they used to reimburse Kelly for money he had lent them; and $5.00 for bank charges. Accordingly, the total amount drawn down was $46,097.67. According to Mr Appelman's affidavit, the $4,000 lent by Kelly had been used to prepay interest on the NM loan. However, in his further affidavit, Mr Appelman claimed that the $4000 was lent to him by Mr Kelly to help him with his home expenses. Perhaps the home renovations were funded by subsequent drawdowns. Subsequent drawdowns (other than those documented below) included $2,000 on 13 November, $1,000 each on 26 November, 6 December, 9 December and 13 December, $2,000 on 19 December, and $2,500 worth of drawdowns in January-February 1992, $3,000 worth in February-March, $1,500 on 25 March, $1,000 on 15 May, $1,000 on 22 May, $885 on 25 June and $800 on 8 July. 176 Van Minnen "acted for" the Appelmans on settlement at the ANZ Bank, the outgoing mortgagee. According to the Appelmans, they did not instruct her to act as their solicitor and did not receive any advice from her regarding their obligations to Citibank;they understood that she would be doing the conveyancing work and thought that she was a secretary. The only contact the Appelmans conceded they had with Van Minnen was when Mr Appelman signed forms in front of her. She signed Citibank forms and was referred to in the forms as a "solicitor". 177 In June 1992, some eight months after the refinancing was settled, the Appelmans signed the application forms for $18,000 worth of initial units (15,402 units) and $42,000 worth of further units (35,936 units) in the Property Trust. The initial units were funded by a further drawdown of $18,000 on the Citibank facility on 10 July 1992 when $4,830 was also drawn down to pre-pay interest on the NMPS loan. The Applemans borrowed $42,000 through NMPS from the Mortgage Trust for five years at 11.75 per cent per year to acquire the further units and mortgaged all 60,000 units to secure this advance. In connection with the acquisition of the units, the Appelmans' debt level rose as follows: Borrowed from Citibank for initial units $18,000 Pre-paid interest 4,830 NMPS 315 Stamp duty 132 Borrowed from NM for further units 42,000 Fee paid to LKFM 2,520 $67,797 =====

178 The Appelmans also took out life insurance with NM for Mr Appelman costing $5,000 for the first year and $5,250 for the second year. The second premium was drawn down on the Mortgage Power account on 12 January 1993. The Appelmans appear to have paid only the two annual premiums. 179 Immediately following the acquisition of the units in July 1992, the Appelmans owed approximately $85,000 to Citibank and some $42,000 to NMPS. Their monthly interest liability was around $1,280 which amounted to approximately 45 per cent of their pre-tax combined monthly income. 180 In his affidavit, Mr Appelman stated: "I first became aware that the Negative Gearing Investment was a problem when National Mutual dividends were not funding the Citibank interest. It got so bad that we sold our house to clear the Citibank debt in mid-1993." 181 After the sale of their house in mid 1993 in order to repay the Citibank loan, the Appelmans moved into rented accommodation. Still there was an ongoing interest liability on the NM loan. Mr Appelman claimed in cross-examination that they sold their home because they "lost a lot of money" and found that they had been given bad financial advice from Lance Kelly, which was "to borrow so much money from Citibank and spend it". The Appelmans requested redemption of their units in December 1993. In an undated letter to Peter McNamara of the ASC, Mrs Appelman claimed that Lance Kelly had told them that he was leaving NM and that they should "cash in" their investments. 182 Assessor Peter J Dunn of Moneyplan Australia (MP) Pty Ltd interviewed the Appelmans on 15 February 1995 and assessed their loss on 16 April 1995 at $24,809 to which were added solicitors' fees on the settlement deed of $50, making a total payment to the Appelmans of $24,859. The settlement deed is dated 7 May 1995. The amount of $24,859 was made up as follows: Capital loss $5,452.00 Stamp duty 444.00 P W van Minnen 545.00 Lander & Rogers 1,221.00 ANZ Bank discharge 150.00 NMPS - establishment fee 315.00 and stamp duty 132.00 ------------ Insurance premiums($5,000 & $5,250) $10,250.00 Net cost of funding 6,300.00 Solicitors' fee and release 50.00 -------------- $24,859.00 ========

183 NM seeks contribution from Citibank in this sum of $24,859.

Leigh Charles Bachmann and Christine Anne Bachmann (introduced by buttars and Blee) 184 In 1989 Mr Bachmann was a thirty-six year old structural engineer who practised through his company, Leigh Bachmann (Structural Engineer) Pty Ltd. He had a postgraduate degree in Civil Engineering. Mrs Bachmann was a high school teacher employed by the New South Wales Department of Education. In the financial year ended 30 June 1989, Mr Bachmann'staxable income was $30,563 and Mrs Bachmann's was $26,158, a total of $56,721. In the financial year ended 30 June 1990, the respective amounts were$18,438 and $10,433, a total of $28,871. They owned a house at Mosman in Sydney, which was mortgaged to the State Bank Cooperative Housing Society for about $55,000. They had four dependent children. 185 The Bachmanns had been neighbours of Erik Buttars since 1983. After Buttars lost his job and became a NM agent, the Bachmanns decided to support him by switching some of their insurance to NMLA. 186 In November 1989, Buttars told the Bachmanns about the Package and said that he had invested in it. He arranged for the Bachmanns to receive a presentation of the Package at Jones' office in Manly from Blee. Buttars was present when Blee gave the Bachmanns a "whiteboard presentation". The Bachmanns subsequently discussed the matter with Buttars. 187 The Bachmanns' application for a Mortgage Power facility was dated 15 November 1989. It stated Mr Bachmann's occupation as "Civil Engineer" and that of his wife as "High School Teacher". The application fee of $975 and valuation fee of $500 (totalling $1,475) were paid through Mr Bachmann's credit card authorisation given to either Buttars or Blee. The form of application stated Van Minnen as the Bachmanns' solicitor, however, Mr Bachmann testified that he had not instructed her to act as hissolicitor on theCitibank loan and that all his dealings were with Buttars and Blee. The form gave an estimated market value of the Bachmanns' home of $450,000 and sought a credit line facility of $300,000. 188 Hawkins (Durnan) received the Bachmanns' application at the CSU in Melbourne and processed it to the CPU in Sydney under cover of a TQC mortgage checklist dated 24 November 1989. Hawkins recorded the application under LKFM's agency and noted that "clients require funds for investment purposes with National Mutual Property Trusts and to pay out existing1st Mortgagee". It appears that Citibank was concerned to verify the Bachmanns' details with their accountant before accepting the application. After several unsuccessful attempts, Citibank did in fact make inquiries of the accountant. According to a Citibank "Acceptance and Administration Checklist", a capacity test was not required. This was in accordance with Citibank's policy at that time of not conducting a capacity test (except where the loan exceeded $300,000). 189 By letter dated 11 December 1989, Citibank advised the Bachmanns of conditional approval of a Mortgage Power facility of $300,000. On 14 December 1989, Sally Meyrick (formerly Garvey) from the CSU forwarded to the CPU in Sydney a valuation of the Bachmanns' home which came in at $425,000 (as against the Bachmanns' estimated market value of $450,000). At the approved maximum LSR of 70 per cent, this gave a facility limit of $297,500. Citibank's letter of offer was despatched on 21 December 1989, offering a facility of $297,500 and advising that, the current interest rate was 19.95 per cent per annum. If a capacity test had been applied at that time, a deemed interest rate of 21.95 per cent (19.95 per cent plus 2 per cent) would have given a yearly interest figure of $65,301.25 which exceeded not merely one third but the whole of the Bachmanns' annual income. 190 The transaction settled on 27 March 1990. Maurice Doria of Corrs, Sydney represented Citibank. On settlement $57,792.17 was transferred from the Mortgage Power account to Citibank Savings Ltd for a bank cheque to Corrs' Trust Account to pay out the existing mortgagee, State Bank Cooperative Housing Society, and Corrs' legal fees. As well there were the following drawdowns: $40,000 for the initial units; $1,200 to NMPS as the application fee on the application for the loan for acquisition of the further units; $604 to the Comptroller of Stamps for stamp duty; $6,436 to NMLA as premium on an insurance policy; $5,587 to NMLA as premium on another insurance policy; and $295 to Van Minnen for her fee. These drawdowns totalled $111,914.17. Thus, by the end of March 1990, the Bachmanns owed about $112,000 to Citibank and owned about $40,000 worth of units, whereas previously they had owed about $55,000 to the outgoing mortgagee. 191 The application for the further $160,000 worth of units was dated 27 March 1990 (that is, thedate of settlement) and NMPS's letter of offer of finance of $160,000 was dated 5 April 1990. The term was five years, interest only, with a balloon repayment at the end of that period. The interest rate was "18.75% variable in line with fluctuations in market rates generally". The initial units (27,765) were issued on 5 April 1990 and the further units (110,947) were issued on 17 May 1990. The loan of $160,000 was made by NMPS on the latter date. Accordingly, by that date the Bachmanns owed approximately $113,677 to Citibank and $160,000 to NMPS, a total of $273,677, as against their original debt of some $55,000 to the State Bank Cooperative Housing Society, but of course the Bachmanns had invested $200,000 in units. 192 By early 1992 Mr Bachmann thought that the Package was a problem when he became concerned over the falling value of the units and the amount of the interest liability on the investment. He met with Jones who told him that the solution was to invest more rather than to seek to extricate himself from the Package. Mr Bachmann did not invest more and cashed in his insurance policies. 193 In late 1992, the Bachmanns moved to Hong Kong. In February 1993, they received a letter from Victor J Hocking of Finance & Estate Planning Corporation Pty Ltd offering to help them out of the investment. The Bachmanns returned to Australia in December 1994 and gave details to Hocking who negotiated with NM to settle their claim. 194 The history of the transactions on the Citibank and NM loan accounts from 31 May 1990 to 7 January 1994 is somewhat complex. The Bachmanns' loss was assessed by David M Bullock, Chartered Accountant, in February 1995. The settlement deed was entered into on 23 May 1995 and a cheque for $169,633 was sent to the Bachmanns' solicitors on 15 May 1995. The Bachmanns paid $50,000 into their Citibank account on 15 June 1995. The closing monthly balance was then reduced to $7,907. The units were redeemed on 1 February 1995 and the proceeds were used to extinguish the NMPS loan. 195 NM's claim in respect of the Bachmanns is of $169,633 made up as follows: Legal and consulting fees 3,000.00 Interest paid on the NM mortgage 92,308.00 Interest paid on Citibank mortgage 69,169.09 -------------- 236,165.00 Less: 56,767.00 Dividends received from Property Trust Tax savings generated 27,603.00 84,370.00 ------------- -------------- 151,795.00 Saving to NM by action taken by the Bachmanns 6,963.00 Mr Bullock's fee 4,000.00 Mr Hocking's fee and disbursements 6,875.00 --------------- $169,633.00

Ian Geoffrey Boulter and Helena Johanna Boulter (introduced by Kelly) 196 In 1990 Mr Boulter was a forty-six year old Administration Officer employed by the City of Springvale and his wife was a secretary. For the year ended 30 June 1990 his taxable income was around $14,063 and Mrs Boulter's was about $29,837, a total of $43,900. For the year ended 30 June 1991 the respective amounts were $24,469 and $20,176, a total of $44,645. The Boulters owned their home at Frankston North, Victoria which was valued by Citibank at $141,000 and mortgaged to the Bank of Melbourne securing some $45,000. They had no dependants. 197 In May 1990, a friend of theirs, David Philip recommended that they contact Kelly which they did. Kelly made whiteboard presentations to the Boulters at least three times between May and August 1990. The completed Mortgage Power application form was submitted to Citibank on or around 19 July 1990. The Citibank application fee of $975 and the valuation fees of $200 were paid by Kelly in the first instance. The form showed Van Minnen as the Boulters' solicitor; gave an estimated market value of $160,000 for the security property; showed the Boulters as owing $10,000 to Esanda as well as $50,000 to the Bank of Melbourne, and paying $290 per month to Esanda and $880 per month to the Bank of Melbourne and. By two application forms dated 31 August 1990, the Boulters applied for $14,000 and $40,000 worth of units in the Trust and by a further application form of that date they applied to NM for a loan of $40,000 to buy the further units. 198 Hawkins (Durnan) was the Citibank Area Manager and her name, together with Kelly's, was shown on the Citibank Mortgage Power "Acceptance Worksheet Revolving Credit" against the item "Salesman/Introducer Name". 199 The approval was for a Mortgage Power facility of $105,750 based on a valuation of $141,000 and a maximum LSR of 75 per cent. No capacity test was carried out. Citibank sent its letter to the Boulters on 9 August 1990 offering a facility of $105,750 with an initial interest rate of 17.95 per cent. 200 On the transaction, Van Minnen "represented" Mr and Mrs Boulter, while Lander and Rogers represented Citibank. 201 The transaction settled on 31 August 1990 when the following amounts were drawn down: $1,129 for the costs and disbursements of Citibank's solicitors, Lander & Rogers; $45,264.66 to discharge the existing mortgage to the Bank of Melbourne; $1,175 to reimburse Kelly for the Citibank application and valuation fees; two cheques for $2,500 each in favour of NMLA for premiums on insurance policies; $14,000 to PTA for the initial units; $300 to NMPS for the application fee on the application for the NMPS loan of $40,000; $124 to the Comptroller of Stamps for stamp duty; $6,800 for the first year's interest on the NMPS loan; $315 to Van Minnen for her costs and disbursements; and $30 to Citibank for bank charges. Accordingly, the total amount drawn down on the Citibank facility was $74,137.66, and in addition the Boulters had borrowed $40,000 from NMPS. 202 The applications for the initial and further units and the application for a loan of $40,000 from NMPS were forwarded to NMPS together with the Citibank cheques. The initial units (10,059) and the further units (28,740) were issued on 14 September 1990 and 14 November 1990 respectively. All units were mortgaged to Permanent as security for the NMPS loan of $40,000. 203 Mr Boulter first became aware of a difficulty with the scheme "when the dividends were not coming in and [they] had to top up". 204 By November 1990, the Boulters' indebtedness had increased from $45,264.66 originally owed to the Bank of Melbourne to debts of some $74,000 to Citibank and $40,000 to NMPS. Their monthly interest liability was around $1,650 which amounted to approximately 45 per cent of their pre-tax combined monthly income. By 18 January 1991, the Boulters had drawn down $80,392.58 and had available remaining credit in the Mortgage Power facility of only $25,357.42. By 18 December 1991, the drawdowns had reached $86,087.61, leaving $19,662.39 in credit available to be drawn on. By 18 January 1992 the Mortgage Power facility had "blown out" to $94,310.33, and by 18 September 1992 it had reached $98,789.38 leaving only $6,960.62 in credit. 205 Assessor Richard Bouchier assessed the Boulters' losses on 30 July 1993 and recommended payment of $29,566 together with a refund of insurance policy premiums of $10,000, plus $462 representing the differential between the value of the units and the amount of the loans, making a total of $40,028. 206 Compensation of $40,028 was paid by NM to the Boulters on 12 May 1994 pursuant to a deed of release dated 9 May 1994. The Boulters paid this amount into their Citibank account on 16 May 1994, reducing the balance of that facility to approximately $49,000. 207 NM's claim for contribution by Citibank on account of the Boulters is in respect of $40,591, which includes $665 legal fees and $360 accounting expenses, less the $462 redemption paid on behalf of the Boulters.

Allan Stewart Crawford and Heather Joy Crawford (introduced by Jones) 208 In 1989 Mr Crawford was a thirty seven year old computer operator who had worked in computing in several banking organisations. His gross income for the year ended 30 June 1989 was about $50,000 but for the year ended 30 June 1990 it fell to $15,500. He and his wife owned their home at Cromer Heights, Sydney which was valued by Citibank at $340,000 and which was subject to a mortgage on which about $70,000 was still owing. They had three children. Mr Crawford had known Jones for more than twenty years and regarded him as a good friend. Presentations of the Package were made to Mr Crawford in June 1989 by Jones and someone from Melbourne who, Mr Crawford believed, was an employee of Citibank, although he cannot recall the basis of his belief. 209 The Crawfords' application to Citibank for Mortgage Power finance was submitted through LKFM (in the usual way under LKFM's "agent's stamp") on or a few days before 20 June 1989. That application identified Mr Crawford's occupation as "Project Leader" and Mrs Crawford's occupation as "Home Duties". It also identified Van Minnen as their solicitor. It contained no details of their assets and liabilities. The application was processed on 20 June 1989 by Mr Stewart in Citibank's CSU in Melbourne. The CPU in Sydney processed and initially approved a Mortgage Power facility of $266,000 on 26 June 1989. It appears that following this approval, the LSR was varied down from 70 to 65 per cent, reducing the maximum loan allowable to $221,000. On 10 July 1989, Tim Stewart of the CSU noted a telephone request by the Crawfords asking that their application be amended to become one for a "Citi2nd" facility. This meant that, the Citibank loan was to be secured by a second mortgage rather than be used to pay out the existing first mortgage. A Citi2nd facility for $151,000 at an initial interest rate of 21 per cent was approved based on an approved limit of $221,000 less an amount supposedly owing to Westpac of $70,000 on the existing first mortgage. The facility was subsequently varied to $146,000 when Tim Stewart advised the CPU that the amount owing to Westpac was $75,000, rather than $70,000. 210 The transaction was settled on 25 October 1989 when the drawdowns were: $10,359 to NMLA for insurance premiums; $40,000 to PTA for the initial units; $800 to NMPS for the application fee on the NMPS loan; $604 to the Comptroller of Stamps for stamp duty; $295 to Van Minnen for her fee for "acting for" the Crawfords; $1,416 to Corrs, Citibank's solicitors, for their costs and disbursements; $15 to Citibank for drawing the bank cheques; and $7,500 to the Crawfords. 211 The application for the $40,000 worth of initial units in the Property Trust was dated 25 October 1989, as was the application for the further $160,000 worth of units and an application for finance from NMPS for $160,000. The NMPS loan was approved by letter dated 30 November 1989. By the end of 1989, therefore, the Crawfords owed a total of $60,989 in addition to their outstanding home loan from Westpac of approximately $75,000 and their further NM debt of $160,000. The Crawfords were issued with 28,480 initial units on 23 November 1989 funded by Citibank and a further 111,121 units on 14 February 1990 funded by the NMPS loan. Their monthly interest liability to Citibank and NMPS was about $3,660 which amounted to nearly 88 per cent of Mr Crawfords pre-tax monthly income. To this had to be added the continuing repayments on the loan from Westpac. 212 Mr Crawford gave evidence that by early 1991, the credit facility had been drawn down to the extent that there was only some $8,000 credit remaining. Relying on advice from Kelly via Jones, Mr Crawford arranged to have half of his units redeemed and used the proceeds to repay $80,000 off the loan from NMPS, to pre-pay the interest on the remaining $80,000 NMPS loan and to pay $8,000 into the Citibank account to ease his monthly payments. The redemption of the 70,000 units occurred on 28 March 1991 and resulted in a payment to the Crawfords of $91,634.45 which they applied in the manner stated. The Citibank facility was near to or above $145,000 for the whole of 1992, notwithstanding the reduction in the Crawfords' indebtedness from this sale of half their units in March 1991. 213 The Crawfords' difficulties were compounded when Mr Crawford lost his job in December 1989 with the result that in the year ending 30 June 1990, his taxable income was only $15,459. At about this time, Jones offered Mr Crawford a job with him with a "guaranteed" income of $50,000 a year. He took up Jones' offer. Mr Crawford said that he became aware of risks in the Package in about December 1992 or January 1993 after investor complaints were being received while he was working in Jones' office. 214 Assessor Wall assessed the Crawfords' loss and on 21 December 1993 recommended that they be $115,374. Negotiations with Peter Thompson, the Crawfords' solicitor, resulted in a revised assessment by Mr Wall on 4 March 1994. Following further submissions by Mr Thompson on 14 June 1994, NM made an interim payment of $25,000 on 15 July 1994. After Mr Wall completed his review, the amount recommended rose to $137,614 to which were added legal fees and accounting fees totalling $12,066, in addition to earlier legal and accounting fees of $4,873. A sum of $107,741 ($137,614 less the $25,000 part payment and the legal and accounting fees included in the compensation amount) was paid to the Crawfords on 5 September 1994. 215 NM claims from Citibank contribution in respect of $155,307.96 on account of the Crawfords, which includes $7,121.96 being the amount forgiven after the redemption of the remaining units.

Ross NEWTON Daniels and Shirley RAE Daniels (introduced by Naughton and Kelly) 216 In early 1991 Mr Daniels was a forty-five year old public servant. His taxable income for the year ended 30 June 1991 was approximately $52,000 and his wife's was about $20,800 per year. They owned their own home at Minto, Victoria which was unencumbered and was valued by Citibank at $168,000. They had three dependant children. In late 1990 Mr Daniels responded to a newspaper advertisement about Mortgage Power loans by filling in a coupon and returning it to Citibank. In January 1991 he was contacted by Hugh Judd, who identified himself as Kelly's marketing manager. Judd, and subsequently Naughton and perhaps Kelly, made three presentations in February and March 1991 to the Daniels. 217 As usual, Kelly submitted the Mortgage Power application form bearing the LKFM agency stamp. It identified Mr Daniels' occupation as "Public Servant" and that of Mrs Daniels as "cleaner". The application was processed in the CSU by Hall. The application was for a facility of $127,000 based on an LSR of 75 per cent and an estimated value of the Daniels' home of $170,000. 218 The CPU processed and approved a facility of $126,000 on 27 February 1991 and a letter of offer was sent on 5 March 1991, at an initial rate of 15.95 per cent. The reduction in amount was based on a valuation of the Daniels' home of $168,000. A capacity test was performed by Mariano Tecson of the CPU. 219 Two applications for units in the Property Trust were dated 26 March 1991. The $50,000 for the initial units was funded from the Citibank facility and the $100,000 for the further units was funded by NMPS loan (approved on 28 March 1991) in that amount. The Daniels mortgaged all units to (110,030 units) to Permanent as trustee of the Mortgage Trust to secure the NMPS loan. The Mortgage Power loan was settled on 26 March 1991 when the following drawdowns occurred: $1,163.80 to Lander & Rogers, Solicitors, for their costs for acting for Citibank; $50,000 to PTA for the initial units; $14,500 as a prepayment of the first year's interest on the NMPS loan (the initial rate of interest was 15.25 per cent and the amount of the NMPS loan was $100,000. I do not know why the amount paid was $14,500 rather than $15,250); $10,000 to National Australia Bank; $1,175 to LKFM as a reimbursement of the Citibank application and valuation fees paid by it; $750 as the application fee on the application for the NMPS loan; $364 to the Comptroller of Stamps for stamp duty; $545 to Van Minnen for her fees for "acting for" the Daniels, and $20 bank fees. In the result, by the end of March 1991, Mr and Mrs Daniels owed approximately $80,000 to Citibank and a further $100,000 to NMPS. Their monthly interest liability was about $2,333, which was about 38 per cent of their pre-tax combined monthly income. 220 By March 1992 the Citibank facility was drawn to $85,156.12 and by December 1992, it was drawn to $107,358.11, leaving a balance of only $18,641.89 available for further drawdowns. By June 1993 the facility was drawn to $111,235.85, leaving only $15,764.15. In mid 1993 Mr Daniels returned to Naughton who suggested that he request that the units be redeemed and reinvest the proceeds. Mr Daniels did not accept this advice. 221 Assessor Dunn assessed the Daniels' loss on 18 October 1993 and recommended it be quantified at $48,528. This recommendation was reviewed in negotiations between McDonald of NM and the Daniels' solicitors, Richmond & Bennison. The amount finally assessed was $87,862, to which was added $3,600 for legal fees and fees of a financial planner for advice. By the time of settlement there was additional capital loss of $1,807.76 and further interest on the NMPS loan of $3,056.51. 222 The total loss crystallised at $96,326.27 which is the amount in respect of which NM claims contribution from Citibank.

Colin John Douglass and Julie Irene Douglass (introduced by Blee AND JONES) 223 In 1990 Mr Douglass was an employed thirty-four year old software manager. Mrs Douglass was a "documentor/proof reader" employed by the same software company. They had two dependent children. Mr Douglass's taxable income for the year ending 30 June 1990 was $37,714. For the year ending 30 June 1991 it was $33,407. The Douglasses owned their own home at Dundas, Sydney which was subject to a mortgage for about $75,000 to the Advance Bank. 224 In late 1990, in the presence of Blee, Mr Douglass's insurance agent recommended that he "come in and talk about" an investment. In September and October 1990, Blee made at least three whiteboard presentations of the Package to Mr and Mrs Douglass at Blee's office. 225 The Mortgage Power application form signed by Mr and Mrs Douglass was dated 25 October 1990. It stated an estimated market value of the security property of $310,000 and a monthly mortgage commitment of $1,300. The application did not give any particulars of the Douglasses' income or their liabilities. It identified their "solicitor/land broker" as Van Minnen. Apparently the Douglasses were told initially that the LSR of 70 per cent would give them a facility of $217,000 on the basis of the estimated market value of $310,000. Their application was processed on 14 November 1990 by Account Manager, Craig Hall of the CSU in Melbourne. Citibank's valuation came in at only $270,000. On the basis of the LSR of 70 per cent, the maximum facility able to be approved was reduced to $189,000. Within the CPU Sydney, a facility of $189,000 was approved, at an initial interest rate of 16.75 per cent. The minimum insurable value was set at $185,000. 226 Citibank's letter of offer to Mr and Mrs Douglass was dated 6 December 1990. The letter noted Van Minnen as the Douglasses' solicitor and Corrs Sydney as Citibank's solicitor. Van Minnen appears to have "witnessed" an undated Borrower's Acknowledgment regarding Mortgage Power by the Douglasses reading: "although advised to consult a solicitor, [we] have of our free will decided not to employ a solicitor". Mr Douglas testified that he did not sign the document in Van Minnen's presence. 227 The facility was settled on 22 March 1991. The initial drawdowns on that date were: $1,445 to Jones for reimbursement of Citibank application and valuation fees which Jones had paid; $5,000 to NMLA for the first premium on a life insurance policy; $30,000 to PTA for the initial units; $525 to NMPS for the application fee on the application for the NMPS loan to enable acquisition of the further units; $244 to the Comptroller of Stamps for stamp duty; $2,000 to Mr and Mrs Douglass; $545 to Van Minnen for her fee for "acting for" Mr and Mrs Douglass; $72,471.06 which was telegraphically transferred to Corrs' trust account from which $70,377.09 was paid to the Advance Bank to discharge the existing mortgage, $244 was to be paid to Laurence & Laurence, solicitors for that outgoing mortgagee and $1,781 was to be paid to Corrs for their costs and disbursements on acting for Citibank (of which $59.97 was refunded by Corrs to the Douglasses on 9 April for excess moneys held on trust); and $20 to Citibank Savings Ltd for bank cheque fees. Accordingly, the total amount drawn down was $ $112,250.06 leaving $76,749.94 available for further drawdowns. 228 Apparently the applications for the initial units and the further units were both dated 5 February 1991 and were forwarded with the application for the NMPS loan of $70,000 and the Citibank cheques to NMPS. The initial units (22,006) and the further units (51,347) were issued on 8 April 1991 and 23 April 1991, respectively. All were mortgaged to Permanent as security for the NMPS loan. 229 By April 1991, the Douglasses' monthly interest liability was approximately $2,400, which amounted to nearly 72 per cent of Mr Douglass' pre-tax monthly income. Mrs Douglass' income is not disclosed by the evidence. 230 By 18 January 1993, Mr and Mrs Douglass had drawn down on the Citibank facility to the extent of approximately $175,000 leaving credit available of only approximately $13,500. Their monthly interest liability had, because of lower interest rates, decreased slightly to around $2,130. 231 In 1993, Mr Douglass found that he could not afford to pay the premiums on the insurance policies. In August 1993 he completed a questionnaire on the status of his investment with NM after considering a more affordable insurance policy. 232 Assessor Wall sent his assessment report on the loss of Mr and Mrs Douglass on 23 December 1993 to NM and recommended they be paid $76,294. This recommendation was the subject of negotiation between Peter Thompson, the solicitor for Mr and Mrs Douglass and Assessor Wall, which resulted in a revised assessment on 24 May 1994 of $87,591. (The settlement deed dated 16 June 1994 provided for payment of $57,591 on the basis that NMAM would also buy the Douglasses' units. NM sent its cheque for $87,591 on 21 June 1994. NM also paid $1,065 to Peter Thomson for legal fees and $935 to an accounting firm for accounting fees, making a total of $89,591 which was paid to or on behalf of the Douglasses. 233 NM's claim against Citibank for contribution on account of Mr and Mrs Douglass is in respect of $83,223.19, which NM calculated by excluding $6,387.81 redemption adjustment on the redeemed units from the sum of $89,591 paid out to or on behalf of Mr and Mrs Douglass.

Andrea Martina eberts (formerly "Eberts-Vergura") (introduced by Kelly) 234 In 1989, Ms Eberts was a thirty-two year old schoolteacher and was married with a nine year old child. Her annual income was about $34,000. She and her then husband, a spray painter, owned a home at Murrumbeena, Victoria. The house was valued by Citibank at $165,000 and was subject to a mortgage of about $75,000. Ms Eberts was introduced to Kelly by a friend at the school where she taught. Kelly twice made "whiteboard presentations" of the Package to Ms Eberts. 235 The Mortgage Power application form identified Ms Eberts as a secondary teacher and her husband as a spray painter. It contained no income details. Tim Stewart, the Citibank Account Manager in Melbourne handling the transaction, received the application for a Citibank Mortgage Power facility on 15 May 1989 and processed it that day and sent it that evening to the CPU in Sydney by overnight bag. The CPU processed and approved of a facility of $160,000 on 17 May, on which date Citibank despatched its letter of offer. There was no capacity test. When the property valuation of $165,000 was received, the credit limit was revised to $132,000, with a variable interest rate of 18.85per cent. 236 Settlement occurred on 29 June 1989. The initial drawdowns totalled $123,501.64, when the following amounts were paid: $75,647.84 to RESI Statewide Building Society to discharge the existing first mortgage; $15,000 to PTA for the initial units; $204 to the Comptroller of Stamps for stamp duty; $300 to NMPS as loan application fee; $11,550 for the first year's interest on the NMPS loan; $1,355 to LKFM for reimbursement of Citibank valuation and application fees; $4,956.80 to NMLA for the premiums on business insurance policies; $270 to Van Minnen for her fees for "acting for" Ms Eberts and Mr Vergura; $1,193 to Lander & Rogers for their fees for acting for Citibank; $25 to Citibank for bank charges; and $13,000 to Ms Eberts herself. The drawdowns left only $8,499 of the facility of $132,000 remaining. 237 Ms Eberts and Mr Vergura applied for initial units worth $15,000 (minus a management fee of $900) and a further $60,000 worth of units funded by the Mortgage Trust. The initial units (10,658) and the further units (42,631) were all issued on 30 June 1989. 238 Accordingly, as at the time of entering into the Package, instead of owing $75,000 on a first mortgage over their home, Ms Eberts and Mr Vergura owed $123,500 to Citibank on a first mortgage and a further $60,000 to NMPS on the security of a unit mortgage to Permanent over the $75,000 worth of units which, of course, they now owned in addition to their home. Their total indebtedness had risen to $183,500, an increase of almost $110,000. Their monthly interest bill was $2,915, about $82 more than Ms Eberts' gross monthly salary. 239 By December 1992 at the latest the Mortgage Power facility had been fully utilised. By September 1993 she was late in paying interest to Citibank. She was separated from her husband and Citibank would not refinance her on her income alone. At the end of 1993 she had her units redeemed and sold her house, paying out the Citibank debt on 12 January 1994. 240 Assessor Peter Dunn assessed Ms Eberts' loss on 22 May 1995 at $41,086.00. McDonald of NM accepted that recommendation and by deed of settlement dated 30 June 1995 NM agreed to pay her that amount. NM did so and its claim for contribution is in respect of that sum.

Barbara Anna Emery and Edwin Arthur Emery (introduced by Kelly) 241 In 1989 Barbara Emery was forty years old and was married to Edwin Emery. They had two children. They were directors of a family company involved in media production. They owned their home at Mt Eliza, Victoria which was valued by Citibank at $275,000 and was subject to a mortgage to Westpac of about $24,000. That loan was a "Defence Services Home Loan" at a concessional interest rate of five per cent per annum. 242 For the year ending 30 June 1989 Mrs Emery's taxable income was about $35,000 and Mr Emery's taxable income was about $47,000 - a total of about $82,000 - and for the year ended 30 June 1990, the respective amounts were $24,500 and $28,000 - a total of about $52,000. The income was in the nature of dividends from the family company. Mr Emery left the family's financial arrangements to Mrs Emery. Mrs Emery was introduced to Kelly by a social acquaintance. She attended two meetings with Kelly at his office in Cheltenham and she and Mr Emery attended a third meeting with him. Each time Kelly gave a "whiteboard presentation". 243 The Mortgage Power application form referred to Mr Emery as a television/film director/producer and gave Mrs Emery's occupation as "home duties". No details of income were on the form. Hawkins (Durnan) received the form in the CSU on 30 November 1989 and sent it to the CSU in Sydney under cover of a TQC mortgage checklist. 244 The CPU "acceptance and administration checklist" records that James Allen completed a capacity test in respect of the borrowers on 5 December 1989. The capacity test used an unrealistically high figure of $15,155 per month ($181,860 per year). A facility of $262,500 was approved within the CPU. On 3 January 1990 Sally Meyrick (Garvey) forwarded to the CPU in Sydney the Citibank valuation which had come in at $275,000, which meant that a facility of only $206,400 was allowable. Citibank despatched its letter of offer in this amount on 8 January 1990. The initial interest rate was 19.95per cent. 245 The transaction was settled on 26 February 1990 when the following amounts were drawn down: $23,615.27 to Westpac to pay out the existing mortgage; $47,485.00 to the "ANZ Bank", $496 to "Kelley Ongarello" and $32,631.35 to "P.E. Garner", all of which related to settlement of the purchase of a small investment property at 12 Queens Street, Frankston which Mr and Mrs Emery had agreed to purchase in January 1990; $8,000 to LKFM for premiums on NM policies; $350.00 to Van Minnen for her fee for "acting for" Mr and Mrs Emery; $1,664.90 to Lander & Rogers for their fees for acting for Citibank; and $15.00 to Citibank for bank charges. 246 After the Mortgage Power loan and the purchase of the Frankston investment property were settled, Kelly suggested that it was time for Mr and Mrs Emery to acquire the units in the Trust. On 26 March they signed application forms for $25,000 worth of initial units and $100,000 worth of further units, as well as an application for a NMPS loan of $100,000 from NMPS. On 4 April 1990 $25,000 was drawn down on the Citibank Mortgage Power account to pay for the initial units. Mr and Mrs Emery shortly afterwards executed a mortgage in favour of Citibank over the investment property. This security was in addition to the mortgage over their home. On 18 June 1990, $66,240 was paid into the Mortgage Power account. 247 From the end of June 1990, Mr and Mrs Emery owed between $50,000 and $60,000 to Citibank in addition to the $100,000 to NMPS. Their monthly interest liability was around $2,400 which was approximately 55 per cent of their combined pre-tax monthly incomes. 248 In 1991, Mrs Emery became concerned about the declining revenue from the trust. She contacted Kelly who advised her to keep her investment. By early 1993, Mrs Emery learned that Kelly was to cease to being an agent for NM. In September 1993, she surrendered the NMLA policies and requested that the units be redeemed. Mrs Emery used the proceeds of the policies and of the redemption of the units to reduce the indebtedness to Citibank. The amount received was not sufficient to discharge the NMPS loan. 249 Assessor Peter Dunn assessed the claim on 19 May 1995 and on 27 May 1995 recommended a payment of $59,502. That amount was paid on 14 August 1995 following execution of a deed of settlement on 3 August 1995. 250 NM claims contribution from Citibank on account of Mr and Mrs Emery in respect of a sum of $63,318.90 which includes additional legal and accounting fees.

Daryl John Farrar and Debra Vicki Farrar (introduced by Kirby) 251 In 1992 Mr Farrar was a thirty-one year old sales representative. For the year ended 30 June 1992 his taxable income was $29,982 and his wife's was $6,076 - a total of $36,058. They owned their home at Sunbury, Victoria which was valued by Citibank at $145,000 and was subject to a mortgage on which around $68,000 was still owing. For the year ended 30 June 1993 the comparable figures were, respectively, $31,180 and $12,328 - a total of $43,508. 252 Kirby gave "whiteboard presentations" to Mr and Mrs Farrar in at least two meetings in the first half of 1992. 253 The Mortgage Power application form dated 2 June 1992 identified Mr Farrar as a "salesman" and his wife as a "merchandiser". The CPU processed and approved a facility of $108,750. The letter of offer to the Farrars was dated 12 June 1992. The CPU carried out capacity tests, the first of which the Farrars failed. A subsequent capacity test was conducted using a 9.95 per cent interest rate, and the Farrars passed by $4.75 per month. The stated effective variable interest rate at that time however, was, 11.45 per cent. 254 The Mortgage Power facility was settled on 14 July 1992 when the following amounts were drawn down: $68,289.56 to ANZ Bank to discharge the existing mortgage; $1,089.20 to Anderson Rice, Citibank's solicitors, for their fees; $300 to FKB (which was not noted by FKB in its letter dated 16 June 1992 to the Farrars outlining the disbursements made on that day); $250 to NMLA as the premium on a business insurance policy; $24,000 to PTA for the initial units; $420 to NMPS as an application fee on the application for the NMPS loan; $188 to the Comptroller of Stamps for stamp duty; and $15 in bank fees. 255 By 18 August 1992 the Citibank facility had been drawn down to the extent of $96,078.96, leaving a balance available to be drawn on of only $12,671. 256 The Farrars owed $56,000 to NMPS. The Farrars had acquired 68,437 units in the Property Trust on 23 July 1992 for a total of $80,000, of which $24,000 had been drawn out of the Citibank facility and $56,000 had been lent by NMPS. Their monthly interest liability as at August 1992 was around $1,335 which amounted to approximately 44 per cent of their combined pre-tax incomes. 257 The Farrars became aware that there was a problem in about January 1994 when they had to pay the NM interest out of their own funds and not from the anticipated dividends from the units. 258 The Farrars' loss was assessed by Assessor Dunn on 1 May 1995 at $13,944 to which were added legal and accounting fees of $485, to produce a total of $14,429. The Farrars entered into a settlement deed with NM dated 21 August 1995 and received a cheque for $30,946.00 being the total of the assessed loss and the balance of the redemption of the units and the cancelled loan. It is in respect of the sum of $14,429 that NM claims contribution from Citibank.

Sharn Stuart Fraser-Bell and Jennifer Jane Fraser-Bell (introduced by Jones) 259 In late 1989 Mr Fraser-Bell was a twenty-eight year old police constable. His then wife was an administrator. They had two dependent children. His income for the year ending 30 June 1989 was about $25,000 and his wife's about $35,000 - a total of about $60,000. The respective amounts for the year ending 30 June 1990 were about $27,000 and $36,700, totalling about $63,700. 260 In late 1989 the Fraser-Bells purchased a home at Beacon Hill, New South Wales for about $240,000 which was mortgaged to the Commonwealth Bank for about $60,000. 261 Mr Fraser-Bell had first met Jones in the early 1980's and had taken out insurance policies through him as a NM agent. In late 1989, Jones invited Mr Fraser-Bell to attend his office where, in late October or early November, he gave a "whiteboard presentation" of the Package to Mr Fraser-Bell. Shortly afterwards, Jones made a second presentation to both Mr and Mrs Fraser-Bell. 262 The Mortgage Finance application contained no details of the Fraser-Bells' income, assets or liabilities. However, their incomes were checked by Citibank. Hawkins (Durnan) in the CSU in Melbourne received the Fraser-Bells' application on 9 November 1989. Jones paid the valuation and application fees totalling $1,265. Hawkins forwarded the application under the LKFM agency with the TQC mortgage checklist to the CPU in Sydney. No capacity test was conducted. Citibank's letter of offer was dated 27 November 1989 and offered a facility of $176,250 (on a LSR of 75per cent) at an initial interest rate of 19.95 per cent. 263 The transaction was settled on 12 January 1990. The first drawdown was $59,079.92 which was the amount paid to discharge the existing mortgage. The second and third pages of the Citibank account statements are missing. These recorded whatever transactions occurred between January 1990 and 15 March 1990. I infer that during this period other drawdowns were made to settle the Mortgage Power facility. In particular, I infer that $30,000 was drawn down to fund the purchase of the initial units in the Property Trust. The applications for the initial units and further units and the application for a NMPS loan of $120,000 for the further units were all dated 8 February 1990. The initial units (20,836) were issued on 23 February 1990 and the further units (83,293) were issued on 30 March 1990. 264 Accordingly by April 1990 the Fraser-Bells owed around $112,000 to Citibank and $120,000 to NMPS, totalling $232,000. Prior to the transaction, they had owed only $60,000 to the Commonwealth Bank. On the other hand, after the transaction they owned 104,129 units in the Trust as well as their house. Their monthly interest liability was around $3,600 which amounted to 60 per cent of their combined pre-tax incomes. 265 The Citibank account statements for April 1990 onwards and subsequent statements disclosed drawdowns on the Citibank facility to pay interest to NM. By the end of 1990, the amount owing to Citibank was about $127,216 and by the end of 1991 it was about $137,528, with only $38,722 left remaining available in the facility. In March 1992, the Fraser-Bells refinanced with the Government Insurance Office of New South Wales ("GIO") where the interest rate was lower. 266 The Fraser-Bells' claim was assessed by Assessor Greg Pride on 28 October 1993. The original recommendation on 15 November 1993 was for $76,000. There was a subsequent assessment by Assessor Pride on 9 February 1994, increasing the amount recommended to $82,600. Ultimately, the amount of compensation paid, including the Fraser-Bells' legal and accounting fees, was $87,369. 267 NM claims contribution from Citibank in respect of $93,053.33, an amount which includes the forgiven unpaid NMPS loan balance of $5,684.33.

Paul Frederick Garden and Denise Valda Garden (introduced by Jones) 268 In 1989, Mr Garden was a forty-nine year old fork lift driver/labourer employed by Nationwide Rubber in Nowra and Mrs Garden was a packer employed by Franklins. Their combined income for the financial year ending 30 June 1989 was approximately $31,000, and that for the year ending 30 June 1990 was around $21,000. They had three dependent children and a home which was initially valued at $120,000 and subject to a mortgage to the State Building Society for around $36,000. 269 Mrs Garden was a cousin of Jones. Jones had sold the Gardens life insurance policies over many years. In June 1989, Mrs Garden contacted Jones about a policy she had with NMLA. Jones invited the Gardens to his office in Manly so that he could explain the Package to them. Mr and Mrs Garden attended Jones' office a few weeks later. A man from Melbourne was there whose name Mr Garden could not recall. Jones did most of the talking and gave a "whiteboard presentation" of the Package. Jones gave the Gardens documents to sign. They included a form of application for Mortgage Power finance, two applications for units in the Trust and an application for NM finance for the units. Mr Garden said the documents were blank and that Jones said: "I will organise the paperwork and fix everything up - you just need to sign the papers." 270 A few weeks later, Jones called on Mrs Garden and gave her a further presentation of the Package, making handwritten notes which are in evidence. 271 Stewart at the CSU received the Gardens' application for a Mortgage Power facility on 14 June 1989. The application and valuation fees totalling $1,195 were paid by LKFM. Mr Stewart sent the application by overnight bag to the CPU in Sydney. The CPU processed and approved a Mortgage Power facility of $96,000 on 16 June 1989 and sent out Citibank's letter of offer on 19 June. After the valuation of the Gardens' home, the credit limit was reduced to $88,000, with an initial interest rate of 18.85 per cent. 272 On 3 July, Citibank Melbourne telephoned the Gardens. As a result, a note was made that the letter of offer should be sent to Jones in Sydney for forwarding to the Gardens. On 12 July, Citibank Melbourne contacted Jones' secretary who said she would chase up where the letter of offer was. On 14 July, the letter of offer with an acceptance signed by the Gardens was returned to Citibank Melbourne, and the file was forwarded from Citibank Melbourne to Citibank Sydney. 273 The transaction was settled on 7 September 1989 but was "backdated" to 31 August 1989. On settlement, $43,000 was transferred to Sydney to be distributed among the outgoing mortgagee, Corrs (who acted for Citibank) and the Gardens. The following further payments were made on settlement: $1,195 to LKFM; $4,990 to NMLA being two premiums of $2,495 each on insurance policies; $20,000 to PTA for the initial units (anomalously, only $10,000 worth of initial units were applied for); $400 to NMPS as an application fee on the application for the loan for the further units; $284 to the Comptroller of Stamps for stamp duties; $20 to Citibank for bank fees; and $295 to Van Minnen for her fees for "acting for" the Gardens. 274 The Gardens paid $10,000 for the initial units and $40,000 for the further units. For the latter, they borrowed $40,000 from NMPS. By October 1989, the Gardens owed $72,131 to Citibank and had $15,869 remaining in credit in the approved Mortgage Power facility of $88,000. The borrowing of $40,000 from NMPS took place on 6 December 1989, increasing the Gardens' indebtedness to some $107,000 as against their pre-transaction indebtedness of around $36,000 to the State Building Society. By December 1989, their monthly interest bill was around $1,700, which was approximately 66 per cent of their combined pre-tax incomes. The Gardens' indebtedness steadily increased as they used the Citibank facility to make the interest payments on both the Mortgage Power loan and the NMPS loan. By 15 December 1990 the Gardens had drawn down $86,909, leaving only $1,091 available. To compound their problems, their combined incomes for the year ending 30 June 1990 fell to less than $21,000. The Gardens became aware of a problem when Mr Garden saw from statements forwarded to him by Jones that the value of the Citibank reserve was falling and the monthly amounts of interest payable to Citibank were nearly double what they were originally. 275 On 5 December 1990, the Gardens wrote to NMAM requesting that their units be redeemed in full. In late 1990 they sold off all their units in the Property Trust and repaid the NMPS loan of $40,000 in January 1991. The Gardens refinanced the Citibank loan with HomeFund in 1991. 276 After a referral by an accountant and a financial adviser, the Gardens retained Morton & Harris, Solicitors, to make a claim on their behalf. Morton & Harris corresponded with NM in 1991 and 1992. The Gardens commenced a Supreme Court proceeding against Jones, Hacopian, NMLA and Citibank. On 27 July 1994, Morton & Harris made an offer to NM to settle for $83,981. Eventually, on 20 December 1994, the parties agreed on $74,504 and a settlement deed was executed in early 1995. 277 NM claims contribution from Citibank in respect of an amount of $75,610 which includes $1106 for legal expenses paid on behalf of the Gardens.

Gregory Alan Jorgensen and Anne Maree Jorgensen (introduced by Bahr) 278 In 1992 Mr Jorgensen was a forty-year old schoolteacher. Mrs Jorgensen was also a school teacher. For the year ending 30 June 1992, Mr Jorgensen's taxable income was $39,770 and Mrs Jorgensen's was $29,710 - a total of $69,480. For the year ending 30 June 1993, the respective amounts were $39,238 and $15,212 - a total of $54,450. The Jorgensens owned their home at Mount Dandenong and an investment property at Ringwood, Victoria. Their home was mortgaged to the Commonwealth Bank and about $20,000 was owing under that security. Their investment property, which was valued by Citibank at $128,000, was subject to a mortgage to the ANZ Bank on which around $28,000 was still owing. 279 Mr Jorgensen met Bahr through Bahr's son who worked at the same school as Mr Jorgensen. Bahr gave Mr Jorgensen presentations in at least two meetings between August and November 1992, using a whiteboard for the purpose. 280 The Mortgage Power application form identified Mr Jorgensen's occupation as "teacher/book designer". 281 The CPU processed the application then approved a facility of $96,000 on 25 November 1992 and forwarded its letter of offer to the Jorgensens the same day. The CPU carried out a capacity test. Upon entering into the Package, the Jorgensens' debt level increased from some $48,000 owed under the mortgages to the Commonwealth Bank and ANZ Bank, to $71,888.20 owed to Citibank and $70,000 owed to NMPS (the Jorgensens also remained indebted to the Commonwealth Bank for some $20,000 which they did not pay on settlement of the Mortgage Power facility). Their monthly interest liability comprised $612.50 payable to NM and $506 payable to Citibank, a total of $1,118.50, which amounted to approximately 21 per cent of their combined pre-tax monthly incomes. 282 Mr Jorgensen was alerted to the existence of a problem by articles in the press in January 1993, less than a month after the Jorgensens had entered into the Package. Mr Jorgensen testified that Bahr told them it was a " 'good time' to enter the plan, because it could only improve with time as the market had bottomed out". 283 The Jorgensens' losses were assessed by Assessor Bouchier on 17 September 1993 who recommended payment of $6,620. The amount was comparatively low because the Jorgensens had entered into the Package late (December 1992) and were compensated after only ten months (October 1993). To the sum of $6,620 was added an initial capital loss of $1,898 from a further fall in the unit price up to the date of settlement, and $160 for the Jorgensens' legal fees for obtaining advice on the deed of release, making a total of $8,678, which is the amount in respect of which NM claims contribution from Citibank. (There is evidence suggesting different amounts but I need not concern myself with this problem).

Frank Lorenz and Ann Gudrun Lorenz (introduced by Jones and kelly) 284 In 1990 Frank Lorenz was a thirty-seven year old builder. He and his wife had a family company of which both were directors. They owned their home at Collaroy Plateau, Sydney, which was originally valued by Citibank at $450,000 and was mortgaged to the Commonwealth Bank for about $50,000. They also owned an investment property the value of which the Lorenzes estimated at $300,000 and which was mortgaged for about $50,000. For the year ended 30 June 1990 Mr Lorenz's taxable income was about $56,500 and Mrs Lorenz's taxable income was about $38,000 - a total of $94,500. 285 Since 1975, Jones had sold Mr and Mrs Lorenz insurance as an agent, first for AMP and subsequently for NMLA. He introduced them to the Package in November or December of 1989 at their home. In February 1990, he invited them to his office at Manly to discuss the Package. At that meeting Kelly, and less prominently, Jones, made a whiteboard presentation of the Package. The Lorenzes attended a further meeting at Jones' office in about March or April 1990 when Jones made a similar whiteboard presentation of the Package. Hacopian was also present. There was a third presentation by Jones at his office in June 1990. 286 The Mortgage Power application form was processed by Hawkins (Durnan) in the CSU under the LKFM agency. A facility of $299,000 was approved within the CPU on 30 March 1990. On 2 April 1990, Mr and Mrs Lorenz were advised that a facility in this sum had been approved and that the initial interest rate was 19.3 per cent per annum. On 4 May 1990, Kathy Eisenhofer of Citibank, Melbourne returned the file to the CPU in Sydney recording that the valuation had come in at $380,000 and requesting that the limit be reduced to $250,800 accordingly ( the maximum LSR was 66 per cent). No formal or detailed capacity testing was carried out. On 11 May 1990, the reduction from $299,000 to $250,800 as the limit of the facility was approved in the CPU. Citibank's letter of offer of $250,800 was sent on 14 May 1990, the variable interest rate being initially 18.9per cent. On 20 June 1990 the Lorenzes signed two applications for $60,000 worth of units and $240,000 worth of further units, in the Trust. The same day, they also signed an application form for a NMPS loan of $240,000. 287 The transaction settled on 27 June 1990 when the following amounts were drawn down: $54,779 which was transferred to Corrs, Sydney, of which $52,593 was to pay out the first mortgage to the Commonwealth Bank and $2,161 was to pay the legal fees of Corrs as Citibank's solicitors; $8,484 to NMLA for insurance premiums; $9,216 to NMLA as a further premium; $60,000 to PTA for the issue of units; $1,800 to NMPS as the application fee on the application for the NMPS loan; $764 to the Comptroller of Stamps for stamp duty; $42,600 as pre-paid interest for one year on the NMPS loan; and $345 to Van Minnen for her fee for "acting for" the Lorenzes. 288 Accordingly, disregarding the mortgage on the investment property which was not affected, by 27 June 1990, Mr and Mrs Lorenz owed nearly $178,000 to Citibank. The initial units (41,606) and the further units (166,421) were issued on 29 June 1990. Pre-paid interest of $42,600 on the borrowing from NMPS was funded through the Citibank facility. Taking into account the borrowing of $240,000 from NMPS the pre-Package debt of Mr and Mrs Lorenz of about $52,000 to the Commonwealth Bank had risen to $418,000 and their monthly interest liability was around $6,450, which, amounted to nearly 81 per cent of their combined pre-tax incomes. 289 After about eighteen months, Mr and Mrs Lorenz understood that they had a problem. Mr Lorenz met with Mr Hocking in about April 1993. At that time NMPS had made margin calls and had issued notices of default in respect of the NMPS loan. 290 The accountant, Mr Bullock, calculated the Lorenzes' loss as at 13 June 1994 at $191,793 plus certain refinancing, stamp duty and advisers' costs. According to a settlement deed dated 20 July 1994, NM was to pay $157,008 to the Lorenzes. 291 NM claims contribution from Citibank in respect of $179,811.28 on account of Mr and Mrs Lorenz. That amount includes not only the settlement monies but also the difference between the loan foregone by NMPS and the value of the units redeemed under the settlement.

Phillip Ross Lowe and Deborah Joan Lowe (introduced by Jones) 292 In 1992 Mr Lowe was a thirty-eight year old schoolteacher. His taxable income for the year ending 30 June 1992 was $40,157 and his wife's income as a sales representative was $24,374 - a total of $64,531. They owned their own home at Harbord in Sydney which was valued by Citibank at $240,000. 293 The Lowes had taken out a Mortgage Power loan with Citibank in December 1991 for a credit limit of $100,000 after seeing a television advertisement. They had sought the facility to fund extensions to their house. By mid 1992 the amount they owed to Citibank was some $37,000. 294 Jones made presentations to Lowe at Jones' office three times in May and June 1992, using a whiteboard each time. The Lowes' applied for an increase in their existing Mortgage Power facility to $180,000 by an application dated 17 June 1992. A capacity test was performed within the CPU. Mr Lowe said that after he was advised by Citibank that there would be a fee if the line of credit were extended, he decided not to go ahead. However, Jones gently persuaded him with words to the effect of: "You have to trust me. I'll fix up the fee … I wouldn't say this to you if I didn't care about you. I only put people into this who I like." 295 Mr Lowe deposed that: "The demeanour of [Jones] during this meeting was fairly aggressive and insistent. Following this meeting with [Jones] my wife and I decided to go ahead with the investment arrangement." 296 The Lowes had telephoned Citibank on 26 June 1992 advising that they wished to have an increase in the facility of only $20,000 rather than $80,000, but on 2 July 1992 Jones or someone in his office telephoned Citibank to advise that the Lowes wished to proceed with the original increase of $80,000 after all. The CPU (Louise Sweeney) processed and approved the new facility limit of $180,000 on 3 July 1992. The increased facility limit of $180,000 was the maximum allowed on an LSR of 75 per cent based on Citibank's valuation of the Lowes' home of $240,000. 297 The increased facility was settled on 20 July 1992. The applications for the initial units and the further units were both dated 24 July 1992, as was the application to NMPS for a loan of $58,100 to fund the acquisition of the further units. On the same day, 24 July, Crawford obtained from Mr Lowe cheques drawn on the Citibank Mortgage Power account as follows: $384 to the Comptroller of Stamps for stamp duty; $787.50 to NMPS as the application fee on the application for the NMPS loan; $20,100 to Permanent for units in the National Mutual Share Market Trust; and $24,900 to PTA for the initial units in the Property Trust. 298 Assessor Pride assessed the Lowes' damages on 23 July 1993 at $4,572 then discounted this figure to allow for benefits that the Lowes had derived from the Package. The amount finally recommended was $2,300, to which was added $220 for legal fees for advice on the settlement deed. The total compensation for loss was thus $2,520. The settlement deed dated 10 November 1993 referred to an amount of $56,227 but no doubt this did not give credit for the proceeds of the redemptions of the units in the Property Trust and the NM Share Market Trust. 299 NM's claim against Citibank for contribution is in respect of the sum of $2,520.

Giuseppe Guido Minichini and Rosa Minichini (introduced by Jones) 300 In 1989 Giuseppe Minichini was a thirty-two year old mechanic with an income of around $25,000 per annum. His wife, Rosa Minichini, was not employed. They had three dependent children and owned their home at Collaroy Plateau, Sydney, which was valued by Citibank at $236,000 and was subject to a mortgage of about $30,000. 301 Mr Minichini had known Jones for many years. Jones had become a close family friend and had attended his wedding. In early 1989, Jones suggested more than once that Mr Minichini attend his office to learn about an investment proposal. Mr Minichini received two whiteboard presentations: the first by Jones, and the second by a person who, he was told, had a major role in the scheme in Melbourne. Mr Minichini acknowledged that the person's name may have been "Lance Kelly" (he said that the name "rings a bell") but he could not be sure. 302 Stewart in the CSU in Melbourne received the Minichinis' Mortgage Power application on 14 June 1989 and sent it overnight to the CPU in Sydney. It contained no details of the Minichinis' assets or income. The CPU processed and approved a facility of $160,000 on 16 June 1989. Citibank's letter of offer in that sum was despatched on 23 June 1989. The credit limit was reduced to $141,600 after Citibank's valuation was received. The transaction settled on 2 November 1989. The amounts drawn down were: $30,758 to pay the outgoing mortgagee and Citibank's legal fees; $2,744.50 to NMLA as a premium on a policy; $3,934 to NMLA as a premium on another policy; $3,161.50 to NMLA as premium on a third policy; $20,000 to PTA for the initial units; $400 to NMPS as an application fee for the loan for the further units; $284 to the Comptroller of Stamps for stamp duty; $295 to Van Minnen for her fees for "acting for" the Minichinis; $25 to Citibank for bank charges; and $5,000 to Mr Minichini. Thus, on 2 November 1989, the Minichinis' debt increased from about $30,758 to $67,121 (based on Citibank's statement dated 15 November 1989). 303 Applications for the $20,000 worth of initial units, the $80,000 worth of further units and the $80,000 loan from NMPS were all dated 2 November 1989. The initial units (14,240) were issued on 13 November 1989 and the further units (56,959) were issued on 7 December 1989. NMPS's loan of $80,000 was advanced on 6 December 1989. At that time, the Minichinis' monthly interest liability was around $2,450 which was greater than Mr Minichini's pre-tax income of approximately $2,083. Mr Minichini's average monthly income for the year ended 30 June 1990 declined to around $1,430. Interest rates subsequently declined from 19.95 per cent on the Citibank Mortgage Power loan in November 1989 to 10.5 per cent in August 1992, and the NM rates also decreased in the same period to around 11 per cent. 304 At Jones' suggestion the Minichinis made a further investment in July 1990. They paid $10,000 for a further 6,955 units on a drawdown from Citibank and a further $40,000 for 28,740 more units using funds borrowed from NMPS. These units were issued on 16 August and 20 September 1990 respectively. 305 The Minichinis experienced difficulty in maintaining their payments and in August 1992 they requested a redemption of units. The units were redeemed on 1 March 1993. The proceeds of $113,637 were paid to NMPS. The Minichinis drew down a further $6,360 from the Mortgage Power facility to pay out the NMPS debt, leaving $73,250 owing to Citibank. 306 The Minichinis' claim was assessed by Mr Bullock, accountant, in a letter dated 30 May 1994 to Mr Hocking in a sum of $83,844. It was later assessed at $93,902.50. On 20 July 1994 a deed of release was executed on the basis of that amount of $93,902.50. 307 NM's claim against Citibank for contribution is in respect of this amount.

Robert Leonard Parsons and Ngaire Carmel Parsons (introduced by Wass, Jones and Kelly) 308 In 1989 Mr Parsons was a forty-one year old Protective Services Officer. He had completed high school to third year intermediate level. His wife, Ngaire, was a mail clerk. They had two children and owned a home at Chatswood, Sydney. It was valued by Citibank in October 1989 at $330,000 and was mortgaged to the ANZ Bank for approximately $12,700. For the year ending 30 June 1989, Mr Parsons' taxable income was about $28,000 and Mrs Parsons' was about $14,500 - a total of $42,500. For the year ending 30 June 1990, the respective figures were about $24,000 and $10,000 - a total of $34,000. 309 Mr Parsons first met Wass in early or mid 1989 when Wass was the NM insurance agent who looked after officers of the Department of Administrative Services. In mid to late 1989 she contacted Mr Parsons and told him about the Negative Gearing Package. She came to the Parsons' home and described the scheme. A few weeks later she arranged for Mr Parsons to meet Jones at Jones' office at Manly. Mr and Mrs Parsons attended Jones' office and received a whiteboard presentation of the Package by Jones. Wass maintained contact with Mr Parsons afterwards but Mrs Parsons was not keen on the proposal. Wass said that there was to be a further presentation the following week by Kelly and the Parsons returned to Jones' office and received a presentation from Kelly which was generally similar to that which Jones had given. 310 At the end of Kelly's presentation, the Parsons decided to participate in the Package to the extent of $100,000. Hawkins (Durnan) in the CSU, Melbourne received the Parsons' application for a Mortgage Power facility with a credit limit of $277,500. The application form showed Mr Parsons' employer as the Commonwealth Government but did not identify his occupation. Hawkins sent the application form to the CPU in Sydney on 29 September 1989. On 4 October 1989, the CPU sent a fax to "Lance Kelly/Jane Durnan" in Melbourne advising that the deal was rejected because the capacity to service the borrowing appeared "doubtful", and requesting "written confirmation of salary and any other source of income" (even though capacity testing had not yet been introduced as a requirement). After further communications, a facility was approved on 19 October 1989 with a credit limit of $185,000 on an LSR of 56 per cent. 311 Citibank's letter of offer of a facility of $185,000 with an initial interest rate of 19.75 per cent was sent to the Parsons on 24 October 1989. The transaction was settled on 6 December 1989 when the following amounts were drawn down: $12,698.48 to the ANZ Bank to discharge the existing mortgage; $1,688 to Corrs for their fees as Citibank's solicitors; $5,000 to NMLA as premium on a policy; $5,000 to NMLA as premium on a second policy; $5,000 to PTA as payment for the initial units; $100 to NMPS as application fee on the NMPS loan; $44 to the Comptroller of Stamps for stamp duty; $295 to Van Minnen for her fee for "acting for" the Parsons; $24 to Citibank for bank charges; and $1,395 to the Parsons to reimburse them for the Citibank application fees which Mr Parsons had paid by credit card. 312 The initial drawdowns thus totalled $31,244.48 and the Parsons' level of indebtedness had increased from $12,698 owed to the ANZ Bank to $31,244.48 owed to Citibank. 313 The application for the initial units and the further units and the application for a $20,000 loan from NMPS were dated 6 December 1989 (not in Mr Parsons' hand), although they had been signed by the Parsons prior to that date. Mr Parsons testified that he thought it unusual to send signed documents to Van Minnen for "witnessing" but that Wass reassured him that this was in order. The initial units (3,560) were issued on 14 December 1989 and the further units (13,891) were issued on 14 March 1990. By March 1990 the Parsons owed $20,000 to NM in addition to a balance of about $40,000 to Citibank on the Mortgage Power facility. 314 In May 1990, the Parsons made a further investment in the Property Trust. A drawdown of $15,000 was made on the Citibank facility on 4 June 1990 to fund an application for further "initial" units made on 7 May 1990. A loan of $60,000 was made by NMPS to fund an application for still further units made on the same day. This loan from NMPS was made under a separate account number to that relating to the original loan of $20,000. The Parsons dealt with Wass also in relation to this further investment in the Trust. The additional initial units (10,402) were issued on 5 June 1990 and the additional further units (41,606) were issued on 22 June 1990. In mid July 1990, the Parsons made further drawdowns in association with this second investment, for example, $204 for stamp duty on the further unit mortgage. By August 1990, the Parsons' monthly interest liability was around $2,283 or around 65 per cent of their combined pre-tax incomes. 315 In December 1990, the Parsons applied for a further $10,000 and yet a further $20,000 worth of units. There is no record in the NM statements that they were actually issued. On 12 December 1990, a further $10,000 was drawn down, apparently for a further investment in NM insurance, and on 24 December a further $2,300 was drawn down, apparently to pay interest to Citibank. Apparently these and other similar subsequent drawdowns were for interest. By April 1991, the Mortgage Power facility was drawn down to almost $85,000, leaving about $100,000 available for further drawdowns. 316 By 1993, the Parsons thought that their investment was a problem when the amount of their indebtedness to Citibank was approaching the limit of their account. The Parsons' claim was assessed by Assessor Geoffrey Wall in late 1993. On 17 May 1994, compensation of $127,699 was paid pursuant to a settlement deed dated 9 May 1994. This sum was paid into the Citibank account on 23 May 1994, reducing the closing balance to $4,181. 317 As part of the settlement, the Parsons transferred their units to NM, and NMPS forgave their debt. NM also seeks to recover in respect of the difference between the forgiven loan and the value of the units. NM's claim against Citibank for contribution is in respect of an amount of $136,627 (the amount of compensation paid to the Parsons plus the amount of the difference just mentioned).

Gary Allan Pickworth and Tina Jane Pickworth (introduced by Jones) 318 In 1990 Mr Pickworth was a thirty-seven year old carpenter and was married with two children. For the year ended 30 June 1990, his income was $24,306 and Mrs Pickworth's income was $16,312 - a total of $40,618. The respective amounts for the year ending 30 June 1991 were $19,677 and $11,978 - a total of $31,655. The Pickworths owned their home at Frenchs Forest, Sydney which was valued by Citibank at $229,000 in December 1990 and subject to a mortgage of about $44,400 to the National Australia Bank. 319 Mr Pickworth had known Jones for many years and had used him as his insurance agent. Jones made two "whiteboard presentations" to Mr Pickworth. Mr Pickworth gave evidence that the first meeting was held in about December 1989 and the second in or about December 1990. 320 The Pickworths' Mortgage Power application form was processed in late January 1990. The facility requested was $195,000, calculated by applying an LSR ratio of 65 per cent to an estimated value of the Pickworths' house of $300,000. On 30 January 1990, the CPU approved a facility of $141,700, based on Citibank's lower valuation of the property of $218,000. The initial variable interest rate was 16.75 per cent. There is no evidence that a capacity check was conducted. 321 The application for the initial units was dated 11 December 1990. That application together with the Pickworths' application for further units and their application dated 17 December 1990 to NMPS for a loan of $70,000 for the further units were forwarded to NM together with the Citibank cheques. The Pickworths were informed that the NM loan was approved by letter dated 4 January 1991. 322 The transaction was ultimately settled on Monday 17 December 1990, earlier settlement being delayed because of the necessity of repairs to, and insurance of, the security property. At settlement the following drawdowns occurred: $46,147.04 was transferred to the trust account of Corrs, Citibank's solicitors, to pay out the existing mortgage to the National Australia Bank and to meet telegraphic transfer fee, stamp duty, registration fee on the Citibank mortgage and Corrs' costs; $7,697 to Jones as reimbursement for insurance premiums and application fees which had been paid by him on account of the Pickworths; $30,000 to PTA for the initial units; $525 to NMPS for the application fee on the application for the NMPS loan; $244 to the Comptroller of Stamps for stamp duty; and $595 to Van Minnen for her costs for "acting for" the Pickworths. 323 As a result, after settlement of the Citibank facility, the Pickworths owed approximately $85,000 to Citibank and $70,000 to NMPS, the former secured by a first mortgage over their home and the latter secured by a mortgage to PTA over all the units. The initial units funded by Citibank numbered 21,555 and the further units funded by NMPS numbered 50,291. By February 1991 the Pickworths' monthly interest liability was around $2,065.75 which amounted to approximately 60 per cent of their combined pre-tax incomes. 324 By January 1993 the Pickworths had drawn down further on the Mortgage Power facility and owed Citibank over $106,000. The credit remaining in the facility was less than $36,000. Their monthly interest liability, on the other hand, was now only around $1,530 as a result of lower interest rates. 325 Assessor Wall assessed the Pickworths' loss on 21 December 1993 and recommended payment of $58,171. The Pickworths' solicitor, Peter Thompson, entered negotiations with Assessor Wall and this process resulted in an increase in the amount, by the inclusion of interest since October 1993 and further losses on the insurance policies taken out by the Pickworths. Also added was $11,301 for legal and accounting fees, producing a total payment of $87,365. However, this also included $5,323.35, being the difference between the value of the units surrendered to NM and the amount owing under the NMPS loan, which is excluded from the amount in respect of which contribution is claimed. 326 NM claims from Citibank contribution in respect of $82,041.65 in the Pickworths' case.

Peter John Quaife and Gail Christine Quaife (introduced to the Package in early 1989 by Kelly) 327 In 1989, Mr Quaife was a thirty-year old semi-trailer driver whose income in 1989 was about $30,000 per annum. Mr and Mrs Quaife owned their home at Carrum Downs, Victoria. They had two dependent children. The home was valued by Citibank at $113,000 and was subject to a mortgage on which some $55,000 was outstanding. 328 The Quaifes were introduced to Kelly by a friend in 1988. Kelly introduced the Quaifes to the Package in at least three meetings in Kelly's office in early 1989. Kelly wrote figures on a whiteboard for Mr Quaife to see as he outlined the Package. At the first meeting he provided Mr Quaife with beer. 329 Kelly's presentation to the Quaifes preceded the agency of 3 April 1989. At the time, Kelly's clients' applications were being submitted through LJ Hooker, Cheltenham and part of the fee paid by Citibank to LJ Hooker was, to Citibank's knowledge, being paid to Kelly. After several meetings at which Kelly made the "whiteboard presentations", the Quaifes decided to proceed with the Package. 330 The Mortgage Power application form identified Mr Quaife's occupation as a driver and Mrs Quaife as a clerk. The CSU (Stewart) in Melbourne processed the application and sent it with a completed TQC checklist to the CPU (of which Jennifer Horsefield was the head at the time) by overnight bag. The CPU processed and approved a facility of $106,250 on 8 February 1989. In accordance with the practice at the time, no capacity test was carried out. A letter of offer from Citibank to the Quaifes dated 9 February 1989 stated the amount of the facility as $100,000, which was later reduced to $90,400. Citibank's solicitors, Lander & Rogers, acted for both sides (this was the only instance of this among the twenty-three cases). Settlement took place on 31 March when $55,746 was paid to discharge the existing first mortgage, $1,066 was paid to Lander & Rogers to cover their costs and disbursements, and $1,870 was paid to National Mutual Royal Bank to discharge the Quaifes' indebtedness to that bank. 331 On 26 April, $15,000 was drawn down: $10,000 to acquire the first $10,000 worth of units in the Property Trust and the remaining $5,000, to pay the premiums on two NM policies. 332 The application for the initial units was subsequently dated 19 May 1989 and it was accompanied by the application for a further $40,000 worth of units. An application for finance from NMPS was dated 24 April 1989. The Quaifes acquired 7,124 units funded by Citibank and a further 28,420 units funded by NMPS, and had given a unit mortgage to Permanent over all $50,000 worth of units to secure the funding from NMPS. As some of the returns were reinvested over time, a further 849 units were issued. 333 By the end of May, the Quaifes owed approximately $75,000 to Citibank and by June 1989, a further $40,000 to NMPS - a total of $115,000. The monthly interest payments amounted to approximately $1,800, which was approximately 72 per cent of Mr Quaife's pre-tax income. There was no evidence of his wife's income as a clerk. 334 By 15 April 1990, the Mortgage Power loan of $90,400 was drawn to $83,224.00, leaving a balance available of only $7,175. The interest rate on that loan had risen from 17.90 to 19.3 per cent per annum, giving the Quaifes a monthly interest bill of $1,968. By mid July 1990, the Mortgage Power facility was drawn to almost $87,000. On 22 June 1990, 17,772 units were redeemed and the remaining 18,621 units were redeemed in December 1990. The proceeds were applied to pay the Quaifes' indebtedness to Citibank and NMPS. By January 1991, they owed about $73,700 to Citibank - some $18,000 more than they had owed to their former first mortgagee - and had paid off the loan to NMPS. 335 The Quaifes refinanced from Citibank to National Australia Bank in February 1991. Assessor Raphael assessed their claim and on 22 December 1993 recommended payment of $15,279. There was then an adjustment for legal and accounting fees and a surrendered superannuation policy. The deed of release was executed in February 1994 and NM paid the Quaifes $17,279. 336 NM seeks contribution from Citibank in respect of an amount of $17,629, which includes $350 for legal and accounting expenses.

Peter James Richards and Beverley Anne Richards (introduced by kelly and Blee) 337 In 1989, Mr Richards was a forty-nine year old fitter and turner and Mrs Richards was a laboratory assistant. In 1990 they had two dependent children. Mr Richards' income for the year ended 30 June 1988 was about $40,000 but his income for the year ended 30 June 1989 dropped to about $32,000 when he changed jobs (in April 1989) and ceased earning overtime. Mrs Richards earned about $12,500 and $11,000 respectively in those two years. The Richards owned their home in South Clayton, Victoria, which was valued by Citibank at $142,000 and was subject to a first mortgage of about $60,000 to RESI Statewide. 338 In early 1988 Kelly had arranged for the Richards to borrow from RESI Statewide Building Society for the purchase of an investment property and had sold them business insurance policies. 339 Shortly after April 1989, Mr Richards again went to Kelly explaining that his wages had been effectively halved because of the loss of overtime and seeking advice as to how he could fund the insurance policies and the interest payable to RESI Statewide on the investment property. Kelly referred Mr Richards to Blee in Kelly's office at Cheltenham and Blee explained the Package on a whiteboard. 340 The indistinct date on the Mortgage Power application form seems to be 28 April 1989. It was received in the CSU on 8 May 1989 and forwarded by overnight bag to the CPU in Sydney. The form recorded the occupations of Mr and Mrs Richards as fitter and turner and laboratory assistant, respectively. It did not record their incomes. Citibank's client record for the Richards and the TQC indicated that Van Minnen was the Richards' solicitor. No capacity test was conducted. Citibank's letter of offer was dated 12 May 1989 and was for a facility of $112,000 at an initial variable interest rate of 18.6 per cent. 341 It is noteworthy that the Mortgage Finance Proposal in respect of the Richards bore in handwriting: "LANCE KELLY FIN MAN. 266 CHARMAN RD CHELTENHAM 2524885018." This was the Citibank agency number that had just been allocated to LKFM upon its appointment as agent on 3 April 1989. (Apparently Kelly had not yet had LKFM's agency stamp made.) Of the 23 Investors, only the Quaifes were introduced to Citibank prior to the appointment of LKFM on 3 April 1989. Their Mortgage Finance Proposal bore the "LJ Hooker Cheltenham" name and agency number (2524562018). 342 Settlement took place on 21 June 1989 when $60,633.46 was paid to RESI Statewide to pay out the first mortgage; $20,000 was paid to PTA for the acquisition of the initial units in the Property Trust; $400 was paid to NMPS as the application fee on the application for the funding for the further units; $284 was paid to the Comptroller of Stamps for Stamp Duty; $270 was paid to Van Minnen for her fee for handling the matter for the Richards; and $1,083 was paid to Lander & Rogers, Citibank's solicitors, for their fees. Thus, even before the acquisition of the further units, the Richards' indebtedness had increased from $60,633 to RESI Statewide to about $82,700 to Citibank. The surplus remaining in the Citibank facility after the initial drawdown was about $28,000. 343 The Richards applied for $80,000 worth of further units and for finance for them on 26 May 1989, and NMPS advanced $80,000 on 29 June 1989. The initial units (14,211) were issued on 26 June 1989 and the further units (56,841) were issued on 30 June 1989. By 30 June 1989, the Richards' indebtedness had risen from $60,633 to around $163,000. Their monthly interest liability was $2,670 which amounted to about 61 per cent of their combined pre-tax income for the 1987-1988 financial year or nearly 76 per cent of their combined pre-tax income once the salary decreases in 1989 were taken into account. 344 The Richards used the Citibank facility to make all of their interest payments to NMPS and most of their interest payments to Citibank. By April 1990, they had drawn down almost $94,000, leaving an unused credit limit of only $18,000. Their monthly interest repayments were now around $2,800. The Richards fell behind in the payments required by Citibank and in early May 1990 they caused their units in the Trust to be redeemed and paid out the NMPS loan. As well, they sold their investment property and refinanced their home with the Bank of Melbourne. 345 Assessor Dunn assessed the Richards' claim after an interview on 19 April 1995 at $13,559. NM paid $13,559 to the Richards pursuant to a settlement deed dated 15 June 1995 and paid $368.52 to the Richards' legal advisers. 346 NM claims contribution from Citibank in the Richards' case in respect of an amount of $13,927.52.

Dominic Tavoletti and Melina Tavoletti (introduced by Jones) 347 In 1989 Mr Tavoletti was a thirty-nine year old labourer and Mrs Tavoletti was a baker/packer. They had two children. They owned their own home at Collaroy Plateau, Sydney and by June 1989 had paid it off. For the year ending 30 June 1989, Mr Tavoletti's income was around $22,600 and Mrs Tavoletti's was $7,200 - a total of $29,800. Their respective incomes for the year ending 30 June 1990 were about $17,700 and $8,000 - a total of $25,700. Citibank valued the Tavolettis' home at $268,000. 348 Jones was a casual friend of theirs and was their insurance agent. He had attended their wedding and would visit their home socially and on special occasions such as Christmas. He invited them to come to his office where he presented the Package to them in June 1989 by the use of a whiteboard. 349 The scheme into which the Tavolettis entered involved the acquisition of $20,000 worth of initial units funded by Citibank and $80,000 worth of further units funded by NMPS. The application and valuation fees totalling $1,450 were paid by Jones and were to be refunded on settlement to Jones. 350 Stewart of the CSU in Citibank, Melbourne, received the application for a Mortgage Power loan on 14 June 1989. He forwarded the application by overnight bag to the CPU in Sydney. 351 The CPU processed and approved a facility of $150,000 on 15 and 16 June 1989 on an LSR of 56 per cent. The worksheet records that a capacity test was not applicable. A question was raised within Citibank as to how the Tavolettis could service the loan and how they had managed to purchase their home. Carter replied that Mr Tavoletti's father had originally bought the property and sold it to the Tavolettis in 1979 for $100,000. He also noted that the Tavolettis required only $150,000 at an LSR of 56 per cent whereas Lance Kelly "always" advised his clients "to go for 80 per cent LSR." In Citibank's letter of offer dated 19 June 1989 the approved limit remained $150,000 and the initial variable interest rate was 18.85 per cent. 352 The transaction was settled on 14 September 1989. The drawdowns on settlement were $1,270 to Corrs as their fee for acting as Citibank's solicitors; $1,450 to Jones as a refund of application and valuation fees; $3,464.50 to NMLA as the initial premium on a policy; $2,635 to NMLA as the initial premium on another policy; $20,000 to PTA for the initial units; $400 to NMPS as the application fee on the loan from NMPS for the further units; $284 to the Comptroller of Stamps for stamp duty; $295 to Van Minnen for her fee for "acting for" the Tavolettis; and $5,000 to the Tavolettis. The total of the drawdowns was $34,823.50 (the other $25 possibly being payable to Citibank for bank charges). 353 The two applications for initial units and further units and the application to NMPS for a loan of $80,000 were all dated 14 September 1989. The loan was approved by letter dated 9 October 1989. The initial units (14,344) were issued on 10 October 1989 and the further units (56,959) were issued on 31 October 1989. 354 As a result of the transaction, the Tavolettis' indebtedness had risen from nil to $114,823.50, of which $34,823.50 was secured by the first mortgage to Citibank and $80,000 was secured by the unit mortgage, to Permanent as trustee of the Mortgage Trust. The Tavolettis' monthly interest liability was $1,847 which amounted to about 74 per cent of their combined pre-tax income of $2,483. The interest to income ratio jumped to about 86 per cent when Mr Tavoletti's income for the year ended 30 June 1990 declined substantially. 355 In 1993 Mr Tavoletti was assisted by Mr Hocking who assessed the Tavolettis' loss at $132,861 plus a further $10,598 for professional and advisers' fees. 356 McDonald of Citibank assessed the claim at $128,482. The amount paid by NM under the deed of settlement dated 20 July 1994 was $128,482. The NMPS loan balance was waived. 357 NM seeks contribution from Citibank in respect of $144,303.06 which is calculated as the settlement amount of $128,482 plus $15,821.06 being the balance of the waived loan and interest ($14,977) plus the difference in the value of the units between the time of the accountant's calculations and the settlement ($844.06).

David Bruce Weaver (introduced by Kelly and jones) 358 In 1989, Mr Weaver was an unmarried twenty-eight year old marketing manager whose income in the year ending 30 June 1989 was about $37,500. Mr Weaver owned a unit in Harbord, Sydney, which was valued by Citibank at $125,000 and was mortgaged for about $60,000. 359 Mr Weaver was introduced to Kelly by a friend who had previously attended one or two of Kelly's "whiteboard presentations". In about June 1989, Mr Weaver twice attended Jones' office where Kelly made "whiteboard presentations". 360 LKFM paid the application and valuation fees for the Mortgage Power loan totalling $1,125 which were refunded to it on settlement. Mr Weaver's application was handled by Citibank account manager Stewart at the CSU in Melbourne. The application was received there on 14 June 1989 and sent by overnight bag to the CPU in Sydney. The CPU processed and approved a facility of $120,000 on 16 June 1989. No capacity test was conducted. On 19 June, Citibank's letter of offer was sent to Mr Weaver. In the light of the valuation, the credit limit was reduced to $100,000. 361 The transaction was settled on 30 August 1989 when the following amounts were drawn down: $61,603.76 was transferred from Citibank Melbourne to Citibank Sydney and paid to the outgoing mortgagee and to Corrs for their fees as Citibank's solicitors; $1,125 was paid to LKFM as a reimbursement of the application and valuation fees; $5,000 was paid to NMLA as premiums on insurance policies; $10,000 was paid to PTA for the initial units in the Property Trust; $200 for NMPS as the fee on the application for the loan for acquisition of the further units; $124 for the Comptroller of Stamps for stamp duty; $295 for Van Minnen as her fee for "acting for" Mr Weaver; $20 to Citibank for bank charges; and $3,000 as a payment to Mr Weaver. Accordingly, on settlement Mr Weaver's indebtedness increased from a pre-transaction amount of about $60,000 to some $82,124, leaving $17,876 available credit in the credit facility. 362 Both the applications for the $10,000 worth of initial units and $40,000 worth of further units were dated 30 August 1989, as was Mr Weaver's application for a loan of $40,000 from NMPS. Mr Weaver testified that the documents were blank when he signed them. He could not recall the date when he signed. He said that handwritten dates appearing on the documents were not in his hand. 363 The initial units (7,172) were issued on 8 September 1989. The further units (28,688) were issued on 29 September 1989, on which date NMPS made the advance of $40,000. At this time, Mr Weaver's monthly interest liability (to Citibank and NMPS) was about $1,940, which was approximately 62 per cent of his gross monthly income. In fact, his income for the year ending 30 June 1990 declined to $30,825, with the result that his interest commitment accounted for nearly 76 per cent of his gross income. 364 The Mortgage Power facility was exhausted by 15 July 1992. In late 1992, Mr Weaver was referred to Mr Hocking with whom he met twice in February 1993. He was then referred to Peter Thompson, solicitor. On 12 June 1993, Mr Weaver cancelled the authority he had given to Westpac Savings Bank to make the monthly interest payments to NM. 365 Assessor Wall assessed Mr Weaver's loss on 16 December 1993. McDonald, on behalf of NM, accepted the recommendation. Settlement monies ($84,140) were paid to Mr Weaver in May 1994. 366 NM's contribution claim against Citibank is for $89,690.24, representing $90,534.50 less $844.26 redemption adjustment being the amount by which the value of the surrendered units exceeded the forgiven NM loan.

Barry Philip West and Jacqueline Anne West (introduced by Jones) 367 In 1989 Barry West was a thirty-six year old airline service operator employed by Qantas. He was a plumber by trade. He and his wife Jacqueline owned a home at Minto, New South Wales which was valued by Citibank at $145,000 and was subject to a mortgage to the Commonwealth Bank for about $22,000. They had three dependent children. Mr West's income for the year ending 30 June 1989 was about $18,000. According to his affidavit the comparable figure for the year ending 30 June 1990 was $17,919. Although Mrs West was identified on the Mortgage Power application form as a child care assistant, details of her income did not appear. 368 Jones made a "whiteboard presentation" to Mr West in about October 1989. The Mortgage Power application form identified his occupation as "transport officer" and, as noted above, that of Mrs West of "child care assistant". 369 Hawkins (Durnan) in the CSU received the Wests' Mortgage Power application and sent it to the CPU in Sydney. The application contained no information about the Wests' assets, income or liabilities. The CPU approved a facility of $120,000 on 19 October 1989. This amount was reduced to $108,750 at an initial variable interest rate of 19.95 per cent after the valuation of the Wests' home was received. A letter of offer was sent to the Wests on 2 November 1989. No capacity test was conducted. 370 The transaction was settled on 26 March 1990 when the following amounts were drawn down: $20,000 to PTA for the initial units; $400 to NMPS for the application fee on the application for the NMPS loan; $284 to the Comptroller of Stamps for stamp duty; $5,782.60 to NMLA for a premium on an insurance policy; $4,236.80 to NMLA for a premium on a further insurance policy; $295 to Van Minnen for her fee for "acting for" the Wests; and $23,380.03 to pay the outgoing mortgagee and the legal fees and disbursements of Corrs, Citibank's solicitors. The initial drawdowns totalled $54,378.43. 371 The application form for the initial units and that for the further units were both dated 26 March 1990 as was the application to NMPS for a loan of $80,000 for the further units. The application indicated incomes for Mr and Mrs West of $2,800 and $1,000 net per month respectively (totalling $3,800). The initial units (13,883) were issued on 6 April 1990 and the further units (55,474) were issued on 7 May 1990. 372 Whereas prior to the transaction the Wests had owed some $22,000 to the Commonwealth Bank on their first mortgage, after the transaction was completed they owed some $135,000 to Citibank and NM. Their monthly interest liability was around $2,215 which amounted to some 76 per cent of Mr West's income. Although the evidence does not establish the level of Mrs West's income, according to the application for the NM loan the couple's combined income was $3,800 per month. The monthly interest liability of $2,215 represents 58.29 per cent of this figure. 373 Later in 1990 the Wests appreciated that they were having difficulty in meeting the payments. Down to 18 September 1991, they drew on the Citibank account to pay interest to NM and, apparently, to Citibank itself. By 18 September 1991, the Mortgage Power facility was drawn to the extent of $108,141, leaving available only $608. 374 By 1992, the Wests felt that they could not afford the interest on both loans. Mr West consulted Jones who advised him to pay the NM and Citibank interest "up front" in order to obtain a larger tax deduction and to cash in the life policies in order to deposit money into the Citibank Mortgage Power account. The Wests applied for an increase in the Mortgage Power loan in May 1992 in order to be able to make interest payments "up front", but the valuation of their home came in too low and the Wests declined the increase in the facility offered by Citibank on the basis of that valuation. 375 Crawford called Mr West in 1993 and referred him to Mr Hocking. Hocking assessed the Wests' claim on 27 June 1994 supported by a letter from an accountant, Mr Bullock, dated 14 June 1994. McDonald of NM assessed the claim at $77,082.50, which was adjusted, to take into account of interest, to $79,002.50 which NM paid on 19 October 1994. On 9 November 1994 the Wests paid out of the proceeds of the settlement $56,325 into the Citibank account, reducing the debit balance to $51,412. The loan from NMPS was paid out in March 1995 as a result of the settlement. 376 NM claims from Citibank contribution in respect of $93,806.70 in the Wests' case. This includes $14,804.20 unpaid interest and the outstanding loan balance owing to NMPS, both of which were forgiven.

B. ELEMENTS OF THE INVESTORS' CAUSES OF ACTION AGAINST THE ADVISERS AND NM 377 I will address the issues presented for decision under this heading in the following sequence. 1. Did each Investor have a good cause of action in negligence against the relevant Adviser? (i) Did the Advisers owe the Investors a duty of care? (ii) If so, did the Advisers breach their duty of care to the Investors? (iii) If so, did the Advisers' breach of their duty of care to the Investors cause the Investors to suffer loss or damage? 2. Was NM liable to each Investor, either vicariously through the Adviser or directly in tort? (i) Was NM directly or vicariously liable in respect of the Advisers' conduct? (ii) Did NM itself owe the Investors a personal non-delegable duty of care? (iii) If so, did NM breach its personal non-delegable duty of care to the Investors? (iv) If so, did NM's breach of its personal non-delegable duty of care to the Investors cause the Investors to suffer loss or damage? 3. Were the Investors guilty of contributory negligence?

1. Did each Investor have a good cause of action in negligence against the relevant Adviser?

(i) Did the Advisers owe the Investors a duty of care? 378 In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 ("Esanda"), Brennan CJ said (at 252) that in a case of negligent misstatement said to have caused pure economic loss, a duty of care will arise if: "Ľ the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound." 379 In the same case, Toohey and Gaudron JJ considered that reliance by the plaintiff and an assumption of responsibility by the defendant would establish a duty of care in such cases. They said (at 264): "reliance is to be understood, in the context of the provision of information or advice, as an expectation, which is reasonable in the circumstances, that due care will be exercised in relation to that provision. Similarly, we consider that, in that same context, assumption of responsibility … should be understood as the assumption of responsibility for providing information or advice in circumstances where it is known, or ought reasonably be known, that it will or may be acted upon for a serious purpose, and loss may be suffered if it proves to be inaccurate." 380 If the information or advice is not proffered in response to a request from the plaintiff, it will normally be necessary to show that the defendant intended or encouraged the plaintiff to act on the basis of its accuracy or soundness: San Sebastian Properties Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 at 357; Esanda at 265. 381 Many of the Investors were put into contact with their Advisers by a friend or another NM agent who recommended that they obtain advice about the Package from the Adviser. In those cases, therefore, the Investor approached the Adviser requesting information and advice about the Package. In other cases, the Adviser, who was already known to the Investors, either socially or through earlier purchases of NMLA insurance policies, approached the Investor and initiated discussion about the Package. In yet other cases, Investors approached the Advisers in connection with insurance and the Advisers took the opportunity to present the Package. As noted earlier, one Investor, Daniels, responded to a newspaper advertisement of Mortgage Power, after which, Hugh Judd, who identified himself as Kelly's marketing manager, contacted him, then introduced him to Naughton who gave the presentation. 382 In all cases, the Advisers intended and encouraged the Investors to act on the basis that the information was correct and the advice given was sound, and that both were therefore safe to be relied on. The Advisers wished the Investors to invest in NM products in accordance with the Package in reliance on what they said, and they had a financial interest, in the form of commissions from NM (and in the case of LKFM from Citibank as well), in their doing so. 383 Did the Investors reasonably rely on the Advisers to exercise due care in the provision of the information and advice? Did the Advisers know, or ought they reasonably to have known, that the information and advice would or might be acted upon and lead to loss if incorrect or unsound? 384 All the Investors except Mr and Mrs Farrar testified expressly to the general effect that they invested in reliance on the Advisers' representations and advice. I accept their evidence. The following passage from the cross-examination of Mr Alder is illustrative: "Q. Did you tell [Kelly] that, that you couldn't understand one hundred per cent of what he was saying [during the presentation of the Negative Gearing Package]? A. No. Q. Why not? A. Because I'm not into high finance, I suppose. That is why I didn't say much. I just expected, because he works for National Mutual that he did know what he was talking about, that he was looking after my future." 385 Mr Farrar said that he was not introduced to Kelly but that his sister-in-law, who was a receptionist at FKB's offices, introduced him to Kirby. He said that he had no knowledge of "the workings of" an investment in shares or units in a unit trust or the "risks associated with" such an investment, and that he "had no knowledge of negative gearing". He said that he "was very interested in proceeding with … Kirby's proposals" at the end of the first meeting, and that "[a]t the conclusion of the second meeting [he] decided to proceed with … Kirby's proposals". He said he did not seek independent advice because of his relationship with his sister-in-law, Gwen Farrar, who was employed at Kirby's agency. I infer that Farrar relied on what Kirby said in deciding to invest. 386 The 23 Investors, all of whom gave evidence, had virtually no investment experience. Many had none. None had previously bought units in a trust. Only one, Ms Emery, had previously invested in shares. Another, Mr Lorenz, had invested in a property on a "negatively geared" basis but had never invested in shares or units.The Investors' general lack of financial experience and awareness assists me in concluding that they were relying on the Advisers to give correct information and sound advice. 387 Was it reasonable for the Investors to rely on the Advisers and ought the Advisers to have known that they were doing so and would or might suffer loss if the information and advice should prove to be incorrect or unsound? In order to answer this question I must refer to the course of the meetings between the Advisers and the Investors. The meetings usually followed the same general pattern. That pattern is proved by the testimony of Kelly and Crawford as well as that of the Investors themselves. Kelly described his presentation in a memo to NM on 9 November 1992 (this was Kelly's response to a request for a description of it that was made of him because of a concern developing within NM over his operation). As well, he testified orally as to the nature of his presentation, sometimes elaborating on the memo. Crawford testified as to Jones' form of presentation. 388 The Adviser would begin by asking the client about his or her current financial position (for example, income, assets, debts, monthly repayments, time to pay out debts). The client would be asked questions with a view to establishing whether he or she was satisfied with his or her existing financial position. The client might reply, by saying, for example, that he or she could "get by" but did not seem to be "getting anywhere [financially]" or that he or she would like to put an extension on the family home but could not afford it. Kirby asked Farrar, "[W]hat are your financial goals, what do you want most?" to which Farrar replied "By my 36th birthday I want to have paid off my house and own a share in a houseboat". The client would be shown how his or her debts could be consolidated under a "revolving credit facility" such as Citibank's "Mortgage Power" facility (the Advisers also sometimes referred to facilities offered by the Bank of Melbourne and the GIO). Consolidation may or may not have resulted in the client's having a monthly interest-only liability to Citibank that was less than the existing monthly principal and interest payments under the home mortgage. If so, he or she would be told that by maintaining payments at the existing rate, he or she would be able to reduce the principal that would be outstanding under the Mortgage Power facility. 389 The Adviser would discuss with the person how he or she might wish to use the undrawn balance in the proposed credit facility. The client might be told that he or she would be able to pay for something that had been unaffordable previously, for example, an overseas holiday, a new car or a house extension. Figures would be written on a whiteboard to demonstrate the effect of the drawdowns on the amount of credit remaining available from time to time. 390 The Adviser would next come to the use of the Mortgage Power facility to fund investment in units in the Trust. The prospective investor would be encouraged to draw down on the facility an amount representing 20 per cent (later 30 per cent) of the total amount to be invested in the units, and to borrow the remaining 80 per cent (later 70 per cent) from NMPS. As noted earlier, the borrowings from Citibank and NMPS were on "interest only" terms; the interest rate was variable by the lender; the borrowing from NMPS was for a fixed term of five years. The interest payable would exceed the interest which the person had been paying previously, but this would be offset to some extent by the dividends received from the units. Moreover, as the dividends would be less than the interest payable to Citibank and NM on the money that had been borrowed and invested in the units, the client would be told that the excess of that interest over the dividends received would be tax deductible and that this was the "negative gearing" aspect of the Package. 391 The prospective investor was told that the result would be a tax refund. The Adviser would perform calculations which would show the amount, sometimes called the "break even capital growth", by which the units needed to increase in value each year so that the client "broke even", that is, was no worse off, even in the short term, by reason of the investment. And of course the person would also have the benefit of anything acquired with the money borrowed, such as extensions to the home and the units in the Trust. According to the Adviser, the units would, increase in value. The client was told that for little or no cost, he or she would acquire something previously desired but unaffordable as well as have an investment which would leave him or her with no debts but a capital profit at the end of between five and ten years. 392 The Adviser used rates of capital growth and dividend return supplied by NM, when demonstrating that an investment in the units in accordance with the Package would make the client financially better off after a period of years. For some prospective investors the Adviser used a computer formula known as "COBBER" provided by NM (see Chapter 11 later). 393 Finally, the client was told that he or she could purchase a NMLA life insurance policy to protect against the financial risks arising from death. In particular, the person was encouraged to select an investment policy such as a Business Security Policy ("BSP"); to draw on the Mortgage Power facility to pay the first year's premium; and to borrow against the policy in subsequent years to purchase yet more units, the income and tax savings from which would be used to fund premiums and the interest on the policy loan. 394 If the person purchased units in the Trust or a NMLA policy (or both), the Adviser would earn commission from NMAM or NMLA respectively (or both). 395 Citibank submits that there was no standard presentation such as that set out above. In support, it refers to a passage in Kelly's memo dated 9 November 1992 in which Kelly said: "As I have said on several occasions it is extremely difficult to put together a 'written presentation' of the concept. … We do not have a standard presentation as such." However, the memo went on to give an example of a presentation which contained the elements described above. A letter sent to Mr Alder by Roberts sets out a scheme which contained the same elements. 396 Obviously the presentations varied somewhat as between the Investors. Some needed convincing on certain matters which presented no obstacle to others. However, I accept that all the presentations contained the elements described. The essential point for present purposes is that the Advisers were taking details of the Investors' individual financial positions and aspirations, then recommending that they rearrange them by refinancing with Citibank through Mortgage Power and drawing on Mortgage Power and borrowing from NM to enable purchase of units in a NM investment product in accordance with the Package. These were serious recommendations, and in my view, the Investors were entitled to expect that the Advisers would exercise reasonable care in making them. The Package involved the Investors in substantially increasing their indebtedness as part of an arrangement which, for them, was unfamiliar and extraordinary. They were entitled to expect that an unqualified recommendation to invest in accordance with the Package would not be made if there were associated risks that were not made clear to them, or if their income was or might well prove insufficient to service their borrowings, or if the Package was or was likely to be unsuitable for them. 397 I find that Kelly and the other Advisers were aware of the Investors' relative inexperience. They ought reasonably to have known that the Investors were relying on them and might suffer loss if the information and advice provided were inaccurate or unsound. 398 Citibank submits that the Advisers were acting as "salesmen" (or a "saleswoman" in the case of Wass) rather than as financial advisers and that the Advisers are not liable in negligence for "sales representations" as distinct from "advice". It submits that NM must show that the Investors regarded the Advisers as "independent" or "disinterested" financial advisers, and has failed to do so. It therefore submits that while the Advisers' statements might attract liability under, for example, the TP Act, NM has failed to establish that the Advisers owed the Investors a duty of care at common law. Citibank suggests, by way of analogy, the case of a car salesman who incorrectly represents that a car is of merchantable quality and suggests that he may be liable under the TP Act but would not be under the general law of negligence. 399 I do not accept the submission. Citibank refers to no authority in support of the general proposition that statements made by a "salesperson" in the promotion and sale of a product cannot be the subject of a duty of care. The fact that the Advisers were agents for NM and were promoting investment in units in the Property Trust (or in the case of the Alders, in the NM Equity Imputation Fund) does not mean that the Investors could not reasonably have relied upon them not to recommend an investment that involved a risk of financial loss, at least without warning them of that risk. Nor does it mean that the Advisers could say what they liked with impunity. I agree that an Investor may have been acting unreasonably in taking at face value an extreme representation which was inherently unbelievable: for example, the statement attributed to Kelly by Mr Quaife that if the investment resulted in the Quaifes' losing money, Kelly would pay off their mortgage. However, representations that the Package was "suitable" for an Investor and "risk free" deserved to be taken seriously and I think the Investors were entitled to rely upon them. 400 While the Advisers were not qualified financial planners, they knew that the Investors were making important investment decisions. In most cases these decisions were made on the recommendation of the Adviser alone. As I have said above, the presentation involved the Adviser obtaining detailed financial information from an Investor and showing how the Package would work for him or her. In those circumstances I think the Advisers held themselves out as having sufficient understanding and experience to be able to advise the Investor whether the Package was suitable according to the particular Investor's circumstances. 401 In sum, although the presentation was in part a "sales pitch", it went beyond that: it was in the nature of serious financial, taxation and investment planning and advice; the Advisers intended the Investors to receive and understand it in that way; and it was obvious that they were going to do so. 402 For the above reasons I conclude that the Advisers owed a duty of care to the Investors.

(ii) Did the Advisers breach their duty of care to the Investors?

General 403 NM pleads and submits that the Advisers breached their duty of care to the Investors. Citibank submits that it is not shown that the advice that the Investors should invest in the Package was advice that a financial and investment adviser exercising due care could not reasonably have given. Rather, according to the submission, given the growth projections provided by NM, an Adviser who did not advise investment in the Package would have been "negligent", because what was presented was a "chance in a century". 404 In my view, Citibank's submission focuses somewhat too narrowly upon the nature of the product to be invested in, that is, the units. Even if it were correct that the Advisers were not negligent in uncritically passing on NM's income returns and capital growth projections, this would not be the end of the matter. The reason is that the Advisers did more than this. After speaking with the Investors, usually at some length and more than once, and at least purporting to listen to them and to take cognisance of their individual circumstances, the Advisers recommended a radical restructuring of their financial affairs that involved substantial borrowings on the security of their homes and of the units purchased. The borrowings gave rise to heavy interest commitments, which, in many cases, consumed most if not all of the Investors' income from their employment. The increased interest liability was supposedly to be met by the returns from the units and the tax savings arising from the "negative gearing" aspect of the investment. The Package was far more complicated and risky than a simple investment in units in the Trust. 405 I accept in Chapter 11 below that Kelly's Negative Gearing Package was simply a particular form of a negative gearing arrangement advised by NMAM and taught by it to its authorised representatives who faithfully promoted it in accordance with that teaching. But I do not accept that this absolved those representatives from all responsibility for what they said to the Investors. While I accept that the extent of NM's responsibility was far greater than theirs, they did, after all, have the opportunity at their presentations of appreciating the Investors' lack of financial experience and sophistication, and of taking steps directed to ensuring that they adequately understood the implications of the Package for their own particular circumstances. 406 NM submits that the Advisers' duty of care was breached in various ways. First, it submits that they were negligent in making various positive representations to the Investors. Chief among these were the "summary" representations that the Package was (1) "safe and risk free" and (2) "suitable" for the Investor. These representations are said to have been made expressly in many cases and to have been made impliedly in all other cases. Schedules 2 and 4 (Annexure 1 to these Reasons) set out the express representations and advice alleged to have been made and given. In large part they can be seen to support those two summary representations. Some were simply descriptive of the Package, others involved bold forecasts of its likely profitability, and still others were quite outrageous (for example, Kelly's statement to Mr Quaife referred to at [399] above, and Jones' statement to Mr Alder, "I guarantee that if the scheme doesn't work I'll give you one million dollars myself"). 407 Although NM also pleaded the solicitor/Van Minnen representations and advice, no submissions were made in this respect and it is hard to see where they lead. None of the Investors testified that they would not have entered into the Package but for them. I do not propose to consider this aspect further. 408 Second, NM submits, in conformity with par 21 of the Pleading, that in order to discharge their duty of care, the Advisers were obliged to give the Warnings to the Investors. 409 Third, NM submits that the Advisers were obliged, but failed, to provide the Investors with the Written Explanation so that they would understand the Package. The Written Explanation would have given the Investors an opportunity to consider the Package more carefully outside the context of the interview with the Adviser, and even to seek independent expert advice about it. However, no Investor testified that if the Written Explanation had been supplied, he or she would not have invested or would have sought independent expert advice. Some of the Investors did in fact seek independent advice but still invested, while those who did not seek such advice did not attribute their failure to do so to the fact that they did not receive the Written Explanation. Even if they made that attribution, it would not be possible to know, on the evidence before me, whether the particular advice obtained would have caused them to decide not to invest. For these reasons, I do not propose to consider further this aspect of the alleged breach of duty.

"Safe and risk free" representation and failure to give the Warnings 410 The representation that the Package was "safe and risk free" and the failure to give the Warnings are linked as both contributed to create the impression that the Investors could not lose. The alleged representation that the Package was "suitable" for the Investor raises the somewhat different question whether the Advisers were negligent in recommending the Package to the particular Investors in the light of their individual circumstances. I will consider in turn the two different ways in which the case of breach of duty is put. 411 I accept that the Warnings were not given. None of the 23 Investors said they were given any of the Warnings. As part of the assessment of the Investors' claims for compensation, a number of the Investors were taken through a standard form of "Claim Assessment Report" which contained the following questions: "(252) Were the benefits and risks of the Adviser's recommendations fullyexplained to you?" "(254)Was the concept of negative gearing explained to you and the potential risk associated with it?" "(258)What did the Adviser say in respect of the increase in the potential risk of loss as well as the potential for capital gain when negatively gearing an investment?" "(261)What warnings or concerns did the Adviser give you regarding the likelihood of historical rates of return being achieved in the future?" 412 Sixteen of the present 23 Investors completed the Report. They were Appelman, Boulter, Crawford, Daniels, Douglass, Eberts, Emery, Farrar, Fraser-Bell, Jorgensen, Lowe, Parsons, Pickworth, Quaife, Richards and Weaver. All sixteen answered to the effect that the Adviser did not refer to any risks or give any warnings as to the future rates of return from the units. Douglass answered in the negative to questions 254 and 261 but answered question 258, "Little reference to risk or loss". I do not infer, on the basis of this answer and in the absence of testimony from Blee who made the presentation to Douglass, that the risks were sufficiently brought to his attention. Many of the Investors testified that they were told expressly that there were no risks associated with investing in the Package. I accept their evidence. 413 The other seven of the present 23 Investors, Alder, Bachmann, Garden, Lorenz, Minichini, Tavoletti and West, did not complete a Claim Assessment Report. However, they all said they were told by Jones or Kelly, and in one case by Blee, that there was no risk of loss, and some said they were told that the Package was "self-funding". 414 In substance, the evidence led from the Advisers did not suggest that they gave effective warnings. Kelly was questioned about the presentation he gave to the Quaifes. Mr Quaife had testified that Kelly made the following statements to him and his wife: "This is a sure fire way to make money. You cannot lose." "The statistics show that you cannot lose when you invest in property and in particular the property trust. There is no better investment than property." "The propert[y] trusts [sic] and the investment scheme is [sic] a complete risk free investment." "If this all goes down the tube - I'll pay your house off." 415 According to Mr Quaife, far from warning about interest rates, which had climbed from 15.95 per cent in November 1988 to 17.25 per cent early in 1989 when they invested, Kelly said to him "[d]on't worry about interest rates". 416 Kelly could not recall making a presentation to the Quaifes at all, but denied that he said any of the things mentioned above to any Investor. On the other hand, when asked what risks he drew to the attention of Investors, he responded: "The major risk is that the property would decrease in value and there will be a margin call if you take the short term view. It is like investing in shares, except you expect lower fluctuations or smaller fluctuations, rather. Ľ The investors would have been left with the impression that over time the Property Trust would have been expected to increase in value, and if it had a drop it would have been small and corrected itself down the track. Ľ I didn't put the general proposition to the clients that they should lay awake at night worrying about a drop. I didn't guarantee that it would go up. I also didn't do anything to make them feel there was a huge chance it would fall." It will be noted that in the first of these paragraphs, Kelly identified "the major risk" in objective terms, and carefully avoided responding to the question to the effect that he did at the time mention to clients the risk of a fall in value and a margin call to the Investors. According to Kelly's evidence, the closest he came to giving any of the Warnings was to say: "If property values stay the same and it has cost you $2,000 after your tax to fund the thing, you are down $2,000 a year. So unless the property goes up each year equal to the amount it has cost you to fund it, you will lose money. You have to have enough cash left over in your facility in case you run short of cash, in case something goes wrong." I have no doubt that Kelly did not mention this risk in the manner of a warning that might dissuade the Investors from proceeding. 417 Of the other Advisers, only Bahr, Hacopian, Kirby, Roberts and Crawford gave evidence. Hacopian and Crawford did not promote the Package to any of the present 23 Investors. Kirby and Roberts were not asked what warnings of risk they gave. Bahr was asked about Mr Jorgensen's claim that Bahr said to him: "There will be little or no risk of incurring a loss in this investment." Bahr said that he would have said: "There [will] be little or no risk if you [keep] this going for X amount of time." Bahr also denied saying that "the whole investment cannot fail". He said that he "Ľ described [the] investment to Mr Jorgensen and other clients as though he were buying the house next door and asked him, 'Will it fail or won't it fail? If you buy it and sell it next month, you will probably lose money. If you buy it today and sell it in ten years' time, you will probably make money. If you can't do it for 10 years, don't do it." On the other hand, Bahr also agreed that he described the Package as "self-funding". 418 Roberts denied telling any of the Investors that they could not lose and that there was no risk. Like Bahr, he said he told them that the investment was a "long-term" proposition requiring them to commit for a minimum of ten years. 419 The pattern which emerges from this evidence is that the only warning given related to the overall profitability of the Package. The Investors may have been told that the value of real estate, and therefore of the units in the Property Trust, might decline in the short term, that is, temporarily. But the Advisers did not bring home to the Investors the need for them to check their capacity to service their interest payments if, for example, the income returns from the units or their personal exertion income, or both, should fall. I find that they did represent to the Investors, expressly or impliedly, that the scheme was "risk free", subject to the possibility of temporary short-term slumps in real estate values. I also find that the Warnings were not given. 420 I make these findings, even accepting the limited evidence given by the Advisers in relation to this issue. However, where the evidence of the Advisers and the Investors is in conflict, I prefer that of the Investors for the reasons I give at [139] to [141]. 421 In my opinion, the Advisers breached their duty of care by representing that the Package was "risk free" and by failing to give the Warnings. 422 It can be seen from the summaries given in Section A of this chapter that all the Investors had a substantial equity in their homes. On the other hand, they did not enjoy high levels of income, although some were earning substantially more than others. The loans from Citibank and the Mortgage Trust required sizeable monthly interest payments. In fact, the monthly interest bills of some of the Investors exceeded their monthly after tax income. While the shortfall was supposed to be made up from the dividends from the units and the tax savings generated by the negative gearing aspect of the Package, an upward movement in interest rates or a decline in dividends could have a dramatic effect, putting at risk their equity in their homes.

Failure to give the particular Warnings 423 Before dealing with the Warnings in turn, I make the following general observation. As stated or implied earlier, the Advisers took on the role of specialist advisers to the Investors. Far from making it clear that they could not accept responsibility for the decision to invest, or that they were merely relaying information supplied by NM for the Investor to take into account, they positively recommended the investment without qualification. 1. "[T]he risk of the Investor suffering loss if the value of the units in the Property Trust, or the returns from the Property Trust, declined." 424 If the value of the units declined below their initial value and did not recover before circumstances obliged an Investor to realise the investment, the Investor would suffer a capital loss. Since the Investor had borrowed 100 per cent of the price of the units, the amount realised would not be sufficient to repay the amounts borrowed. As noted earlier, the Advisers claimed that they warned the Investors that property prices, and hence the value of the units, might decline in the short term. However, even some of the Advisers agreed that the Investors would have been left with the impression that at the end of, say, ten years, the value of the units would definitely have increased sufficiently to clear their debts and leave them with a capital profit. 425 Should the Advisers have warned the Investors that it was possible, albeit remotely possible, that property prices might decline and not recover even over a period of say ten years? I think they should have done so. Citibank refers to the fact that the figures for projected dividends and capital growth in respect of the units used by the Advisers were based squarely on information provided by NM (see Chapter 11). However, I do not think that it was consistent with the exercise of reasonable care for the Advisers to say, or to give the impression, that those or similar rates of return and growth would certainly be achieved, even over the long term. The Advisers must have known that there was always a risk that they might not be, and the Investors were entitled to be warned of that fact and told that there was an element of commercial risk taking involved, for which the Investors had to be prepared to take responsibility. 426 Perhaps more importantly, exercise of reasonable care demanded that the Advisers draw the attention of the Investors to the possibility that a change in their circumstances might compel them to realise the units prematurely and suddenly, with consequential capital loss. 427 In Rogers v Whitaker (1992) 175 CLR 479, the High Court considered a medical practitioner's duty to warn a patient of a risk involved in a surgical procedure. The Court said that a doctor is obliged to warn of a "material" risk, and added (at 490): "a risk is material if, in the circumstances of the particular case, a reasonable person in the patient's position, if warned of the risk, would be likely to attach significance to it or if the medical practitioner is or should reasonably be aware that the particular patient, if warned of the risk, would be likely to attach significance to it." 428 In my, view, a similar approach is appropriate in this case. The Investors were borrowing large sums of money against the security of their homes. The Advisers should have known that they would "attach significance" to a risk that they might be left, at the end of ten years, or a shorter period if circumstances compelled an earlier realisation, with a capital loss. While the Advisers may have been entitled to advise the Investors that in their opinion the risk was small, the Investors were nonetheless entitled to be made aware of it. 429 More important was the risk of loss if the returns from the units declined. This stream of income was necessary to enable the Investors to pay interest. In some cases, as can be seen from the summaries of the circumstances of the 23 Investors outlined in Part A of this chapter, the returns from the units assumed particular importance because the Investors could not meet their interest liabilities from their existing after tax income alone. In all cases, the interest liability was significant and the returns from the units were important in enabling them to sustain the investment. All of the Investors were at real risk if those returns declined. The income from the Trust in fact declined steadily from 3.27 cents per unit in September 1990 to 2.43 cents per unit in March 1992. 430 The Advisers did not refer to this risk in their presentations to the Investors, and I think that by this omission they breached their duty of care. 2. "[F]or those Ľ Investors entering the scheme between June 1988 and September 1990, [that] the risk of the Investor suffering loss as a result of significant increases in debt in an environment where interest rates were for much of the period increasing and in any event at extremely high levels throughout the period; for Citibank Investors entering the scheme after September 1990, that although interest rates were now tending to fall, they remained at significant levels and there was still a risk of loss through a significant increase in debt." 431 During the period from November 1988 to November 1989, interest rates on Citibank Mortgage Power loans rose steadily from 15.95 per cent to 19.95 per cent. The rates began to decline in February 1990 and returned to 15.95 per cent in January 1991. By December 1991 they had fallen to 13.5 per cent, and by September 1992 to 10.4 per cent. I accept, as NM submits, that, particularly during a period of rising interest rates, the Investors should have been warned about the potential difficulty of maintaining interest payments and the consequences of default. Even those Investors who invested in the Package during periods of falling interest rates should have been warned of this risk, particularly in the light of the fact that the Advisers were promoting the Package as a long term investment. 432 While the Investors knew that the interest rates on the loans from Citibank and NM were variable and may have known that interest rates were rising during 1988 and 1989 (most of the Investors already had home loans) it was still incumbent on the Advisers to mention this danger. 3. "[T]hat the Negative Gearing Package was best suited to persons with a consistently high income who were paying and were likely to continue to pay into the foreseeable future significant amounts of income tax at the highest marginal rate." 433 The tax saving from the "negative gearing" aspect of the Package was the other means by which the Investors were supposed to be able to cover their interest liabilities to Citibank and NM. There is no suggestion that there was a risk that the taxation legislation might be amended to eliminate this tax advantage. 434 The Investors were otherwise likely to see a reduction in the amount of income tax payable by them only if their income or their tax rate dropped. It was common sense that those who were earning higher incomes and paying tax assessed at higher marginal rates would derive the greater benefit from negative gearing. However, the question in relation to an individual Investor is not whether the Package would offer greater tax benefits to someone else, but whether the Investor would save sufficient tax to enable him or her, with the disposable income available to the Investor, to support the investment "in the long term". 435 I do not think that this particular Warning was one that due care required be given to the Investors. 4. "[T]hat the unused limit in the Citibank facility might be exhausted through the funding of the negative element of the scheme, at which point the client might be unable to continue to fund interest commitments from other sources and so go into default on the Citibank mortgage such that the client's home would be sold up." 436 This risk was more obvious in some cases than in others. The amount of the Mortgage Power facility remaining available after the drawdowns made on settlement of the facility varied as between Investors. So did the impact of the new interest commitments. Those Investors whose interest liabilities to NM and to Citibank consumed a large part of their income were faced with the possibility that it might not be long before they would need to draw on the facility. Once the facility was fully drawn, the Investor would default in paying interest and would lose his or her home pursuant to the mortgage to Citibank, or his or her units pursuant to the unit mortgage to NM, or both. Even those Investors who had larger incomes or smaller borrowings might find themselves in trouble if interest rates increased, the returns from the units declined, or they suffered a change in their personal circumstances of life which reduced their disposable incomes. 437 Given the gravity of the consequences, I think this risk was a material one in all cases, except that of the Alders, and that the Advisers should have warned of it. In the case of the Alders, the increase in their borrowings was so small that this risk was not a significant one. 5. "[T]hat should the client lose his or her job, or the marriage split up, he or she might be immediately faced with greatly increased debts and might be unable to service the interest or principal on the Citibank loan without loss of the home." 438 This risk was a live one in all cases accept that of the Alders. The level of borrowing was such that a loss of, or significant reduction in, disposable income could lead to the Investors' indebtedness spiralling out of control. Having assumed the role of financial, taxation and investment adviser towards the Investors, the Advisers were obliged to give the Investors (except the Alders) this Warning. 6. "[F]or investors after 23 July 1991, there was a statutory freeze on redemptions for all unlisted property trusts (including the Property Trust) unless 12 months' notice was given with the result that it may be difficult for the investors to extricate themselves from the negative gearing package should their financial circumstances change." 439 This Warning should certainly have been given to the Appelmans, the Lowes, the Farrars and the Jorgensens. Reasonable prospective investors in their positions would have regarded it as a significant risk that they could not require immediate redemption of and payment for their units, in order to discharge or reduce their indebtedness and put a halt to further deterioration of their financial position. 440 I think that by representing that the Package was "risk free" and by failing to give Warnings 1, 2, 4 (except as to the Alders), 5 (except as to the Alders) and (in the four cases mentioned) 6, the Advisers breached the duty of care which they owed to the Investors. 441 My conclusion that the Advisers breached their duty of care is supported by the evidence of Peter Dunn ("Dunn"), a financial planner who was called as an expert witness by NM. Dunn testified that a prudent financial adviser would "[n]ot recommend an investment or scheme of investments of a speculative, high risk nature unless the client fully appreciated the risks. That would have involved the adviser explaining each risk, and how it might affect the performance of the investment, especially the possibility of the client suffering a loss and the extent of such loss." 442 In Dunn's view, a prudent financial adviser advising about the Negative Gearing Package, would have paid particular attention to the following factors: "(a) the investors were, generally, not sophisticated in their understanding of investments or financial planning; (b) they were generally wage or salary earners on fixed, moderate incomes with limited disposable income; (c) the investment carried a fair degree of risk being, in most cases, an investment in one unlisted property trust; (d) the viability of the scheme was generally dependent on the continued availability of the Citibank line of credit; (e) there was a likelihood that any adverse movements in interest rates or property values would accelerate the depletion of any available credit; (f) once that credit was depleted the investors would have to sell their units to repay the loans or meet all interest and principal repayments from their own funds which, given their generally modest incomes and lack of other assets, they were unlikely to be able to do; (g) although favourable movements in interest rates and property prices might well have meant a good return for the investor, there was a real and substantial risk of loss which was likely to result in financial disaster for many participants." 443 This evidence of Dunn was not seriously challenged. Independently of Dunn's evidence, I would have concluded that persons such as the Advisers, assuming the role of financial adviser to persons who were unsophisticated and inexperienced in financial and investment matters, would have had the duty to which he referred. The risks referred to by Dunn were not explained to the Investors by any of the Advisers.

Unsuitability 444 The Pleading does not identify any particular respect in which it is said that the Package was not "suitable" for the individual Investors. I proceed on the basis that the Package was "unsuitable" for an Investor if it was reasonably foreseeable that the Investor would, or might well, not be able to sustain the investment in the long term by meeting his or her interest liabilities, and be forced to sell the units at a time when they had decreased in value, leaving the Investor with a capital loss and wasted interest payments and establishment costs. It was unsuitable also if the risk of loss was otherwise such that no financial adviser would have made an unqualified recommendation to the particular Investor in the form in which it was made, because of the Investor's circumstances. 445 This is an aspect of the case with which I have had some difficulty. The evidence does not establish every material aspect of each Investor's financial position. In particular, although a key element of the Package was its "negative gearing" aspect, the evidence does not establish the tax consequences of the Package for each Investor or the extent to which "tax savings" would have assisted him or her to meet the interest liabilities to Citibank and NM. 446 The following is an extract from Dunn's cross-examination relevant to the present question: "Q. Is it your view, therefore, that this concept which was presented to all the investors was always inherently flawed? A. It was not without substantial risks. Had the property collapse not occurred, it is reasonable to project that those folk today may be quite well off. Q. Was it flawed in the sense that it didn't take into account the possibility that the property market would fall? A. Yes. Q. And so, in your view, the scheme was never really a financial or a reasonable product to sell to the investors that you spoke to, except for perhaps one or two? A. That's correct. Q. So, whatever the agents could say about it, they could never make it into a reasonable product, could they? A. That is probably a reasonable comment." (my emphasis) 447 The highlighted passages suggest that although Dunn was saying that the advice was inadequate in all 23 cases because it failed to explain and warn of the risks, he was not saying that the Package itself was necessarily unsuitable for all 23 Investors: the individual circumstances of an Investor might have made it suitable for him or her after all. 448 I have decided not to explore the issue of the suitability of the Package in the circumstances of the respective Investors in view of the conclusion that I reach later on other grounds that Citibank is not liable.

(iii) Did the Advisers' breach of their duty of care to the Investors cause the Investors to suffer loss or damage? 449 Citibank submits that any losses were caused, not by the conduct of the Advisers, but by reason of "independent, extrinsic and supervening causes, in particular the total collapse of the unlisted property trust industry which occurred between July 1990 and December 1992 and the emergency legislation which was enacted in consequence". 450 There are two areas of causation to be considered. The first, usually referred to as "inducement", is concerned with the relationship between the Advisers' conduct and the making of the investment. Did the Advisers' conduct cause the Investors to invest in accordance with the Package? The second is concerned with the relationship between investment in accordance with the Package and the loss alleged: was it investment in accordance with the Package that caused the loss asserted?

(a) Did the Advisers' conduct cause the Investors to invest in the units in accordance with the Package? 451 In Chappel v Hart (1998) 195 CLR 232 at [9] Gaudron J said: "Where there is a duty to inform it is, of course, necessary for a plaintiff to give evidence as to what would or would not have happened if the information in question had been provided." A statement to the same effect is found in the judgment of McHugh J in the same case at [34]. 452 Similarly in Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 293 I said, in a passage with which Lehane J agreed: "In any case based on an alleged negligent failure to warn or inform it is necessary (i) to identify with certainty the kind of warning or information which the circumstances called for, and (ii) to prove that if the warning or information called for had been given, the loss or injury alleged would not have been suffered." 453 If the evidence does not establish that it is more probable than not that the Investors would not have invested had the required Warnings been given, an essential element in their causes of action based on the Advisers' failure to give the Warnings will not have been made out: Qantas Airways Ltd v Cameron, at 293. Similarly, if the evidence does not establish that the Investors would not have invested in the Package "but for" the representations made that it was "risk free", causation will not have been proved. As Gaudron J said in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 163 ALR 611 at [19]: "When a person claims to have taken, or refrained from taking, a particular course of action in reliance upon another's representation, the critical question, assuming the representation is one that might reasonably be relied upon, is whether, but for that representation, he or she would have taken that action. In that context, 'but for' does not signify a sine qua non or causative factor which, although necessary, is not sufficient to produce the result in question. Rather, it signifies the decisive consideration or one of the decisive considerations for taking the course of action in question. It was in the former sense that the 'but for' test was rejected as the exclusive test of causation in March v Stramare. In the sense of asking whether a representation is a decisive consideration, 'but for' is always the test of reliance." 454 The Investors did not testify, either on affidavit or orally, as to what he or she would have done if the required Warnings had been given, or if some had been given but not others, or if the Investors had not been told that the Package was "risk free". While such testimony would not have been conclusive (it would have been hypothetical and given with the benefit of hindsight), it would have provided the usual evidentiary foundation for resolution of an issue of the present kind. 455 The Investors did testify in general terms that they decided to invest "as a result of" the representations made to them by the Advisers, and would not, but for these representations, have taken out a Mortgage Power loan or purchased units. But in my view it does not necessarily follow that they would not have invested in the Package if the required Warnings had been given or the "risk free" representation not been made. The Investors may have been prepared to accept the risk in return for the chance of a substantial profit. NM would have to point to other evidence from which it is possible to infer what the Investors' response would have been if the required Warnings had been given or the "risk free" representation had not been made. 456 I have decided not to pursue further the issue of inducement in the individual cases because of my conclusion later on other grounds that Citibank is not liable.

(b) Was it investment in the units in accordance with the Package that caused the Investors to suffer loss or damage? 457 Citibank refers to Potts v Miller (1940) 64 CLR 282. In that case, the plaintiff bought shares on the basis of what he alleged to be two misrepresentations. These were to the effect that the defendant and friends of his had agreed to underwrite and purchase shares in the same company. The High Court held that one of the alleged misrepresentations was not made out and that the jury had not been properly instructed in relation to the other. But the Court went on to consider whether the plaintiff had proved that the misrepresentations had caused him loss. Starke J said (at 289): "The measure of damage in cases in which a person is induced by fraud to take up shares is the difference between the amount he subscribed or paid for the shares and the real value - not the market value - of the shares on allotment." Dixon J stated the principle in similar terms (at 297): "it appears to be treated as an inflexible rule that wherever the purchase or allotment of shares is the consequence of the deceit, the defendant shall receive credit for the fair or real value of the shares estimated as at the time of allotment or purchase." His Honour went on to say (at 298): "The reason given for the rule is that, if, after the date of purchase, the thing which the plaintiff was induced to buy loses in value owing to accidental or extrinsic causes, that loss is not the reasonable consequence of the inducement. Ľ [It is] necessary to distinguish between the kind of cause occasioning the deterioration or diminution in value. If the cause is inherent in the thing itself, then its existence should be taken into account in arriving at the real value of the shares or other things at the time of the purchase. If the cause be 'independent,' 'extrinsic,' 'supervening' or 'accidental,' then the additional loss is not the consequence of the inducement." He referred to the following example given by Cockburn CJ in Twycross v Grant (1877) 2 CPD 469 at 544-545: "If a man buys a horse, as a racehorse, on the false representation that it has won some great race, while in reality it is a horse of very inferior speed, and he pays ten or twenty times as much as the horse is worth, and after the buyer has got the animal home it dies of some latent disease inherent in its system at the time he bought it, he may claim the entire price he gave; the horse was by reason of the latent mischief worthless when he bought; but if it catches some disease and dies, the buyer cannot claim the entire value of the horse, which he is no longer in a condition to restore, but only the difference between the price he gave and the real value at the time he bought." 458 Dixon J referred (at 299) to two qualifications which he considered "alleviated" the "rigidity of the rule" to some extent. First, if the market price at the time of purchase was "delusive or fictitious" by reason of some "improper practice" on the part of the defendant or those associated with the defendant, that market price might be disregarded in ascertaining the fair or real value of the shares at the time of purchase. Second, that value might be ascertained by reference to events occurring after the purchase if those events showed, for example, that the company had been truly worthless at the time of the transaction. 459 Potts v Miller was recently applied by the New South Wales Court of Appeal in Morgan Corporate Ltd v GWG Leviny Pty Ltd (1995) ATPR 41-414 ("Morgan"). In that case the respondents to the appeal were a company ("GWG") and its two directors. On the advice of the appellant ("Morgan"), GWG invested $666,000 in a property trust. Of that sum it borrowed $500,000 from Barclays (Finance) Ltd ("Barclays") secured by guarantees given by the directors and the other $166,000 came from GWG's own funds. At the time of the purchase, the units were valued at 82 cents each. Within three months after the purchase, the units fell in value to three cents each. GWG sold them about two years after the purchase. 460 Barclays sued GWG and its directors. They counter-claimed against Morgan, alleging that it had misled them as to the nature of the transaction and the need for personal guarantees. Barclays subsequently settled by forgiving the debt. Morgan admitted that the directors did not know that they were executing personal guarantees because they were not properly advised by Morgan and that they would not have executed them, and GWG would not have invested in the units, if Morgan had given proper advice. 461 The question outstanding was whether GWG was entitled to recover from Morgan the difference between the price paid for the units and their value when it sold them two years later. The trial judge held that it was. On appeal, however, Meagher and Handley JJA (Mahoney JA dissenting) held, that the rule in Potts v Miller applied, with the result that GWG, which had not attempted to show that the units were worth less than 82 cents each at the time of purchase, was not entitled to damages for the misrepresentation. 462 In my view, there is a distinction between Potts v Miller and Morgan on the one hand and the present case on the other. That distinction is one suggested in the following passage from the judgment of Meagher JA in Morgan (at 40,592): "After the 'settlement' [with Barclays], the present respondents did not pursue any allegation of representation or promise by the appellant other than the allegation concerning the guarantees. In a sense it was a 'collateral' representation: the existence or otherwise of guarantees had nothing to do with the inherent value of the units or with their dramatic slump. Although the pleadings initially contained such an allegation, at trial no allegation was persisted with after the 'settlement' by the respondents (or any of them) that [the appellant] had ever represented the units as being a good investment, or as having any particularly attractive quality, or as being suitable to retain for two years (or any other period). After the so-called 'settlement' no allegation was pursued that [the appellant] had given negligent or improper advice, or that they knew or ought to have known of the fragility of the investment or of the imminent collapse of the market. There was no allegation that [the appellant] represented the investment as 'safe'. There is, in the way in which the case has been conducted, no reason why [the appellant] should not have believed that [the directors] and their Company would have treated the units the way in which any other investor would have treated any other investment. The only relevant claim was under s52 of the Trade Practices Act. No claim was made in fraud. There was no allegation of a breach of any fiduciary duty. With all respect to [the trial judge], I cannot resist the conclusion that his reasoning would be appropriate if, and only if, allegations which had been abandoned were persisted with. Whether they should have been persisted with, of course, we cannot tell." 463 A similar view was expressed by a Full Court of this Court in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 77 FCR 307 at 330: "• in a case where something is purchased in consequence of a misrepresentation, the prima facie measure of damages is the difference between the price paid and the true value of the thing. But this is not an inflexible rule and is merely illustrative of a more general proposition, namely, that the purchaser is entitled to recover as damages, a sum representing the prejudice or disadvantage he has suffered in consequence of altering his position under the inducement of the respondent's misrepresentation. That general principle applies to other claims, such as those brought by lenders or mortgage insurers who have entered into transactions in reliance on false or misleading representations; • a person induced to enter a transaction by misrepresentations, generally speaking, must show that the losses claimed are related to the misrepresentation. It is not enough simply to show that the transaction was induced by the representation and the losses would not have occurred but for the transaction. The loss must flow directly from the inducement." 464 This approach is consistent with the rationale for "the rule in Potts v Miller" as stated by Dixon J in that case, namely, that the defendant should be liable only for a loss which is "the reasonable consequence of the inducement", not for losses which have extraneous causes. To vary the example given by Cockburn CJ, if a person bought a horse on the strength of a representation that the horse had been inoculated against a fatal disease, but the horse had not been inoculated and later contracted that disease, the vendor would, I suggest, be liable for the entire price paid, not just the difference between that price paid and the contemporaneous market value of the uninoculated horse. In such a case, the contracting of the fatal disease would have been sufficiently related to the misrepresentation that it could be said that it flowed "directly from the inducement". 465 Similarly, in Kenny & Good Pty Ltd v MGICA (1992) Ltd, the appellant negligently provided to the respondent mortgage insurer a valuation which, through the appellant's negligence, overstated the value of a property. The respondent relied on the valuation in deciding to insure a mortgage over the property. When the mortgagor later defaulted and the insurer was called on to pay, the market value of the property had fallen dramatically. There was an issue as to whether the insurer could recover from the valuer damages in respect of the element of loss represented by the difference between the figure that would have been produced by a valuation made with due care and the lower figure to which the market value had fallen. The Full Court said (at 331-332): "The very point of the representations contained in the valuation was to assure MGICA that it enjoyed a sufficient margin [of value in the property as against the amount secured by the insured mortgage] to take account of future eventualities. These included the foreseeable (and foreseen) risk that the Property would decline in value. The representation that MGICA could safety [sic - safely] rely on the valuation induced MGICA to accept a risk that it would not have accepted had the representation not been made. It is true that the valuers made no representation as to the likelihood that [the mortgagor] would default on its loan transaction with [the mortgagee]. But MGICA would not have been exposed to any risk in consequence of that default had it not been induced to insure that transaction by the misrepresentations. Ľ It cannot be said that the losses sustained by MGICA arose from 'sources supervening upon or extraneous to the ... inducement':… The valuers represented that it was safe to rely on their valuation, for the purpose of determining whether there was a sufficient margin or cushion to guard against risks, including a decline in the property market generally. The decline in the market which occurred was one of the events contemplated by the representations on which MGICA relied." 466 An appeal from this decision was dismissed by the High Court after judgment was reserved in the present case: Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 163 ALR 611. None of the members of the High Court considered that Potts v Miller was determinative. Kirby and Callinan JJ said (at [123]), in a passage with which Gummow J expressed concurrence: "Nothing said in Potts v Miller is determinative of this case. Indeed, as Dixon J's reasons in that case show, different situations may arise in practice in cases of deceit (of which Potts was one). There can be no rigid rules to govern all cases. If an example is required of the flexibility with which these questions need to be approached, Gould v Vaggelas provides it. There the court allowed as damages trading losses incurred some time after the giving of a false inducement. It did so on the basis that it was reasonable, in the particular circumstances, for the purchasers to continue to carry on business as they did." (citations omitted) 467 One feature which distinguishes the present case from Potts v Miller is that referred to by Meagher JA in the passage from Morgan set out above,that is, that the Investors were advised, not merely to buy the units, but to retain them for a certain period. The evidence of those Advisers who gave evidence was that they told the Investors that the investment was a long term one (ten years was often mentioned) and that the value of the units might decrease in the short term but would increase over the long term. This was not a case, such as Potts v Miller or Morgan, where the representation and inducement ceased to have effect when the initial decision to purchase was made. 468 Similarly, the recommendation was to invest in accordance with the Package. Accordingly, the advice extended to refer to substantial borrowings to fund the purchase, and it was the inability of many of the Investors to sustain their interest liability, or the risk that if certain events occurred they would be unable to do so, that is said to have made the Package unsuitable for them. If it is correct to say that the losses were suffered by those Investors because the Package was unsuitable for them, I think that on general principle the Advisers were liable to put the Investors back in the position they would have been in had they not invested. 469 The principle recognised in Potts v Miller applies where all that is proved is that the plaintiff would not have bought but for the misrepresentation. It does not apply where the loss is suffered specifically because of the falsity of what was represented. In such a case the chain of causation is not broken by the intervening event because that intervening event is the very thing which the defendant represented would not come to pass. As Gaudron J said in Chappel v Hart at [13]: "It is contrary to common sense to treat part of the very risk which called the duty into existence as a supervening event breaking the chain of causation beginning with the breach of that duty." 470 The same is true in the case of a failure to warn. For example, in Chappel v Hart, a doctor failed to warn of the risk of infection in an operation on the plaintiff's oesophagus causing paralysis of the laryngeal nerve and consequential damage to the voice. The doctor argued that a strict application of the "but for" test would lead to an unjust result. In dealing with this submission, Gummow J said (at [66]): "It is true that in some cases of a failure to warn by a medical practitioner an application of the 'but for' test without qualification could lead to absurd or unjust results. Such would have been the situation if, for example, instead of suffering damage to her laryngeal nerve, Mrs Hart had been injured through the misapplication of anaesthetic. Whilst it would still be open to conclude that, but for Dr Chappel's failure to warn her of the possibility of damage to her voice, she would not have opted for the operation at that time and would not have been injured by the anaesthetic, the law would not conclude that the failure to warn of the risk of injury to the laryngeal nerve caused the injury resulting from the anaesthetic. The present appeal is significantly different from the situation described. In Mrs Hart's case, the very risk of which she should have been warned materialised." 471 The question here, then, is whether the respective Investors suffered loss because the Package was not "free of risk", or was not "suitable" for them on the other hand, or because of some supervening, extraneous cause on the other. I have noted in Chapter 1 such causes identified by Citibank, such as, the collapse of the unlisted property trust industry and the emergency legislation that was enacted. 472 Does the evidence establish that the Investors for whom the Package was not suitable in fact suffered loss for this reason? I have decided not to pursue this issue except, by way of illustration, in relation to one Investor only: the Minichinis. 473 Mr Minichini testified that he "first became aware that the Negative Gearing Investment was a problem when [he] realised how much money was going out of [his] Citibank account and that [he] was getting deeper and deeper into debt." 474 He did not say when he gained that appreciation. He said that when he received loan statements from Citibank he would contact Jones who would tell him not to worry and would say "[e]verything has got its ups and downs". 475 On 6 August 1992, the Minichinis signed a request to NM to repurchase all of their units. Mr Minichini said he made the decision to have the units redeemed "[b]ecause they were going downhill very quickly". When asked what the source of this information was, he said he regularly called a telephone service that provided information on the unit price and that the price "just kept on going down". He agreed that he appreciated that every time the unit price went down, he was "losing more and more money". 476 There is in evidence a letter from Jones to the "Manager of Mortgages" of NMPS dated 22 September 1992 which refers to the Minichinis' request that their units be redeemed and the fact that the redemption would not "be effective" until February 1993. Jones said that the Minichinis had requested "a transfer of ownership of all units" to himself, on the basis that he take over responsibility for their borrowing from NMPS. He asked NMPS to consider this suggestion. Handwritten notes on the letter, apparently from someone within NMPS, suggest that Jones was contacted on 13 December 1992 by someone at NM and persuaded not to go ahead with the planned transfer, mainly because of the difficulties and fees associated with preparing new mortgage documentation. Mr Minichini confirmed in cross-examination that he did not transfer his units to Jones. 477 The units were redeemed on 1 March 1993 when a cheque for $113,637.51 was issued. The cheque was drawn in favour of NMLA on account of Mr Minichini. The money was used to pay off the NMPS loan. Mr Minichini said he paid the remaining principal himself (it will be recalled that the Minichinis in fact borrowed $120,000). The Minichinis' statement for March - April 1993 does show a drawdown of $6,360.49 which corresponds roughly to the shortfall. 478 Mr Minichini said that in early 1993 (his affidavit said "early 1994" but he appears clearly to have meant "early 1993") he received an "anonymous telephone call" from a man who said words to the following effect: "We are all losing a lot of money in the Negative Gearing Scheme. Victor Hocking is going to try and help us get out. If you want to you should phone … and make an appointment to see him." 479 Mr Minichini claims that the same person later telephoned him again, urging him to see Victor Hocking of Finance & Estate Planning Corporation Pty Limited, who was submitting claims for compensation to NM on behalf of a number of investors. Mr Minichini said he took the unknown caller's advice and gave details of his investment and of his dealings with Jones to Hocking. On 7 April 1993 the Minichinis signed a letter authorising Hocking to proceed with his investigation on their behalf and to make all necessary inquiries concerning their investment in the Package. 480 On 16 July 1993, the Minichinis apparently received a letter from Brian Benger, General Manager of NMAM, which contained a questionnaire relating to the circumstances of their investment. On 13 August 1993, Mr Minichini wrote to Benger stating that he had been advised by Hocking not to reply to the questionnaire. 481 The Minichinis' claim was submitted by Hocking to NM on 16 June 1994. Mr Hocking's letter began by giving details of units purchased, insurance policies, unit mortgages and the Citibank facility. Mr Minichini stated in his affidavit in this proceeding that his taxable income for the year ended 30 June 1989 was $25,157 and for the year ended 30 June 1990 was $17,144. According to Hocking's letter, however, Mr Minichini's gross income for the year ended 30 June 1990 was $37,000. Moreover, according to Mr Hocking's letter, for the financial year ended 30 June 1993 his gross income was $42,000 and his wife, who had previously not engaged in paid work, earned $13,000. This casts a different light on the affordability of the Package for the Minichinis. 482 Hocking's letter complained about various representations made to the Minichinis, particularly representations that the Package was "self-funding" and involved "no risk whatsoever", and that the Minichinis "did not have to worry about whether [they] could afford it or not". The letter also complained about a number of "non-disclosures" such as non-disclosure of an agency relationship with Citibank, fees or commissions, the optional nature of parts of the plan, and the degree of risk involved in the plan. The letter contained the following summary: "The clients ALLEGE that they have been misled, misinformed and ill-advised in the solicitation, presentation, sale and implementation of the Plan; AND it is alleged that the clients failed to receive, and failed to be advised of their rights to receive, proper legal, financial or commercial advice in respect of the investment Plan and in respect of the Citibank documentation and in respect of the Unit Mortgages, AND FURTHER it is alleged that had the clients been properly informed and advised in all such aspects, including in respect of the direct and consequential risks which they now know to have attached to such a plan, then under no circumstances would they have put at risk the family home." 483 Hocking claimed that the Minichinis' loss from their investment in the Package was $83,844. This was supported by a report from David Bullock, a chartered accountant, which summarised the loss as follows: "Capital Loss on Investment in Property Trust $36,362 Losses on Insurance policies 9,503 Refinance expenses 4,316 Interest paid - National Mutual Mortgage 51,281 Interest Paid on Citibank Mortgage 37,121 Interest on Citibank Loan from 15 Dec 1993 - 15 July 1994 (212 days) 3,392 141,975 Less: Dividends Received from Property Trust 32,158 Tax Savings generated by [Minichinis] 25,973 58,131

TOTAL LOSS $83,844" 484 This calculation appears to be an attempt to put the Minichinis in the position they would have been in if they had not invested: that is, to repay to them the capital loss on the units, the interest payments on the loans associated with the Package, and the losses on the insurance policies taken out in conjunction with the Package, less amounts received or saved by reason of their entry into the Package. To the amount calculated by Bullock, Hocking added $10,058.50 for his and Bullock's fees. This made a total claim against NM of $93,902.50. 485 Six days later, on 22 June, Ross Alexander McDonald, a senior solicitor employed by NM and Manager of Litigation for its Legal Division, sent to Hocking four copies of a release agreement and said that upon receipt of signed copies, he would forward to the Minichinis a cheque for $93,902.50. The copies were signed and returned to McDonald under cover of a letter from the Minichinis' solicitor dated 8 July 1994. The cheque was sent to the Minichinis on 15 July 1994. 486 Does this evidence support NM's contention that the Minichinis' loss was caused by the unsuitability of the Package for them? I think not. Mr Minichini referred in his affidavit to contacting Jones at some unspecified time and complaining that he was getting deeper and deeper into debt. But I do not think that the Minichinis sold their units because of increasing debt. Rather, according to Mr Minichini, they sold them because he was concerned that their value was steadily declining, as he learned from his regular calls to the telephone service that gave him the unit prices. 487 In fact, the Citibank statements for the Minichinis' Mortgage Power account do not bear out the claim that the Minichinis' debt level was increasing alarmingly. The statement issued by Citibank in respect of the Minichinis' Mortgage Power account for the period 2 November 1989 to 15 November 1989 showed that amounts totalling $67,121 were drawn down, leaving, of the credit limit of $141,600, a balance available of $74,479. The statements show that for the first two years, amounts of between $1,000 and $1,250 were drawn down in most months. It may be that these drawdowns were to meet interest payments. However, there were also large transactions which took the amount owed up to $102,809.91 in September 1990, down to $44,003.93 in June 1991, then back up to $107,221.71 in July 1991. I do not know what these large transactions related to, except for a $10,000 drawdown in August 1990 which I infer was to purchase further units in the Trust. What is noteworthy, however, is that the debt level stabilised in about November 1991, after which regular payments were made with few drawdowns. In fact the amount owed to Citibank decreased from $93,852.16 in November 1991 to $82,078.42 in August 1992 when the application for redemption of the units was signed, and still further down to $69,846.63 in March 1993 when the units were in fact redeemed. 488 In these circumstances, I do not think it possible to say on the evidence that the reason the Minichinis decided in August 1992 to request redemption of their units was that they could not meet their interest repayments. That is, I am not satisfied that the loss was caused by the fact that there were risks associated with the Package or by the unsuitability of the Package for the Minichinis. Rather, I think they suffered loss because the unit price had fallen to such an extent that they took a commercial decision not to wait for the price to recover, but rather to crystallise their position against the possibility that the price might drop even further. I therefore accept Citibank's submission that in the case of the Minichinis the cause of the loss was the dramatic decline in unit prices and the Minichinis' commercial decision. The drop in market price would not have been a supervening cause if Jones' representation had been that no decline would ever occur, even short term, and the evidence had established that the Minichinis would not have invested in the Package but for that representation, but NM has not attempted to make out such a case. 489 In the result, I do not think that NM has established that the Minichinis suffered loss as a result of the supposed breach of duty by their Adviser, Jones.

2. Was NM liable to each Investor, either vicariously through the Adviser or directly in tort?

(i) Was NM directly or vicariously liable in respect of the Advisers' conduct? 490 NM "concedes" that it is vicariously liable to the Investors in respect of the Advisers' conduct. Citibank submits, correctly in my view, that NM's liability is a matter for proof rather than for concession by NM. Citibank concedes that the evidence supports an inference that the Advisers had actual or ostensible authority from NM to make the statements they made as agents or representatives of NM. In my opinion, this concession was appropriately made. The representations were made by persons who were agents of NM in the course of and for the purpose of selling the products of NMLA and NMAM and were at least within the general class or scope of statements they were authorised to make. 491 In Chapter 11, I decide that the Advisers sold NM units in accordance with the Package pursuant to, and in accordance with, instructions from NMAM. I need not discuss individually the very numerous representations set out in Annexure 1. Although no doubt some particular representations there set out were not actually authorised by NMAM, many were. In particular, many of the representations as to rate of capital growth, rate of income return, the right to require redemption, negative gearing advantages and the safety of the investment because of the commercial real estate that underlay the Trust, were actually authorised by NMAM. Accordingly, such representations gave rise to a direct liability, and not merely a vicarious one. No doubt other particular representations not actually authorised but falling within the general class or scope of statements that were authorised, gave rise to a vicarious liability.

(ii) Did NM itself owe the Investors a personal non-delegable duty of care?

(iii) If so, did NM breach its personal non-delegable duty of care to the Investors?

(iv) If so, did NM's breach of its personal non-delegable duty of care to the Investors cause the Investors to suffer loss or damage? I do not find it necessary to answer these questions.

3. Were the Investors guilty of contributory negligence? 492 Citibank pleads that: "[e]ach of the Investors was guilty of contributory negligence by: a) failing to obtain a copy of or to read the prospectus for the Property Trust; b) failing to seek any advice independent of that from National Mutual or to make any independent inquiry in respect to their investment decision; c) failing to redeem their Property Trust units, to raise any complaint with National Mutual or to take any other action when the promises and representations made to them by the National Mutual agents were not fulfilled; d) entering into the transactions the subject of the present proceedings without any understanding of the nature of those transactions or any attempt to understand them; e) failing to diversify their investment strategy to include anything other than investments in commercial property and investments in National Mutual products; f) borrowing amounts which were excessive in relation to their personal financial circumstances for the purposes of a speculative income tax minimisation scheme." 493 Citibank did not cross-examine any of the Investors with a view to proving these matters: nor did it make any submissions in support of them or, refer to any relevant evidence or to any percentage by which it says the Advisers' liability should be reduced. NM submits that this is quite unsatisfactory. I agree. However, Citibank apparently does not abandon this aspect of its case. 494 The case which the Investors are said to have against the Advisers is one of negligent misrepresentation and negligent failure to warn and to take steps for the protection of the Investors. The particulars of contributory negligence, except par (c), relate to the initial decision to invest. It was reasonable for the Investors to rely on the advice given to them by the Advisers. In those circumstances, it might be thought impossible for the Investors to have been guilty of contributory negligence of the kind pleaded by Citibank. In the words of Sir Donald Nicholls V-C in Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560 at 574: "In principle, carelessness in not making other inquiries provides no answer to a claim when the plaintiff has done that which the representor intended he should do." However, in Astley v Austrust Ltd (1999) 161 ALR 155, Gleeson CJ, McHugh, Gummow and Hayne JJ said (at [29] - [30]): "There is no rule that apportionment legislation does not operate in respect of the contributory negligence of a plaintiff where the defendant, in breach of its duty, has failed to protect the plaintiff from damage in respect of the very event which gave rise to the defendant's employment. A plaintiff may be guilty of contributory negligence, therefore, even if the 'very purpose' of the duty owed by the defendant is to protect the plaintiff's property. Thus, a plaintiff who carelessly leaves valuables lying about may be guilty of contributory negligence, calling for apportionment of loss, even if the defendant was employed to protect the plaintiff's valuables. A finding of contributory negligence turns on a factual investigation of whether the plaintiff contributed to his or her own loss by failing to take reasonable care of his or her person or property. What is reasonable care depends on the circumstances of the case. In many cases, it may be proper for a plaintiff to rely on the defendant to perform its duty. But there is no absolute rule. The duties and responsibilities of the defendant are a variable factor in determining whether contributory negligence exists and, if so, to what degree. In some cases, the nature of the duty owed may exculpate the plaintiff from a claim of contributory negligence; in other cases the nature of that duty may reduce the plaintiff's share of responsibility for the damage suffered; and in yet other cases the nature of the duty may not prevent a finding that the plaintiff failed to take reasonable care for the safety of his or her person or property. Contributory negligence focuses on the conduct of the plaintiff. The duty owed by the defendant, although relevant, is one only of the many factors that must be weighed in determining whether the plaintiff has so conducted itself that it failed to take reasonable care for the safety of its person or property." 495 In that case, Austrust, a trustee company, was contemplating taking over a trading trust. It sought the advice of Astley, a solicitor, and decided to proceed. However, the trust lost money and was wound up. Various creditors who suffered loss successfully sued Austrust. 496 Austrust claimed that it would not have proceeded if it had known of its potential liability, or would at least have insisted on a covenant excluding its liability. It was held that there were two causes of the loss suffered by Austrust: "(a) the failure to get a covenant against personal liability and (b) the failure to investigate the viability of the venture". The second cause was wholly attributable to Austrust. In relation to Austrust's claim that its officers did not know that Austrust would be personally liable in the event of loss being suffered by creditors, the majority in the High Court said (at [35] - [36]): "it is immaterial whether or not those officers believed that Austrust was under no personal liability to repay the loans and meet the interest payments. The standard of care required of a plaintiff is determined objectively by reference to what a reasonable person would have done in all the circumstances of the case. As Lord Denning MR pointed out in Froom v Butcher: 'In determining responsibility, the law eliminates the personal equation. It takes no notice of the views of the particular individual or of others like him. It requires everyone to exercise all such precautions as a man of ordinary prudence would observe.' Leaving aside the case of minors, the beliefs or lack of knowledge of the plaintiff cannot prevent a finding of contributory negligence if a reasonable person in the same circumstances would have taken steps to protect the interests of the plaintiff. In the present case, any reasonable person in Austrust's position would have taken steps to inquire whether the borrowings and the interest thereon could be repaid either from the sale of the properties, the earnings of the business or contributions from unit holders in the trust. However, as the findings of the learned trial judge show, Austrust did practically nothing to determine the viability of the venture. … One is entitled to be sceptical as to the chance that the lenders would have agreed to lend money to Austrust on the basis that it was to incur no personal liability for the loans. If the solicitors had warned Austrust of its personal liability, however, it may be that Austrust would not have accepted the office of trustee or that it would have been able to obtain satisfactory indemnities from the promoters of the trust. In any event, on the findings of the learned trial judge, Austrust's loss arose from the solicitors' failure to advise and Austrust's lack of investigation. Both factors had to be present before Austrust could suffer any loss. Accordingly, Austrust's failure to take care to protect its interests contributed to the losses that it suffered. At common law its conduct constituted contributory negligence." 497 A similar point is made in Balkin and Davis, Law of Torts (2nd ed, 1996) at 426, where the learned authors state: "Once it is determined that the statement sued on was made in such circumstances as would have engendered reasonable reliance thereon by a person in the plaintiff's position, the defendant will be liable if the plaintiff can show, among other things, that the statement was one of the causes of his or her subsequent action. But the defendant may reduce the amount of damages otherwise payable by showing that another motivating cause of the plaintiff's loss was some different act or omission by the plaintiff to protect his or her own financial interests." (my emphasis) 498 In the present case, it was part of the Advisers' duty of care to ensure that the Investors did not invest in the Package under a misapprehension as to its suitability for them and without knowledge of the risks involved. This does not preclude a finding of contributory negligence. However, I do not think that any of the matters referred to in pars (a), (b), (d), (e) and (f) in Citibank's particulars of contributory negligence resembles the failure of Austrust to ensure the financial viability of its proposed undertaking, a matter which was outside the scope of Astley's retainer. 499 The Advisers must have known that the Investors were uninformed, inexperienced and unsophisticated in matters of investment, taxation and finance, and were relying on them. I have already said that I think the Investors reasonably relied on the information and advice provided by the Advisers. The matters referred to in these particulars of contributory negligence are not truly independent acts or omissions, but simply consequences of that reasonable reliance. I do not think the Advisers can complain that the Investors followed their advice. In my view it has not been established that reasonable people in the situation of the Investors would have demanded to see a prospectus, obtained independent advice, diversified their investment, or declined to invest in the Package because they did not really understand it or because it required them to borrow too much. 500 As noted above, par (c) differs from the other paragraphs of the particulars of contributory negligence. It is addressed to an omission to act at a point in time after the investment. Consideration of this particular would require consideration of the individual circumstances of each of the 23 cases. I have decided, for reasons mentioned earlier, not to embark on this exercise.

CHAPTER 3 LEGAL PRINCIPLES AND OTHER GENERAL MATTERS

Introduction 501 This chapter is divided into the following parts, although there is some overlap of subject matter between them: PART A: LEGAL PRINCIPLES AND CERTAIN ISSUES IN THE CASE PART B: FACTUAL MATTERS THAT ARE OF GENERAL RELEVANCE TO THE CIRCUMSTANCES OF ALL 23 INVESTORS.

PART A - LEGAL PRINCIPLES AND CERTAIN ISSUES IN THE CASE

Personal liability and vicarious liability 502 NM submits that Citibank incurred personal (that is, direct) liability to the Investors by breaching a non-delegable duty it owed them. It submits that Citibank failed to take certain steps in the Investors' interests which it was under a duty to take because of the nature of its Mortgage Power product, the context in which that product was being promoted and sold to the Investors, and the Investors' personal and financial circumstances. This part of NM's case against Citibank has sometimes been referred to as NM's "banking case" or "lending case", and is dealt with in Chapter 4. NM also submits that Citibank incurred personal liability to the Investors on another basis, namely, that it actually authorised the particular statements the Advisers made to them of which complaint is made. The submission is dealt with in Chapter 6. 503 As well, NM submits that Citibank incurred vicarious liability to the Investors. In Vicarious Liability in the Law of Torts (Butterworths, 1967) Professor Atiyah states (at 1): "Vicarious liability in the law of tort may be defined as a liability imposed by the law upon a person as a result of (1) a tortious act or omission by another, (2) some relationship between the actual tortfeasor and the defendant whom it is sought to make liable, and (3) some connection between the tortious act or omission and that relationship." 504 In relation to (1) NM alleges that the Advisers' conduct rendered the Advisers liable in negligence to the Investors. 505 In relation to (2), the relevant relationship which NM submits existed between Citibank and the Advisers is that of "principal and agent". 506 In relation to (3), the connection on which NM relies between the Advisers' tortious conduct and that relationship is that the Advisers' tortious conduct occurred in the course of the execution of the agency. 507 Vicarious liability exists independently of fault on the part of the person vicariously liable. An employed driver's casual negligence in the course of his employment renders the employer vicariously liable even though the employer exercised due care in choosing him to be an employee and in assigning the particular driving task to him. But personal liability requires legal fault. 508 The distinction between vicarious liability and personal liability is less clear than may at first be thought. This can be illustrated by reference to omissions. Is a master personally liable for an omission to warn or vicariously liable as a result of his servant's omission to warn? It may even be suggested that the imposition of non-delegable duties has led to the extension of vicarious liability to the employer/independent contractor relationship in some situations, for example, where a person is held to be under a duty to a third party to take precautions and its independent contractor, who is in a position to take them, fails to do so. 509 The present case affords an illustration of the blurring of the distinction between vicarious and personal liability. The Pleading alleges that Kelly and Jones were subject to, but failed to discharge, duties to provide the Warnings and the Written Explanation, and that they negligently represented that the Package was "safe and risk free" and was "suitable for each of the [Investors]", for which omissions and misrepresentations Citibank was vicariously liable. But as well, the Pleading alleges that Citibank was under a personal duty of care to the Investors to ensure that they understood the risks associated with the Package and to ensure that it was suitable for them. It alleges that Citibank breached that duty by its omission to take adequate steps to ensure that Kelly and Jones did not make the pleaded representations to the Investors, and by failing itself to provide the Warnings or the Written Explanation or to ensure that they were provided. 510 Notwithstanding the blurring of the distinction between vicarious and personal liability, I will treat the two separately in accordance with conventional legal analysis and the Pleading.

Actual authority and apparent authority 511 It is often said that an agent ("A" - "A" includes a person cast in the role of agent) has power to affect the legal relations, particularly the contractual relations, of the principal ("P" - "P" includes a person cast in the role of principal) with a third party ("TP"). In the paradigm case, this power arises from P's having actually authorised A to do something, such as to make a contract with TP, which affects those relations. But it will also arise where P has held out A to TP as having authority to do so and TP has dealt with A on the faith of that holding out. This is called "apparent" or "ostensible" authority and is often referred to as an instance of estoppel. 512 Terminological difficulties beset discussions of agency. Lord Herschell said, "No word is more commonly and constantly abused than the word 'agent'": Kennedy v De Trafford [1897] AC 180 at 188. Strictly speaking, apparent authority is no authority at all, but only an appearance of authority. Accordingly, a statement that "agency" necessarily involves "authority" immediately prompts the question whether the speaker means to refer to apparent authority as well as to actual authority. One could say that apparent authority, in the absence of any actual authority at all, gives rise only to an "apparent agency", reserving the notion of a "true" or "actual" agency for cases where at least some actual authority is present. On the other hand, one could use the word "agency" to refer to a legal construct that is brought into play whenever actual authority or apparent authority or both exist "in the real world". According to this approach, one could say that agency exists where A has "power" to affect P's legal relations with TP, as A will so long as actual authority or apparent authority is present. 513 There is a distinction between commercial and legal usages of the term "agent". A manufacturer's distributor may be referred to commercially as the manufacturer's "agent", but if all the distributor does is to sell in its own right goods that it has bought from the manufacturer, in law it will not be an agent of the manufacturer and will not bring the manufacturer into legal relations with the end-purchaser: International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644 (see [584] below). 514 The concepts invoked in discussions of agency were developed in the context of the making of contracts - a context not necessarily relevant to issues of tortious liability. The concepts of "actual authority" and "apparent authority" have roles to play when the question is whether a contract made by A is binding on P. But it is not obvious that both do when the question is whether A's tortious conduct has given rise to a vicarious liability in P. As will be seen later, it is particularly unclear what general significance, if any, apparent authority has in connection with the vicarious liability of P to TP arising out of the tortious conduct of A. 515 It is fruitless to attempt to define agency terms specially for the purpose of the present discussion. After all, they are not used consistently in the decided cases to be referred to. One can only hope that the context will make the intended meaning clear.

Vicarious liability and agency 516 If one person actually authorises another to engage, on behalf of the first person, in the very conduct that is tortious, he or she will be liable, whether the relationship between them is that of principal and agent or not. (I leave to one side, for the present, the meanings of "authorise" and "on behalf of".) This has been referred to as a case of vicarious liability, but it has also been referred to as one of direct liability. Since the imposition of liability is not founded on the existence of a certain class of legal relationship irrespective of fault on the part of the authoriser, it is better regarded as an instance of personal or direct liability. 517 It has been controversial whether there is a general principle of vicarious liability of P for the tortious acts of A committed in the course of the execution of the agency (see, for example, Atiyah, op cit, ch 9; Conant, "Liability of Principals for Torts of Agents: a Comparative View" (1968) 47 Nebraska L Rev 42; Swanton, "Master's Liability for the Wilful Tortious Conduct of his Servant" (1985) 16 UWA Law Rev 1 at 15-21; Balkin and Davis, Law of Torts (2nd ed, 1996) at 745-749 ("Balkin and Davis"); Fleming, The Law of Torts (9th ed, 1998) ("Fleming") at 413-414; Trindade and Cane, The Law of Torts in Australia (3rd ed, 1999) at 732-734 ("Trindade and Cane"); and the note on Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560 at (1992) 108 LQR 539 at 539-542). That is, it has been controversial whether the relation of principal and agent, like that of master and servant, satisfies the second element of vicarious liability identified by Professor Atiyah in the passage set out at [503] above. It has been suggested that the reason why the latter relationship satisfies that element is that a master is entitled not only to specify what results the servant is to produce, but also to control the manner in which he or she is to produce them, and so can be seen to have authorised both content and manner, that is, the very tortious conduct in question. But ordinarily P is not entitled to control the manner in which A acts. 518 Partnership has not given rise to any difficulty in the present context. The Partnership Acts, which have only ever purported to codify general law principles, provide that where, by any wrongful act or omission of a partner acting in the ordinary course of the business of the firm or with the authority of his co-partners, loss or injury is caused to a third party, relevantly, all the co-partners are liable for the wrong to the same extent as the wrongdoing partner (cf Partnership Act 1892 (NSW) s 10; Partnership Act 1958 (Vic) s 14). (I note, in passing, that the provision does not state that the partner must have appeared to the third party to have been acting in the ordinary course of the business of the firm.) The provision has been referred to in the cases as being simply a particular application of agency principles; cf Hamlyn v Houston & Co [1903] 1 KB 81 (CA) at 84-86 (per Collins MR); Polkinghorne v Holland (1934) 51 CLR 143 at 167 (per Starke J). 519 Ordinarily, however, the relationship of agency has not been treated, without more, as sufficient to found vicarious liability, and agents have been classified as servants or independent contractors for that purpose: for a recent review of the authorities, see Hollis v Vabu Pty Ltd (t/a "Crisis Couriers") (1999) Aust Torts Reports 81-535 at [18]-[25] per Sheller JA, with whom Giles JA agreed and with whom Davies AJA did not disagree on the issue of vicarious liability. Yet a partner is neither a servant nor an independent contactor of his or her co-partners. 520 As it happens, the present case does not require me to explore the general question of the vicarious liability of principals for the conduct of their agents because there is authority which governs the present case. In Australia, the general principle is established that where P appoints A as P's agent to persuade persons to contract with P, P will incur liability to TP if A makes tortious statements that are within the general class or scope of statements that P authorised A to make, and put A in a position to make ("the Colonial principle") see [563] to [595] below: Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Cooperative Assurance Co of Australia Ltd (1931) 46 CLR 41 ("Colonial") (discussed at length later); Australasian Brokerage Ltd v Australian and New Zealand Banking Corporation Ltd (1934) 52 CLR 430 ("Australasian Brokerage") at 451 (Dixon, Evatt, McTiernan JJ) citing, with approval, Willes J in Bayley v Manchester, Sheffield and Lincolnshire Railway Co (1872) LR 7 CP 415 at 420. (In several cases it has also been recognised that the owner or bailee of a motor vehicle may incur vicarious liability arising out of the negligent driving of the motor vehicle, apparently on the basis of agency; cf Samson v Aitchison [1912] AC 844; Soblusky v Egan (1960) 103 CLR 215; Mako v Land [1956] NZLR 624 at 627 (Turner J); Scarsbrook v Mason [1961] 3 All ER 767 (Glyn-Jones J); Morgans v Launchbury [1973] AC 127; Greenwood v Commonwealth of Australia [1975] VR 859 (FC) at 865 (per Gillard J).) 521 It is arguably desirable to have terminology other than "principal/agent/third party" and the abbreviations "P", "A" and "TP" with which to discuss the vicarious liability of P for A's tortious conduct, because, as noted earlier, the central concepts of agency were derived by reference to the paradigm case of actual authority given by P to A to create or otherwise to affect contractual relations between P and TP. But the word "agent" is commonly used with a wider meaning even in law. Bowstead & Reynolds on Agency (16th ed, 1996) defines "agency" as follows: "Article 1 AGENCY AND AUTHORITY (1) Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly consents that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly consents so to act or so acts. The one on whose behalf the act or acts are to be done is called the principal. The one who is to act is called the agent. Any person other than the principal and the agent may be referred to as a third party. (2) In respect of the acts which the principal expressly or impliedly consents that the agent shall so do on the principal's behalf, the agent is said to have authority to act; and this authority constitutes a power to affect the principal's legal relations with third parties. (3) Where the agent's authority results from a manifestation of consent that he should represent or act for the principal expressly or impliedly made by the principal to the agent himself, the authority is called actual authority, express or implied. But the agent may also have authority resulting from such a manifestation made by the principal to a third party; such authority is called apparent authority. (4) A person may have the same fiduciary relationship with a principal where he acts on behalf of that principal but has no authority and hence no power to affect the principal's relations with third parties. Because of the fiduciary relationship such a person may also be called an agent." (my emphasis) 522 In this definition, there is a common concept of one person's having actual authority or apparent authority to "represent" or to act "for" or "on behalf of" another, or (as in par (4)), of a person's having in fact so acted, even without actual or apparent authority. The learned authors do not qualify the notions "representing" or "for" or "on behalf of" (expressions which involve their own difficulties) the other person by reference to contract making. The notion of one person's having actual or apparent authority to act, or in fact acting, as representative of or for or on behalf of another person, is clearly central to the notion of agency and is invoked throughout these Reasons.

Rights of indemnity 523 NM pleads in par 117(a) of the Pleading that LKFM had authority from Citibank to make lawful representations about: (i) the Mortgage Power facility; (ii) NM products which were calculated to promote the use of that facility; and (iii) the Negative Gearing Package as a whole of which the Mortgage Power facility formed part. (The Pleading calls these kinds of representations "Negative Gearing Package Representations".) 524 For reasons that will become clear later, it is important to note the three categories of representation of which the Negative Gearing Package Representations consist. It will become clear that Citibank authorised LKFM to make representations about Mortgage Power (par (i) above) when, on 3 April 1989, it appointed LKFM as its agent to promote and sell that product. But categories (ii) and (iii) are of a different order. In my opinion there were no NM products that satisfied the description "calculated to promote the use of [Mortgage Power]". (It would not be a comfortable use of language to describe residential property as calculated to promote the use of mortgage finance!) In substance, par (ii) refers simply to NM investment products, in particular, units in the Property Trust. While it is true, as par (iii) states, that the Mortgage Power facility formed part of the Negative Gearing Package as defined in the Pleading, it should be understood that that definition is itself "artificial", since persons investing in units and borrowing 80 per cent of the cost of doing so from NM might and did fund the other 20 per cent from their own resources or from sources of finance other than Citibank. Of course the 132 (and therefore the present 23) Investors were those who borrowed from Citibank. 525 As noted at [87] to [89], par 117 continues by pleading a case of actual authority (sub-pars (b)-(m)), apparent authority (sub-pars (n)-(q)) and ratification (sub-pars (t)-(ff)). The Pleading alleges that the conduct of the Advisers which rendered them liable to the Investors occurred "in the course of" the making by them of the Negative Gearing Package Representations, and that as a result Citibank is vicariously liable for that conduct "being acts of an authorised class even if carried out in an unauthorised way". The pleaded case of ratification is that Citibank knew that the Advisers were making the Negative Gearing Package Representations; that it was likely that the Investors would rely on them, and rely on them as being made with the authority or acquiescence of Citibank; that Citibank failed to take certain forms of countervailing action and in fact accepted the Investors' Mortgage Power loan applications; and that as a result, Citibank ratified the tortious conduct of the Advisers and became vicariously liable to the Investors in respect of that conduct. 526 NM's submissions have a particular emphasis that is not obvious on the face of the Pleading. The reason is to be found in the fact that as a result of the settlement reached between NM and AHA: · NM is indemnifying the Advisers in respect of any liability they might have to Citibank; · NM is bearing the costs of the Advisers' defence of Citibank's cross-claim; · NM called Kelly as a witness in NM's case; and · NM's solicitors have appeared for Kelly, and, pursuant to leave, for Jones (unlike Kelly, Jones did not cooperate with NM). 527 Accordingly, NM would not welcome a result in which it succeeds against Citibank, but Citibank succeeds commensurately on its cross-claim for indemnity against the Advisers, because this would leave NM exposed under the indemnity it has given them. Therefore, NM presses for a finding that Citibank incurred direct liability to the Investors, either as a result of having breached its personal non-delegable duty of care, or as a result of having actually authorised the Advisers to make the very representations they made of which the Investors complained. Alternatively, NM seeks a finding that Citibank ratified the making of those very representations. 528 But NM did not abandon its case based on "purely vicarious liability", with which I must therefore deal.

Negative gearing 529 I take "negative gearing" to refer to an arrangement which includes the following elements: · a borrowing of money for the purpose of, and followed by, an investment of the borrowed money under which the interest payable on the borrowing is expected to exceed the income from the investment; · that the interest is an allowable deduction for income tax purposes with the result that the investor will pay less income tax than he or she would otherwise have done; · that the capital value of the investment is expected to increase; · that after a time, as a result of the capital growth and the taxation benefit, the investor's net financial position will have improved, even though the interest payable will have exceeded the income from the investment. (Negative gearing was explained by Priestley JA in Ash Street Property Pty Ltd v Pollnow (1987) 9 NSWLR 80 (CA) at 87-88.) 530 The Pleading uses the expression "Negative Gearing Package" to refer to the form of negative gearing arrangement described in par 19 of the Pleading set out at [45]. Its essential elements were a financing of the acquisition of initial units by a drawing down on the Mortgage Power facility and a financing of the acquisition of the much greater number of further units by a borrowing from NM (from the Mortgage Trust (NMAIF) or from NMLA) on the security of a mortgage over all the units. As noted in Chapter 1, the initial units constituted 20 per cent and the further units 80 per cent of the total. 531 Accordingly (the Pleading does not say so), the Investor drew down on the Mortgage Power account for 20 per cent of the value (at the date of acquisition) of all the units to be acquired and NM made a fully drawn loan of 80 per cent of the value (at the date of acquisition) of all the units to be acquired. The Investor undertook to NM, if the amount owing to it at any time exceeded 80 per cent of the value of the security, upon demand by NM (a "margin call"), to make a payment in reduction or to provide additional acceptable security so that the balance outstanding did not exceed 80 per cent of the value of the security. 532 As defined in the Pleading, the Negative Gearing Package involved Citibank as the source of funding for the initial units. But the evidence exposed two relevant negative gearing arrangements or possibilities that existed before Kelly devised the Negative Gearing Package as so defined. One was promoted by NMAM and the other by Citibank. Kelly "devised" the Negative Gearing Package by promoting the two in combination. It is for this reason that I will sometimes refer to the Package as "Kelly's Negative Gearing Package". 533 As discussed in more detail in Chapter 11, in October 1988 the board of directors of NMAM resolved to promote a negative gearing arrangement under which the NMAIF would lend 80 per cent of the acquisition price of units in NM property funds on the basis that the investor would fund the 20 per cent "deposit units," that all 100 per cent of the units would be security for the loan, and that there would be a "top up" or "margin call" provision of the kind described above. I will call this plan the "NMAM negative gearing arrangement". 534 The similarity between the NMAM negative gearing arrangement and Kelly's Negative Gearing Package is obvious. In fact, the latter is but a particular species of the former. Where the funding came from for the acquisition of the initial units was immaterial to the NMAM negative gearing arrangement. Investors could and did find the funds for the initial units within their own resources or from lending institutions, such as banks. Citibank was one of these, though a popular one because of Kelly's salesmanship. 535 It was inherent in Mortgage Power itself that the customer could use it for the purpose of negative gearing. The customer had a cheque book and Citibank did not seek to limit the uses for which cheques might be drawn. Accordingly, provided there remained a sufficient balance in credit, the customer might draw down 100 per cent of the price of any investment including an investment in units in a property trust. Since interest rates were high at the time, and far higher than the level of expected income from such units, that kind of use of Mortgage Power could be described as a form of negative gearing in the hope of capital gain through an increase in the value of the units. Since the Investors funded their acquisition of their initial units entirely from Mortgage Power, and the income from them would be less than the interest payable to Citibank on the amount drawn down on the Mortgage Power account for the purpose, even the acquisition of the initial units alone can be seen to be a form of negative gearing arrangement. 536 Citibank expressly advertised Mortgage Power as a vehicle suitable to facilitate negative gearing. In the Australian Financial Review of 25 January 1989 it advertised Mortgage Power as follows:

"CITIBANK CAN PROVIDE UP TO 100% FINANCE AT ONLY 16.50% p.a."

$35,000 to $5,000,000 can be yours to invest as you please For example, $1000 deposited in a savings account earning 12% for one year will give you $120 interest out of which you may pay 40% ($48) in tax leaving you with only $72 in your pocket. THERE ARE MANY MORE BENEFITS Now there is no need to put your own money down on an investment property because Mortgage Power can provide up to 100% of all the acquisition costs and all you need do is make monthly interest only repayments. However, if you put the same $1000 into your Mortgage Power account instead you have less of a mortgage to pay interest on so you save paying 16.50% on $1000 of mortgage which means you keep $165 in your pocket. As a Citibank Mortgage Power customer you can enjoy: Now it is easy for you to invest in property You are $93 better off for every $1000 used in this way. ! a credit limit that is not limited by your income With Mortgage Power you can use the equity you have in your home, investment or business property(ies) to invest further. This can provide up to 100% of the cost of your investment property (See example below). Your savings are still totally accessible ! a no obligation hassle free discussion with a qualified Area Manager at your office, home or our office at a time that is convenient to you The immediate benefit you can receive by doing this will come from taking full advantage of your negative gearing opportunities - your ability to offset investment property expenses against other income thereby reducing your taxable income. Refer to your tax/financial advisor for specific advice. You can withdraw funds out of your Mortgage Power account in the same way as you do a chequing account. Any available balance in your Mortgage Power account is yours simply by writing one of your personalized cheques. ! maximum flexibility in managing your investment portfolio Save thousands of dollars in interest ! no fixed repayment term Using Mortgage Power instead of a normal investor loan from another major bank may save you thousands AND provide you with more money to invest. Use Mortgage Power CITIBANK ! no annual fees If you were to apply for a normal investor loan somewhere else you may get less than the total funds required for the purchase and you could pay up to 17.75% p.a. As a flexible MORTGAGE ! no minimum withdrawal amount Save thousands of tax dollars too! investment tool POWER ! the ability to change approved properties under Mortgage Power without having to pay all of the legal stamp duty and other set up costs all over again! Another benefit of Mortgage Power you can enjoy is the ability to save big tax dollars by investing any savings you have in your Mortgage Power account. REPLY NOW! We can provide you with a Mortgage Power account to the value of 80% of the home you live in and 70% of your investment properties. Once any mortgages are paid out the balance is yours to invest in any way you like: For more totally obligation free information about Mortgage Power return the coupon by fax or mail (no postage stamp required) or telephone us for immediate attention on: For example; _____________________________________ Citibank Existing STD FREE 008 22 66 99 Mortgage Mortgages Your Property Power to be Balance SYDNEY (02) 436 0122 Property Value Value discharged to use ----------------------------------------------------------- FAX (02) 239 5700 Your home $200,000 $160,000(80%) $60,000 $100.000 Investment Flat $100,000 $ 70,000(70%) $50,000 $ 20,000 Total $300,000 $230,000 $110,000 $120,000 You would have $120,000 to invest in another property

537 The obvious attractions of Mortgage Power are evident in this advertisement. Citibank continued to advertise Mortgage Power at least down to November 1992 in the public press and by standard form letters to accountants and others. 538 The acknowledged availability, indeed the promotion, of Mortgage Power to fund negative gearing arrangements generally, makes it particularly important to study carefully evidence relied on by NM as showing that Citibank knew that Mortgage Power was being used by Kelly to promote his Negative Gearing Package. Citibank does not dispute that it knew the Investors were intending to use Mortgage Power to fund the acquisition of units in the Trust, and, in some cases, NM insurance products. Nor is it in issue that Citibank officers, or some of them, knew that Kelly's plan for his clients in some way involved negative gearing. But it is an issue to be discussed later exactly how much they knew, and, in particular, whether they knew that the Mortgage Power facility was to be used to fund only the "deposit" on a much larger investment in units, and that the balance invested was to be borrowed from NM itself on the security of a mortgage over all the units. That is, there is a factual issue whether Citibank officers knew of the "double negative gearing" or "negative gearing into negative gearing" involved in Kelly's Negative Gearing Package.

Citibank's "Casbah" analogy and the question of "dual agency" 539 Senior counsel for Citibank used an analogy (in answer to NM's direct liability "banking case", but of relevance to its vicarious liability case as well): "A man in the Casbah sells a pup to some passing tourist, and when sued under the Trade Practices Act by the passing tourist for breach of section 52, the man in the Casbah joins the banker who happened to lend money to the poor unfortunate investor [sic- tourist] and says, 'look, you should never have lent that money to that man. He had too much money in his pocket. I was able to deceive him.'" The "man in the Casbah" is Kelly; the "pup" is the investment; the "tourist" is the Investor; and the "banker" is Citibank. 540 NM states in its written submissions: "The issue in the forefront of the proceedings is whether Kelly, Jones and the K/J Associates were acting as agents of Citibank, as well as agents for NM, when they made the representations particularised in the Fifth Amended Statement of Claim and thereby induced the investors to enter into the Negative Gearing Package." 541 Citibank submits that Kelly (I include LKFM, as ever not distinguishing between them) did not render Citibank liable by his representations because they related to NM's products and he made them in the course of his employment as agent of NM, not in the course of his employment as an agent of Citibank. Citibank submits that the authorities suggest that where A is the agent of P1 and P2 ("dual agency"), each of A's representations must be analysed and attributed to the agency for P1 or the agency for P2, but that the one representation is not made on behalf of both P1 and P2. Accordingly, Citibank submits that, assuming against it that an Adviser was its agent rather than a mere introducer of business, and that his or her tortious conduct could otherwise render Citibank vicariously liable to the Investors, nonetheless the Adviser's representations are not properly viewed as having been made by the Adviser as agent for both NM and Citibank, but must be divided up into two classes: those made for NM and those made for Citibank. According to the submission, this analysis will reveal that no misrepresentation of which complaint is made was made on behalf of Citibank - NM does not suggest that the representations made by the Advisers about Mortgage Power itself were false, misleading or deceptive. 542 NM, on the other hand, submits that there is no legal impediment to a single representation's being attributed to two or more principals severally and that since Kelly's representations related to an investment scheme comprising products of both NM and Citibank, they are appropriately viewed as having been made by the Advisers as agents at once both of NM and of Citibank. In support, NM points out (with respect, correctly) that an agent's representation may render a seller liable although it is not related to the very thing sold. Accordingly, so goes the submission, representations may render Citibank liable although they related, not to Mortgage Power, but to the Package or even to NM products alone. 543 I will return to the issue of dual agency involved in the case later in this chapter.

The distinction between an agent and a mere introducer of business 544 Citibank submits that the present case relevantly replicates the non-agency circumstances of Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 ("Branwhite"). Branwhite is one of many cases concerned with the legal relationships associated with hire-purchase transactions. 545 Branwhite owned a Talbot motor car and wished to buy a Rapier motor car from a dealer, Raven Motor Co. Raven's manager arranged with Branwhite that the price of the Rapier would be Ł430 and that Ł130 would be allowed on the trade-in of the Talbot, the balance of Ł300 being payable by 60 monthly instalments of Ł5. The manager produced certain forms of Worcester Works Finance Ltd ("Worcester Works") which Branwhite signed without reading. One was a proposal form and the other was a hire purchase agreement. The hire purchase agreement contained no figures and the manager said he would fill them in. Branwhite left his Talbot with Raven and took away the Rapier. 546 There was subsisting a "master agreement" between Raven and Worcester. This provided that Raven would submit hire purchase agreements to Worcester. After Worcester accepted them, it would pay Raven the price of the goods less the initial payment or trade-in credited to the hirer. The master agreement allowed Raven to retain that initial payment or trade-in as part payment of the purchase price payable to it by Worcester as buyer. 547 Raven's manager sent to Worcester the signed forms but had inserted Ł649 rather than Ł430 as the cash price. With charges, the hire purchase price amounted to Ł805 and the monthly instalments were shown as Ł18 14s 11d. The deposit was correctly shown as Ł130. 548 Worcester proceeded with the transaction, buying the Rapier from Raven for Ł649 and paying Raven Ł519 (Ł649 - Ł130). Worcester sent a copy of the signed hire purchase agreement to Branwhite who, seeing the discrepancy, relied on Raven's manager to have it corrected. Branwhite paid no instalments. Contrary to his promise, Raven's manager did nothing and Worcester repossessed the Rapier. Worcester sued Branwhite to recover arrears of instalments but failed on the ground that Worcester and Branwhite had never been ad idem and that there was no valid agreement between them. Branwhite then sued Worcester for return of the deposit. 549 The House of Lords held that Worcester had received Ł130 from Branwhite for a consideration that had wholly failed and must therefore repay it. But a majority of their Lordships were of the opinion that Raven was not Worcester's agent to receive and hold the initial deposit. 550 I need not address the ground on which Branwhite succeeded. What is of present interest is the ground on which Branwhite failed, namely, that Raven had acted as agent for Worcester in receiving and holding the deposit. Branwhite failed on that ground by a three to two majority. Lords Morris of Borth-y-Gest, Guest and Upjohn were of the view that Raven was not Worcester's agent to receive and hold the deposit, whereas Lords Reid and Wilberforce thought that it was. 551 Lord Upjohn (with whom Lord Guest agreed) considered that the acts of holding a stock of Worcester's forms of hire purchase agreement, filling them in with particulars including particulars of Worcester's charges, having a prospective hirer sign the documents, and forwarding the forms to Worcester, showed that Raven was assisting the proposing hirer but did not establish that it had actual or apparent authority from the financier. Lord Upjohn identified the various stages of the typical hire purchase transaction and emphasised the role of the dealer as a party-principal and the financier's lack of interest in the transaction between the dealer and its customer. His Lordship's speech contained the following passage which is of some relevance to the circumstances of the present case (at 577-578): "It is argued that in having possession of the finance company's forms and the ability to settle and fill in all these essential figures he showed that he was acting in the transaction generally as the agent of the finance company. But I do not myself think that this is a realistic approach. A motor dealer must have, if he is to be successful, one or more finance companies willing to enter into the ordinary bona fide hire-purchase agreements with purchasers, many of whom cannot pay the cash price. They must, therefore, supply him with forms and tell him as a matter of common sense the terms upon which they are prepared to do business, and this must include information upon the terms of their hiring charges, their minimum initial instalment and the maximum period of hire; probably this will be controlled by the relevant statutory regulations but if their terms differ no doubt they will inform him of their commercial practice. But I cannot see that this makes him an agent of the finance company. In any event, all he is doing is to fill in a document which he submits on behalf, as I think clear, of the would-be hirer which contains a proposal for hire-purchase finance. … I cannot see how, in fact, it is possible to spell out of this transaction that in these circumstances the dealer is in any way a general agent for the finance company. He is a principal acting on his own behalf in selling his own car, in taking at a price another car in part exchange, and in submitting the hire-purchase forms to the finance company he is submitting them as proposals on behalf of the would-be hire-purchaser. That is good business on his part. No doubt, when the transaction has gone through and the hire-purchase agreement has been completed the dealer has the express authority of the finance company to hand over the car which they have purchased to the hirer; but on the facts of this case that seems to me the extent of his agency on behalf of the finance company. The facts of this case negative any general agency of the dealer on behalf of the finance company." 552 Lord Morris of Borth-y-Gest, like Lord Upjohn, thought that while the evidence in a particular case might demonstrate that the dealer was the agent of the finance company ad hoc for one purpose or another, the evidence did not establish that Worcester held out Raven as its agent to receive and hold the deposit. In particular, his Lordship thought that Raven's possession of Worcester's forms and the terms of the master agreement between Worcester and Raven did not establish agency. 553 Lord Wilberforce (with whom Lord Reid agreed), dissenting, also identified the sequential steps involved in a hire-purchase transaction. While accepting that in each case "something, much or little, must depend on the individual facts" (at 586), his Lordship thought that the normal conclusion should be that a dealer is the agent of the finance company unless there are facts displacing that conclusion. In arriving at this "presumption of agency", his Lordship relied heavily on "the established mercantile background of hire-purchase transactions" or "mercantile reality". He stated (at 586-587): "In my opinion, such questions as arise of the vicarious responsibility of finance companies, for acts or defaults of dealers, cannot be resolved without reference to the general mercantile structure within which they arise; or if one prefers the expression, to mercantile reality. This has become well known and widely understood by the public, as well as by the commercial interests involved. It involves a system by which consumers expect to be able to acquire goods on hire-purchase terms: by which they expect these terms to be made available to them either at the premises where the goods are exhibited and sold, or by the representatives of the dealer who offers them for sale elsewhere, for example, at the customer's home. So far from thinking first of a purchase from the dealer, and then, separately, of obtaining finance from an outside source, the identity or even existence of the finance company or bank which is going to provide the money is a matter to them of indifference: they look to the dealer, or his representative, as the person who fixes the payment terms and makes all the necessary arrangements. And in this, their expectation conforms with reality. It is in fact the dealer who seeks and obtains the business; he who makes the decisions, subject to what is little more than the possibility of veto by the finance company: for practical purposes both dealer and customer regard the transaction as complete when the forms are signed, subject only to a right of veto, and delivery of the article takes place then. If this is so, a general responsibility of the finance company for the acts, receipts and omissions of the dealer in relation to the proposed transaction of hire-purchase ought to flow from this structure of relationship and expectation, built up from accepted custom and methods of dealing: a general responsibility which requires to be displaced by evidence of particular circumstances rather than to be positively established in each individual case. It may be that some wider conception of vicarious responsibility other than that of agency, as normally understood, may have to be recognised in order to accommodate some of the more elaborate cases which now arise when there are two persons who become mutually involved or associated in one side of a transaction. Whether this could be so, and on what facts, was, I think, the real issue in Garnac Grain Co. Inc. v. H.M.F. Faure & Fairclough Ltd. [[1968] A.C. 1130; [1967] 3 W.L.R. 143n; [1967] 2 All E.R. 353, H.L.(E.).] But I think that 'agency' still has room in it for the relationship that exists in such cases as this." In the present case, no "established mercantile background" or "mercantile reality" touching a class of contracts can be called in aid by NM: the form of transaction in the present case was sui generis. 554 Branwhite was followed by the Appeal Division of the Supreme Court of Victoria in Custom Credit Corporation Ltd v Lynch [1993] 2 VR 469 ("Custom Credit v Lynch"). In that case a dealer, "Mr Cheap Caravans", arranged finance through Custom Credit Corporation Ltd for the buyer of a caravan (Ms Lynch). Custom Credit took a "consumer mortgage" (within the meaning given that expression by s 5 of the Credit Act 1984 (Vic)) over the caravan from Ms Lynch as security for a loan of $13,266 and a credit charge of $16,386. The dealer was in possession of a stock of Custom Credit forms, filled in those that Ms Lynch signed, and received payment of commission from Custom Credit for introducing her. 555 Ms Lynch successfully applied to the Credit Tribunal for a re-opening of the loan contract on the statutory ground that it was "unconscionable, harsh or oppressive". In this respect, Custom Credit successfully appealed. There was a question whether Custom Credit was responsible for certain statements made to Ms Lynch by employees of Mr Cheap about insurance. The Court held that it was not, either by reference to general law principles of agency or by reference to s 147(2)(i) of the Credit Act 1984, which referred to a person "acting, or appearing, or purporting, to act" for the lender. 556 The Tribunal had stated as follows in its reasons: "63. The tribunal finds that the supplier acted as agent in the common law sense or representative in the statutory sense (s 147(2)(i)) of the respondent in a number of crucial areas as follows: (1) Completing the credit presubmits with relevant details. (2) Completing and obtaining signature to all three credit contracts. (3) Completing all details concerning repayments, insurances and altering them to comply with various requirements in relation to deposit, interest rate term and repayment schedules, and endeavouring to meet the credit requirements imposed by the respondent by reducing, changing, varying, altering, and making new arrangements with the applicant to ensure that the sale and finance contracts were completed, many such changes being made without any reference to the applicant. (4) Informing the applicant of the requirement to take out comprehensive insurance. (5) Providing (limited) explanation of the effects of the contract and relying upon the male companion of the applicant as a lay person to explain the provisions of the contract to the applicant. (6) Witnessing the signatures of the applicant. (7) The negotiation for, preparation of, obtaining signature to and witnessing of the guarantee. (8) Receiving commission from the respondent." 557 All members of the Court considered that Mr Cheap was not an agent of Custom Credit according to general law principles and that Mr Cheap did not fall within the terms of s 147(2)(i) either. Marks J, with whom Fullagar J agreed, said that the position of Mr Cheap might be considered to have been analogous to an insurance broker - a person who is ordinarily the agent of the insured, not the insurer (his Honour referred to Con-stan Industries Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 234). In particular, Marks J said that the possession of Custom Credit's forms, the filling in of them and the fact that commission was payable did not make Mr Cheap the agent of Custom Credit. His Honour thought that what Mr Cheap did, it did on behalf of Ms Lynch or, perhaps, on its own behalf. 558 For generally similar reasons, Marks J considered that Mr Cheap had not acted or appeared or purported to act for Custom Credit for the purposes of s 147(2)(i). 559 Ormiston J's reasoning was generally similar. 560 (A car dealer and a finance broker who operated from the offices of a car dealer who introduced their respective clients to finance companies were also held not to be agents of the finance companies in Custom Credit Corporation Ltd v Luff (Supreme Court of Vic, Full Court, 27 November 1990, unreported at 16) and in Octapon Pty Ltd v Esanda Finance Corporation Ltd (Supreme Court of NSW, Cole J, 3 February 1989, unreported at 27). Although in Custom Credit Corporation Ltd v Luff the client expressly acknowledged in the agreement subsequently entered into that the dealer was not the finance company's agent for any purpose, the holding did not in any way depend on that subsequent acknowledgment.) 561 There are similarities and differences between Branwhite, Custom Credit v Lynch and the present case. For example, Citibank furnished LKFM with more classes of Citibank forms for completion and signing by borrowers than Worcester seems to have supplied to Raven. In Branwhite, Raven, the counterpart of an Adviser in the present case, was involved in the transaction as a principal in its own right. The Advisers did, however, have roles in the present case in addition to any as between Citibank and the Investor, notably, that of agent for NM. In all three cases, apart from Citibank's appointment of LKFM as its agent under the written agency agreement of 3 April 1989, there was no formal appointment or conferral of authority to act for, or on behalf of, the putative principal. Citibank's practice of distinguishing between its "agents" and mere introducers of business suggests that the present case is perhaps stronger than Branwhite and Custom Credit v Lynch against the Advisers (as ever, other than LKFM under its written agency agreement) being agents of Citibank. 562 In Chapter 6 I will consider in some detail the roles played by the Advisers in the transactions, but it is convenient to note at once that the facts of the present case in relation to the supply of Citibank forms and the Advisers' role in relation to the completion, signing and forwarding (to Citibank) of them, does not suggest to me that any different approach from that taken in Branwhite and Custom Credit v Lynch is appropriate. That is, that activity did not characterise the Advisers as agents of Citibank and was consistent with their being mere introducers of business.

Colonial 563 NM relies heavily on Colonial and submits that in the relevant respect the present case is on all fours with it. In Colonial, CML employed Ridley as a "canvasser and agent" under a written agreement. The agreement provided, relevantly, that Ridley would not, in substance, defame any person. While attempting to obtain assurance business for CML, Ridley defamed another company ("Producers") which successfully sued CML and Ridley for damages. By a four to two majority the High Court held that in performing the services for CML, Ridley was acting as its representative and that CML must be considered as having conducted the negotiations in the person of Ridley. 564 The agreement provided that Ridley was at liberty to perform his "duties" under the agreement "by his clerks or servants or by himself personally". It referred to him as the "agent" of CML. 565 In a joint judgment, Gavan Duffy CJ and Starke J said (at 46-47): "It was said that the defendant reserved to itself no power of controlling or directing Ridley in the execution of the work he was employed to do or of dismissing him for disobedience of orders: in short, that Ridley was an agent of the defendant in the nature of an independent contractor, and not the servant of the defendant for whose tort in the course of his employment the defendant would be responsible. The nature of Ridley's employment, however, gave the defendant a good deal more power of controlling and directing his action than was conceded by the argument addressed to us. Nothing in the agreement or the position of the parties denied the right of the plaintiff [sic - defendant] to control and direct Ridley when, where and whom he should canvass. In our opinion the judgment of the Judicial Committee in Citizens' Life Assurance Co. v. Brown [[1904] A.C. 423] really concludes the present case. But if it does not, still we apprehend that one is liable for another's tortious act 'if he expressly directs him to do it or if he employs that other person as his agent and the act complained of is within the scope of the agent's authority.' It is not necessary that the particular act should have been authorized: it is enough that the agent should have been put in a position to do the class of acts complained of (Barwick v. English Joint Stock Bank [(1867) L.R. 2 Ex. 259]; Lloyd v. Grace Smith & Co. [[1912] A.C., at p.733]). And if an unlawful act done by an agent be within the scope of his authority, it is immaterial that the principal directed the agent not to do it. (Cf. Limpus v. London General Omnibus Co. [(1862) 1 H. & C. 526; 158 E.R. 993]). The class of acts which Ridley was employed to do necessarily involved the use of arguments and statements for the purpose of persuading the public to effect policies of insurance with the defendant, and in pursuing that purpose he was authorized to speak, and in fact spoke, with the voice of the defendant. Consequently the defendant is liable for defamatory statements made by Ridley in the course of his canvass, though contrary to its direction." (my emphasis) 566 In Citizens' Life Assurance Co v Brown [1904] AC 423 referred to by their Honours, the Privy Council had held a life assurance company vicariously liable in respect of a libel contained in a circular sent out by a person who was employed by the company under a written agreement as its "superintendent of agencies". By the terms of the agreement that person was to devote his whole time to furthering the company's business and was to be paid a salary weekly as well as a commission on policies procured by him. It seems clear that their Lordships regarded him as a servant. On this ground the case is distinguishable from both Colonial and the present case. 567 The key notions invoked by Gavan Duffy CJ and Starke J in the passage set out above were that P must have "put" A in the position to do the acts complained of and that there must have been a "class of acts" which A was "authorised" by P to do. In my opinion, the second element was satisfied in the case of LKFM by virtue of its agency agreement of 3 April 1989 but neither element was satisfied in the case of the other Advisers. Citibank did not "put" the Advisers, including LKFM, in the position to make the statements complained of: LKFM was already in that position, and the others came to be in it quite independently of anything done by Citibank. 568 Dixon J delivered a judgment with which Rich J agreed. It has often been cited. His Honour referred to Ridley as CML's "agent" (his Honour used the inverted commas) and thought that he was not CML's servant. His Honour noted that ordinarily a person is vicariously liable for the torts committed by his servant in the course of his employment, but not for those committed by an "independent contractor" in the course of the provision of services. But his Honour continued (at 48-49): "But a difficulty arises when the function entrusted is that of representing the person who requests its performance in a transaction with others, so that the very service to be performed consists in standing in his place and assuming to act in his right and not in an independent capacity. In this very case the 'agent' has authority to obtain proposals for and on behalf of the appellant; and he has, I have no doubt, authority to accept premiums. When a proposal is made and a premium paid to him, the Company then and there receives them [the proposal and the premium], because it has put him in its place for the purpose. This does not mean that he may conclude a contract of insurance which binds the Company. It may be, and probably is, outside his province to go beyond soliciting and obtaining proposals and receiving premiums; but I think that in performing these services for the Company, he does not act independently, but as a representative of the Company, which accordingly must be considered as itself conducting the negotiation in his person." (my emphasis) Dixon J also said (at 49): "But there is, I believe, no case which distinctly decides that a principal is liable generally for wrongful acts which he did not directly authorize, committed in the course of carrying out his agency by an agent who is not the principal's servant or partner, except, perhaps, in some special relations, such as solicitor and client, and then within limitations." 569 After referring to the difficulties which arise from the various senses in which such words as "agent", "for", "on behalf of", "for the benefit of" and even "authorise" are used, his Honour said (at 50): "If the view be right which I have already expressed, that the 'agent' represented the Company in soliciting proposals so that he was acting in right of the Company with its authority, it follows that the Company in confiding to his judgment, within the limits of relevance and of reasonableness, the choice of inducements and arguments, authorized him on its behalf to address to prospective proponents such observations as appeared to him appropriate. The undertaking contained in his contract not to disparage other institutions is not a limitation of his authority but a promise as to the manner of its exercise. In these circumstances, I do not think it is any extension of principle to hold the Company liable for the slanders which he thought proper to include in his apparatus of persuasion." (my emphasis) 570 Evatt J and McTiernan J dissented on the ground that in slandering Producers, Ridley had not been acting for CML or in the course of his employment by it. 571 In Australasian Brokerage, decided only some two and a half years after Colonial, and by four of the six judges who had decided that case (Gavan Duffy CJ and Rich J did not sit in Australasian Brokerage), the chairman of directors of a bank had allegedly misrepresented to the appellant company with which he was negotiating a contract on behalf of the bank, that an issue of the bank's shares had been oversubscribed. The High Court held that the jury had been misdirected as to the question whether the bank was responsible for the statement of its chairman of directors. Starke J said (at 441): "An innocent principal is, however, civilly responsible for the fraud of his agent acting in the course of his employment and within the apparent scope of his authority, to the same extent as if it were his own fraud. The scope of a person's employment depends upon the business he is employed to transact and the nature of the transaction entered upon. The position of Willis [the chairman of directors] was such that he was authorized to negotiate the agreement made with Arnold [the chairman of directors of Australasian Brokerage], and it is difficult to understand why statements made by him in the course of procuring that agreement were not within the apparent scope of his authority." (my emphasis) 572 In a joint judgment, Dixon, Evatt and McTiernan JJ referred to Colonial and other authorities and said (at 451): "If the work of negotiating such an agreement was left to Willis to make statements on relevant matters was clearly within the scope of the authority. To describe the situation of the company, state the amount of its issued capital, and give the circumstances in which it was allotted, are all involved in supplying the other party with the knowledge which he will require in order to consider the proposal. By introducing the false character of the statements actually made into the question whether to make statements on such matters is in the course of authority, the learned Judge supplied an entirely erroneous standard." (my emphasis) 573 Colonial and Australasian Brokerage did not concern questions of dual agencies, let alone dual agencies for sale of products, one of which was a (correctly represented) "tool" that serviced the other (misrepresented) product. Those cases concerned questions of the scope or class of statements made by a person who was admittedly an agent of one principal, that would render that principal liable. 574 Citibank submitted that even putting to one side the "agent/mere introducer" distinction, I should find that the Investors understood that Kelly and the other Advisers were representing NM, not Citibank, when presenting the Package to them. But clearly, it is not essential in all cases of vicarious liability that it must have appeared to the plaintiff that the person primarily liable was acting in the capacity inherent in the relationship that forms the basis of that liability. For example, it is not a necessary element of the vicarious liability of the master of the driver of a motor car that it should have appeared to a person who suffers loss or damage as a result of the negligent driving of the servant, that the car was being driven in the service of that master. The "course of employment" as a matter of objective fact is sufficient to describe the required connection between the employment relationship and the tortious driving. Similarly, it is not obvious why the objective notion of "the course of the execution of the agency" is not appropriate and sufficient, for the purposes of vicarious liability, to describe the required connection between the agency relationship and the tortious representations and advice of the agent. 575 The point is illustrated by the facts of Colonial itself. CML was held to be vicariously liable in circumstances in which it would be nonsensical to inquire whether it had appeared to Producers that Ridley was acting within the scope of authority conferred on him by CML: there was no dealing between Ridley and Producers. But in Australasian Brokerage, above, Starke J referred to the scope of Willis' authority that was "apparent", as if the appearance of authority was significant. I will discuss the present issue raised further in Chapter 5. 576 Colonial has been referred to many times on the issue of the vicarious liability of a principal for its agent's tortious conduct. The cases include Clayton Robard Management Ltd v Siu (1988) 6 ACLC 57 (NSW, CA); Heidelberg Graphics Equipment Ltd v Andrew Knox & Associates Pty Ltd (1994) ATPR 41-326 (FCA/O'Loughlin J); Henderson v Amadio Pty Ltd (No 1) (1995) 62 FCR 1 (Heerey J - and see on appeal 81 FCR 149); Northern Sandblasting Pty Ltd v Harris (1997) 188 CLR 313; Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574; Hollis v Vabu Pty Ltd (t/as "Crisis Couriers") (1999) Aust Torts Reports 81-535; Opie v Collum (Supreme Court of South Australia, Martin J, 13 September 1999, unreported); Donut King Australia Pty Ltd v Barber (Supreme Court of South Australia, Full Court, 11 June 1999, unreported); and Forestview Nominees Pty Ltd v Perron Investments Pty Ltd (1999) 93 FCR 117 (FC). 577 None of these cases advances resolution of the issues before me to any significant extent. In some of them, P appointed A by a written agreement. An illustration is found in Donut King Australia Pty Ltd v Barber, above, in which a "master franchisor" (DKA) was held vicariously liable as a result of misrepresentations made by its "master franchisee" (Sequin Close Pty Ltd - "Sequin Close") which induced a "sub-franchisee" (Mr and Mrs Barber) to contract with Sequin Close. Sequin Close had contracted with DKA to promote DKA's business and DKA exercised considerable control over the manner in which both Sequin Close and any sub-franchisee carried on their businesses. 578 Duggan J, with whom Doyle CJ and Debelle J agreed, thought the passage from the judgment of Dixon J in Colonial (at 50) applicable, and concluded (at [45]) that: "…Sequin Close was the agent for DKA when performing the duties imposed upon it in matters such as promoting the franchised operation, recruiting, supervising and advising franchisees." 579 According to this case, the contemplated contract need not be with P. 580 In Thompson v Australian Capital Television Pty Ltd, above, Gaudron J cited Colonial as authority for the general proposition that (at 595): "…a person is liable for acts done … by an agent acting within authority or with ostensible authority notwithstanding that he or she lacks knowledge of the acts in question." 581 In Hollis v Vabu Pty Ltd (t/a "Crisis Couriers"), above, Sheller JA, with whom Giles JA agreed, referred to the exception, recognised in Colonial, to the general rule that P is not vicariously viable for A's tortious conduct, as an exception usually formulated by reference to "the scope of the agent's authority and ostensible authority" made "in the context of statements made during the course of negotiation" (at 66,567). 582 P need not have formally appointed A, as CML did Ridley or as Citibank did LKFM. Thus, in Opie v Collum, above, a vendor left to her husband-developer the task of negotiating with the purchasers. In cross-examination she conceded that he had had her authority to act on her behalf in the things he said or did and did not dispute that she was bound by his conduct. Not surprisingly, Martin J, citing Colonial, declared himself satisfied that she had authorised her husband to act on her behalf in all the dealings and negotiations and was answerable for his conduct, including his representations. 583 In the Heidelberg Graphics case, the cross-claimant (Canvas Graphics Pty Ltd, a company of which a Mr Knox and his family were beneficial owners, and to which I will refer as "Knox") relied on a range of circumstances to prove agency, as NM does in the present case. It was alleged that an Australian distributor (Seligson and Clare) was an "agent" of a manufacturer (Agfa) with the result that Agfa was vicariously liable to Knox arising out of misrepresentations made by Seligson and Clare. O'Loughlin J summarised some of circumstances relied on by Knox as follows (at 42,309): "…first, there was the presence of Mr Foley at the Agfa stand at the Drupa fair; secondly, there was the fact that some of the equipment that was ultimately sold to the Knox group was Agfa equipment; thirdly, there was the willingness of the various companies in the Agfa group, including Agfa, to concern themselves with the complaints that Mr Knox had made with respect to the equipment. Finally, various witnesses, such as Mrs Clarke, had allegedly described Seligson and Clare as 'the agent' of Agfa; elsewhere there were references to Agfa's 'representatives'. Mr Cottenie (of Agfa Australia) in a letter to Mr Knox, dated 5 February 1991, referred to 'our partners Seligson and Clare' ( … ) and in a letter to Mr Knox dated 5 March 1991, Mr Foley described Agfa as 'our principal' ( … )." 584 O'Loughlin J concluded that Seligson and Clare was not Agfa's agent or representative for the purposes of the Colonial principle. Rather, his Honour thought that the issue before him was covered by the unanimous High Court decision in International Harvester Company of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Company (1958) 100 CLR 644, that a "distributor" which purchases from the manufacturer then sells, sells in its own right and not as agent for the manufacturer. 585 In Clayton Robard a licensed dealer's representative under the SIC (H) received from S money for investment in, relevantly, two funds which H had recommended. As requested by H, S gave H a bank cheque made out in favour of H's company. H gave S a receipt. H misappropriated the money. S sued the fund managers. 586 H had given S application forms and prospectuses relating to the funds. They had the name of H's company stamped on them. They directed that cheques be made payable to the funds themselves and marked "not negotiable". H told S that the fund managers were his principals. S succeeded at trial, on the ground that H had implied actual authority from the fund managers to receive S's money on their behalf. The two fund managers appealed, arguing that H, as S's investment adviser, was the agent of S rather than of the appellants. S argued on the appeal that H was the agent of the appellants with actual authority to receive the money, or, in the alternative, that by departing from the prospectus procedure, the appellants had placed H in a position to hold himself out as having authority to receive funds for investment. The first appellant fund manager led no evidence of the relationship between it and H or his company. S led evidence that the first appellant had accepted a number of cheques from H which had not been made out in accordance with the prospectus. 587 The appeal was dismissed by majority. Kirby P held that H had ostensible authority, and McHugh JA that he had actual authority, from both appellants to receive S's money. Their Honours held that the evidence proved, and the failure to call evidence justified, the conclusion that payment to H was payment to the appellants and that H was authorised to receive money on their behalf. 588 McLelland AJA dissented on the ground that, in his Honour's view, the evidence did not establish that H had either actual or ostensible authority to receive on their behalf money for investment. His Honour said that it might be arguable that H had implied authority to make representations inconsistent with the prospectus, but that those representations would have been limited to ones made for the purpose of inducing persons to invest and would not have extended to encompass representations about collateral matters, such as the means of paying money to the appellants. 589 Like the other cases mentioned, Clayton Robard turns on its own facts. It concerned the receipt of money, not simply the making of representations. None of the Advisers received money from the Investors, or had previously received money from any investors, purportedly on behalf of Citibank. (Payment of valuation and application fees was made to Citibank, either by the Investors themselves or by the Adviser on their behalf, and in the latter case the Adviser was later reimbursed.) In Clayton Robard the appellants paid commissions to H whereas Citibank did not pay commissions to any of the Advisers other than LKFM. In Clayton Robard there was no alternative principal whom H could have been representing but NM was an alternative principal to Citibank, which, generally, the Investors understood the Advisers were representing (see [1015] in Chapter 5). H attached his company's stamps and labels to the application forms, to the appellants' knowledge, on twenty-six previous occasions in the case of one appellant and thirteen previous occasions in the case of the other, whereas LKFM's Citibank agency stamp, but not that of any other Adviser, was affixed to the Citibank Mortgage Finance Proposal forms. 590 Henderson v Amadio Pty Ltd above, is an instance of a finding on the facts of "no agency", notwithstanding that the putative principal sat silently through "presentations" by the putative agents and sometimes nodded or gave indications of agreement. 591 In my view Colonial is not authority for the proposition that anything that a selling agent says which may in fact be conducive to a sale, necessarily falls within the scope or class of statements that the agent was authorised to make, that is, necessarily occurs in the course of the execution of the agency. It must, however, be possible to say that certain statements do, and that other statements do not, fall within the range of statements just described. A striking feature of the present case is that Citibank's appointment of Kelly as its agent on 3 April 1989 made no difference whatever to his promotional activity. He was already an agent of NMAM selling units in the Trust in accordance with the Package and introducing his clients to Citibank and its product, Mortgage Power. It was his agency for NMAM that had been driving his selling activity, Mortgage Power having been a "tool" that he had been recommending. This continued to be the position after 3 April 1989. 592 I will discuss further apparent authority in Chapter 5 and actual authority in Chapter 6. 593 As a result of appointing LKFM on 3 April 1989 "to act on its behalf in respect of the promotion and sale of its range of products", Citibank undoubtedly gave LKFM actual authority to make representations as representative of, that is, for or on behalf of, Citibank, in respect of the promotion and sale of Mortgage Power. But what class or scope of representations? No doubt Citibank authorised LKFM to make representations as to the meritorious features of Mortgage Power, either absolutely or by comparison with competing financial products, and as to whether and how the product would serve any particular use suggested. I will return to the question of the class or scope of statements which LKFM/Kelly were authorised to make on behalf of Citibank, that is, the scope of their agency from Citibank, later in this chapter. 594 But NM submits, by reference to numerous aspects of the dealings between Citibank and the Advisers, that Citibank conferred on all of them, including LKFM, a broader authority based substantially on what it characterises as Citibank's knowledge of, and non-objection to, what the Advisers were in fact saying to prospective borrowers. In volume, at least, NM's submissions have, in large part, concentrated on this issue. In the case of Investors introduced by Kelly, this broader authority contended for by NM would have a special relevance to those introduced prior to 3 April 1989, but it is also relevant to those introduced during the subsistence of LKFM's agency agreement. 595 I will deal with this submission in Chapter 6.

The juridical bases of vicarious liability of Citibank for the conduct of Kelly suggested by NM 596 NM seeks to distinguish between three classes of situation in which the law holds a principal liable in tort as a result of the conduct of its agent. The first it describes as "mere vicarious liability". NM uses this expression to refer to situations in which the principal is "not at fault". 597 The second situation identified by NM is one where the agent is authorised to represent or act for or on behalf of the principal generally for the purpose of introducing business to the principal, and is exemplified by Colonial. NM submits that Kelly and the other Advisers were the voice of Citibank in selling Mortgage Power just as Ridley was the voice of CML in selling life assurance. 598 The third class of case which NM identifies is that in which the principal authorised both the act and the manner of the doing of the act, that is, authorised the agent's very tortious conduct. 599 NM primarily submits that what the Advisers did fell within class 2 or class 3 above or both. That is, NM submits that the Advisers were the voice of Citibank in persuading the Investors to invest in the Package or that Citibank actually authorised them to conduct themselves vis-ŕ-vis the Investors in the very manner in which they did. 600 NM submits that in these two categories of case, though not in the first, the agent is not liable to indemnify the principal and indeed that the principal is liable to indemnify the agent. I do not accept this submission in relation to class 2. The reason is that it is consistent with the Advisers being "the voice of Citibank" both that they did, and that they did not, render Citibank liable to the Investors, and it should not be readily found that Citibank in fact authorised them to act tortiously so as to give rise to such a liability; cf Australasian Brokerage, at 451. If Citibank did authorise them to that extent, the case would fall within class 3. The general law (cf Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, discussed in McGrath v Fairfield Municipal Council (1985) 156 CLR 672; Gosson Industries Pty Ltd v Jordan [1964] NSWR 687 at 688) and in the case of LKFM, the terms of its agency agreement, point alike to a conclusion that Citibank would be entitled to a full indemnity from the Advisers. 601 In the result, in my opinion NM's tripartite division proves to be a false one in respect of the indemnity question. NM can succeed without being liable to indemnify the Advisers and Citibank will fail on its cross-claim against the Advisers for indemnity, only if Citibank authorised the very tortious conduct that gave rise to their liability, that is, to express the matter differently, if the Advisers did not step outside, in any respect, the actual authority conferred on them by Citibank. 602 Colonial is not authority for the proposition that where P entrusts or confides to A the function of soliciting new business for P, making him P's "voice" in that respect, P necessarily gives A actualauthority, that is, authority, even as against P, to conduct himself in any manner of his choice, including a manner that renders P liable to TP. In Colonial the High Court was not dealing with any issue as between CML and Ridley. It should not be assumed that if CML had cross-claimed against Ridley for indemnity, it would have failed. Indeed, nothing in the case suggests otherwise than that CML would have succeeded. 603 It is notorious in agency cases that judgments must be read in the context of the nature of the issues, as between P and TP or as between P and A, calling for decision. While particular sentences in the judgments in Colonial, taken in isolation, can be read as supporting the proposition for which NM contends, they do not do so when read in context. In the present case as in others, the measure of A's actual authority depends on the consensual arrangement between P and A, or, more accurately, on how A was entitled reasonably to understand the authority given to him by P.

Dual agency - the law 604 In Vicarious Liability in the Law of Torts, op cit, Professor Atiyah discusses the question whether two employers may become vicariously liable by reason of the same act of the one employee of both of them. He does so in Chapter 18 headed "The Borrowed Servant". The learned author states (at 156) under the heading "Can Both Masters be Liable?" as follows: "It is perhaps strange that the courts have never countenanced what might be thought the obvious solution to the problem, namely to hold both employers liable to the plaintiff, and leave them to dispute amongst themselves as to whether the one is entitled to an indemnify or contribution from the other. From the early nineteenth century the courts have taken the view that the liability must rest on one or the other but never on both. 'The law does not recognise a several liability in two principals who are unconnected' [per Littledale J in Laugher v Pointer (1826), 5 B & C 547, at p 558 - Professor Atiyah noted that when that case was decided, the courts were reluctant to admit that two parties might both be liable in respect of the same damage in tort, unless they were joint participants in the tort.] There is no doubt that this has been assumed to be the law in a number of cases, but it leads to a number of strange results, and the foundation on which it rests is a slender one, for the contrary has never (it seems) been properly argued." 605 In Oceanic Crest Shipping Co v Pilbara Harbour Services Pty Ltd (1986) 160 CLR 626 at 641, Gibbs CJ quoted the statement from Laugher v Pointer that "the law does not recognise a several liability in two principals who are unconnected", noting that although Professor Atiyah had criticised the rule, he appeared to accept that it was a settled one. Gibbs CJ went on to state that where the services of the servant of one employer are temporarily used by another, both employers will not be liable and prima facie the liability will remain with the general employer. 606 On the hearing and in written submissions there was discussion of hypothetical cases in which a prime mover and semi-trailer, or a hose and a nozzle, are sold as a "unit" or "package", and in which, in order to promote the sale, the one person who is the agent for the different manufacturers of the two components, makes favourable but false representations relating to both, such as, "The unit functions well" or "They work well together". 607 I understood senior counsel for Citibank finally to accept that there is not a rule of law that A cannot, by the same act or omission, render both P1 and P2 liable to TP, and that it is a question of fact in each case whether, in making a particular representation, A was acting in the course of his employment as an agent of P1 or of P2 or of both. In any event, this is my view. 608 Full weight must be given to the fact that in the way in which NM puts its case, Kelly was marketing not simply Mortgage Power and units in the Property Trust, but the Negative Gearing Package which combined both products. I suggest, however, that the manufacturer of a product will not often be found to be authorising its agent for the promotion and sale of that product to make representations or to give advice relating to the product of another manufacturer which the agent is authorised to make and give as agent for that other manufacturer. As will be seen later, I attach considerable importance to the fact that Kelly's agency for NM and his promotion of Mortgage Power as an aid to selling NM investment products in accordance with a plan devised within NM pre-dated his appointment as an agent of Citibank on 3 April 1989. 609 NM correctly submits that the authority of a selling agent or letting agent is not limited to the making of representations about the particular property to be sold or leased and in support it refers to Colonial; Australasian Brokerage; Tantipech v IOOF Australia Trustees (NSW) Ltd (1998) ATPR 41-614 ("Tantipech"); and Warnock v Australia & New Zealand Banking Group Ltd (1989) ATPR 40-928 ("Warnock"). 610 In Colonial the statements of Ridley did not relate to Colonial's insurance he was selling, but to the reputation of a competing insurer. In Australasian Brokerage the defendant bank incurred liability by reason of representations concerning the number of shares which had already been allotted and the terms of the allotment of them, although the authority given by the company to its chairman of directors was to negotiate a brokerage agreement with the plaintiff in relation to further shares yet to be issued. In Tantipech, a letting agent's representation related, not to the leased premises, but to the shopping centre of which they formed part. 611 Warnock has a superficial similarity to the present case. The respondent bank adopted a promotional campaign designed to boost a particular category of lending, namely, insured personal loans. Just as staff in the Melbourne office of Citibank won a trip to Paris because of the volume of Mortgage Power loans processed through that office, the manager of the Cessnock branch of the ANZ Bank won a free trip to Western Australia to see the America's Cup Challenge because of his efforts in the campaign to sell insured personal loans. An integral part of the loan arrangement was the effecting of insurance against the contingencies of accident and illness (and also unemployment and death), in order to cover the monthly instalments payable under the loan agreement. The insurance had to be effected with Western Underwriters Insurance Ltd. ANZ stood to earn commissions through placing the business with that insurer. The form of policy included a declaration that the insured was in good health and excluded liability caused as a result of illness existing at the commencement of the insurance. 612 Mr and Mrs Warnock were husband and wife. They applied to ANZ for an insured personal loan. Mr Warnock suffered from rheumatoid arthritis. He told the bank manager he could not sign the required declaration because of that illness. The manager misrepresented to him that the declaration "only pertained to life cover", that he should not "worry about it", and that he (the manager) would "fix it". Relying on these representations Mr Warnock signed. 613 A month later his arthritic condition "flared" and subsequently he became totally disabled from engaging in employment. He and his wife claimed, but were refused, indemnity under the policy. They sued ANZ for contravention of s 52 of the TP Act and breach of warranties said to have been implied by s 74 of that Act. 614 Burchett J held, relevantly, that ANZ's conduct in representing that it would procure a full sickness cover notwithstanding Mr Warnock's rheumatoid condition, and in failing to draw attention to the exclusion clause, was misleading and in contravention of s 52 of the TP Act. 615 NM relies on the fact that the misleading conduct of the bank manager related to the insurance product, not the personal loan. 616 While the case does support the proposition that a misrepresentation may give rise to liability although it relates to a different product (the insurance product of Western Underwriters rather than the personal loan of ANZ), there was no issue in the case but that ANZ was answerable for the representations of the branch manager, who was its most senior employee within the branch. Moreover, the case was not one of multiple employers or principals. The branch manager's position was very different from those of Kelly and the other Advisers vis-ŕ-vis Citibank. 617 The question whether an Adviser made a statement in the course of his or her employment as an agent or representative of Citibank is not answered by reference to other cases in which, for example, the only principal in question has been held vicariously liable in respect of representations made by its selling agent about something other than the property, the sale of which he or she was promoting.

citibank's dichotomy in its business system between "mere introducers" and "agents" 618 Under the heading "Liability of Principal for Torts Committed by Agent", Article 92 of Bowstead & Reynolds on Agency, op cit, states as follows (citations omitted): "(1) If an agent is the servant of his principal, the principal is liable for loss or injury caused by the wrongful act of the agent when acting in the course of his employment. (2) A principal is liable for loss or injury caused by the tort of his agent, whether or not his servant, in the following cases: (a) if the wrongful act was specifically instigated, authorised or ratified by the principal; (b) if the wrongful act amounts to a breach by the principal of a duty personal to himself, liability for non-performance or non-observance of which cannot be avoided by delegation to another; (c) (perhaps) in the case of a statement made in the course of representing the principal made within the actual or apparent authority of the agent: and for such a statement the principal may be liable notwithstanding that it was made for the benefit of the agent alone and not for that of the principal. (3) Where principal and agent are both liable for a wrongful act committed by the agent they are joint tortfeasors. (4) In this Article, save where the context requires otherwise, 'act' includes 'omission,' and phrases which include the word 'act' are capable of any necessary consequential modification." (my emphasis) 619 No Adviser was a servant of Citibank and so par (1) does not apply. NM's case against Citibank of direct liability arising from a non-delegable duty of the kind referred to in par (2)(b) above, fails for the reasons I will give in Chapter 4. NM's case of "specific instigation" and "specific authorisation" referred to in par (2)(a) above, fails for the reasons I will give in Chapter 6. There is no ratification (par (2)(a) above) for the reasons given in Chapter 7. 620 Accordingly, it is only the ground referred to in par (2)(c) above that has potential for operation. But, consistently with what I said earlier, the notion of actual authority referred to in par (2)(c) is something different from the specific authorisation referred to in par (2)(a). Whereas par (2)(a) refers to authorisation of the very wrongful act, the actual authority referred to in par (2)(c) refers to an act falling within a general class or scope of acts authorised, even though the particular act goes beyond A's authority (cf Colonial). And both the "specific authorisation" of par (2)(a) and the "actual authority" of par (2)(c) are to be distinguished from the apparent authority of par (2)(c). 621 In its written submissions NM, puts its case of implied actual authority in Kelly to make representations about NM products and about the Negative Gearing Package as follows: "Where a principal places his product in the hands of an agent for sale in conjunction with the products of another as part of a deliberate marketing strategy, Ľ the principal places himself in a most invidious position. On the one hand, he may well wish to limit the authority of his agent so as to exclude any authority to make statements on his behalf about the products of the other principal. That way, he minimises the risk of being held liable in relation to matter over which he has no control. On the other hand, if he were to impose such a limit, he would put his sales opportunity at risk because that opportunity is created by the fact that the agent is selling more than one product in circumstances in which the promotion for the sale of the other product, as part of a 'package', acts as a promotion for the sale of his own product. To deprive his agent of authority to make statements which extol the virtues of the package, or any of its constituent parts, would cruel the very opportunity which he is seeking to exploit. Commercially, the principal has to make a decision: He can either go all out to exploit the opportunity for cross-selling (in the sense of allowing his agent to sell his product on the coat-tail of others) notwithstanding the risks which that method of distribution entails or he can take the more conservative approach of imposing limits on his agent and run the risk of missing out on sales. There is no doubt which course Citibank chose to take: it sought to exploit the opportunity to market Mortgage Power in conjunction with financial products, in particular, with units in the Australian Property Trust No. 1, as part of the Negative Gearing Package, using Kelly, Jones and the K/J Associates as the instruments for its marketing activity. That gave access to a niche in the market which it had not successfully exploited through its 'unit trust' mortgage and or got off the ground using its 'Property Power' product. Citibank certainly did not take the conservative approach of seeking to impose any limitation on what Kelly, Jones or the K/J Associates may say at point of sale: it allowed them to say whatever they liked, with an intention to confer on them the widest possible authority to speak for Citibank and include whatever they thought appropriate in their 'apparatus of persuasion': Colonial, p.50, per Dixon, J." 622 NM submits that each of the representations made by Kelly, Jones and the K/J Associates was "of a nature which is consistent with the course of their employment", was "eminently within the limits of relevance and reasonableness", and did not "tend in the opposite direction or suggest a collateral or improper purpose, as you might expect if there had been a capricious exercise of their discretion". 623 Colonial was, in my view, a case, not of specific instigation or specific authorisation of Ridley's defamatory statement, but of actual authority to promote and sell insurance. Citibank did leave it to Kelly to choose what representations about the merits of Mortgage Power to make as part of his "apparatus of persuasion" in the promotion of that product. But that does not mean that Citibank actually authorised every specific representation that he chose to make, or even that any representation he chose to make fell within the class or scope of statements Citibank had authorised. In Colonial, unlike this case, the choice was between saying that A made a particular representation as agent for P or not as agent at all but on A's own behalf. In the present case, the choices available in relation to any particular representation are that A made it as agent for P1, as agent for P2, as agent for both, or not as agent at all but on A's own behalf. 624 Citibank's subjective intention was that only LKFM, of all the Advisers, should have the status of an "agent" of Citibank, that is, be its representative to sell Mortgage Power for it and on its behalf. The other Advisers knew this: their clients' applications for Mortgage Power facilities were "funnelled through LKFM" (in the case of FKB, only in the early stages). This suggests, though not conclusively, that the only actual authority to be considered is that of LKFM. 625 While Citibank knew of, and did not object to, the introduction to it of prospective customers by anyone, as noted earlier, it distinguished between its "agents" and mere "introducers". By Citibank's form of agency agreement, in return for the promise of commissions, an appointed agent gave Citibank the undertakings contained in the agreement, but no undertakings were given to Citibank by mere introducers. 626 LKFM itself applied in 1988 to pass from the status of "mere introducer" to that of agent, but was unsuccessful. The next year it was successful. It had to submit information to convince Citibank to appoint it as an agent, but there is no suggestion in the evidence that introducers were "vetted". Why should they be? 627 As from 3 April 1989, LKFM's name and agency number, instead of those of LJ Hooker, Cheltenham (see below) appeared on the Mortgage Finance Proposals for the Advisers' clients, and once LKFM's Citibank agency was terminated on 25 March 1992, they could introduce business to Citibank only under a different arrangement. The evidence does not suggest that Citibank appointed any of them as agents. I infer that they introduced clients to Citibank directly for no commission, although payment of commission would not cause me to regard them as anything other than introducers. 628 It would seem strange, in the light of all these considerations to conclude that, in addition to LKFM, the other Advisers had actual authority from Citibank to act "as its representatives", that is, "for" or "on behalf of" Citibank in selling Mortgage Power. As ever, it must be remembered that actual authority depends on consensus between P and A: cf Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130 at 1137. 629 While it is the law, not the parties, that ultimately determines whether their relationship falls within a certain legal category, this does not mean that the parties' express agreement and their use or non-use of agency terminology are irrelevant. Indeed, the evidence mentioned above, which I find persuasive, leads me to conclude that only LKFM of the Advisers had actual authority to represent Citibank in selling Mortgage Power, at least unless the circumstances touching Citibank's acquiescence in certain conduct of the Advisers to be considered in Chapter 6 requires otherwise.

Sub-agency: is Citibank vicariously liable as a result of the statements made by DJC/Jones and the K/J Associates, if they were not agents of Citibank, but sub-agents? 630 NM relies on Bowstead & Reynolds on Agency, op cit, Arts 37(1) and (2) and De Bussche v Alt (1878) 8 Ch D 286. The whole of Article 37 ("Relation between Principal and Sub-agent") needs to be regarded. It is as follows (footnote references are omitted): "(1) The acts done on the principal's behalf by a sub-agent whose appointment was authorised or ratified by the principal bind the principal as if they had been performed by the agent himself. (2) The relation of principal and agent may be established by an agent between his principal and a sub-agent if the agent is expressly or impliedly authorised to constitute such relation, or if his act is ratified, and it is the intention of the agent and of such sub-agent that such relation should be constituted. (3) But there is no privity of contract between a principal and a sub-agent as such merely because the delegation was effected with the authority of the principal; and in the absence of such privity the rights and duties arising out of any contracts between the principal and the agent, and between the agent and the sub-agent, respectively, are only enforceable by and against the immediate parties to those contracts. However, the sub-agent may be liable to the principal as a fiduciary, in tort, and possibly in other respects." 631 The commentary to Article 37 makes clear that the consequences of authorised delegation depend on the way in which the delegation is effected, as to which, there are two possibilities of present relevance. First, with the principal's consent the agent may appoint another as agent for the principal, whether in substitution for or in addition to the appointing agent. In such a case, there comes into being a direct relationship between principal and appointee, and questions of the vicarious liability of the principal for tortious conduct of the appointee, are simply questions of liability of a principal for the tortious conduct of the principal's agent. The second possibility is that with the principal's consent the agent may appoint his or her own agent, that is, as agent of the agent alone. Perhaps this is the only true case of "sub-agency". In this second class of case, although there are direct relationships between the principal and the appointing agent and between the appointing agent and the newly appointed agent (the sub-agent), there is no direct relationship between the principal and the newly appointed agent (the sub-agent). 632 The commentary to Article 37(1) does not refer to any case on the vicarious liability of a principal for the tortious acts of a "sub-agent". There is no legal principle of which I am aware that a principal is vicariously liable in respect of the conduct of a sub-agent, including one appointed by the agent with the principal's authority. That is, unless it is found that a sub-agent has become the direct agent of the principal, the position for the purposes of vicarious liability is simply one of two agencies in a chain but otherwise independent of each other. 633 NM relies on De Bussche v Alt (1878) 8 Ch D 286. The following is a simplified version of the facts. De Bussche assigned a ship to G.Co in China for sale for a minimum price of $90,000. G.Co authorised Alt in Japan to sell the ship with the same instructions. Alt went about seeking a buyer with De Bussche's knowledge and De Bussche corresponded with Alt's manager at Nagasaki on the footing that Alt had undertaken the duty of finding a buyer. Alt was not successful and bought the vessel himself for $90,000. He then sold it to a Japanese prince for $160,000. De Bussche successfully sought an order that Alt account to him for his profit. 634 The Court of Appeal noted that Alt made three contentions: first, that the relationship of principal and agent was not constituted between De Bussche and himself; secondly, that even if it was once constituted, it had ended before Alt sold the vessel; and thirdly, if it had not ended by that time De Bussche had, by acquiescence, lost the right to follow the profit made by Alt. 635 It is desirable that I set out in its entirety what the Court of Appeal said in relation to the first question (at 310-311): "The first contention raises a question which, as it appears to us, does not present any difficulty. As a general rule, no doubt, the maxim 'delegatus non potest delegare' applies so as to prevent an agent from establishing the relationship of principal and agent between his own principal and a third person; but this maxim when analyzed merely imports that an agent cannot, without authority from his principal, devolve upon another obligations to the principal which he has himself undertaken to personally fulfil; and that, inasmuch as confidence in the particular person employed is at the root of the contract of agency, such authority cannot be implied as an ordinary incident in the contract. But the exigencies of business do from time to time render necessary the carrying out of the instructions of a principal by a person other than the agent originally instructed for the purpose, and where that is the case, the reason of the thing requires that the rule should be relaxed, so as, on the one hand, to enable the agent to appoint what has been termed 'a sub-agent' or 'substitute' (the latter of which designations, although it does not exactly denote the legal relationship of the parties, we adopt for want of a better, and for the sake of brevity); and, on the other hand, to constitute, in the interests and for the protection of the principal, a direct privity of contract between him and such substitute. And we are of opinion that an authority to the effect referred to may and should be implied where, from the conduct of the parties to the original contract of agency, the usage of trade, or the nature of the particular business which is the subject of the agency, it may reasonably be presumed that the parties to the contract of agency originally intended that such authority should exist, or where, in the course of the employment, unforeseen emergencies arise which impose upon the agent the necessity of employing a substitute; and that when such authority exists, and is duly exercised, privity of contract arises between the principal and the substitute, and the latter becomes as responsible to the former for the due discharge of the duties which his employment casts upon him, as if he had been appointed agent by the principal himself. The law upon this point is accurately stated in Story on Agency [par 201]. A case like the present, where a shipowner employs an agent for the purpose of effectuating a sale of a ship at any port where the ship may from time to time in the course of its employment under charter happen to be, is pre-eminently one in which the appointment of substitutes at ports other than those where the agent himself carries on business is a necessity, and must reasonably be presumed to be in the contemplation of the parties; and in the present case, we have, over and above that presumption, what cannot but be looked upon as express authority to appoint a substitute, and a complete ratification of the actual appointment of the Defendant in the letters which passed respectively between Willis & Son and the Plaintiff on the one side, and Gilman & Co. on the other. We are, therefore, of opinion that the relationship of principal and agent was, in respect of the sale of the Columbine, for a time at least, constituted between the Plaintiff and the Defendant." 636 The Court treated the critical question as being whether Alt had indeed become a direct agent of De Bussche. I accept in the present case that if the Advisers other than LKFM became, like LKFM itself, direct agents of Citibank, with authority, as its representatives and for it and on its behalf, to sell Mortgage Power, the basis would exist for Citibank to incur vicarious liability for their statements falling within the class or scope of statements it authorised them to make. De Bussche v Alt is not, however, authority for a general principle that a principal incurs vicarious liability in tort for the acts of sub-agents. 637 In O'Keefe v London and Edinburgh Insurance Co Ltd [1927] NI 85 at 94, the Northern Ireland Court of Appeal had to address the question whether an insured had been in breach of its obligation to make full disclosure of known facts relevant to the risk to be insured against (fire). The insurer's head office was in London. It appointed LB & Co of Belfast as its agents in Ireland. The appointment did not authorise appointment of sub-agents or refer to that question at all. In fact, LB & Co appointed RM as their local agents in Armagh district but did not inform the insurer who neither approved of nor ratified that appointment. 638 RM had knowledge of an earlier fire and the question was whether that knowledge was to be attributed to the insurer and so defeat its reliance on non-disclosure by the insured. 639 The Court of Appeal held for the insurer on two grounds: that RM was not the insurer's agent so that his knowledge of the earlier fire, whenever acquired, could not be imputed to the insurer; and that even if RM was the insurer's agent, his knowledge acquired prior to his appointment could not be imputed to the insurer. Only the former ground is presently relevant. Andrews LJ stated as follows (at 94): "It is established by an overwhelming mass of authority that to render a principal liable for the acts of a sub-agent two matters must be established : - (a) That the agent had either express or implied authority from his principal to delegate his authority and to appoint a sub-agent; and (b) That the agent had express or implied authority from his principal in making such appointment to constitute the relation of principal and agent between the principal and such sub-agent, or, in other words, to establish privity of contract between them, and that it was the intention of the agent and sub-agent that such relation should be constituted. If the second point be not established, rights and obligations arising out of contracts between principal and agent, and between agent and sub-agent, can only be enforced by and against the immediate parties to such contracts. Perhaps I should add that the general rule is that there is no privity of contract between the principal and sub-agent; and the onus, accordingly, lies on the party who alleges such privity to establish that it exists." (my emphasis) 640 Although the case concerned an issue of imputation of knowledge rather than of the making of representations, in my view the same principle applies. Representations by RM to induce persons to insure may have given rise to a vicarious liability in LB & Co but would not have done so in the insurer. 641 Similarly, if an Adviser did not have actual authority from Citibank as its representative and for and on behalf of Citibank to solicit Mortgage Power borrowers, there is no scope for the operation of the Colonial principle. 642 For reasons given elsewhere, although there was privity of agency between Citibank and LKFM/Kelly under the written agency agreement, in my opinion there was none between Citibank and any of the other Advisers. 643 If the other Advisers were agents of LKFM, LKFM may have incurred vicarious liability in respect of their statements but this of itself does not implicate Citibank: there is no vicarious liability for vicarious liability.

part b - factual matters of relevance to the circumstances of all 23 investors

Some background facts about Citibank, lkfm/Kelly and NM 644 The modus operandi of Citibank's banking business was unconventional. Citibank did not operate through branches in accordance with traditional banking practice. Rather, it made known its products to such persons as real estate agents, accountants, solicitors, and, of present relevance, insurance salesmen, in the hope that they would introduce their clients to Citibank and to its products for the benefits they were perceived to offer to their clients. 645 Citibank's principal office was at 1 Margaret Street, Sydney and it had two "divisions" or "branches" of relevance to this case - one for Victoria and Tasmania (to which I will refer simply as the Victorian branch) and one for New South Wales (the New South Wales branch), with offices in Melbourne and Sydney respectively. 646 The Citibank employees who were the points of contact with the introducers of business were called "account managers". The expression "area managers" was also used within Citibank. Apparently the expression indicated a different rank but it does not seem to have signified a difference of function. An account manager was responsible for the introducers within a particular geographical area. Citibank did not pay commissions to introducers or have agreements with them (they did, however, receive gifts). But Citibank did have "agents" with whom it had written agreements and to whom it paid commissions. A mere introducer might make an arrangement with a Citibank agent to introduce a client to Citibank, through the agent, in return for payment of part of the agent's commission. As noted below, Kelly did this until he (more strictly, LKFM) was appointed an agent of Citibank under a written agreement on 3 April 1989. 647 Generally, Citibank had a practice of not appointing agents in metropolitan areas: these were the province of its account managers working through introducers. It did appoint such people as accountants and financial planners as agents in country areas. 648 Notwithstanding the general position described above, in 1988 when the events with which we are concerned began, there was on foot an agency agreement between Citibank and the LJ Hooker Real Estate organisation under which Citibank paid commissions to LJ Hooker real estate agents, including those in metropolitan areas, for introducing new customers to Citibank. Tracie Ravanelli, called Tracie Storm when Kelly made his first contact with Citibank through her, was an account manager whose area was the south eastern suburbs of Melbourne. Her area included Cheltenham, and so, the Cheltenham office of LJ Hooker. Part of her role was to liaise with the personnel at that office who introduced business to Citibank and to keep them up to date on Citibank's products, policies, procedures and guidelines. 649 Kelly was born on 15 September 1949. In 1974, when he was twenty-four years of age, he became employed by NMLA as a clerk. On 9 December 1978 he was appointed an agent of NMLA. He caused LKFM, then called "Lance Kelly Insurance Nominees Pty Ltd", to be incorporated under the Companies (Victoria) Code on 12 May 1980. As from 1 October 1980 that company became a NMLA corporate agent and Kelly became his company's "accredited representative" for NMLA's purposes. On 1 July 1986, LKFM adopted its present name. As from 1 May 1989, LKFM became a "Managing Agent" of NMLA. As such, it was responsible to NMLA's "Agency Manager" for the training, development and supervision of a "Team of Managed Agents". LKFM was responsible to introduce new business to NMLA and was remunerated partly by reference to the "Qualifying Remuneration" of the Managed Agents in its Team. 650 Apart from some twelve months in about 1985, from 1978 until after the stock market crash in October 1987, Kelly worked in a NM office. Following the stock market crash, he worked from home, but not long afterwards, in about mid 1988, he set up his own office as a NM agent in Cheltenham. It was in 1988 that Kelly began selling units in the Trust in accordance with his Negative Gearing Package, that is, in conjunction with Mortgage Power. 651 In 1985, Kelly had become a representative of NMAM, which was licensed as a "dealer" under the SIC, and as such, authorised to sell NMAM securities, notably, units in the Property Trust. Only a natural person could lawfully be a representative of a dealer under the SIC (SIC s 47, and as from 1 November 1989, s 60D). Accordingly, in this particular context I distinguish between Kelly and LKFM: while LKFM was an agent of NMLA, indeed a Managing Agent (with Kelly as its representative accredited for NMLA's internal purposes), it was Kelly personally who was the representative of the licensed dealer, NMAM, for the purposes of the SIC and the selling of units in the Property Trust. 652 Because of his position within NM, Kelly was already aware of the Property Trust when he learned of Citibank's Mortgage Power facility in 1988, that is, when he learned that Citibank would approve a "rotating" or "overdraft" style of credit facility up to a limit determined as a percentage of the market value of the real estate security provided. He perceived the potential of "unlocking the equity" in his clients' homes to enable them to finance NM investment or insurance products. He testified that a particular attraction was that the facility would enable his clients to pay their full annual insurance premiums in advance, rather than by monthly instalments which was a more expensive method of payment. (No doubt there was a benefit for Kelly in eliminating or reducing the risk of default in payment of premiums.) 653 Another feature of Mortgage Power that appealed to Kelly was that Citibank did not require particulars of prospective borrowers' income and outgoings, that is, of their capacity to pay: the facility limit was approved simply on the basis of the value of the security property and Citibank's loan to security ratio ("LSR"). Citibank was not to commence testing the capacity of a prospective borrower to service the Mortgage Power facility ("capacity testing") until 1 January 1991. 654 When Citibank introduced Mortgage Power in Australia in late 1986, its target market was limited to "professionals", such as solicitors, barristers and doctors. But from 1988 to 1989, the market was broadened to include blue collar workers, policemen, labourers, drivers, mechanics, airport workers and lower white collar workers, indeed, according to the evidence, virtually anyone apart from bookmakers. This expansion was part of a drive by Citibank to increase its Mortgage Power portfolio. Accordingly, there was a coincidence between the interests of NM, Kelly and Citibank. 655 Kelly was put into contact with Citibank account manager, Ravanelli (Storm), who referred him to the Victorian State Manager, Martin John Clark and the State Sales Manager, Martin James Carter. Kelly met with Carter and told him that he (Kelly) contemplated recommending Mortgage Power to his NM clients as a means by which they could refinance their debts and invest in NM life insurance and investment products. 656 Kelly began recommending to his NM clients that they apply for Mortgage Power loans. In the early days Ravanelli attended Kelly's rented office at 264 Charman Road, Cheltenham, saw his clients there, filled in their Citibank "Mortgage Finance Proposal" forms, and had the clients sign them. She would process the applications back at Citibank. After the first few clients had been attended to in this way, Kelly began completing the forms himself, had his clients sign them, and arranged for Ravanelli to collect the completed and signed forms at his office. Since Citibank required only basic personal details about the identity of the borrower and the address of the security property to enable Citibank to have it valued, the task of filling in the forms was a simple one. 657 After some months, Kelly spoke to Carter about his (Kelly's) receiving payment from Citibank for his introductions. Carter agreed that Citibank would pay Kelly a "referral fee" of $100 for each successful application. (This arrangement, which may or may not have been implemented, was an exception to Citibank's practice of not paying mere introducers.) Then Kelly, who was friendly with Larry Trew of LJ Hooker, Cheltenham, learned that LJ Hooker, Cheltenham, was an agent for Citibank and was entitled to receive $300 for each of the first four successful applications per month and $400 for each other successful application per month. Kelly spoke to Carter about the possibility of his introducing his clients through LJ Hooker, Cheltenham and sharing its commission. This was agreed to. Accordingly, by arrangement with LJ Hooker, Cheltenham and Carter of Citibank, Kelly began to insert the LJ Hooker, Cheltenham's name and Citibank agency number on his clients' Mortgage Finance Proposal forms prior to handing them over to Ravanelli. Pursuant to the arrangement, the commission split was 20 per cent to LJ Hooker, Cheltenham and 80 per cent to Kelly. Apparently the 20 per cent retained by LJ Hooker, Cheltenham was for nothing more than the use of its agency number, since that office had no contact with Kelly's clients and no part in the processing of their applications. 658 Mr Trew told Kelly that Citibank was to give LJ Hooker, Cheltenham an award because it was "the top selling agency". Kelly thought, probably correctly, that this recognition was attributable to the substantial number of his clients he had introduced under its agency number. He discussed with Carter and Ravanelli the possibility of LKFM's becoming a Citibank agent itself. On 21 July 1988, LKFM applied for appointment as an agent. The application claimed that LKFM had begun the marketing of Mortgage Power some six weeks earlier, that is, in early June 1988, and had, in the meanwhile, submitted thirty applications, all of which had been accepted by Citibank. But LKFM's application was unsuccessful, apparently because of Citibank's general policy of not appointing agents in metropolitan areas. 659 On 3 March 1989, LKFM again applied for appointment as an agent. The letter of application stated: "As an investment consultancy, we are concerned with sourcing the best available services for our clients. Citibank[']s Mortgage Power provides our clients with the flexibility necessary to fund substantial investment portfolios. Since commencing the marketing of Mortgage Power some six months ago, we submitted 30 applications in our first six weeks of association with Citibank all of which have been approved and [for] which we were paid nothing. We have since put in a further 30 applications and still have not been granted an agency agreement. We particularly want a full agency with Citibank primarily because we beleive [sic - believe] them to be a first class operation which is paramount to our operation. This test period for Mortgage Power, based only on a selection of our client base has provided encouraging results. Our application for a Citibank Agency Agreement is the culmination of this successful test period and our belief that within the Agency framework our firm will generate very substantial Mortgage Power business." Kelly had been very active in promoting his Negative Gearing Package and in introducing his NM clients to Citibank in connection with it prior to Citibank's appointment of LKFM as a Citibank agent. This time, LKFM's application succeeded. 660 LKFM's agency agreement was entered into on or about 3 April 1989 - the parties seem to have treated it as dated as of that date, as I have done and will do, although the copy in evidence does not bear a date. It is an important document in the case. The agreement was expressed to be between Citibank and LKFM (which company was called the "AGENT"). It contained the following two recitals: "WHEREAS CITIBANK is desirous of appointing the AGENT to act on its behalf as agent for the promotion and sale of its various products. AND WHEREAS CITIBANK has agreed to appoint the AGENT on the terms and conditions set forth below." The first operative clause of the agreement was as follows: "CITIBANK appoints the AGENT to act on its behalf in respect of the promotion and sale of its range of products, particularised in writing from time to time by CITIBANK to the AGENT." (my emphasis) It was not in dispute that Mortgage Power was a "product" covered by the agreement. 661 By the agreement Citibank undertook to remunerate LKFM in respect of the services performed by it under the agreement in accordance with a "Commission Plan" annexed. LKFM undertook, among other things: · to comply with Citibank's policies and procedures issued from time to time; · to comply with applicable law and not to contravene the law as a result of which Citibank could incur liability; · not to engage in misleading or deceptive conduct or practices in relation to the promotion and sale of Citibank products and always to act in an ethical, honest and proper manner; · to attend and undergo at its expense training courses provided by or on behalf of Citibank; · not to represent or purport to represent itself as being part of Citibank or of the Citibank group, "but only as 'AGENT for CITIBANK'"; and · not to act as a receiver of deposits or cash for Citibank. 662 The period of the agreement was twelve months and it was renewable by consent for successive periods of twelve months each, subject to a right in Citibank to terminate the appointment. 663 Citibank undertook to pay in respect of each Mortgage Power type loan proposal or application submitted by LKFM that was accepted by Citibank a fixed fee of $175. The fees were payable on the fifteenth day of each month. There had been discussion between Kelly and Carter about the level of fee. Kelly had complained that $175 was less than he was already earning through LJ Hooker. According to Kelly, Carter replied that Citibank was about to stop paying LJ Hooker and that in any event $175 per introduction was the most Citibank would pay. Kelly agreed to the fee of $175, provided Citibank provided an account manager to process his clients' applications. Carter agreed to this. It seems that the system according to which Citibank handled such applications expeditiously may explain why the other Advisers, except FKB, were to process their clients' applications through Kelly instead of dealing with Citibank directly. 664 Of course, after it was appointed a Citibank agent, LKFM, rather than LJ Hooker, Cheltenham, was shown as the "agent" on Mortgage Finance Proposals submitted by Kelly. Citibank allocated to LKFM the agency number 2524885018 which also appeared on those forms. 665 From 3 April 1989 until September/October 1991, the clients of a network of NM agents were introduced to Citibank and Mortgage Power through the LKFM agency. In fact, LKFM remained an agent of Citibank in respect of the promotion of its products, including Mortgage Power, until Citibank terminated its appointment by letter dated 25 March 1992, but LKFM ceased all activity as a Citibank agent about six months earlier. The events leading up to the termination were that in 1991 Kelly had sought increased remuneration from Citibank, asserting that he could earn more by way of commission from the Bank of Melbourne. Citibank did not satisfy Kelly's demand and so he ceased placing business with Citibank and, instead, introduced his clients to the Bank of Melbourne and perhaps other sources of finance. It seems that this change occurred in about September/October 1991. In its letter of termination of LKFM's agency dated 25 March 1992, Citibank noted that no new business had been placed by LKFM "for some time" and that it was necessary for Citibank to terminate LKFM's agency. 666 Accordingly, LKFM was Citibank's agent in respect of the selling of Mortgage Power under the written agreement from 3 April 1989 to 25 March 1992, although it had in fact ceased selling the product in September/October 1991. In the absence of countervailing considerations, I would conclude that prior to 3 April 1989, Kelly was a "mere introducer" and that Citibank and Kelly intended that Kelly be authorised to represent or to act for or on behalf of Citibank only as from 3 April 1989. However, NM submits that Kelly had that role even before that date. Moreover, it submits that during the currency of the agency agreement, Kelly's agency was of a wider scope than that described in the agreement. NM relies on circumstances extraneous to the written agreement to prove this broader agency. This submission of NM will be addressed in Chapter 6.

LKFM's express and implied authority arising from its agency agreement of 3 April 1989 667 By the written agreement of 3 April 1989 Citibank appointed LKFM as its agent to "promote" and "sell". The word "promote" has the following relevant dictionary definitions: "to further the growth, development, progress, etc, of; encourage" (The Macquarie Dictionary, 2nd Revised Edition.) "Further the development, progress or establishment of (a thing);… Publicise (a product); advertise the merits of (a commodity)." (The New Shorter Oxford English Dictionary, Vol 2, 1993.) In my opinion, by authorising LKFM to "promote and sell" Mortgage Power, Citibank gave it express actual authority to make known the merits of Mortgage Power with a view to its being widely availed of, and to encourage persons to apply for the facility. 668 The subject of implied actual authority is addressed in Section 3 of Chapter 3 of Bowstead & Reynolds on Agency, op cit, the first article of which is as follows: "Article 27 TO DO WHAT IS NECESSARY FOR, OR INCIDENTAL TO, EFFECTIVE EXECUTION OF EXPRESS AUTHORITY (INCIDENTAL AUTHORITY) An agent has implied authority to do whatever is necessary for, or ordinarily incidental to, the effective execution of his express authority in the usual way." The comment on Article 27 commences: "This article only refers to actual authority. A good statement of the notion behind it is that 'an authority of this nature necessarily includes medium powers, which are not expressed. By medium powers I mean all the means necessary to be used in order to obtain the accomplishment of the object of the principal power … [Howard v Baillie (1796) 2 H Bl 618, 619, per Eyre CJ] But a similar notion is relevant to apparent authority, and statements of the rule appear in this context…: indeed in many cases it is unnecessary and even impossible to decide whether the decision rests on implied or on apparent authority…" 669 It was not "necessary for, or ordinarily incidental to, the effective execution of [LKFM's] express authority" to promote and sell Mortgage Power, that LKFM should promote and sell other products which Mortgage Power might be used to buy, or should promote a financial plan in which Mortgage Power might play a part. 670 But the synonymous notions of a "scope or class of statements authorised" and the "course of the execution of an agency", are wider than the notions of express actual authority and implied actual authority just discussed, and will be considered later.

Were the Advisers agents of NM? 671 Every Adviser was an agent of NMLA or of NMAM or of both (agents of NMAM were its "representatives", being the holders of proper authorities issued to them by it under the SIC or the Law - see Chapter 8. There are thus two kinds of NM agency in question: an agency of the life insurance company, NMLA, to sell insurance and superannuation products; and an agency of NMAM to sell units in NM investment trusts. (The Pleading alleges (a) a third agency, one for NMPS, which I need not stay to discuss as NMPS is referred to in the evidence as a "finance broker" and agent of NMAM, and (b) an implied agency of LKFM and DJC respectively for NMAM which I will also ignore - representatives of licensed dealers such as NMAM were required to be natural persons and not bodies corporate: see Chapter 8.) My findings, based largely on the affidavit testimony of Ross Alexander McDonald, referred to earlier, are as appear in the following table. Adviser Was Adviser an agent of NMLA? Was Adviser a representative under the SIC/Law of NMAM? Bahr Yes, and FKB was a corporate agent with, I infer, Bahr as a nominated accredited agent. Yes Blee Yes, and Alve Enterprises Pty Ltd was a corporate agent with, I infer, Blee as its nominated accredited agent. Yes Buttars I infer that he was, although his letter of appointment is not in evidence. He introduced the Bachmanns. No Crawford Yes, but only from July 1991, to about November 1991. Yes, as from 16 July 1992. Grima Yes Yes Hacopian Yes No Jones Yes, and DJC Pty Ltd was a corporate agent with, I infer, Jones as its nominated accredited agent. Yes Kelly Yes, and LKFM Pty Ltd was a managing agent as from 1 May 1989 with Kelly as its nominated accredited agent. Yes Kennedy Yes Yes Kinross Yes (see below) No (see below) Kirby Yes, and FKB was a corporate agent with, I infer, Kirby as a nominated accredited agent. Yes Naughton Yes, and JPN Financial Planners Pty Ltd was a corporate agent with Naughton as its nominated accredited agent. Yes Roberts Yes, and Folborn Pty Ltd was a corporate agent with Roberts as its nominated accredited agent. Yes Wass Yes, and Anna Wass & Associates Pty Ltd was a corporate agent with Wass as its nominated accredited agent. Yes

672 More detailed accounts of the relationships involved appear later in this chapter, but it is convenient to note the following matters here. 673 With effect from 1 May 1989, NMLA appointed LKFM (at the time still called "Lance Kelly Insurance Nominees Pty Ltd") as a "Managing Agent" (with an "establishment allowance" of $500,000). As at that commencement of the Managing Agency, Kennedy and Blee (and other persons not presently relevant) were NMLA agents managed by LKFM. Kelly said he managed seven NMLA agents, including, relevantly, Blee, Grima, Kennedy and Naughton. I presume that LKFM came to manage Grima and Naughton at some time after the commencement of the Managing Agency on 1 May 1989. 674 Kelly testified that Kinross worked for the same Division of NM (the Brighton Division) as he did, and that Kinross referred to Kelly a Kinross client to whom Kelly gave a presentation (this appears to have been Enzo Caporale, who is not one of the 23 Investors of present concern). According to Kelly, Kinross was an insurance agent, that is, an agent of NMLA, but did not hold a proper authority from NMAM, and therefore was not entitled to be paid commission by NMAM, and so would refer his clients to Kelly who would try to sell them the units in the Trust. Kelly alone would receive the entire NMAM commission on the sale of the units and would pay Kinross a "fee" (Kelly's word) for having introduced the client to him (there was no occasion for this special arrangement to apply to commission on insurance, which could and would appear on Kinross's own NMLA commission statements). 675 Kinross played no role in relation to any of the present 23 Investors. Neither did Kennedy or Grima, two of the NMLA agents managed by Kelly mentioned above, and the evidence does not establish that Crawford or Hacopian played anything more than a very minor part in relation to them either. (Citibank's cross-claim asserts that Hacopian and Crawford "conducted or participated in the presentation [of] the negative gearing package for" the Minichinis and the Lowes respectively.) I will return to this issue later in this chapter.

Citibank's knowledge that individuals other than Kelly introduced applicants for Mortgage Power 676 Kelly said that "where possible", he introduced all the NM agents for whom he "did the processing" to the Citibank account managers "at the earliest opportunity". He said he introduced Blee and Grima to Ravanelli (Storm), Stewart, Hawkins (Durnan) and Hall, and Naughton to Hawkins and Hall. He did not descend into similar detail in relation to Kennedy or Kinross. 677 The following matters demonstrate that Citibank understood that it would and did benefit from the efforts of individuals other than Kelly alone in respect of LKFM's introduction of applicants for the Mortgage Power facility: · Kelly's first application for LKFM to be appointed a Citibank agent, dated 21 July 1988, noted that LKFM employed 5 people; · Kelly's second application for LKFM to be appointed a Citibank agent, dated 3 March 1989, noted that it employed 14 people; · In both of LKFM's applications, there was reference to LKFM's "establishing contacts interstate for the sole purpose of generating Mortgage [P]ower business"; · Ravanelli (Storm) testified that she had met a few people from Kelly's office, although the only names she could remember were Dale Rodstead and "Laurie" (probably a reference to Lawrence Grima); · Stewart testified that he also met members of Kelly's staff, although he could not remember any of their names; · Carter agreed that he became aware "that Kelly was, in effect, delegating a number of his selling tasks to other agents", that he "spoke to a number of their [Kelly's and Jones'] agents on various occasions when they would ring in for account managers that were there, and on other matters just to clarify lending policy",and that he met Grima and Naughton at Kelly's office; · Hawkins (Durnan) said she knew from the time she took over from Stewart, that Jones was working in association with Kelly, and understood that people working in Kelly's office in Melbourne were employees of Kelly (see further the discussion of the relationship between Citibank, LKFM/Kelly and DJC/Jones below); · Hall agreed that he met Naughton who was "an agent who was working out of Lance Kelly's office", had telephone conversations with Naughton "from time to time regarding a loan", and was (with Hawkins (Durnan)) present in Kelly's office once with Naughton and Van Minnen when Kelly gave a sample whiteboard presentation for his (Hall's) benefit; · Meyrick (Garvey) agreed in cross-examination that Citibank "confided" in Lance Kelly "and the various persons who worked for or with him, including his network of agents through New South Wales" the task of making agreements with prospective borrowers at point of sale under the privacy legislation (see Chapter 6); · Hacopian, who was employed by DJC to complete the paperwork for the Package, testified that in about September 1990 he travelled to Melbourne with Jones to meet Kelly. While in Melbourne, he met Hawkins (Durnan) at a lunch also attended by Jones, Kelly and Van Minnen. Hawkins allegedly told Hacopian that in processing the Citibankforms, he needed to obtain signature cards and to ensure the client had a mortgage protection policy. Hawkins also told him he would have to follow up any queries she had; · Crawford, who processed applications for Jones, testified that in November/December 1991 Jones introduced him to Bill Macrow and Grant Seiff of Citibank with the aim of his introducing to Citibank clients of DJC, who could not meet the "GIO criteria". Macrow and Seiff showed Crawford the Citibank application forms and pointed out the benefits of using Citibank finance over that available from GIO. 678 It is tempting to say that Citibank and Kelly "exploited" Kelly's network of contacts. In a sense they undoubtedly did: certainly they both profited financially from the contacts' introductions, in the case of Kelly to the extent of $175 per introduction. But the introducers can likewise be seen as exploiting the "efficient" system that Citibank and Kelly had established for processing applications. This consideration is easily underrated: it must be remembered that the other Advisers were at liberty to introduce their clients to Citibank directly. No doubt they also thought that Mortgage Power was a desirable form of finance for their clients, particularly as part of the Package. Subject to what follows, it seems just as easy to say that they introduced their clients to Citibank through their agent, Kelly, as to say that Kelly found new borrowers through the agency of them. But the fact remains that on 3 April 1989 Citibank did appoint Kelly as its agent, and the other Advisers knew this and knew that they had not been so appointed. 679 Subject to any different conclusion suggested by facts considered in Chapter 6 extraneous to the written agency agreement, the other Advisers appear to have been not agents of LKFM/Kelly but mere introducers of their clients to LKFM/Kelly for it to introduce to Citibank. Even if they were agents of LKFM/Kelly, this would not make them representatives of Citibank with authority to make statements for it and on its behalf for the purposes of the Colonial principle because, as noted earlier, in my view a principal is not vicariously liable for the tortious statements of a sub-agent, unless privity of agency arises between the principal and the sub-agent.

The various relationships between Citibank, LKFm/kelly, DJC/jones and the K/J Associates 680 Unlike LKFM/Kelly, DJC/Jones and the K/J Associates did not have written agency agreements with Citibank, received no commission from Citibank and received no share of the $175 commission that LKFM received from Citibank. They all "dealt with Citibank" through LKFM (so did FKB in the very early stages but it soon introduced its clients to Citibank directly). In about September/October 1991, when Kelly ceased submitting applications for finance to Citibank, Jones ceased submitting his clients' applications to Citibank through Kelly and began to lodge them directly with Citibank - in fact with Bill Macrow, the relevant area manager in Citibank's Sydney office. It will be recalled that Citibank terminated LKFM's agency on 25 March 1992. 681 I will now deal with the positions of LKFM/Kelly, DJC/Jones and FKB/Fitcher, Kirby, Bahr and the K/J Associates, in turn.

(a) The relationship between Citibank and LKFM/Kelly 682 LKFM and Kelly satisfied the Colonial principle for the duration of the agency agreement dated 3 April 1989, that is, until Citibank terminated the agency on 25 March 1992 (no-one has suggested that for the purposes of the issue of "authority to represent" involved in this case, any distinction is to be drawn between Kelly and his alter ego, LKFM). Unless the circumstances (considered in Chapter 6) extraneous to the agency agreement were to lead to a different result, in my view, outside that agreement and the duration of it, they were not agents or representatives of Citibank, with authority to sell Mortgage Power for it and on its behalf.

(b) The relationships between Citibank, LKFM/Kelly and DJC/Jones 683 NMLA appointed Jones as an agent on 19 July 1976. DJC (then called "Dennis Jones Insurance Nominees Pty Ltd") was appointed as a corporate agent of NMLA on 26 July 1983, with, I infer, Jones as its accredited representative. NMAM appointed Jones as an authorised representative on 1 November 1989 and issued him with a proper authority of that date upon his having returned his "NMAM Certificate and/or Licence" issued to him under the previous legislative régime. 684 Jones did not testify but Kelly said he met Jones in April 1989 at a conference in Bangkok organised by NM for its Australian agents. At the conference, Kelly conducted a workshop session on the NMAM negative gearing arrangement (it was six months earlier, in October 1988, that the board of NMAM had resolved to promote that plan). It will be recalled that LKFM was appointed as a Citibank agent on 3 April 1989, but Kelly had been introducing his clients to Citibank for some time previously. I presume that Kelly's presentation at the conference referred to Mortgage Power as a (or the) most desirable form of finance for the initial units. At the airport after the conference Jones approached Kelly and they conversed for some three hours, during which Kelly explained his plan in more detail. The two men arranged to meet in Melbourne, where Kelly subsequently "went through [his] methods and forms of presentation". Later, Kelly went to Sydney and gave presentations to certain of Jones' clients. He did this on various occasions and met Wass and Roberts at the NM office in Manly where Jones was based. 685 Kelly and Jones agreed on an arrangement for the sharing of NM commissions to the effect that where Kelly made a presentation to a client of Jones, Kelly was to be entitled to 50 per cent of the NM commission payable, but where Kelly did not make the presentation and merely handled the processing of the application, Jones was to be entitled to 80 per cent of the commission, and Kelly to only 20 per cent. It will be noted that this latter arrangement was similar to the one Kelly himself had had prior to 3 April 1989 with LJ Hooker, Cheltenham in relation to the $300 to $400 Citibank commission being earned by LJ Hooker. But Kelly did not at any time share LKFM's $175 Citibank commission with Jones or with any other Adviser. 686 Kelly said that the commission sharing arrangement was made because he "had the processing organised for the Citibank loans as well as the National Mutual applications". Jones asked Kelly to come to Sydney more often to make presentations to his clients but since Kelly was too busy he arranged for Blee to do so. (At that time Blee was a NMLA agent managed by Kelly who worked in Kelly's office.) On one occasion, Paul Kennedy, who also was a NMLA agent managed by Kelly, went to Sydney to do presentations for clients of Jones, though not to any of the present 23 Investors. Subsequently, Kelly's involvement was confined to the "processing" of Jones' clients' applications. Kelly said that Jones would send the completed application forms to him in Melbourne and that he (Kelly) would pass them on to Citibank. Jones would also send to Kelly the completed applications for the initial units in the Property Trust and for NM finance to acquire the further units. Kelly would hold these forms until the Mortgage Power loan from Citibank was settled and cheques were drawn to accompany the applications. Kelly supplied blank Citibank application forms to Jones until Kelly ceased "using Citibank" in September/October 1991, after which Jones dealt directly with Citibank in Sydney. 687 According to Kelly, he introduced Jones to Hawkins (Durnan) and Carter by at least 15 September 1989 when he held a party attended by all three. He said he introduced Jones by saying "Dennis is writing a lot of the business in Sydney". Kelly said that on one occasion he heard Carter say to Jones that he wanted all of Jones' applications for Citibank loans to come through the Melbourne office of Citibank. He also said that when he told Stewart that he was "going to use Dennis Jones to expand the client base in Sydney", Stewart told him to make sure the application forms were submitted through Stewart to the Melbourne office. Finally, Kelly testified that Hawkins (Durnan) used to check applications received from Jones at Kelly's office in Cheltenham when she attended that office, and that if she saw any problems with them she would call Jones' office direct from Kelly's office to resolve them. 688 Stewart agreed that Kelly told him that Jones would be soliciting applications for Mortgage Power loans in Sydney. His cross-examination included the following: "Q. You do remember that there was a time when Kelly said to you that he was going to use a man called Dennis Jones in Sydney to expand the client base? A. Yes. …. Q. You do recall that Kelly mentioned to you that he planned to expand the client base in Sydney. There's no doubt about that? A. Yes. Q. You do recall that your response to that was positive and encouraging, don't you? A. Yes. Q. You didn't say to him anything like, 'Oh, no, don't do that'? A. No, no." 689 Carter also agreed with Kelly's evidence in this respect. He said he understood Jones to be a "sub-agent" of Kelly and that he advised Jones to send his clients' applications to Citibank's Melbourne office through Kelly, rather than to Citibank in Sydney, because Jones had complained of difficulties experienced in having applications processed in Citibank's Sydney office. He added that he "saw no reason that [sic - why] the existing practice should not continue, under which loan applications made by Mr Jones' client [sic - clients] were submitted to the Melbourne office of the Bank, through Mr Kelly as agent." 690 Similarly, Carter's cross-examination contained the following passage: "Q. You came to understand that [Kelly] had a network of agents in other states who provided a potential source of cross-selling for Citibank? A. Yes. …. Q. What role did you understand Kelly to play, that is to say, what was his function, as you understood it? A. I believe from Lance himself and Tracie Storm that he was a National Mutual insurance agent. As we discussed, he had a network of agents and a large customer base which could be beneficial to generating business for … Citibank. Ľ Q. To make it perfectly clear, your understanding of the situation was that Kelly had delegated his tasks, the tasks he was performing on behalf of Citibank, to Jones; is that right? A. I understood, as per my affidavit, that Mr Jones was a subagent of Mr Kelly and a National Mutual agent, and he was generating business for the bank. Q. And you didn't see any problem at all in Kelly delegating in that way? A. No. Q. Quite the opposite, it was something of which you heartily approved? A. Heartily approved? Yes." (my emphasis) 691 It is clear from this passage that Carter was not prepared to accept that there was a "delegation" by Kelly to Jones of the authority given to LKFM by Citibank that had the effect of making Jones a direct agent of Citibank. Rather, Carter's understanding was that Jones was part of a "network of agents" of Kelly, that is, a "sub-agent". 692 Hawkins (Durnan) agreed she met Jones at least once and that she knew that a number of the completed loan application forms she received from Kelly "originated from" Jones' clients. Meyrick (Garvey) agreed she knew that Kelly had a "contact base" in New South Wales selling Mortgage Power. She did not know, however, whether they were life insurance salesmen or financial advisers. To her they were "names" associated with Kelly. She understood that someone called "Jones", and, she thought, "Rommel" (no doubt a reference to Hacopian), was involved in New South Wales and that work was coming from New South Wales into Kelly's office, but she did not know whether "Jones" or "Rommel" were sources of the work and she had no dealings with Jones. She agreed she had understood that whoever was introducing prospective borrowers in New South Wales was "making binding agreements [under Commonwealth privacy legislation] with Citibank's intending customers on behalf of Citibank".

(c) The relationships between Citibank, LKFM/Kelly and FKB/Fitcher, Kirby, Bahr 693 FKB was a company of Fitcher, Kirby and Bahr. It was formed in about 1982 and initially operated as a corporate agency of Mercantile Mutual Insurance Company. In 1987 FKB became a corporate agent of NMLA. Fitcher, Kirby and Bahr were authorised representatives of NMAM. Only Kirby and Bahr gave evidence. Apparently Fitcher was no longer named in the particulars of NM's claim and therefore Citibank did not pursue its cross-claim against him, but Kirby could not explain why Fitcher had ceased to be referred to in the particulars. 694 Bahr attended the conference for NM agents in Bangkok in 1989 and was present at Kelly's presentation. On returning to Melbourne, Bahr spoke with Trevor Allen, NMAM's Victorian Sales Manager about Kelly's talk. Allen put him in contact with Kelly who showed Bahr and Kirby his Negative Gearing Package presentation and allowed them to attend presentations he made to his clients. 695 Initially, while Fitcher, Kirby and Bahr were learning Kelly's presentation, they introduced their clients to Kelly and allowed him to present the Package to them and to process their resulting applications. Kelly entered into an agreement with FKB similar to that which he had made with Jones, that is, that LKFM would be entitled to a larger share of its commission from NM when he (Kelly) gave the presentation and a smaller percentage when he merely processed the applications. Kirby testified that the arrangement was that Kelly was to be entitled to either 50 per cent or 70 per cent of the NM commissions. Once Kirby and Bahr had mastered Kelly's presentation, they gave the presentations to their clients themselves and dealt directly with Citibank. It is uncertain when this occurred. Kirby could recall having referred only two clients to Kelly in the "very early days" and said that by 1992 Kelly was not receiving any part of the NM commissions. This is consistent with the termination of Kelly's agency by Citibank in March 1992. Bahr stated that it was possible that although initially Citibank applications were submitted through Kelly, it was FKB's practice generally to submit them directly to Citibank. Bahr did not consider himself or FKB to be a sub-agent of Kelly or of any other person or agency. It is clear that at a fairly early stage, FKB was introducing its clients to Citibank directly, rather than through Kelly. In any case, of the present 23 Investors, only two were introduced to Citibank by FKB, the Farrars (introduced by Kirby in June 1992) and the Jorgensens (introduced by Bahr in November 1992), and both were introduced after the termination of Kelly's agency. 696 FKB's contact at Citibank in Melbourne was Ian Alister Ross, an account manager. Ross had met Fitcher in a social context and subsequently promoted Citibank's products to FKB. Ross regularly attended the offices of FKB to collect completed Mortgage Power Loan application forms. He supplied brochures, application forms and other Citibank stationery to FKB and handled any queries Kirby and Bahr had in connection with their clients' applications. 697 In this respect Ross gave the following evidence: "I promoted the Bank's services to FKB by explaining which financial products the Bank was then providing, what the Bank's credit requirements were for these products, how to complete the application forms and which supporting documentation would be required for the applications to be assessed. It was my practice to provide the introducers with the Bank's brochures and promotional material for the respective products and the relevant application forms. I also provided all the introducers (with whom I dealt) with the relevant changes in policy, procedures or criteria as soon as I became aware of them myself." 698 It is interesting to note that Ross refers to Kirby and Bahr as "introducers". When Kirby and Bahr dealt directly with Citibank, they were not entitled to any commission from Citibank because they were mere introducers, not agents, according to the Citibank dichotomy, and since LKFM was not involved, it was not entitled to commission either. But without the interposition of LKFM, Kirby and Bahr would be entitled to 100 per cent, rather than only a share, of the NMAM commissions. The sharing of NM commission occurred only in the initial period when Kirby and Bahr were learning Kelly's presentation. 699 Kirby and Bahr testified that Ross gave them gifts such as "t-shirts and bottles of wine or port" in the case of Kirby,and "boxes of wine, t-shirts, guest passes to golf and tennis events and an electronic organiser" in the case of Bahr. Ross, however, disputed this evidence, stating that the only gift he recalled ever being presented to "introducers" as distinct from assisting loan customers, was a bottle of port at Christmas. He said that Citibank did provide incentives to existing loan customers to introduce new loan customers, such as a dozen bottles of wine or a Sharp electronic organiser for each successful loan application, and that from his recollection of the "campaign", no distinction was made between existing loan customers who did and did not have some additional connection with Citibank, such as "introducers". According to Ross, both Kirby and Bahr were customers of Citibank and were therefore eligible to receive the gifts under the campaign. But Ross said that guest passes and t-shirts were not part of any Citibank marketing campaign and that he could not recall ever having given such items to Kirby or Bahr. 700 This difference between the evidence of Kirby and Bahr on the one hand and Ross on the other is of no consequence. On either version, the gifts would not point to the existence of an agency relationship, in my view. 701 A disclosure document entitled "Sequence of Events for your Personal Programme" signed by Bahr and the Jorgensens and given to the Jorgensens in relation to the Package contained the following disclosure: "We wish to confirm that FKB & Associates is not a Licensed Finance Broker and accordingly does not charge a Finance Brokerage or Procuration fee nor do we charge any other up front fees. Our income is made up of Commissions from Financial Institutions. The three Principals [Fitcher, Kirby and Bahr] are Authorised Licensed Dealers Representatives for National Mutual Assets Management Limited. We are obliged by the Corporations Law to inform you that as representative[s] of National Mutual Assets Management Limited, we will be entitled to receive commission if you invest in the National Mutual Australian Property Trust or any other Sharemarket Trust managed by them as a result of our recommendation. The rate of commission will be not less then 3% of the moneys you invest. Full details of the fees are set out in the prospectus." That is, Fitcher, Kirby and Bahr presented themselves, relevantly, as representatives of NMAM alone and as entitled to be paid commissions by NMAM alone. 702 Kirby and Bahr viewed Citibank as merely providing a useful tool as is shown by the following passage from Bahr's evidence: "I used both the Bank of Melbourne and Citibank to provide the line of credit required for the package. While the Bank of Melbourne paid me a commission for any loan I arranged with it, I preferred to use Citibank as it provided a speedier and more efficient service and could settle the applications more quickly." Kirby gave similar evidence. Bahr said they received commissions from the Bank of Melbourne in the order of $300 or $400, buthad to take application forms personally to the Bank of Melbourne and line up to see someone. Kirby also suggested that the interest rate that Citibank charged their clients was probably lower. 703 Bahr and Kirby regarded themselves as "introducers" of clients to Citibank and the Bank of Melbourne and held loan application forms of both banks. So far as Kirby and Bahr knew, Citibank and the Bank of Melbourne were the only lenders in Australia that offered a Mortgage Power type loan at the time. In promoting the NM products which could be financed with Mortgage Power, Bahr regarded himself solely as a NM agent. He contacted Citibank only when details about its product needed to be clarified. 704 The evidence discussed above does not establish that Citibank authorised FKB or any of its principals to sell Mortgage Power as its representatives or for it or on its behalf. Citibank merely acquiesced in their acting as introducers.

(d) The relationships between LKFM/Kelly and the Kelly Associates, Blee, Grima, Kennedy, Naughton (and Kinross) 705 I turn now to those Advisers who were Kelly Associates: Blee, Grima, Kennedy Kinross and Naughton. What was the relationship between LKFM/Kelly and the Kelly Associates? NM pleads that where Kelly did not personally give the presentation, it was given on his behalf and that the representations and advice were made and given by the respective persons mentioned in Schedule 4 in his or her capacity as "an officer, an employee or an agent" of LKFM. 706 I will not refer further to Kinross whose position I discussed at [674], because he did not have a role in relation to any of the present 23 Investors. I will refer below to Grima and Kennedy, but only briefly, for the same reason. 707 The Kelly Associates were NMLA agents who were "managed" by Kelly and worked out of his office at Cheltenham. It will be recalled that LKFM was appointed by NMLA as a "Managing Agent" and was responsible for a "team" of NMLA agents. 708 The Kelly Associates began by introducing their clients to Kelly to have him present his Negative Gearing Package to them, but then learnt to present it themselves. The resulting NMAM commissions were shared between them and Kelly. LKFM's managerial role within NMLA is not of special importance. As agents in their own right they were all earning commissions and possibly other forms of remuneration from NMLA and NMAM for the sale of their insurance and investment products. In cross-examination, Kelly said he received 20 per cent of their NM commissions "as a processing function". The arrangement for the sharing of commissions was not only known to, and acquiesced in, by NM: NM actually implemented it. Kelly informed NM when submitting his Associates' clients' applications, of the respective shares of the commission that had been agreed upon by Kelly and the Kelly Associates, and NM credited the amounts in question to their respective commission accounts in its records. 709 Kelly claimed he did not maintain control over the other Advisers, was not with them when they were with their clients and had no say in the amounts they persuaded their clients to borrow and invest. Kelly appears to have been referring to the Kelly Associates generally. He said that he merely carried out a managerial role and could not hire or fire the NMLA agents he managedand that they acted as NM agents in their own right. I accept this testimony which is consistent with other evidence. 710 According to the written agreement between NMLA and LKFM dated 1 June 1989 "confirming" the appointment of LKFM "as a Managing Agency attached to Brighton Division" as from 1 May 1989, LKFM's "[r]responsibilities" were described as follows: "The Managing Agency will be responsible to the Divisional Manager Agency for the effective training, development and supervision of those Agents who shall from time to time comprise its Team." LKFM was to "recruit" new agents for NMLA, to train the agents in its team, and, for example, to: "Undertake field work with the agents in its Team to assist them in particular sales situations by demonstrating · how the theory of training is put to practical use, and · the application of new contracts to suitable markets." Although the expression "TEAM" was defined as "those Agents who are under the control and supervision of the Managing Agency", it is clear that the members of the LKFM "team" were in a direct agency relationship with NMLA, and were not, as such, employees of LKFM. As agent for NMLA, LKFM was to train, supervise and control the NMLA agents in its team in connection with the selling of NMLA's insurance and superannuation products. It should be noted, however, that the Managing Agency agreement did not govern the relationship between NMAM and Kelly, the individual - NMAM and Kelly were not parties to it and the selling of units in the Property Trust lay outside its scope. 711 In my opinion, Blee, Grima, Kennedy and Naughton were not officers, employees or agents of LKFM/Kelly but were, like LKFM/Kelly, independent agents of NM. 712 I will discuss now, in more detail the evidence relating to the respective positions of the four Kelly Associates mentioned.

Blee 713 Blee's affidavit was not read and he did not give oral evidence. Accordingly, I do not have the benefit of his explanation of certain documents in evidence relating to him. 714 Blee was appointed an agent of NMLA on 22 August 1986 (McDonald's affidavit is incorrect in saying 28 August 1988). The terms of appointment of a NMLA agent were that the agent acknowledged that he or she conducted his or her "own business". Blee worked at the Brighton Division of NMLA. An office memo from John Wilson, the Brighton Division Agency Manager, to Bill Grund (Agency Administration Manager) dated 19 December 1988 stated that Wilson wished to "terminate" Blee's agency with effect from 31 December 1988 due to his "lack of production" and that: "Alan has infact [sic] agreed to join the Lance Kelly Agency and as such I have allowed him to keep all his National Mutual Books and documentation." According to a NM "Termination of Agent" document, Blee was allowed to retain his NM books and training manuals as he was to be "an employee of the Lance Kelly Agency". 715 NMLA apparently wrote to Blee on 2 February 1989 terminating his appointment as an agent of NMLA. Yet other NM records show him as one of LKFM's "foundation" managed agents when LKFM was appointed as a Managing Agent with effect from 1 May 1989. 716 It is clear that Blee was an authorised representative of NMAM (his proper authority in evidence is dated 1 November 1989, however, he may have been licensed under the SIC previously, as the proper authority dated 1 November 1989 was issued as a result of the amendment of the SIC replacing the licensing system with the "proper authorities" system from that date - see Chapter 8). Kelly shared with Blee NMAM commissions derived from the sale of units in the Trust to Blee's clients. 717 Kelly referred to Blee as a NMLA agent who was unsuccessful in writing business and to whom he therefore delegated tasks: "Alan Blee and Lawrence Grima were both National Mutual agents attached to the same National Mutual division as myself. When I set up my office in Charman Road Cheltenham they decided to work from there. Whilst I considered Alan Blee to be very professional it was my view that he was unable to close a sale so I decided to keep him on to carry out clerical work and to interview prospective clients to carry out fact finding." 718 Kelly reiterated this view in his oral evidence: "Alan Blee had a lot of difficulty, for lack of a better word, in closing a sale. Alan Blee was a very likeable person. With Alan Blee, his role became one of basically fact finding for other agents." 719 Yet Blee's role was not always limited in that way. He gave several presentations to Investors and the substantial commission share he or his company Alve Enterprises Pty Ltd derived from the sale of units in the Trust, suggests that he played a significant role in selling units and that Kelly had a certain faith in his ability. For example, in around April 1989, at Kelly's instigation, Blee gave a presentation to the Richards. The NMAM commission on the Richards' investment in units was shared as follows: Alve Enterprises Pty Ltd 50 per cent and Kelly 50 per cent. 720 Moreover, when Kelly became too busy to travel to Sydney to do presentations for Jones' clients, he sent Blee in his place. 721 There are references in documents in evidence to Blee as an "associate", a "sub-agent" and an "employee" of LKFM/Kelly. As it happens, the result in this case will not be different according to which he was, but I think he was not an employee or a sub-agent, but an independent agent of NM who was "associated" with the more senior agency of LKFM/Kelly. 722 At some unspecified time Blee moved to Sydney to work full time with Jones. His relationship with DJC will be discussed later.

Grima 723 Grima did not have a role in relation to any of the present 23 Investors. 724 McDonald was not able to locate his letter of appointment but said that NMLA appointed him as an agent on 25 March 1988. He was appointed an authorised representative of the licensed dealer, NMAM, on 1 November 1989, in substitution for, and upon surrendering, his earlier "NMAM Certificate and/or Licence issued to [him] by Corporate Affairs". 725 Grima was a managed NMLA agent who had his own office in Kelly's premisesand who had no prior experience in insurance or financial products. According to Ravanelli, Grima was a salesman whose responsibility was to find new clients for all aspects of Kelly's business. The evidence does not establish that Grima was an employee and Kelly specifically stated that he continued to act as a NM agent in his own right after Kelly established his office at Charman Road Cheltenham.

Kennedy 726 Kennedy played no role to play in relation to any of the present 23 Investors, apart from preparing a document for the Appelmans called "Retirement Security Plan". 727 McDonald was not able to find Kennedy's letter of appointment but said that NMLA appointed him as an agent on 26 May 1989. He was appointed an authorised representative of NMAM on 18 July 1991, that being the date of his proper authority issued by NMAM. Kennedy was also a managed NMLA agent who worked out of Kelly's premises but had his own office there and his own clients. 728 Kennedy did not appear in the proceeding and on 11 September 1997 I granted Citibank leave to apply for summary judgment on its cross-claim against him. So far as the file reveals, it has not done so and Kennedy is still referred to as the ninth cross-respondent in Citibank's fifth amended cross-claim and is treated as a current party by NM.

Naughton 729 By letter dated 30 July 1990, NMLA authorised Naughton "through the agency held by JPN Financial Planners Pty Ltd", to obtain new business for NMLA. Attached to the letter were "Terms of Accreditation" to which Naughton was required to adhere. A written agreement dated 1 August 1990 was entered into by JPN Financial Planners Pty Ltd ("JPN") and NMLA by which NMLA appointed JPN as its agent to sell insurance, superannuation and other business. The agreement stated that the relationship between the parties was to be "that of principal and independent contractor". The agreement provided that before any agent, sub-agent or employee was to be "permitted to arrange contracts of insurance on behalf of [NMLA]", NMLA's written authorisation was required. 730 Naughton was appointed an authorised representative of the licensed dealer NMAM on 23 August 1990, that being the date of his proper authority issued by NMAM. 731 Naughton was one of Kelly's managed agentswho worked out of his office in Kelly's premisesfor approximately 18 months. According to Kelly, he was a very competent and experienced agent and found his own clients. 732 Kelly said he showed Naughton the presentation and that initially he and Naughton did three joint presentations. After that, Naughton did his own, and Kelly processed the applications for 20 per cent of the NM commissions. There is no suggestion that Naughton was an employee of LKFM/Kelly.

(e) The relationships between Citibank, DJC/Jones and the Jones Associates, Blee, Hacopian, Crawford, Wass, Buttars and Roberts 733 As in the case of Kelly, NM pleads that where Jones did not give a presentation personally, it was made on his behalf and the representations and advice were made and given by the respective persons mentioned in Schedule 2 in his or her capacity as "an officer, an employee or an agent" of DJC. 734 I turn now to the position of Jones and the Jones Associates, namely, Blee, Hacopian, Crawford, Wass, Buttars and Roberts. I include Blee because, although he was initially a Kelly Associate, he later moved to Sydney and became associated with Jones. I will deal with Crawford and Hacopian briefly because they had virtually no role to play in relation to the present 23 Investors.

Blee 735 Blee moved from Kelly's office at Cheltenham to Jones' office, although the evidence does not establish when. Nor does the evidence establish Blee's precise relationship with Jones and DJC, however, it suggests he was an employee. According to Hacopian, Blee was "directly employed by Dennis Jones & Company, and he just happened to hold a National Mutual agency, … at the same time". This is consistent with the testimony of Crawford, a DJC employee who took over Blee's duties when Blee left DJC in July 1991. A report by Buttars, who did not give evidence, stated that by September 1990 Blee was Jones' office manager. 736 In September and October 1990 Blee gave several presentations to the Douglasses in Sydney at Jones' office. The NMAM commission on the Douglasses' application for units in the Trust was divided up as follows: DJC 50 per cent; Alve Enterprises Pty Ltd 30 per cent and Kelly 20 per cent. 737 Blee's relationship with DJC appears to be that as an authorised representative of NMAM in his own right, he earned commissions from NMAM, but also payments from DJC for administrative tasks he performed as an employee of DJC (the evidence does not establish that Blee had been paid by Kelly (as distinct from a sharing of commissions) for the work he performed when he had worked out of Kelly's office).

Hacopian 738 Hacopian did not play any significant role in relation to any of the present 23 Investors, apart from completing the Minichinis' paper work. Hacopian testified that he met with the Minichinis only in relation to completing applications in connection with the second phase of the Package, that is, the purchase of the further units and the associated borrowing from NMPS. He had no recollection of having personally dealt with the Minichinis when they first invested in the Package. Hacopian was also present at the Lorenzes' second meeting with Jones, but there is no suggestion that he was significantly involved in the presentation to them. 739 NMLA appointed Hacopian as an agent by letter dated 22 October 1987 (McDonald's affidavit is incorrect in saying 22 October 1989). He was never appointed as an authorised representative of the licensed dealer, NMAM. 740 From June or July 1990, DJC employed Hacopian on a salary to complete the paper work on transactions. He was not paid commission or a share of commissions. From April 1991, he started dealing directly with Jones' clients in relation to their insurance needs and, pursuant to instructions from Jones, would mention the Package to them in the course of doing so. Crawford then took over Hacopian's former role of processing applications.

Crawford 741 Crawford, one of the present 23 Investors, performed no role in respect of any of the present 23 Investors, apart from processing applications. Crawford's name was given as the referee on the Alders' Mortgage Finance Proposal form and Alder believed he was a "financial consultant" for Jones and "affiliated" with Citibank. 742 Like Hacopian, Crawford was employed by DJC (he became a NMAM representative on 16 July 1992). His employment commenced on 22 April 1991, when he took over Hacopian's role of processing applications and performing other administrative tasks, such as preparing accounts for DJC to send out. According to Crawford, some of these tasks had previously been performed by Blee. Crawford also claimed he explained aspects of the Package to the Lowes after the initial presentation by Jones, but was not paid commission. However, Lowe's evidence, which I accept, was to the effect that Jones gave the presentations and that Crawford merely organised the paper work.

Wass 743 NMLA appointed Wass as an agent on 1 or 2 March 1981. In August 1989 her company, later called "Anna Wass & Associates Pty Ltd", was appointed a corporate agent of NMLA, with Wass as its accredited representative. NMAM appointed Wass as an authorised representative on 17 November 1989, that date being the date of her proper authority. 744 Wass's affidavit was not read and she did not testify orally. From 1981 to 1987 she worked as a NMLA agent in NM's office at Bondi Junction. From 1987 her agency was located at NM's Dee Why office, and from September 1990 at the Bridgepoint Division. She was a NMLA agent in her own right, independent of Jones. 745 Jones introduced Wass to the Package and she sat in on several presentations by Kelly. In mid 1989 she invested in the Package. She was not confident in presenting the Package and therefore sought detailed advice from Jones, both before and after presenting it. Her recommendations to clients were based on figures given to her by Jones. Jones, Kelly, Roberts or Blee gave most of the presentations to her clients. Hacopian and then Crawford processed the paper work for her clients, and she paid a portion of her NMAM commission to Jones for such clerical and administrative services. The proportion of the NM commission Wass received ranged from 25 per cent to 60 per cent, depending on the extent of her involvement. She shared NM commissions with Jones, Kelly, Roberts and Blee, while Kelly, who processed the applications at the Melbourne end, always received at least 20 per cent. 746 Wass was clearly not employed by DJC/Jones. Nor, in my opinion, was she an agent of DJC/Jones. Her company was an independent agent of NMLA and she herself was a representative of NMAM. She simply had a business arrangement with DJC/Jones under which she paid for services provided by DJC.

Buttars 747 Buttars was an Investor, though not one of the present 23. Buttars' affidavit was not read and he did not testify orally. He commenced as a trainee NMLA agent in the Manly Division on 4 April 1987 and soon became associated with Jones and appears to have worked from Jones' office in that Division. Jones encouraged NMLA agents to introduce their clients to him and arranged for Kelly to come to Sydney to explain the Package to those clients. At some stage Jones suggested Buttars work for him and manage his corporate clients' superannuation funds, however, this does not appear to have eventuated. After Blee moved to Sydney, Buttars "teamed up" with him for a short period until mid 1990. In late 1990, Buttars decided to leave Jones' Manly office and move to the new Bridgepoint Division in Mosman. On that occasion Jones requested Buttars pay $700 towards rent. Buttars was the only agent required to make such a payment, the reason given by Jones being that other agents introduced business to him, whereas Buttars did not. 748 By this stage, Buttars had become concerned as to the viability of the Package and the manner in which Jones promoted it. When Jones' office moved to Bridgepoint in the first quarter of 1991, Buttars transferred the files of his clients who had invested in accordance with the Package to Blee. Buttars does not seem to have been otherwise associated with Jones' office at Bridgepoint. Hacopian testified that Buttars worked in conjunction with Jones but did not share Jones' premises, however, Hacopian did not identify the time or period of which he was speaking. 749 There is not in evidence any letter of appointment of Buttars as a NMLA agent. There is no evidence that NMAM ever appointed him as a representative.

Roberts 750 Roberts was appointed as an agent of NMLA in 1985. He opened his "own agency at the Dee Why sub-branch of the Manly office". At that time he was supervised by Russell Galt, then the Manager of the Manly Division of NM. On 2 June 1987 his company, Folborn Pty Ltd, was appointed as a corporate agent and he was its accredited representative. On 10 May 1990 Roberts was appointed a representative of the licensed dealer, NMAM. Roberts said he moved from the Dee Why sub-branch of NM's Manly office to Bridgepoint in 1990. Once Jones followed to Bridgepoint in 1991, Roberts worked from his office there, but still had his own clients. 751 There is conflicting evidence in relation to the commission Roberts earned in respect of the Package. According to his affidavit, he was paid commission by either Jones or Kelly out of the commissions they earned. Crawford said that Roberts paid the commissions he earned to DJC and that subsequently DJC paid Roberts. In oral testimony Roberts stated that from time to time he shared commissions with Jones and that otherwise he was financially independent of Jones. Roberts explained his relationship with Jones as follows: "Q. The structure of the Bridgepoint division for National Mutual was that the agents, such as Dennis Jones and yourself, reported to Russell Galt, who was the agency manager; is that right? A. Correct. Q. In the line of authority, you were not in in [sic-any] way subordinate to Dennis Jones; is that so? A. No, I would have been subordinate to Dennis Jones, because I worked out of his office, and basically I, more or less, was very junior in terms of experience to him, and he was, you know, it was his office and I was working out of it ,and that was basically the end of the story. Q. He paid the rent for the office, did he? A. Yes. Q. Were you required in some way to be answerable to Dennis Jones? A. Well, yeah. Q. Who told you that? A. It was implied. I was working out of his office and he would ask me to do things and I would do them for him, and whatever it happened to be, so it was that sort of relationship." 752 According to Hacopian, Roberts ran his own agency and register, but worked in conjunction with Jones and was part of his "team". I find that Roberts was an independent NM agent who was not employed by DJC/Jones, but who had close ties with DJC/Jones.

Did Kelly make the statements complained of as representative of or for or on behalf of Citibank? 753 I turn now to the critical question whether Kelly made the statements complained of as representative of, or for or on behalf of, Citibank. In my opinion, he did not. In my opinion, the scope of class of statements Kelly was authorised to make by his appointment on 3 April 1989 as agent of Citibank to promote and sell Mortgage Power, did not include two of the three classes of representations constituting the Negative Gearing Package Representations as defined in the Pleading. While representations about Mortgage Power were within that class or scope, representations about NM investment products and about the Package were not. 754 Several considerations lead me to this conclusion. 755 (1) The background to Kelly's appointment is important. He was already making statements of the kind complained of as representative of, and for and on behalf of NM, in his implementation of the NMAM negative gearing arrangement. There is no suggestion that his transformation from the status of introducer to that of agent affected his behaviour vis-ŕ-vis prospective investors in the slightest degree. In these circumstances, there is simply no reason to attribute such statements, that is, those relating to the NM investment products and the Negative Gearing Package, to the newly created agency for Citibank and every reason not to do so. I will elaborate on this in what follows. 756 At the outset it should be noted that the present case is not one: · of an appointment by NM and Citibank acting jointly; · of separate appointments arising from any kind of joint enterprise or agreement, arrangement or understanding of NM and Citibank; · of separate appointments independent of each other but simultaneous and therefore responsible for the commencement of the marketing of the Package. 757 LKFM was a NMLA agent and Kelly a NMAM representative who had been introducing their clients to Citibank as a source of finance. At that time, Kelly was not an agent of Citibank, notwithstanding his possession of Citibank stationery, including Mortgage Finance Proposal forms, that he had his clients fill in and sign, or that he himself filled in and had them sign, and even if Citibank had paid him an "introducer's fee" or "introducer's commission", this would have made no difference: cf Branwhite; Custom Credit v Lynch. At that time too, Kelly was already in a position to make, indeed strongly encouraged by NM (see Chapter 11) to make, the representations about NM products and about the Package, that is, the representations of which the Investors were to complain. 758 The borrowing of money is not an end in itself but a means to an end - a tool. This partly explains why mere introducers of prospective borrowers were able to do the things they did in Branwhite and Custom Credit v Lynch without becoming the agents of the finance companies in question. 759 When Citibank appointed Kelly as an agent, he passed from the category of mere introducer to that of agent, but the commercial reality underlying the relationship between him and Citibank did not change. He continued to make statements to prospective investors of precisely the same kind as he had made previously. Investment in NM units by borrowing 80 per cent of the price from NM remained the ultimate objective to be achieved; the borrowing from Citibank was merely an aid to achieving that end. 760 I think that the class or scope of statements the agency to sell Mortgage Power authorised was commensurately small. The agency that "drove" or "energised" the promotion of the Package was, and was known to all to be, the agency for NMAM. The statements about NMAM investment products and the Package were attributable to that agency. The class or scope of statements authorised by the agency agreement of 3 April 1989 was, I think, limited to statements about the merits of Mortgage Power and the aptness of the features of that product for any use proposed. 761 (2) As observed earlier, Kelly was not "put [by Citibank] in a position to do the class of acts complained of" (Colonial at 46, per Gavan Duffy CJ and Starke J). That Kelly was already in a position to make the statements complained of, that is, to make representations about, and to recommend, NM investment products and the Negative Gearing Package is indicated by what he said to Investor Quaife, whose application for the Mortgage Power facility pre-dated 3 April 1989 and was therefore submitted to Citibank under the "LJ Hooker Cheltenham" agency. According to Quaife's affidavit, Kelly said the following things to him (in the following sequence, although in the course of several meetings at Kelly's office): "Where do you want to be in five years time? Do you see yourself working yourself into the ground for the rest of your life?" "This is a sure fire way to make money. You cannot lose. Property investment has always performed well and with units in the National Mutual Australian Property Trust No. 1, you have all the advantages of property investment without the disadvantages. You will not have any cost associated with maintenance of property." "You should refinance your mortgage from National Mutual Royal to obtain a Citibank loan. The Citibank loan will give you a line of credit of about $100,000.00. It will give you a flexibility which you do not currently have." "We also highly recommend that you take out two life policies with National Mutual so that you are properly protected." "These policies won't cost you anything because you can use the Citibank loan to pay the premiums in the first year and then borrow back against the policies to pay the following year's premiums." "The Citibank loan is used to purchase units in the property trust. The property trust will increase in value over time and will provide dividends every three months. Using the property trust as security you can borrow more money from National Mutual to purchase further units in the property trust. Combined with the National Mutual life policies at the end of a five to ten year period the scheme will allow you to pay of [sic - off] your mortgage in its entirety and give you a lump sum in addition." "You can borrow back against the life insurance policies to pay the following year's premium." "Investment in the property trust is better than investing in direct property as there is no maintenance involved. In five years you can realise the value of the Property trust and the policies and pay off the house and have an additional amount in hand. The statistics show that you cannot lose when you invest in property and in particular the property trust. There is no better investment that property." "The property trusts [sic] and the investment scheme is [sic] a completely risk free investment." In the witness box, Quaife also confirmed that Kelly said "If this all goes down the tube - I'll pay your house off" and "Don't worry about interest rates". 762 (3) Kelly's Citibank agency created by the agreement of 3 April 1989 should not readily be understood to authorise a scope or class of statements already authorised by NM, in relation to the subject matter of which NM had specialist knowledge but Citibank had no knowledge. NM was in a position to control its agents, LKFM and Kelly, in relation to what they might say about the NM units and the Package. It is difficult to think that the agreement of 3 April 1989 was intended to put Citibank also in a position to control what they might say in respect of the NM units and the Package, with the possibility of conflict that might arise. 763 (4) As at 3 April 1989, it was known to Citibank and LKFM/Kelly that LKFM/Kelly were already subject to agency duties to NM. They and Citibank should not be taken to have intended that the new agency be of a scope so wide as to permit a conflict between their agency duties owed to NM and their role as agents for Citibank. They did not positively undertake to promote the sale of Citibank products at all but the agreement of 3 April 1989 applied to the extent to which they chose to do so. The parties' understanding must be taken to have been that the scope or class of statements LKFM/Kelly were authorised to make in promoting and selling Mortgage Power was of a very limited kind so as to be consistent with, and not to detract from, the performance of their duty to promote and sell NM products. 764 (5) Kelly was obviously a NM agent (see the "appearances" referred to in Chapter 5). Equally obviously, it was expected by him and Citibank that he would continue to purport to act as a representative of NM when selling NM units with the aid of Mortgage Power. 765 (6) It was in the course of an agency to sell Mortgage Power to state the advantages of that product, but banks are not in the business of giving investment, financial or taxation advice of the kind inherent in the Negative Gearing Package. Promoting the Package was a creative activity in the sense that the starting point was to identify the client's desires and objectives in life and the Adviser then extracted relevant information from the client and "explained" how the Package could be applied to the client's particular circumstances to enable those desires and objectives to be achieved and wealth created. This "creative" activity of financial planning and advice for individuals according to their particular circumstances was foreign to the role of a bank and to the promotion and selling of its forms of loan facility. 766 (7) The Advisers were agents of NM. One of them, LKFM, was also an agent of Citibank. NM permitted its agents to introduce their clients to Citibank as an incident of selling its (NM's) products. Although this was not a "hiring out" of their agents to Citibank to perform a particular task for it and therefore the analogy in imperfect, yet by analogy with the presumption usually made in relation to the "borrowed servant", I regard NM, not Citibank, as having the general right of control over the Advisers as to the manner in which they might promote and sell (cf Mersey Docks & Harbour Board v Coggins & Griffith (Liverpool) Ltd [1947] AC 1, and the discussion in Trindade and Cane at 719-723, Balkin and Davis at 744-745 and Fleming at 419-420). 767 (8) Mortgage Power was simple and easy to understand, and its attractions obvious. In substance it was simply an overdraft facility up to a stipulated limit secured by a registered first mortgage over residential real estate with interest at variable rates payable on the balance drawn down from time to time. It is not clear how its nature and its suitability for any particular purpose could easily be misrepresented. (In the present case, it was not misrepresented: Mortgage Power was truly a form of funding suitable to re-finance an existing first mortgage home loan and other debts and to fund the acquisition of initial units required for participation in a negative gearing arrangement, involving the acquisition of further units by means of a borrowing on the security of a mortgage over all the units.) It is not easy to accept that by authorising LKFM to sell such a straightforward product, Citibank was creating a general scope of authority encompassing statements about totally different and more complex products which Mortgage Power might be used to buy, but with which Citibank had no association or familiarity. 768 (9) Although Citibank's internal business system distinguished between introducers and agents, the fee payable to an agent ($175 per transaction, at least in the case of LKFM) was small, the work that introducers and agents did was similar (both introduced clients to Citibank and to Mortgage Power), and appointment as an agent does not seem to have been much sought after. So far as the evidence reveals, of all the introducers, only Kelly applied for appointment as an agent. The other Advisers seem to have been content to be remunerated by their share of NM commissions, without any commission from Citibank. It was probably only worthwhile for an introducer of high volume, such as Kelly, to seek appointment as an agent for the sake of the $175 commission per transaction, and only worthwhile for Citibank to seek to encourage an introducer of high volume by paying such a commission. These considerations are consistent with those mentioned in the last paragraph: Mortgage Power was a simple product, the selling of which did not require special training and was not highly rewarded. It should not readily be found that the course of an agency to promote and sell it was so wide as to include the promotion and selling of unrelated and more complex products, the promotion and selling of which required special training and attracted a much higher level of remuneration. 769 (10) Reasoning by analogy is sometimes illuminating. Assume that Kelly had been an agent of a motor car manufacturer to sell its motor cars and also an agent of Citibank to promote and sell Mortgage Power. Assume further that Citibank knew that Kelly was promoting and selling both together, making representations about the motor car, about Mortgage Power, and about the aptness of a Mortgage Power loan to facilitate acquisition of the motor car. Although not an impossibility, one would not readily infer that Citibank had given authority to make statements of a kind that included statements about the motor car (just as one would not readily infer that the manufacturer had given him authority to make statements of a kind that included statements about Mortgage Power). The more obvious understanding is that in making statements about the motor car, Kelly would be acting in the execution of his agency for the manufacturer, and in making statements about Mortgage Power, he would be acting in execution of his agency for Citibank. 770 I conclude that in making representations about the Trust, its underlying real estate, its past and future capital growth and income returns, the redemption of units, the Package generally and its suitability for the Investors, Kelly was making statements that fell outside the scope of class of statements he was authorised by the agreement of 3 April 1989, in the circumstances in which that agreement was entered into, to make as representative of and for and on behalf of Citibank. 771 If, contrary to my view, the other Advisers were also agents of Citibank for the promotion and sale of Mortgage Power, this conclusion applies to them also, that is, statements about NM insurance and investment products and about the Package lay outside the scope or class of statements they were authorised to make as representatives of, or for or on behalf of, Citibank.

Conclusion 772 Subject to later discussion, particularly in Chapters 5 and 6, of matters extraneous to the agency agreement of 3 April 1989 and its implications: (1) I do not think that the statements of the Advisers other than LKFM/Kelly had the potential to render Citibank vicariously liable to the Investors, because those Advisers were not authorised by Citibank to represent it or to act for it or on its behalf in selling Mortgage Power, but were mere introducers of business; (2) I do not think that the statements of LKFM/Kelly, of which complaint is made, rendered Citibank vicariously liable to the Investors, because those statements did not fall within the class or scope of statements Citibank authorised LKFM to make as its representative or for it or on its behalf, by its appointment of LKFM as its agent on 3 April 1989; (3) If (1) is wrong, (2) applies, with necessary adjustments, in respect of those other Advisers as well as in respect of LKFM/Kelly.

CHAPTER 4 PERSONAL (OR DIRECT) LIABILITY OF CITIBANK TO THE INVESTORS THROUGH FAILURE TO PERFORM NON-DELEGABLE DUTY

Introduction 773 NM pleads that Citibank incurred direct liability to the Investors based on: · Mortgage Power's being a "dangerous product" for the Investors in view of their personal and financial circumstances and the context in which it was promoted and sold to them; · an assumption of responsibility by Citibank to the Investors; · a duty on Citibank to take positive measures in the interests of and for the protection of the Investors; and · a failure by Citibank to take those measures. 774 I conclude below that Citibank did not incur direct liability to the Investors. Before explaining why, I will outline NM's submissions in support of the opposite result and certain evidence on which it relies.

Outline of NM's submissions relating to direct liability 775 NM submits that Citibank owed a duty in tort directly to the Investors to take reasonable care to ensure that: "(a) the Citibank investors understood the risks associated with the Mortgage Power loan; (b) the Citibank investors were able properly to consider whether the Mortgage Power loan was suitable to them; (c) proper supervision was conducted over the conduct of Kelly and the other advisers so that they did not make false representations to the Citibank investors, or promote Mortgage Power for purposes inappropriate to the Citibank investors; or promote it without a full explanation of the risks; and (d) the investor had the capacity to service interest and principal on the Citibank loan." NM characterises this part of its case as one of negligent conduct causing economic loss. 776 According to NM's submission, a duty of care arose because there was reasonable foreseeability of loss combined with a relationship of proximity between Citibank and the Investors. NM submits: "In the present case, the factors which create proximity, or make the relationship so close that a duty of care arises, can be summarised under four heads: (a) Citibank made available to these Investors a dangerous product; (b) For use in a dangerous scheme; (c) Through an unrestrained agent; (d) Knowing that the protections stipulated for the Investors were set at naught." 777 NM makes separate submissions under these four heads in relation to the pre-1 January 1991 Investors and the later ones. The difference is that capacity testing was introduced on that date. 778 In relation to the pre-1 January 1991 Investors, NM submits in the following terms that Mortgage Power was a "dangerous product": "The Mortgage Power product offered by Citibank to these investors was a dangerous product because: (a) Citibank was offering its Mortgage Power loan to persons who at the time had usually only a small mortgage debt over their home both absolutely and relative to the value of the home; these persons were well on the way to paying off the loan and were able to service their existing principal plus interest commitments on the home loan; (b) the borrowers, by reference to their stated occupations, were not high net worth individuals and were not apparently financially sophisticated investors. They included drivers, labourers, mechanics, teachers, secretaries, etc; (c) the Mortgage Power facility gave these persons the ability to write cheques for up to 80% (or similar figure) of the value of the home without any further approval process by Citibank and for any purpose; (d) interest rates at the time were at historically high levels and interest payable on the facility, if drawn to at or near the full level, would be very high; (e) Citibank made available Mortgage Power without requiring any information about the income and expenses of the borrowers and did not require information about their assets or liabilities (other than for the security property); (f) The Mortgage Power product did not involve any capacity test on the borrowers and thus Citibank had no means of knowing whether the borrowers had the ability to service the loan, either on the initial drawdowns or if the borrower drew down to a level at or near the full extent of the facility; (g) In many cases, just the occupations of the borrowers and the limit of the facility and initial interest rate would suggest a probable lack of capacity to service the facility limit offered; (h) Mortgage Power allowed the borrower to capitalise interest payments through use of the facility (even if this was done indirectly); by this means the borrower might use up the full limit of the facility and then be unable to meet interest commitments and to [sic] go into default; (i) although Citibank sold the Mortgage Power product on the basis that the facility need never be repaid absent default ( … ), buried in the loan terms was an option to Citibank to reduce the limit at 12 month intervals based on Citibank's (undefined) credit assessment criteria; (j) Citibank held itself out to the public and to the potential borrowers as being a reputable and responsible lender, and as having expert knowledge and expertise in the field of lending to private investors whose only substantial asset was their home; (k) the persons within Citibank deciding whether to make the advances (ie the CPU) did not have the benefit of a face to face interview with any of the borrowers and had no way of knowing whether the borrowers understood any of the risks associated with the product. Nor did the Citibank sales staff in Melbourne ever meet the borrowers. The only persons with the opportunity of the face to face meeting were Kelly and the other introducers of Citibank, but they were not required to provide any report to the CSU or the CPU on whether the borrowers understood the risks of the product; (l) The Mortgage Power product was also dangerous in the sense that it was a novel product quite different in terms and effect to the existing available home mortgage products. The ordinary practice of banks at the time was to lend moneys against the security of the home for the purpose of purchase, construction or improvement of the home; on a principal and interest basis with a set programme of repayments; after the bank had obtained detailed financial information from a customer and made an assessment that the customer could afford to meet the repayments which would result in the loan being amortised over a definite period; with the bank manager having the benefit of a face to face interview with the customer allowing an assessment whether a customer understood the loan; and with the customer having the documents explained by, and signing them before, the bank manager. Mortgage Power did not have these restrictions." 779 NM submits that Mortgage Power was used in a "dangerous scheme" because Citibank knew, through its CSU and CPU, that Mortgage Power was being promoted by the Advisers in conjunction with NM products, including units in the Trust and insurance policies, as part of "a complex and sophisticated, long term negative gearing scheme." NM refers to the "working inter-relationship" between Mortgage Power and the NM products, that is, the fact that the returns from the units were to be paid into the Mortgage Power bank account and expenses paid from that account, and the fact that "the negative element of the scheme would or could be met by capitalisation of interest under the Citibank facility." According to NM, the inter-relationship carried the following: "specific risks to the borrower over and above those which would arise under a normal principal and interest home loan, or even under a normal Mortgage Power facility not used for such a scheme: (a) The risk that, even if interest rates and income returns from the Property Trust remained the same, the negative element of the scheme would be too great for the borrower to service, causing the borrower to default and lose the home; (b) The risk that if the negative element in the scheme was serviced through capitalisation of interest under the Mortgage Power facility, over time the full facility would become exhausted and the borrower unable to pay interest from other sources, thus going into default and losing the home; (c) The risk that, if interest rates increased or property returns decreased, the negative element in the scheme would increase even further exacerbating the above risks; (d) The risk that, if property values fell, capital returns from the trusts would also decrease, meaning that the negative element of the scheme could not be reversed, over time leading to overall loss; (e) The extent of the gearing in the scheme magnified the potential for losses to occur." 780 NM submits that the danger was exacerbated in an environment in which, as Citibank knew as at about September 1989, "tough economic times" lay ahead; the property market had peaked some time previously in March 1989; the delinquency rate on Mortgage Power loans had risen over a year from about 1.5 per cent to 5.5 per cent; historically high interest rates were likely to continue; and Citibank's Mortgage Power "book" had more than doubled over the preceding year. 781 In relation to Kelly's being an "unrestrained agent", NM submits as follows: "Citibank knew and encouraged Kelly in the following course of conduct: (a) He would assume a role of financial adviser to the client for reward from Citibank and National Mutual in relation to the plan he was putting to the client which involved the use of the Mortgage Power product and National Mutual products as a working negatively geared package; (b) He would promote the virtues of the Mortgage Power product and the package as a whole; (c) He would not provide any warnings to the customer about the risks involved in using the Mortgage Power product as part of the package; (d) He would make predictions about substantial profits that would be made by the customer through the use of the package, which would depend in part upon fixed percentage returns projected from the Property Trust; (e) He would promote the package in a way where the customer would be unlikely to understand all of the elements of the working of the plan but would be left with the impression that a very great profit could be assured; (f) No attempts would be made to give any directions to Kelly about his sales presentation, to require him to include warnings, to require him to dissociate Citibank from his plan or to require him to inform the customers of knowledge Citibank had about worsening economic conditions." 782 In relation to the submission that "the protections stipulated for the Investors were set at naught", NM submits that in a context in which only the introducer, and no one from Citibank, ever met the borrower, the Citibank procedure requiring that a borrower's acknowledgment be executed assumed particular importance. Yet the form of borrower's acknowledgment was not properly executed. It points to testimony that the CPU in Sydney (Horsfield and Moses) would not have approved a loan if it had been known that the borrower did not have a solicitor acting (as distinct from the non-solicitor, Van Minnen). Moreover, according to the submission, Citibank's Settlements Department in Melbourne (Herron, Barbour and, NM submits it should be found, Gregorio) would not have allowed the loans to settle if it had known this fact, and its CSU in Melbourne (especially Stewart, Hawkins (Durnan), Dyring and Padgham) knew, but did not reveal, this information to the CPU or to the Settlements Department. 783 As from 1 January 1991, Citibank applied capacity testing: a year's interest at current Citibank interest rates on a Mortgage Power loan fully drawn was not to exceed 30 per cent (later, 33 per cent) of the gross income of the borrower and his or her spouse. NM submits in relation to the capacity testing: "This test did not enable Citibank properly to assess whether the borrower could afford the loan because: (a) Citibank did not take into account specifically the non-Citibank liabilities of the borrower; (b) The 30% (or 33%) figure was arbitrary; (c) The test did not take into account the negative element of the scheme." 784 Accordingly, NM submits that Mortgage Power remained a "dangerous product" for the post-1 January 1991 Investors and it repeats its "dangerous scheme", "dangerous agent" and "protections set at naught" submissions in relation to those Investors. 785 Passing from the question of the existence of a duty of care, NM submits that breach of duty is "virtually self-evident" from an examination of the facts of the cases of the 23 Investors. In view of my conclusion that Citibank did not owe the Investors the duty contended for, I am not called upon to address the question of breach. But it seems appropriate to record that if, contrary to my view, Citibank owed the duty formulated by NM, the evidence established a breach in the case of many, if not all, of the 23 Investors. In relation to the seventeen pre-1 January 1991 Investors, there was a lack of effective capacity testing. In relation to the post-1 January 1991 borrowers, NM submits that the 30 per cent "rough and ready" capacity test was inadequate to test a borrower's capacity to service the loan. Again, although I need not explore this submission, it seems appropriate to record my impression that NM's submission has substance in relation to at least some of the six post-1 January 1991 Investors. 786 In relation to causation of loss and damage, NM makes the same submissions as it makes on its case that Citibank incurred vicarious liability. Again, I need not deal with these submissions.

Concessions by Citibank officers 787 I am not concerned here with the duty of care which Citibank undoubtedly owed to the Investors not to misrepresent Mortgage Power itself, by, for example, issuing misleading documents in relation to the characteristics of Mortgage Power for distribution to prospective borrowers. NM does not suggest that Citibank or, indeed any of the Advisers, misrepresented Mortgage Power. 788 It was in the interests of Citibank as well as of its customers that they should be able to service their loans. It was not in Citibank's interest that it should have to sell its customers' homes. 789 In cross-examination, various Citibank officers made concessions to the general effect that more should have been done by Citibank to ensure that Mortgage Power was suitable for the Investors, having regard to their levels of income and other circumstances. Similarly, they agreed that they would not have wanted to "lend a customer into trouble". There is, in fact, a considerable body of evidence, including expert evidence, tending to show that Citibank did not behave as a prudent banker would be expected to behave in its own interests prior to the introduction of capacity testing on 1 January 1991, and, perhaps, afterwards as well. Several of the Citibank officers had been employed by other banks where they had been involved in conventional home mortgage lending, which required fixed payments of principal and interest and was therefore of a limited lifetime. In cross-examination, those officers agreed that there was a practice at those other banks of checking the borrower's capacity to pay before the loan was made. The contrast between such home loans and Mortgage Power, particularly before the introduction of capacity testing, is obvious. At least one of the Citibank officers, Fiedler, expressed concern at the time to his superior in the CPU, Horsfield: he said he thought Mortgage Power loans were being made too readily and in the interests of the earning of commissions by Citibank's area managers in the Melbourne branch. 790 But Citibank's and its customers' respective self interests were at one in relation to the capacity to service the facility. I do not find acceptance by a Citibank officer that Citibank should have been more prudent or should not have lent clients into trouble, or expert evidence to the same effect, of great assistance on the issue whether Citibank owed the Investors the actionable duty of care propounded by NM.

The expert evidence and my conclusions in relation to it 791 NM relies in part on expert evidence to establish the first two of the four factors, identified above, as contributing to the creation of a relationship of proximity between Citibank and the Investors, that is, that Mortgage Power was a dangerous product which was marketed as part of a dangerous scheme. The existence of a duty of care is ultimately a matter for the Court. In my opinion the expert evidence did not establish the two factors mentioned and, with respect, was not particularly helpful. 792 NM led evidence from Geoffrey Brothers, a former manager with Westpac Banking Corporation who had a wealth of experience in loans management, including experience as the "Chief Manager in the Loans Management Division/Head of Group Loans Management, Credit Policy and Control Division" from 1988 to 1991 and as "Chief Manager, Credit and Lending, Credit Policy and Control Division" from 1991 to 1993. Mr Brothers agreed that Mortgage Power was not of itselfa "dangerous product": "Q. You weren't suggesting that it [Mortgage Power] is, per se, a dangerous product at all? A. Absolutely not. Q. Indeed if it was, it would be quite a lot of people who were offered this dangerous product,… A. There is nothing wrong with the product." In fact, the Mortgage Power kind of product (cheque account financial accommodation up to a limit secured by a first mortgage over a home) became generally available from banks from about 1990 onwards. 793 Mr Brothers stated in his affidavit: "…the availability of the Mortgage Power facility enabled borrowers to invest in a fashion that allowed them to accumulate debt to the level they could not otherwise have afforded to service or to conveniently repay. However, when the time came, or the need arose, to liquidate the Property Trust investment there was no certainty that the resulting proceeds would cover the investment-related associated debts. The potential for substantial loss by the borrower was very real and clearly foreseeable." In this passage Mr Brothers' testimony moves from a concern with the Mortgage Power product in general to a concern with the Package. 794 I do not find Mr Brothers' evidence probative on the issue whether Citibank owed the Investors an actionable duty of care, discharge of which required it to give them the Warnings or the Written Explanation. Moreover, his testimony is based on a series of assumptions as to Citibank's knowledge of the details of the Package. Mr Brothers conceded that the making of inquiries directed to the obtaining of such knowledge was irrelevant to the lending decision itself: "Q. You wouldn't have been pleased with it, would you, if someone had started to do it [a practice of inquiring into, and advising customers about, the use to which moneys borrowed from the bank were to be put] to your knowledge while you were there in Westpac, would you? A. I would consider that there would be no particular need for it, given that the credit approver was in possession of adequate information on which to make the credit decision, that is, the given is the fact that the house covers the proposed debt, unless he knows something about the proposed borrower's financial position and his earning power. Q. I mean, if a lady comes along for an Equity Access [a Westpac credit line facility similar to Mortgage Power] mortgage in Westpac, he [sic - she] can do what he [sic - she] likes with the money, can't he [sic - she]? A. Yes. Q. And if he [sic - she] proposes to put it into a particular investment scheme and begins to disclose the whole details of that scheme, show[s] you the prospectus that she was given by the investment adviser and tells you what he [sic - she] was told by the investment adviser about the desirability of the investment, well, that's foreign information, isn't it, to the lending decision? A. Yes. Q. And the banker would tend to say, 'I don't want to know that', wouldn't he, the bank officer? A. True. Q. And if he didn't, that would be contrary to good banking practice, as you well understand it? A. Yes." (In fact, Mr Brothers was not familiar with "Equity Access", Westpac's equivalent to Mortgage Power, and based his evidence on an assumption, the effect of which was that the two were relevantly similar.) Mr Brothers' evidence in the above passage accords with the following affidavit testimony of Professor Harper, Professorial Fellow at the Melbourne Business School of the University of Melbourne, an expert witness called by Citibank: "If a bank is satisfied that a client can meet repayments of principal and interest and that, in extremis, it can recover its debt through sale of assets held as security, then it has no further interest in the purpose for which the funds have been borrowed." 795 Most importantly, NM's expert evidence on the expected behaviour of a prudent bank focused on the duty it owed to its own shareholders and creditors, not its borrowers, as is shown by the following excerpt from Mr Brothers' cross-examination: "Q. He [the lending officer] wouldn't be necessarily concerned about the wisdom of the investment from the point of view of the customer, but he might be concerned about the implications this had for the ability of the customer, the borrower, to repay the bank? A. The issue could arise. Q. And, of course, if there were assets and liabilities sought by the lender, then he would want to know about not only the existing liabilities, but the ones that were about to go into place following the making of that advance? A. Yes. He would inquire for completeness what it would look like after this transaction, if he approved it. Q. If possessed of this information, he would want to know more than the existing assets and liabilities of the customer. He would want to know about his future assets and liabilities after this investment was put in place, wouldn't he? A. Yes. Q. And indeed, his future incomings and outgoings as well? A. Probably. Q. And that is not for the protection of the customer; that is for the protection of the banker? A. Principally the banker's protection. Q. He would be in breach of his duty to his bank if he knew that there was a major new liability coming onto the scene, and he didn't ask about what it was going to cost to service that liability, and so on; isn't that right? A. If it appeared to be relevant to the servicing, and what have you, yes. Q. The ability to service the very loan that you were then considering making? A.Yes." (my emphasis) Mr Brothers agreed that a bank's prudent lending officer would have sought "completeness of financial information" "for the bank's purposes only", but not information as to what the borrower was going to do with the money borrowed, such as the detail of any investment he or she was proposing to make. 796 There was expert evidence as to how a prudent financial adviser should have behaved in relation to the Investors. For example, Peter Dunn, one of the assessors engaged by NM in relation to settlement with the Investors, and a financial planner and consultant with Moneyplan Australia (MP) Pty Ltd, testified that a prudent adviser would not have recommended Mortgage Power to the Investors: "In particular, the use of a line of credit loan, such as the Citibank Mortgage Power loan, to fund the initial expenses (including the initial purchase of units) and the ongoing interest costs of a negative gearing scheme like the present was something a prudent adviser would have recommended against. This is because[:] (a) it allowed the investor to capitalise interest and so substantially increase their debt (which was already high because of the associated borrowing from National Mutual); (b) the investors generally had no experience with these types of loans which are fundamentally different from a fixed amount, fixed repayment type loan such as a home loan[;] (c) as there were are [sic] no set repayment requirements, other than the monthly interest payment, and no restriction on the amount purpose or timing of further drawdowns of the available credit, there was a real risk that such unsophisticated investors would rapidly deplete the available credit limit and place themselves at risk of not being able to meet the ongoing costs of the scheme." (my emphasis) 797 But evidence of this kind is relevant only to the question of a duty owed by "a prudent adviser". Mr Dunn's evidence would be relevant if Citibank itself assumed that role, but I find that it did not do so. Kelly and other Advisers did, but that is another matter (see below). 798 The expert evidence does not assist me to conclude that Citibank, as a bank providing the Mortgage Power facility, owed to the Investors the non-delegable duty propounded by NM.

General 799 NM and Citibank made detailed submissions in relation to the legal issue whether, generally, a bank owes a duty of care to a customer or prospective customer in respect of an application for financial accommodation. Citibank referred to numerous textbooks and decided cases in support of the following propositions: · that unless the bank has undertaken the role of financial adviser, the banker-customer relationship is ordinarily an arm's length commercial relationship in and about which the bank is at liberty to serve its own interests; · that a bank does not owe a duty of care to protect its borrower against risk-taking; · that a bank does not owe a duty of care by analogy with the duty owed in respect of things dangerous in themselves. 800 Citibank referred to the following texts: Cranston, Principles of Banking Law (1997) at 237, 238; Corpus Juris Secundum, vol 9, "Banks and Banking" paras 248, 459; P E Smart, Chorley & Smart - Leading Cases in the Law of Banking (5th ed) at 211; J Milnes Holden, The Law and Practice of Banking (4th ed) para 2-15A; Sir Peter Cresswell et al (eds), Encyclopaedia of Banking Law, (1992) vol 1 at C35; Paget's Law of Banking (11th ed) at 129-130; E P Ellinger and E Lomnicka, Modern Banking Law (1994) at 127-129. 801 The chief cases on which Citibank relied (several of them concerned foreign currency loans) were as follows: Williams & Glyn's Bank Ltd v Barnes [1981] Com LR 205 (Gibson J); David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1 (FCA/FC) esp at 21-23; Kullack v Australia & New Zealand Banking Group Ltd (1988) ATPR 40-861 (FCA/Pincus J) at 49,310; Ralik Pty Ltd v Commonwealth Bank of Australia (Supreme Court of NSW, Cole J, 14 August 1990, unreported at 97-99); Cappers Holdings Pty Ltd v Deutsche Capital Markets Australia Ltd (Supreme Court of NSW, Staff AJ, 12 August 1991, unreported at 5-6); Truebit Pty Ltd v Westpac Banking Corporation (FCA, Branson J, 27 November 1997, unreported at 31-32); Mehta v Commonwealth Bank of Australia (Supreme Court of NSW, Rogers CJ Com Div, 7 June 1990, unreported at 48; and on appeal at (1991) 23 NSWLR 84 (CA)); Australia & New Zealand Banking Group Ltd v Clenae Pty Limited (Supreme Court of Vic, Mandie J, 9 October 1997, unreported at 68-69); ANZ Banking Group Ltd v Dunstan's Hotel (Supreme Court of Vic, Hedigan J, 17 October 1995, unreported at 19-27); Commonwealth Bank of Australia v Finding (Supreme Court of Qld, De Jersey CJ, 23 April 1998, unreported at 10-12); Potts v Westpac Banking Corporation [1993] 1 Qd R 135 (FC) at 138 (Macrossan CJ, dissenting); Commonwealth Bank of Australia v Gatto (Supreme Court of Vic, Beach J, 9 August 1996, unreported at 23-24). 802 To these cases may be added Banbury v Bank of Montreal [1918] AC 626 (HL) at 654-655 per Lord Finlay; Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 (FCA/FC) at 476; Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 (CA) at 276G (Meagher JA); and Lenin v Australian Bank Ltd (Supreme Court of NSW, Cole J, 21 June 1991, unreported). 803 NM does not challenge the well established propositions, recognised in the many texts and cases referred to above, that ordinarily the relationship between a bank and its customer is contractual and that there is no warrant for recognising a general duty of care arising from the relationship: both parties referred to my judgment in Radin v Commonwealth Bank of Australia (FCA, Lindgren J, 23 October 1998, unreported at 34). But NM also submits, and I accept, that this general position does not preclude the recognition of a duty of care in special circumstances, in particular, where a bank has undertaken the role of financial adviser; cf Commonwealth Bank of Australia v Smith, above at 475-476. NM submits that in this case Citibank itself, through Kelly, assumed that role. 804 I do not accept the submission. Kelly was not the mind and will of Citibank. He was not an officer or employee of Citibank or part of the Citibank structure or organisation. He did not operate from within a Citibank office. He operated as a NM agent from his own office. 805 There is no ground for concluding from anything that Kelly, a fortiori the other Advisers, said or did, that Citibank itself assumed the role of financial adviser. A finding that when Kelly gave financial planning advice he was acting in the course of the execution of his (more accurately LKFM's) agency from Citibank would provide a basis for a finding of vicarious liability, not direct liability. 806 The Mortgage Power product was not dangerous in itself. Its features of borrowings by drawdowns, effected by the customer at times, in amounts and for purposes determined by the customer, does not suggest danger. Nor does the fact that interest was payable on the amounts which the customer might choose to draw down in this way. Nor is there anything alarming in the possibility that the rate of interest payable from time to time might vary upwards or downwards: the Investors were familiar with this phenomenon by reason of their experience as home loan borrowers. 807 Any danger for the borrower lay outside the inherent nature of Mortgage Power and in one or more of the following elements taken alone or in combination: the borrower's personal and financial circumstances; the possibility that the NM units would not increase in value sufficiently or quickly enough; the possibility that the borrower might capitalise interest or do so excessively, by drawing on the Mortgage Power facility to service the loan from NM or the loan from Citibank or both. Ordinarily, one would think that as between Citibank and its customer, the risk would be borne by the customer. 808 Except in the case of the Investors who were caught by the moratorium on redemptions, if a borrower could not afford the interest commitment to NM and Citibank, either from the outset or after that commitment had increased because of the progressive capitalisation of interest, he or she had a choice. The Investor could have the units redeemed. On the other hand, he or she could retain them in the hope that they would increase in value sufficiently and rapidly enough to enable any problem to be overcome so that a profit would still result. The important point for present purposes is that, right from the beginning, every time the borrower drew on the Mortgage Power to fund interest rather than request a redemption, he or she was making a commercial decision which involved risk-taking. This consideration again supports the view that Mortgage Power was not inherently dangerous for the Investors.

Dorrough v Bank of Melbourne Ltd (1995) 8 ANZ Insurance Cases 76,233 809 Citibank refers to Dorrough v Bank of Melbourne Ltd (1995) 8 ANZ Insurance Cases 76,233. In that case Cooper J rejected an argument having some similarity to that put by NM. At issue, however, was not the liability of a bank to investors who borrowed from it but that of an insurer, in fact NMLA, whose role is described below. 810 Mr and Mrs Dorrough sued the Bank of Melbourne for damages for, inter alia, misleading and deceptive conduct in relation to a loan by the Bank and the investment of the loan monies in accordance with a scheme. The Bank cross-claimed against NMLA as an insurer involved in the scheme and the promoter of the scheme, Byrne, asserting a right to indemnity or contribution. The relevant issue before Cooper J was whether paragraphs of the Bank's cross-claim asserting a duty on the part of NMLA to warn the investors of certain risks should be struck out, or the proceeding, in so far as it was based on those paragraphs, stayed. 811 Byrne was an insurance agent and financial adviser. His scheme involved an investor borrowing $100,000 from the Bank and depositing it in a common pool under Byrne's management. Byrne purchased approximately fifty "Pure Endowment Policies of Insurance" issued by NMLA and on-sold them for a profit. On depositing the $100,000 in the common fund, the investor would receive by way of security an unencumbered insurance policy as security. The Bank would take a deed of defeasance over the policy as security for its loan of $100,000 to the investor. 812 The Dorroughs pleaded that the Bank represented that if they accepted its offer of the loan, it would not pay any money to a third party if the security (the insurance policy) was encumbered in any way or any money was outstanding and unpaid in relation to it. The Dorroughs pleaded that they sought the Bank's advice as to the commercial risk involved in accepting the loan and investing in the scheme, and that a bank manager told them that he knew all about the investment scheme; that he was happy to accept the policies offered as security for the loan; and that there was no risk as the policies could always be cashed in to recover the money. The Dorroughs pleaded that in reliance on the representations pleaded they accepted the loan and instructed the Bank to proceed in accordance with the contract of loan. The pleading alleged that the Bank's representations were misleading and were negligently made because the manager knew that the investment was unusual, risky and highly speculative, and that there was a real risk that the Dorroughs would lose some or all of their money. 813 Mr and Mrs Dorrough alleged that in breach of the loan contract, the Bank paid more than $200,000 to Byrne's company when the insurance policies provided as security were registered in that company's name and not in their own names, and were encumbered by that company to NMLA as security for the company's indebtedness to NMLA of some $142,000. 814 The Dorroughs also pleaded inducement and causation of loss. 815 The circumstances pleaded by the Bank as giving rise to a duty on the part of NMLA to warn were as follows: · that NMLA was aware that the sales presentations depicted the cash (or surrender) value of the polices and encouraged the short term surrender of policies; · that NMLA introduced new terms that required proposals to be accompanied by a copy of the sales illustration signed by the prospective policy owner and a "Letter of Comfort" also signed by him or her, or his or her accountant, acknowledging that the risks associated with the policy had been made clear; · that having become aware of the potential of a widespread misuse of sales presentations to depict enhanced or accelerated surrender values, NMLA advised its agents not to accept any further submissions of business; · that NMLA had reason to suspect that in marketing the policies, Byrne had represented to prospective policy owners that the policies were self-funding after the second year, relatively risk free and a good investment; · that in fact NMLA knew that many of the policies had lapsed or were at risk of lapsing due to non-payment of premiums, that NMLA had made demand for payment on Byrne, and that NMLA knew that Byrne was seeking to raise funds to pay the outstanding premiums; · that Byrne was trying to fund the premium payments from assignments of the policies. The duties said to be owed by NMLA included a duty to disclose facts known by NMLA which a prudent person would take into consideration in deciding whether to enter into the policy. 816 Cooper J struck out the relevant paragraphs of the Bank's cross-claim against NMLA. His Honour held that, on the facts pleaded, NMLA did not owe to the Dorroughs the duty of care propounded. 817 With respect, I do not propose to analyse his Honour's reasons. They contain many references to "proximity", a proper treatment of which would now require reference to be made to subsequent discussions of that topic by members of the High Court, notably in Perre v Apand Pty Ltd (1999) 164 ALR 606. 818 It suffices to say that, although the facts of Dorrough are significantly different from those with which I am concerned, the case illustrates the difficulty in cases of pure economic loss arising from a failed investment of establishing the necessary relationship between the investor/loan supplier and a collateral party which will impose on the latter a non-delegable duty of care of the kind pleaded by NM in the present case. In Dorrough, NMLA's role was collateral to the dealings between the investors, Byrne and the Bank. A similar observation is applicable to the present case: Citibank's role was collateral to the dealings between the Investors, the Advisers and NM. 819 Similarly, in David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1 (FC), a case decided prior to Burnie, the Full Federal Court rejected a submission that a foreign currency loan case fell within the rule in Rylands v Fletcher (1868) LR 3 HL 330 and held that on the facts there was no evidence of "reliance", "dependence" or "assumption of responsibility" that would establish the relationship of proximity between the borrower and the bank necessary to generate a duty of care on the part of the bank. 820 In my opinion, Citibank did not owe to the Investors a duty of care of the kind pleaded because: · the Investors did not reasonably rely on Citibank to protect them from the risk of loss; · Citibank did not assume a responsibility to protect them from that risk by, for example, warning them of the risks of using Mortgage Power in conjunction with the NMAM negative gearing arrangement, or the suitability of that use of Mortgage Power for the Investors' individual circumstances; and · the Warnings and the Written Explanation constituted financial advice which the Investors were not entitled reasonably to expect of a bank. 821 I also accept Citibank's submission that the cause of the Investors' loss was not the fact that the money was placed at their disposal through Mortgage Power.

Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 822 NM made lengthy submissions based on Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 ("Burnie") and seeks to draw an analogy between the non-delegable duty of care which was held to be owed by the Burnie Port Authority ("the Authority") to an occupant of its premises, and that owed by Citibank to the Investors in relation to the promotion and sale to them of Mortgage Power. 823 In Burnie a building owned by the Authority was being extended to provide further cold storage facilities. For this purpose the Authority engaged an independent contractor, Wildridge & Sinclair Pty Ltd ("W&S"). W&S's work involved considerable welding and the use of a large quantity of "expanded polystyrene" ("EPS"), marketed under the commercial name "Isolite", a substance which, once set alight, burned quickly, and with great ferocity. With the Authority's knowledge, the Isolite was stored in approximately thirty cardboard containers in a void of the roof of the new development and in the vicinity of where W&S, with the Authority's knowledge, would be carrying out extensive welding activities. W&S's employees negligently carried out the welding work with the result that sparks or molten metal fell on the Isolite containers setting alight the Isolite and creating a conflagration which spread to the original building. In particular, the fire spread to rooms there where General Jones Pty Ltd ("General") stored its goods, destroying General's frozen vegetables. General occupied the cold storage rooms and an office under an agreement with the Authority. Except for the area occupied by General, the Authority occupied the original building and the uncompleted extension. 824 In the High Court, a majority (Mason CJ, Deane, Dawson Toohey and Gaudron JJ) held that "the rule in Rylands v Fletcher" had been absorbed by "the principles of ordinary negligence" and that under those principles (at 556-557): "…a person who takes advantage of his or her control of premises to introduce a dangerous substance, to carry on a dangerous activity, or to allow another to do one of those things, owes a duty of reasonable care to avoid a reasonably foreseeable risk of injury or damage to the person or property of another." 825 The first question to be determined is whether a substance or activity is "relevantly dangerous" so as to give rise to a non-delegable duty of care. Their Honours formulated this question as being whether (at 558-559): "the combined effect of the magnitude of the foreseeable risk of an accident happening and the magnitude of the foreseeable potential injury or damage if an accident does occur is such that an ordinary person acting reasonably would consider it necessary to exercise special care or to take special precautions in relation to it." 826 A "dangerous" substance or activity is not confined to that which is "inherently" likely to do serious injury or damage, although a conclusion that a substance or activity is inherently dangerous will ordinarily make its characterisation as "relevantly dangerous" more apparent (at 558). 827 The fact that the foreseeable danger or injury may arise only if the independent contractor to whom the substance or activity is entrusted engages in "collateral negligence" does not prevent the substance or activity from being relevantly dangerous. For example (at 559): "If X engages an independent contractor to separately move two chemicals, which will cause a major explosion if they come into contact with one another, into separate storage areas, there may be no real risk of injury or damage at all if the independent contractor does what he or she is engaged to do. The activity is, however, obviously fraught with danger unless special precautions are taken to ensure that the independent contractor does not, through 'collateral' negligence, transport the two chemicals together and in a way which causes contact between them." 828 The duty imposed on X in those circumstances is to ensure that reasonable care is taken, which is a personal duty that cannot be discharged by the independent contractor. 829 A critical requirement is that the defendant must have control of the dangerous substance or activity. The Court's explanation of this "central element of control" was drawn from cases where the "element in the relationship between the parties which generates [the] special responsibility or duty to see that care is taken" is (citing Mason J in Kondis v State Transport Authority (1984) 154 CLR 672 at 687) that (at 550-551): "the person on whom [the duty] is imposed has undertaken the care, supervision or control of the person or property of another or is so placed in relation to that person or his property as to assume a particular responsibility for his or its safety, in circumstances where the person affected might reasonably expect that due care will be exercised." As a result, a relationship of proximity is created, which is "marked by special dependence or vulnerability on the part of" the person to whom the duty is owed (at 551). 830 Applying these principles to the facts in Burnie, the Court found that Isolite was a dangerous substance in that if one of the containers were accidentally set alight, an uncontrollable conflagration would almost inevitably result, and therefore special precautions needed to be taken. Correspondingly, carrying out welding within the premises where the containers were stored was a dangerous activity. That is, the Isolite and the welding were dangerous due to their latent characteristics which the other could unleash. The Authority engaged and authorised the independent contractors to carry out work on its premises which required the introduction of large quantities of Isolite to, and extensive welding on, the premises. The overall work was dangerous in that it involved a real and foreseeable risk of a serious conflagration unless special precautions were taken. Since it was clear that if a serious fire broke out, General's frozen vegetables would be destroyed, the Authority owed General a non-delegable duty to ensure that the Authority's independent contractor took reasonable care to prevent the Isolite being set alight. 831 According to the analogy suggested by NM, the present equivalent of the Isolite in Burnie is Mortgage Power, and the present equivalent of the dangerous activity of welding is the promotion of Mortgage Power, the NM units, and the two together in the Negative Gearing Package. 832 In my respectful opinion, Burnie has no relevance to the present case. It is inappropriate to analogise from physical things which will injure the person or property if they are brought into contact, to Mortgage Power, NM units and the Package. The facility and the units cannot be "brought into contact", and it is nonsensical to speak of keeping them apart in order to prevent them from automatically causing financial loss. Similarly, the Package was not an "activity", dangerous or otherwise. The Investors' own decisions and acts were links in the chain of causation of their financial loss - a situation far removed from the passive role of General in Burnie. Unlike welding sparks (or molten metal) and Isolite, the conjunction of Mortgage Power and NM units through the Negative Gearing Package would not inevitably cause loss. 833 All these considerations cause me to think that Burnie does not provide a sound analogical basis for concluding that Citibank owed a non-delegable duty of care to the Investors.

Conclusion 834 Citibank did not owe the Investors the non-delegable duty of care contended for by NM and therefore did not incur a direct liability to them by reason of breach of such a duty.

Introduction 835 NM pleads that the Advisers had apparent authority to represent Citibank but has not made submissions in support of that proposition. Citibank has made lengthy submissions to the effect that the Advisers had apparent authority to represent NM and not to represent Citibank. In response, NM has stated expressly that it does not rely on apparent authority. In this state of affairs I must address the issue of the Advisers' apparent authority to represent NM and Citibank as a result of holdings out by them respectively, because, for example, of its relevance to the question, addressed in Chapter 11, of the extent of responsibility of each of NM and Citibank for the loss or damage suffered by the Investors. 836 As noted in Chapter 3, it is not obvious to me why apparent (or ostensible) authority should have a role to play in the vicarious liability of P for the tortious conduct of A. The Colonial principle takes as its starting point the presence of some actual authority in A to represent P in soliciting business from TP and is concerned with identifying the "class" or "scope" of the acts which A was authorised to do, that is, the range of statements falling within the course of the execution of A's agency. For a statement falling within that class or scope, P is vicariously liable even though the particular statement was not authorised by P. Colonial itself was not, however, a case in which A (Ridley) sought to induce the plaintiff (Producers) to contract with P (Colonial). Accordingly, the notion of apparent authority was irrelevant on the facts. 837 The difficulty to which I have referred can be illustrated by reference again to a hypothetical employment situation. Assume that a driver of a van negligently, in the course of his employment, causes it to strike a car which is owned and driven by the plaintiff. Assume further that the van, no doubt oddly, bears the signage of a company other than the driver's employer and that it therefore appears to the plaintiff that it is being driven in the course of the business of that company. I suggest that the appearance is irrelevant to the question of vicarious liability: the true employer is vicariously liable and the supposed employer is not. If authority established a general principle of vicarious liability of principals for the conduct of their agents in the course of the execution of the agency, I suggest that the same approach would be appropriate. 838 But in the hypothetical case just mentioned, as in Colonial, the plaintiff did not "deal with" the employee or agent. Where there are dealings between A and TP in the form of a solicitation by A of business for P, do appearances have a role to play in connection with the vicarious liability of P? As noted in Chapter 3, in Australasian Brokerage, Thompson v Australian Capital Television Pty Ltd, Hollis v Vabu Pty Ltd (t/a "Crisis Couriers") and Clayton Robard, there were references to the "apparent" or "ostensible" authority of A in discussions of the vicarious liability of P for A's statements made tortiously in pre-contract dealings with TP. 839 Where, as is often the case, it is clear that A was representing P, it is easy to refer to A's having apparent authority without addressing the question whether that appearance is an essential element of vicarious liability. It is only in a case in which, arguably, A was acting on behalf of no one other than himself, or in which, as in the present case, it is arguable that A was acting only on behalf of a different principal, that the question is likely to arise. Moreover, appearances can be relevant to the question of actual authority: if P holds out A as authorised in a certain way as agent of P, and A so acts with P's approval, these facts will support an inference that A was so acting with P's actual authority. 840 "Apparent authority" or "apparent agency" does not fit comfortably within Professor Atiyah's notion of "some relationship between the actual tortfeasor and the defendant whom it is sought to be made liable." Apparent authority and apparent agency are consistent with the absence of any relationship at all between P and A. Those concepts are invoked when the question is whether P and TP have become bound contractually - a question with which this case is not concerned. Moreover, a requirement that P should have made something appear to TP suggests an element of direct or personal liability, whereas vicarious liability is concerned with an absence of involvement of P, except by reason of the existence of a relevant legal relationship between P and A. 841 I do not accept Citibank's submission that in order for P to be vicariously liable for A's conduct, A must have appeared to TP to be making pre-contract statements as agent for P: rather, I accept that it suffices that, regardless of appearances to TP, A's tortious statements fall, as a matter of objective fact, within the general scope or class of acts that A was authorised by P to do on P's behalf. 842 Notwithstanding this conclusion, I find it convenient to proceed on the basis that there is a second ground of vicarious liability, independent of the existence of any actual authority in A whatever. This is that P will be vicariously liable to TP if A speaks tortiously within the scope of an apparent authority from P to make statements as representative of or for or on behalf of P in soliciting persons to enter into contracts with P. 843 Apparent authority requires, in the present context of vicarious liability in tort, · that A appear to TP to have been authorised by P to represent or act for or on behalf of P in soliciting persons to enter into contracts with P; · that P have created or be otherwise responsible for that appearance of authority; · that TP deal with A on the faith that the appearance of authority reflects the reality; · that the statement or statements of which TP complains fall within the scope or class of statements that A appears to TP to be authorised by P to make on P's behalf. 844 There may be apparent authority in one respect but not another, or to a certain extent but no further. In so far as an attempt is made to found vicarious liability on apparent authority, we must define the nature and scope of the apparent authority. This is in order to know whether A's tortious statement was within the class or scope of statements that A appeared to TP to be authorised by P to make on P's behalf. 845 Two general observations may be made. The first is that P can be affected only by an appearance of authority that P has created. In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72 ("Crabtree-Vickers"), the High Court held (at 80) that: "a person with no actual, but only ostensible, authority to do an act or to make a representation cannot make a representation which may be relied on as giving a further agent an ostensible authority." LKFM had actual authority to promote and sell Mortgage Power by virtue of the written agency agreement of 3 April 1989. NM submits that LKFM and the other Advisers had actual authority from Citibank arising from many circumstances extraneous to that agreement. I reject that submission in Chapter 6. Accordingly, consistently with the passage from Crabtree-Vickers set out above, the only persons whose holdings out could even possibly give rise to an effective apparent authority are Citibank itself and LKFM under its written agreement. 846 The second observation is that I am not concerned in this chapter with anything other than apparent authority. It is necessary, therefore, to be ever mindful of the fact that Kelly had actual authority from Citibank after 3 April 1989, whether that was apparent to the Investors or not. 847 It is convenient that I state at once my general conclusions (they are stated in more detail and with few exceptions at the end of this chapter): (1) the Advisers had operative apparent authority from NM to represent it and to act for it and on its behalf as sellers of NM investment and insurance products to the Investors; (2) the Advisers did not have operative apparent authority from Citibank to represent it or to act for it or on its behalf as sellers of Mortgage Power to the Investors.

Holding out by NM of the Advisers as having authority to represent NM and to act for it and on its behalf in promoting the sale of NM units to the Investors 848 Citibank has not disputed that at all material times the Advisers appeared to the Investors to be NM agents and to be acting in that capacity (as will appear below, I do not think the evidence supports this view in the case of Farrar and, less clearly, Eberts). The force of the evidence of this appearance itself is relevant to the question whether the Advisers also appeared to be acting as agents of Citibank. 849 There were NM signs, logos, awards and certificates on display in the offices out of which the Advisers worked and where the Investors met with them. The Advisers sold a range of NM products including NMLA insurance and the units in the Property. 850 Notwithstanding the lack of serious dispute about the present issue, I will refer to certain evidence of general application, generally reserving until later a treatment of the testimony of the individual Investors as to their understandings. 851 In a handwritten memo from Trevor Allen to Lloyd Simpson, a NMAM officer who was, according to Kelly, "attached to National Mutual disabilities, an underwriter", and who reported directly to Brian Benger, the General Manager of NMAM at the time, Allen stated: "He [Kelly] has National Mutual logo on his office window." and "We produced business cards for his use." 852 Kelly's cross-examination included the following: "Q. Did you have around your wall in your premises awards that you had won framed? A. I had some of the awards up. I certainly didn't have them all up. Q. How many did you have? A. I changed them from time to time. I don't really remember. I had an office. I had a foyer. There were two storeys of an office. Did you say did I have an absolute wall of fame? I really didn't. Q. You really can't tell us how many you had at any one point in time? Is that what you are saying? It may have been one, two, 100? A. It wouldn't have been 100. I had the National Mutual dealer's representative proper authority up. I had awards, qualifications. I had a plaque I had from the managing director's forum up. I had a business insurance award. There were probably a few other bits here and there. I really didn't pay any attention. My secretary used to tidy my office up and change things around from time to time. It wasn't something I paid a [lot] of attention to." 853 Several Investors, but not others, recalled seeing the NM logo or other indications that Kelly was a NM agent at his office. Appelman's cross-examination included the following: "Q. And was this right, that the National Mutual logo was prominently displayed in the Cheltenham Road premises? A. It was displayed, yes. Q. A big M in red or something? A. Yes, it was there, yes. Q. In red. What was on his walls? Did you see what was on his walls in those premises, framed - A. Yes, and he kept saying he was [the] number 1 salesman for National Mutual. Q. That is what he told you, did he, at the first meeting? A. Yes. He was the number 1 guy. Q. And from that moment on you understood that he was National Mutual's man? A. Yes, yes." 854 There was similar evidence in relation to some of the other Advisers. For example, the cross-examination of Parsons, who dealt mainly with Jones and Wass, included this passage: "Q. And there were National Mutual signs, were there not, at [the] premises in Manly? A. Well, the whole building was National Mutual. It had their logo out the front. And when you came into the foyer, everything had National Mutual written around it everywhere. Q And what was clear in your mind was that this was a National Mutual place you were in? A Yes." 855 Although associated with Jones' office at Manly, Wass was initially based at NM's Dee Why office which later moved to Mosman. Parsons gave the following evidence in relation to her office: "Q. Where were her [Wass's] offices? A. I have seen her at three offices, one at Dee Why, one at Manly and one at Mosman. Q. And were any of those her own offices, as you understood it? A. They were National Mutual. Q. All National Mutual? A. Yes. Q. Ľthey had National Mutual signs on the premises? A. Yes. Ľ Q. ĽAnd may you have seen her first in the Dee Why office, might you? A. Yes. Q. So you knew her as a person associated with National Mutual, you thought working for National Mutual? A. Yes." 856 Crawford was both an Adviser and an Investor. In relation to the location of Jones' office, Crawford gave the following evidence: "The offices of Dennis Jones & Company Pty Ltd were initially in [the] premises of National Mutual at 2/27 Belgrave Street Manly. In March 1991 they moved to the premises of National Mutual at level 1, Bridgepoint, Brady Street, Mosman." 857 Adviser Hacopian testified that the building at Manly that housed Jones' office had a sign reading "National Mutual Manly Division" on the ground floor where the lifts were. He said that the Manly Division of NM occupied a large suite on the first floor of the "Bridgepoint" building in Mosman and that Jones also occupied a suite on that floor. He said that Jones had NM award plaques on the wall of his office. 858 The cross-examination of Kirby of FKB included the following: "Q Now, did you not make it clear that you were a National Mutual agent? A. I think it would have been very difficult not to have known that. We had signs up all over our doors and whatever. So - Q. What signs did you have? A. We had a National Mutual - we had National Mutual brochures everywhere. We had 'Agents for National Mutual' on our - I'm not sure whether we had it on all of our stationery, probably not, because when we changed to FKB Financial Management, we didn't have to do that, but initially we used National Mutual stationery. Q. What was on the door? A. We changed it. I'm not sure whether it had 'Agents for National Mutual and other companies', but it had certainly National Mutual there somewhere. We were agents for the assets management [NMAM] area where we could sell other products, so I'm not sure-" 859 Kirby said he displayed his framed NMAM "Representative's Authority" on the wall of his office. (On 17 November 1989 NMAM issued to Kirby a certificate that he was authorised by NMAM as its representative to promote trusts managed by NMAM.) 860 Fitcher, Kirby and Bahr were NM agents working in an office identified as a NM office. Each of them had a stand in his office holding brochures including Citibank and Bank of Melbourne finance application forms. They were on the stands to provide convenient access to Fitcher, Kirby and Bahr, rather than for display to clients. Fitcher, Kirby and Bahr would describe to their clients the way in which the Package worked in general, rather than by reference to any specific bank. The forms would have appeared to a reasonable client of FKB to be present, as I find they in fact were, in order to assist Fitcher, Kirby and Bahr to perform in their role as NM agents. 861 I will refer to further instances of holding out by NM of various Advisers as its agents in the course of the discussion below of the understandings of the individual Investors.

The supply of Citibank stationery 862 Citibank supplied stationery to Kelly. This comprised or included: · Mortgage Finance Proposal forms · Mortgage Power account signature cards · Privacy Act acknowledgment forms · Forms headed: "AGENT ACCOUNT OPENING I.D. VERIFICATION". 863 Citibank knew that the Advisers or one or more of them obtained the signatures of prospective borrowers on documents, or some of the documents, of these kinds. But in my view, Citibank's supplying of the forms and its acquiescence in the Advisers' filling them in or assisting the Investors to do so, and remitting the completed and signed forms to Citibank, did not constitute a holding out by Citibank to prospective borrowers that the Advisers were its agents or representatives with authority to act for it on its behalf in selling Mortgage Power: cf Branwhite; Custom Credit v Lynch (discussed in Chapter 3). I note that the last class of document mentioned above used the word "agent" in its title and provided on the second page for the agent to sign and to affix his or her Citibank agency stamp. Accordingly, for the Applemans, Van Minnen, who was employed by LKFM, signed the form and stamped onto it the LKFM name and Citibank agency number 2524885018. Similarly, for the Daniels, Kelly signed and wrote "A/No 2524885018". There is nothing remarkable in this: LKFM was exercising an authority no broader than that which it actually had by virtue of its agency agreement. (The equivalent form for the Jorgensens is also in evidence but did not bear the word "AGENT" in its title, and was signed by Ross of Citibank as "checking officer".) 864 Other sources of finance supplied their stationery to NM agents. FKB had Bank of Melbourne forms of application for finance. On a previous occasion Kelly had produced RESI Statewide Building Society forms on which Investor Richards had applied for finance. Jones had stationery from GIO in relation to its AAA line of credit. In my opinion the supply of such stationery by banks and other sources of finance was intended to be, and could only be reasonably understood to be, a means of making it convenient for intending customers to apply for a loan, not as evidence of authority to represent, or to act for or on behalf of, the banks or other sources of finance, for the purpose of promoting and selling their products. If Citibank was reasonably to be understood as authorising the Advisers to represent it at all, it was to be understood as doing so only for the clerical or administrative purpose of inviting the prospective borrowers to complete the forms and to sign them. (In fact, we know that after 3 April 1989 LKFM had actual authority to sell Mortgage Power.)

the understandings of the individual investors 865 I turn now to the understandings of the Investors. As noted earlier, in order to have legal significance, apparent authority must have been relied on. That is, it is not enough that P held out A to TP as having authority from P to represent or to act for or on behalf of P: TP must have relied on that appearance of authority in dealing with A. Another way of expressing the same idea is to insist that the only appearance of authority that is "operative" or "effective" is the appearance of authority to a particular TP. (It is for this reason, for example, that Jones' "pot of gold" pamphlet described in Chapter 11 is not an instance of apparent authority: there is no evidence that any of the present 23 Investors saw it before they invested (Crawford saw it after investing).) 866 The Investors made affidavits and were cross-examined in relation to their understandings. I address their evidence individually below. NM submits that the Advisers appeared to the Investors to be agents of both NM and Citibank. Generally (Farrar and Eberts are exceptions) their affidavits were to the effect that they believed that their Adviser was an agent of NM, and that when a particular stage in the presentation was reached, they believed him or her to have some kind of relationship with Citibank too. That stage was variously described as the explanation of the Mortgage Power facility or the production of Citibank's Mortgage Finance Proposal form. In some cases the Investors used the word "representative" or "associate" or their derivatives to describe what they understood their Adviser's relationship to Citibank to be. None of them seemed prepared, even in their affidavits, to characterise their Adviser as an "agent" of Citibank in the unambiguous and straightforward way in which they were prepared to characterise him or her in relation to NM. 867 The cross-examination of the Investors revealed their understanding of their Adviser's relationship with Citibank to be unclear and problematical. They searched for words to describe it. Some said that the Citibank facility seemed to be "part" of a "standard" scheme that was described to them. Some said they assumed there must have been some kind of tripartite "deal" in existence between NM, Citibank and Kelly. 868 I found the almost "standard form" affidavit of the Investors on the present issue of little assistance. Precisely what an Investor's understanding had been years earlier as to an Adviser's relationship to Citibank is inevitably a difficult matter. The problem is not only one of the passage of time and fading of recollection: it is also one of language and of characterisation by reference to legal categories. If an affidavit is to be useful on such a difficult question, it must give an account in some detail of the deponent's observations, thoughts and impressions at the time. Unfortunately, in general the Investors' affidavits did not do so. Rather, they tended to adhere to a formula. This may have been difficult to avoid, having regard to the fact that 132 affidavits had to address the same issue, but it had to be avoided if the affidavits were to have substantial probative force. 869 Also unpersuasive on the present issue is a recital in the form of the deed of settlement prepared by NM for execution by the Investors as part of the settlement with them. This was to the effect that the Investor was maintaining: · that the Adviser had acted as agent of Citibank as well as of NM; · that Citibank as well as NM was liable to the Investor; and · that the Investor was entitled to damages and compensation from NM, Citibank "and/or" the Adviser. No doubt these recitals seemed to the Investors and their professional advisers harmless and of no particular significance or interest. They had to sign in order to receive their agreed compensation. 870 There are two areas of the evidence that I have found more persuasive. One is the Investors' oral testimony, notably their cross-examination. The other is the fact that those Investors who complained or sought redress on their own initiative (in some cases, the claims were not spontaneous but were sought by NM or others) addressed themselves to NM, not to Citibank (Garden is an unusual case - see below). 871 I will now address the testimony of the individual Investors in alphabetical order. It will be noted that Daniels and West, alone of the 23 Investors, had any relevant contact with Citibank directly.

Geoffrey Ian Alder and Susan Patricia Alder 872 Alder had known Jones for some twenty-five years and had seen him say once every year or two. Alder was introduced to Roberts in Jones' office in November 1990 by Alder's brother in connection with sickness and accident insurance. 873 Alder did not state in his affidavit his understanding of the relationship between Jones, Roberts and Citibank. It seems, however, that he believed that Jones and Roberts would be able to organise the loan without any difficulties as there was no "middleman". In his affidavit, he said he viewed the Citibank loan as a major part of the overall plan. However, apparently, Jones and Roberts initially told Alder that the loan would be arranged through a financial institution other than Citibank, the name of which Alder could not recall. When Alder agreed to embark on the scheme (which, it will be recalled, involved in the Alders' case an investment in the NM Equity Imputation Fund rather than the Property Trust) Jones or Roberts allegedly said that that institution had not approved the loan and that Citibank would be used instead. Alder, however, doubted whether Jones and Roberts had ever approached the other financial institution as he had never signed any other institution's form of application for finance. 874 In cross-examination, it was put to Alder that Citibank was mentioned by Jones only as late as towards the end of 1991, that is, that Citibank was not put forward as playing a significant role. This cross-examination drew on the fact that while Alder applied for Mortgage Power in December 1991, an earlier letter from Roberts to Alder dated 20 May 1991 in relation to the Property Trust (the trust in which the Alders did not acquire units) had failed to mention Citibank as a source of funds. (The letter suggested that 80 percent of the funds to be invested in the Property Trust could be borrowed from NMPS or Barclays.) Alder initially denied that Citibank was mentioned only at a late stage. Later in cross-examination, however, he agreed that at "different times" the credit provider was not identified, that "at the end" Citibank was identified as the "main contributor", and that Citibank was not mentioned as the lender in relation to the proposal to which the letter of 20 May 1991 referred. 875 Crawford's name was given as a referee on the Alders' Mortgage Finance Proposal form. Alder explained as follows: "Alan [sic - Allan] Crawford was the-my understanding-financial consultant for Dennis Jones's [NM] agency, and I felt that was affiliated with Citibank as well. He was some sort of commissioned agent, possibly for Citibank. But that is only me speculating. … Q. Did you ever meet anybody from Citibank? A. I have been in Citibank's head office to deliver some documentation, but I don't recall who it was that I spoke to. Q. Did Mr Roberts ever introduce you to anybody from Citibank? A. Well, I was of the impression that Ian Crawford [sic-Allan Crawford] was an agent for Citibank as well." (my emphasis) 876 Alder also referred to those working in Jones' office as "commission[ed] agents", but he did not expressly identify for whom. 877 Alder retained his Citibank credit facility after settling with NM. 878 Alder stated in his affidavit that he thought Jones and Roberts were NM agents. Roberts was Alder's brother's insurance agent and Alder initially approached him with the aim of obtaining sickness and accident insurance. In a statement signed on 23 March 1994, Alder wrote: "I approached National Mutual through its agents to secure a policy of insurance and a sickness & accident policy." 879 Alder was a commissioned agent with Canon and, I infer, was aware that Jones and Roberts would be entitled to commissions, at least in relation to the insurance policy. 880 Alder was not cross-examined on his understanding of the relationship between Jones, Roberts and NM. 881 I find that Alder believed that he was dealing with Jones and Roberts as NM agents and merely speculated as to any relationship that might exist between them and Citibank. I am not satisfied that it appeared to him that they had authority from Citibank to represent it as its agents to sell Mortgage Power or that he dealt with them on that basis.

Cornelius Anthony Appelman and Martina Mary Appelman 882 Mrs Appelman's sister and her husband suggested that the Appelmans contact Kelly because he was "really good with finance". They made an appointment to see Kelly in his office and met him there. 883 Appelman stated in his affidavit that he believed Kelly "represented Citibank". From his cross-examination reproduced below, however, it is clear that he saw Kelly as a NM agent who had a "friend" at Citibank who could ensure the loan was granted: "Q. He [Kelly] thought you would get $100,000? A. I think he said to me he had a friend at Citibank and he could get it, no worries. Q. A friend at Citibank? A. Mmm. Q. Did he tell you who this friend was? A. No. Q. When he said that to you, I take it you thought he had some sort of in with Citibank which would enable him to get you this loan; would that be right? A. Yes. Q. Some sort of friendship that he could call in and get the loan through this friend? A. Yes, I suppose, yes. Q. When he said to you, 'I've got a friend at Citibank', you thought 'Well, he is a National Mutual man who has a friend at Citibank'; would that be right? A. Yes. Q. You didn't think, 'He is a Citibank man who has got a friend at Citibank'. You thought he was a National Mutual [sic - man] who has a friend at Citibank; is that correct? A. Yes. Q. You never thought he was in any way from, of, or representing Citibank? A. No. Q. You thought he was a person who had a friend there? A. That's right. Q. If you had thought he was from Citibank or representing Citibank, may I take it that you would also have thought that he was being paid in some way by Citibank? A. I don't know. I couldn't answer that. Q. If he had said to you, `I have a contract with Citibank pursuant to which I am paid a commission', that might have made you think, 'Well, this man has got two interests in this transaction, one with Citibank and one with National Mutual'. Would that be right? He was getting it both ways, from Citibank and from National Mutual? A. I didn't think about it at all. Q. No, but if he had said that to you, that might have made you wonder how many interests Mr Kelly had in this transaction that he was recommending to you? A. It is hard for me to answer that question." (my emphasis) 884 Appelman hesitatingly agreed that Citibank's role was merely that of a lender: "Q. Nor had they, for example, put themselves into the position of being your financial advisers in any way, themselves, Citibank? A. No. Q. They [Citibank] were just a lender in this transaction, as you understood it? A. Sort of. Q. Just a lender, like the ANZ Bank was a lender in the transaction? A. Well, yes." 885 Appelman seems to have believed that Citibank had a requirement that a Mortgage Power customer take out NMLA life insurance. He understood, however, that he could use the Mortgage Power facility for any purpose of his choice. 886 The Appelmans went to Kelly for financial advice. In the following passages of his cross-examination, Appelman said there were references to NM on display at Kelly's office at Cheltenham: "Q So, you went to see Kelly as a financial adviser? A. That's right. Q. And you went to his premises at Cheltenham, was it? A. That's right. Q. And did you see marked up on those premises references to National Mutual? A. Yes. Ľ Q. Did you regard him as selling these National Mutual units, or recommending them? What did you regard him as doing? A. Working for National Mutual and selling policies, selling property trust [units], yes. Q. So, had you appreciated before you went to see him that he was a National Mutual person in some way? A. No. I thought he was a financial adviser when I went to see him. Q. When you got in there, you found that he wasn't a general financial adviser but a National Mutual person in some way? A. That's right. Q. And was this right, that the National Mutual logo was prominently displayed in the Cheltenham Road [sic] premises? A. It was displayed, yes. Ľ A. ĽI just expected, because he works for National Mutual, that he did know what he was talking about, that he was looking after my future. Q. What, in your belief at the time, was the reputation of National Mutual? A. Good. Q. And did you believe that, because he was associated with National Mutual, that you could rely upon what he was telling you? A. Yes Q. I was asking you before, and I don't think I actually got an answer, about whether you read anything that was on his walls of the premises in Cheltenham? A. I probably didn't. I didn't read them. I do remember seeing some things, and he showed me once a computer of National Mutual, something to do with, like, just your life insurance and things like that and what their premiums are, or whatever. Q. Do you remember seeing on the walls any framed documents? A. I saw something to do with National Mutual, yes. Q. Do you remember whether they referred to him as well? A. No, I can't remember. Q. I think you told me that he told you that he was their number 1 agent; is that what you remember? A. That's right, yeah. Q Would it be right to say that it was your belief that he had a relationship of some kind with National Mutual; he was working for National Mutual or- A. He was one of their agents. Q. Did he use that expression 'agents'? A. Yes, I think he did. Ľ Q. You believed Kelly when he told you he was a National Mutual agent? A. Yes. Q. He never said to you, 'I am an agent for National Mutual amongst other things', did he? A. No, he just said he was a National Mutual agent. Q. He never said he was also an agent for anybody else? A. No. I just thought he was a National Mutual agent. Q. Did you believe that he was either earning a salary or perhaps a commission from National Mutual? A. Yes." (my emphasis) 887 Appelman said that one reason why he and his wife entered into the scheme was that Kelly worked for NM which he believed was a good company. 888 I am not satisfied that it appeared to the Applemans that Kelly had any role as an agent or representative in connection with the transaction other than that for NM. In particular, he did not appear to them to be an agent of Citibank and they did not understand they were dealing with him as such. I find that prior to meeting Kelly, they understood he was a financial adviser and from their first visit to his office, they understood he was representing NM alone.

Leigh Charles Bachmann and Christine Anne Bachmann 889 Bachmann met Buttars in about 1983 when they became next door neighbours. When Buttars lost his job and became a NM agent, the Bachmanns "supported him by switching some of [their] insurance policies over to National Mutual to give him some clientele". 890 Bachmann stated in his affidavit that he believed Blee had a relationship with Citibank that enabled him to introduce the Bachmanns to Citibank as clients of NM. Blee apparently had brochures of both Citibank and Barclays but told Bachmann that Citibank was the preferred bank to use. Bachmann said that Citibank contacted his accountant directly, not through Blee, to obtain further information about his creditworthiness. 891 Bachmann's cross-examination did not address his perception of the relationship between Blee, Buttars and Citibank. Bachmann stated, however, that he knew Buttars and Blee were NM agents. Bachmann appears to have viewed Buttars as more of a NM salesman, Blee as a financial adviser, and the Package as a NM initiative: "Q. And you understood that the gearing scheme was a National Mutual product and not necessarily Mr Blee's personal scheme? A. No. My understanding was that it was National Mutual. Q. And that Mr Blee was just selling and promoting the scheme to you? A. That's correct." 892 I am satisfied that the Bachmans understood Blee and Buttars to be representing NM. I am not satisfied that they understood them to be representatives of Citibank or dealt with them in that capacity.

Ian Geoffrey Boulter and Helena Johanna Boulter 893 A friend of the Boulters, David Philip, recommended that they contact Kelly, apparently describing him as a "financial adviser". They met Kelly in his office at Cheltenham. 894 Boulter stated in his affidavit that he knew Kelly was a NM agent and also believed he represented Citibank because of his explanation of the Package and his having given Boulter the Citibank Mortgage Finance Proposal form. He deposed that when Kelly explained the Package and handed him the form, he said: "I'll put my other hat on and get you bank loans". In a statement to the ASC annexed to his affidavit, Boulter said he believed he was dealing with "a professional adviser" who was offering a "full service" which would enable the Boulters to achieve their objectives. 895 In the ASC statement, Boulter also said he went back to Kelly's office two or three times over a period of two or three months, and that he believed NM would be paying some form of remuneration to Kelly for signing people up. In about March 1993, Boulter contacted NM, not Citibank, to express his dissatisfaction. 896 Boulter was cross-examined about his understanding of the relationship between Kelly and Citibank by reference to Assessor Richard Bouchier's notes of his interview with Boulter. The cross-examination included the following: "Q. The next passage seems to read 'Can't remember what papers' - is it 'I signed'? I think it might be 'I signed'? Is that right, that you could not remember what papers you had signed in the early days without them being shown to you? A. Yes, I know what you are saying. Yeah, that would be correct, because he [Kelly] sort of took care of all the spadework. When we were discussing which bank, I suggested the Bank of Melbourne that I was working with at the time, and he said, 'Well, you are going to have to see an unknown Mr X who will not understand that sort of thing.' He said, 'You qualify for finance, we can get it through another bank.' And he said, 'Have you heard of Citibank?' I said no, I hadn't. He said, 'We will get that through the Citibank. You will only need to meet the manager of Citibank.' I said, 'Who is that?' He said, 'Me. Just a moment, I will put my other hat on. We will get that all organised and get the paperwork and get the whole thing rolling.' In simplicity, I never moved out of Charman Road to do all this. Q. What, you took his remark to refer him to being the manager of Citibank as being a jocular remark, did you? A. Oh, no, he was serious. Q. He was the manager of Citibank? A. (The witness nods). Q. You are not suggesting you believed he was the manager of Citibank? A. I believe that he had authority to act on Citibank's behalf, because he had all the forms and he did all the leg work with it. Q. When you came to bring your complaint forward, however, you didn't write to Citibank, did you, to complain about anything he had done on behalf of Citibank? A. That's correct, I didn't. Q. And why was that? A. Because all the documentation with the Property Trust and the business insurance was National Mutual. Q. And you regarded him as performing a function on behalf of Citibank in producing the form to you and sending it off to Citibank, that is, the application for loan? A. Mmm-hmm. Q. But as doing everything else, he was doing on behalf of National Mutual; is that right? A. That's correct. The reason I wrote to National Mutual, if I could just put this in, is because I tried to contact Lance Kelly a few times expressing concern that this thing was not going right and, basically, I was not getting any response. Q. The complaint that you have made concerning Kelly, though, has been consistently and only made to National Mutual; isn't that right? A. That's correct. Q. And you have remained on good terms with Citibank yourself, haven't you? A. Correct. Q. Indeed, you today have an account with Citibank? A. Correct. Q. And have never made any complaint to them about Mr Kelly? A. Correct. Q. The function that you regarded him as performing for Citibank was limited, wasn't it, to the organising of this mortgage power loan, as you understood it? A. My understanding of it was that it was an all-in package because it was all built around refinance and he, to me, had all the jigsaw in place as to the best way to tackle it. Q. He had put it together? A. He had put it together." (my emphasis) 897 Boulter testified that he believed Kelly would have been receiving commissions from other companies as well as from NM, and that on Boulter's own transaction he would have been receiving commissions from NM and Citibank. 898 Boulter wrote a two-page letter to Simon Wallace of NM on 12 February 1993 complaining about the performance of the Trust on which he was cross-examined as follows: "Q. … what was the occasion for you writing that letter? Was there any communication to you first, or was it just your concern about the matter? A. My concern, the fact that the whole scenario of the package wasn't going to live up to expectation. It was going to cause a blow-out in finances and actually put a damper on the whole intent of the scheme. Q. At the date of that letter, did you still have your investment? A. Yes. Yes. Q. Did you still have your Citibank facility? A. Yes. Q. Was there any letter sent to Citibank? A. No. Ľ Q. You had been aware, had you, that Kelly, Lance Kelly, was a National Mutual agent? A. Yes. Q. And was it for that reason that you wrote to National Mutual? A. The reason I wrote was because the package went through National Mutual. So the answer to that would be yes." 899 It is clear that Boulter understood that Kelly was a NM agent. Apparently he believed he also acted for other insurance companies: "Q. He said to you that he wasn't just a National Mutual agent; is that right? A. Correct. Q. Did he say who else he was an agent for? A. He said he has [sic - had] authority to act for various other insurance companies, and he has [sic - had] looked at the lot and that was the best package - words to that effect. This is not verbatim, but in that context, 'We looked at superannuation and those sorts of things' - and he virtually dismissed them out of hand for a whole host of reasons." 900 I find that Boulter understood Kelly to be an agent of NM. I also find that he deduced that Kelly was an agent or representative of Citibank, but for no more reason than that he had the Citibank Mortgage Finance Proposal forms and "did all the leg work" on the transaction. These facts did not constitute a holding out by Citibank of Kelly as its agent to sell Mortgage Power, and Boulter did not understand that they did. In fact, however, we know that LKFM had such an actual authority from Citibank under its written agency agreement.

Allan Stewart Crawford and Heather Joy Crawford 901 Crawford met Jones when they were next door neighbours in 1966 and had irregular social contact with him in the intervening years. In about 1969, Crawford became aware that Jones was an insurance representative of AMP and Crawford took out an insurance policy through Jones. Crawford became aware that in the early seventies Jones commenced working as an agent for NM. 902 According to his affidavit, Crawford did not believe that Jones was a Citibank agent but believed that NM and Citibank were both "involved" in the Package. Crawford's cross-examination included the following: "Q. In paragraph 22 [of Crawford's affidavit] you speak of the fact that National Mutual and Citibank were involved? A. That's correct. Q. I want to know whether you were ever told that Citibank was involved in the negative gearing investment in any way other than being the lender, providing some of the funds? A. At that stage, when I was presented by Dennis with the concept, I thought Citibank was part of the calculation, part of the whole deal. I thought they went together. Q. Went together in the sense that they lent the money to purchase some of the units? A. That's correct. Q. But not more than that? A. Not more than? Q. Not more than lending the money for the purchase of the units? A. No. Their purpose was to lend the money to enable us to buy the units. Q. That was their involvement? A. Correct." 903 At Crawford's first meeting with Jones in relation to the scheme, Jones was assisted by another man from Melbourne, who Crawford believed was a Citibank agent. The cross-examination of Crawford on this matter included the following passage: "Q. Just going back to your affidavit in paragraph 18, in the first sentence you speak of your belief that the man from Melbourne was an agent for Citibank. You see that? It is in paragraph 18, first sentence? A. Yes, I see that. Q. Did anyone ever say to you anything to the effect at this meeting that the man from Melbourne was an agent for Citibank? A. I don't know how I came to that belief, but, yes, I believed he in some way worked for Citibank. Q. You yourself later commenced to carry out some similar functions for Dennis Jones & Company in dealing with the Citibank side of the transaction; is that right? A. Correct. Q. You didn't understand yourself to be an agent for Citibank, did you? A. No." (my emphasis) 904 Crawford testified that Jones represented to him and to other investors that NM "guaranteed" the Package and the Property Trust. 905 I find that Crawford believed that when promoting the Package to him, Jones was acting as a NM agent and not as a Citibank agent. I accept that Crawford believed that the man from Melbourne (not Jones) "in some way worked for" Citibank. Crawford testified that the man was not Kelly, but a younger man. I do not know what caused Crawford to understand that the man from Melbourne worked for Citibank but there is no evidence that it was any conduct of Citibank that did so. The identity of the man from Melbourne is an irrelevancy because Crawford relied on statements made by Jones. He dealt with Jones as a NM agent, not as a Citibank agent.

Ross Newton Daniels and Shirley Rae Daniels 906 Daniels deposed in his affidavit, according to a common formula, that he believed Naughton was a NM agent, and that when he explained the Package "including the need to obtain a Citibank Mortgage Power [l]oan" and presented the Citibank Mortgage Finance Proposal form, he "believed he also represented Citibank". In fact Naughton's status was that of a NMLA agent and a NMAM authorised representative in his own right, who had an office in Kelly's premises. In cross-examination Daniels said that, when Naughton introduced him to Van Minnen, Naughton said that Kelly's office could provide "one stop shop services", an expression that was taken up with Daniels in cross-examination: "Q. The words 'one stop shop', are they words which we are to understand you attribute to Mr Naughton? A. No - my description I think. But that was the impression conveyed by Jim [Naughton], that all the services necessary, legal, accounting, you know, the products themselves, dealing with National Mutual and Citibank on our behalf, would be done through the one office." 907 Daniels said he assumed that Kelly or Naughton "would be getting something from [NM] and Citibank" (he was correct - they shared equally the NM commission and Kelly would also have received $175 from Citibank) although he was in fact told nothing about payment of commissions. 908 Towards the end of 1990 Daniels had read a newspaper advertisement for Mortgage Power. It included a "Free Information Enquiry Form" which stated "I am definitely interested in more information regarding Mortgage Power". He cut it out, completed it and returned it to Citibank. In response, a person who announced himself as "Hugh Judd", telephoned him and arranged to come to the Daniels' home on the evening of 4 February 1991 for a discussion. Mr Judd introduced himself as Kelly's marketing manager. I infer, as Daniels would have done, that Citibank had passed on Daniels' enquiry to LKFM as its agent for the promotion of Mortgage Power. According to Daniels, Judd told him he had a number of investment schemes that involved NM and Citibank. He said Kelly was an insurance agent and an investment adviser. He referred to use of the equity in the Daniels' home to borrow from Citibank in order to invest in units in NM property trusts which had long term growth prospects and would provide a "nest egg" for the Daniels' future and for retirement. In the light of what Judd had said, Daniels must have gained the impression that Kelly was an agent of NM. 909 The two men arranged to meet again at Kelly's office at Cheltenham on 13 February 1991. They did so. Mrs Daniels also attended. Judd introduced the Daniels to various people at Kelly's office, including Naughton and, possibly, Kelly himself. The Daniels were handed a "flier" on LKFM letterhead which stated "our group offers a wide range of Financial Services through our close links with Citibank and National Mutual". 910 The Daniels were taken to Naughton's office in Kelly's building where Naughton presented the Package to the Daniels on a whiteboard. Daniels asked for the information in writing but Naughton said "No! There is nothing in writing. This investment is too good to share around!" At Naughton's request, Mr and Mrs Daniels signed a Citibank Mortgage Finance Proposal form. 911 In the circumstances in which Citibank put Mr Daniels in the hands of Kelly, it seems immaterial that Naughton rather than Kelly dealt with him at Kelly's office on this first occasion. It appeared to Daniels that Kelly, through Naughton, was responding to Daniels' Citibank enquiry form. I proceed on this basis. Daniels testified orally that he understood Naughton was part of "the Lance Kelly organisation". 912 About a week after the meeting on 13 February, Daniels supplied to Naughton details of his passport, of the title to his house and of his salary. At some time, not made clear by the evidence, Naughton had the Daniels sign a Citibank customer signature card. 913 On 20 March 1991, the Daniels again attended Naughton's office where Naughton told them that Citibank had approved their application. Naughton had Mr Daniels sign some NM forms and introduced the Daniels to Van Minnen, telling them that she would "look after all the legal work" for them. Naughton also handed them a "National Mutual Australian Property Trust No 1 - Thirteenth Prospectus". (Daniels applied for $50,000 and $100,000 worth of units in the Trust by two application forms, both dated 26 March 1991.) 914 In a NM "Status of Your Investment Questionnaire", Daniels referred to LKFM as the "Investment/Adviser/Dealer". 915 I find that Citibank directly represented to Daniels that it had authorised Kelly to provide him with "more information regarding Mortgage Power." I find that Daniels understood that Kelly was providing him with that information "through" Naughton, and that both Naughton and Kelly were NM agents to sell NM products. But the apparent authority of Kelly and Naughton was no wider than LKFM's actual authority under its written agreement with Citibank of 3 April 1989. Accordingly, it is sufficient to consider the question whether Naughton's representations of which the Daniels complain were within the class or scope of statements that Citibank authorised LKFM to make - a matter addressed in Chapter 6. What distinguishes the Daniels' case is that Citibank itself put Daniels in contact with Kelly (and Naughton) as a source of information about Mortgage Power. Equipping Kelly with Citibank forms of a kind that needed to be filled in, signed and forwarded to Citibank, did not, however, itself constitute a holding out of Kelly as a selling agent of Citibank. 916 I find that the Daniels dealt with Naughton and Kelly as agents of NM and as agents of Citibank.

Colin John Douglass and Julie Irene Douglass 917 Douglass said he had "various National Mutual life insurance policies over the years" and that various NM agents had "looked after [his] insurance needs at different times". It was a female NM agent whose name he could not recall who invited him to call into the NM offices to talk about "an investment [he] might be interested in". In that office, she introduced the Douglasses to Blee. 918 According to his affidavit, Douglass believed that Citibank was "involved because they had a loan package that suited the scheme". 919 Douglass believed that Blee was a NM representative and advised him in that capacity. On the other hand, he understood Citibank's role to be limited to that of a lender providing a credit facility. The cross-examination of Douglass included the following passages: "Q And as far as the financial advice you were given, you regarded that as coming from a competent source, did you? A. Yes. Q. And that was National Mutual's representative? A. It was Mr Blee, yes. Q. As a National Mutual representative? A. Yes. Ľ Q. As you saw it, the bank's role in this overall transaction of making available to you a credit line facility was the role of a lender and not the role of someone giving you investment advice? A. Correct. Q. And that investment advice came solely from National Mutual and its representatives? A. Yes. Q. And the bank's concern in the transaction was to lend you money and in the bank's interests to protect itself by ensuring that you repaid or were able to repay that money? A. Yes. Q. And for that purpose the bank took its mortgage security over your house; is that right? A. That's right." 920 Douglass also identified Blee's Manly office as a NM office. Douglass thought Blee had some kind of association with Jones. 921 Douglass understood that Blee had only one representative capacity in connection with the transaction and that was for NM. Douglass dealt with him in that capacity and not as an agent for Citibank. (The Citibank loan application and valuation fees were paid by Jones and later reimbursed on settlement of the Mortgage Power aspect of the transaction; apparently Blee was employed by DJC at the time; DJC was paid 50 per cent of the NM commission.)

Andrea Martina Eberts 922 Beth Holmes, a friend of Eberts, who taught at the school where Eberts taught, put Eberts in contact with Kelly. Ms Holmes recommended Kelly as a financial adviser, saying she was "happy with what he was doing for her". Ms Holmes gave Eberts Kelly's telephone number and in due course Eberts met Kelly in his office at Cheltenham. 923 In her affidavit Eberts stated, generally in accordance with a common formula, that she "knew L Kelly was a [NM] Agent", and: "When he [Kelly] explained the Investment Scheme to me … including the need to obtain a Citibank Loan, and gave me the Citibank form [The Citibank Mortgage Finance Proposal form] Ľ [she] believed he also represented Citibank." (my emphasis) According to Ebert's affidavit, Kelly said to her, "I can do whatever I like with Citibank." 924 In cross-examination, she referred to Kelly's having a "business relationship" with Citibank as well as with NM, and to the Package as a "very tight scheme" that NM, Citibank and Kelly "knew about": "Q. Do you say that you also believed that he had people that he knew or dealt with regularly in Citibank? A. That's right. In fact I believed Citibank knew people at National Mutual. I actually believed that it was a triangle at one stage, at the beginning. Q. What do you mean by - A. I believed it was not just Lance Kelly dealing with these two companies, but that National Mutual and Citibank actually knew about each other. That's what I believed. Q. So we may understand that, did you believe that there was a business relationship - A. Yes Q. So that, for example, National Mutual wouldn't sell the Property Trust units to anybody who wasn't borrowing from Citibank, and Citibank would insist that the moneys that they lent go to National Mutual; is that what you mean? A. Not quite that far. Not that strict, because I just believed that- I don't know how far I believed it, but I believed that everybody knew what everybody was doing. Q. Did you believe that there was a partnership of some kind between National Mutual and Citibank? A. Yes, through Lance Kelly. Q. When you say through Lance Kelly, do you mean Mr Kelly told you that? A. He basically said that he had invented this- and as we were signing papers he would say, 'I know them. I know them. I'm doing this myself. This person is doing this.' You just felt it was a very tight scheme and that all parties knew about it." (my emphasis) This passage illustrates the difficulty of attempting to adduce evidence of a perception of a relationship, with a view to establishing that it falls within a particular legal category. The passage establishes that Eberts understood that there was a three-way "business relationship" based on habitual dealings, according to which each party knew what each other party "was doing". 925 Eberts' cross-examination as to her understanding of Kelly's relationship with NM is contradictory. While she stated in the passage set out below, as in her affidavit, that she understood that Kelly was a NM "agent", her evidence as a whole shows she had difficulty in accepting that that term could be applied to Kelly: "Q. Did you believe that he had any relationship with any insurance company or not when you went there [to Kelly's Cheltenham office]? A. When I went in there, no. I really didn't know what to expect. He was the first financial adviser I had ever been to. I didn't know what to expect. Q. And did you at any stage discover that he had a relationship of some kind with National Mutual? A. In that first meeting. Q. You did? A. Yes. Q. And what led you to discover that? A. His presentation was made so that you knew he had - it was a scheme that had - it wasn't a brand new scheme. It had been tried before. It was almost put out as a package, the way he presented it. That's how I came out feeling that it was all integral to each other. Q. But he never said to you, 'I am a National Mutual agent' or anything like that? A. No. Q. Is that what you understood? A. Yes. Q. Not at the first meeting or - A. No, I don't think he ever said it. He just presented the package, the National Mutual/Citibank package Q. You didn't ask him whether he was an agent for anybody , or did you? A. No. They are not terms that I was familiar with. I have never been to a financial planner, so I was … Q. When you went to see him, did you believe that you were going to see someone who was unaffiliated with any particular financial institution? A. Well, I hadn't been given that much information from my girlfriend, and I basically said, 'I am a teacher.' I sat and I listened, but before that, I didn't have many ideas about what it was. I just thought he was a financial adviser and that's who you go to to get advice. Q. Well, for example, if you had been informed by him that he was a National Mutual representative or agent, would that have surprised you? A. I don't know. Q. Was that different from what you believed when you saw him? A. I don't think I had a belief when I went and saw him initially, so I don't know how I would have reacted. Q. Was it different from the belief you had during the first meeting with him, that he - if he had said to you 'I am a National Mutual representative' or 'I am a National Mutual agent'? A. I don't know if I would have acted differently. I can't tell you." (my emphasis) 926 Later in her cross-examination, Eberts said that Kelly presented initially simply "as a financial adviser". It did not occur to her at her first or even second meeting with Kelly or when she signed the papers that he was a NM "agent" but she knew he was a NM agent "at some stage" of dealing with him. 927 For Eberts the term "agency" connoted an "exclusive" relationship which did not accord with her understanding of the relationship between Kelly and NM or with his role as an independent financial adviser. Therefore, although she stated in a NM "Status of Your Investment Questionnaire" that "Lance Kelly presented himself as an 'independent adviser' but on all occasions acted as an agent for NM", she explained that this merely meant that "he never gave [her] any alternative Ľ or presented any other company", which she presumably expected that he, as an "independent adviser", should do. 928 I find that Eberts' initial state of mind was that she believed that Kelly was an independent financial adviser. Then she came to understand that there was some business relationship between NM, Citibank and Kelly, based on nothing more than the fact that Kelly described the Package as if it was a "standard" or "regular" arrangement between the three of them. Notwithstanding what she said in her affidavit, I do not think Eberts understood that Kelly was a selling agent or representative of either NM or Citibank. Rather, her understanding was that Kelly was an independent financial adviser who regularly involved them both in his plans for his clients, and did business with them according to a regular pattern, but that is as far as her understanding went.

Barbara Anna Emery and Edwin Arthur Emery 929 Emery was introduced to Kelly by a friend, Brian James. Mr James told her that Kelly was a successful financial adviser. Mr James took Emery to Kelly's office where he introduced her to Kelly. 930 Emery stated in her affidavit that she believed Kelly was a NM agent who had a "special relationship with Citibank". 931 In cross-examination, she initially said that at her first meeting with Kelly, he claimed to be an agent of both NM and Citibank. She testified that at her first meeting with Kelly, he said to her: "I'm one of National Mutual's top earning agents. These are my awards I've won. I've done so well, I've been on overseas trips I've won from National Mutual". 932 In her cross-examination Emery said she understood Kelly to be a NM agent who derived remuneration from NM but "felt that he had some arrangement with Citibank, because he was an agent for them as well". She said, however, that she had formed this view "in hindsight". Later, and at the conclusion of her cross-examination, the following passage appears: "A. I understood that he was certainly National Mutual. I understood that he had a special relationship with Citibank, and that is all I can say on that. Q. That's what you say in your affidavit. That is really the extent of your recollection about the matter? A. That's right." 933 I am satisfied that Emery's understanding was that Kelly was a NM "agent" who had a "special relationship" with Citibank, the nature of which was not something on which she had any understanding at the time. I am not satisfied that it appeared to her that he was an "agent" or "representative" of Citibank, authorised by it to represent it or to act for it or on its behalf in selling Mortgage Power.

Daryl John Farrar and Debra Vicki Farrar 934 Farrar's sister-in-law, Gwen Farrar, introduced him to Kirby, who, she said, had "a fantastic investment opportunity". The Farrars met Kirby in FKB's office at Boronia. They were never introduced to Kelly. 935 Farrar gave the following evidence in his affidavit: "I never knew N Kirby was a National Mutual agent nor a Citibank agent. When he explained the investment to me … I thought he was simply using Citibank because they provided the best deal for us." 936 Farrar reiterated in his cross-examination that he did not believe Kirby was a NM agent, even though he understood that NM was paying Kirby a commission. The following passages from the cross-examination of Farrar are noteworthy: "Q. …you say you found that he was getting $300 and you did nothing about it? [Although the evidence is unclear, Farrar's affidavit suggests that the $300 paid to FKB was a reimbursement of application and discharge fees, rather than commission.] A. Because he had indicated that he was being paid, obviously, but the question I asked him at the time was, 'What will we be paying you?' as in physically paying out of our account to him. He indicated that that would be all looked after by National Mutual, whoever, and we would not be paying. Q. You are talking about commission now, are you; is that right? A. Yes, for his services in organising the - Ľ Q. Is the evidence that you have just given about that matter that you thought that he was going to get his commission from National Mutual? A. Correct. Q. Without getting it directly from you; is that correct? A. Correct. Ľ Q. You came to Kirby, through your then sister-in-law? A. Correct. Q. And did you understand her to be working with FKB Pty Limited? A. Yes. Q. Which you understood to be a National Mutual agent? A. No. Q. Not an agency- A. No. Q. - of National Mutual? A. No. Q. Didn't it have signs up? A. To my recollection certainly not outside their building. They shared offices with many other people, so they didn't have signage area, or whatever, outside the building, and I cannot recollect in their offices anything plastered on walls, or anything, to say that they were a National Mutual agent." 937 Farrar's conversations with Kirby were all at FKB's office. 938 I find that Farrar perceived Kirby's role to be that of an independent financial adviser, and not that of an agent of either NM or Citibank. Farrar dealt with Kirby on the assumption he was an independent financial adviser, not an agent of either NM or Citibank.

Sharn Stuart Fraser-Bell and Jennifer Jane Fraser-Bell 939 Fraser-Bell met Jones in the early eighties when he (Fraser-Bell) was living at home with his parents. He said Jones had been his parents' "insurance broker" for many years. Fraser-Bell himself had regular contact with Jones regarding his insurance requirements, and took out life, superannuation and sickness and accident policies through him. In late 1989 Jones telephoned Fraser-Bell and invited him to call at Jones' office so that Jones could tell him about something in which he thought Fraser-Bell would be interested. 940 Fraser-Bell stated in his affidavit that he knew Jones was a NM agent and understood that "Citibank was privy to the scheme and knew how it worked [and] … that Citibank was aware of what the Citibank loans were being used for." 941 In cross-examination, Fraser-Bell spoke of Jones' relationship with Citibank in terms of his having contacts at Citibank: "Q. Do you remember whether [Jones] said that the Citibank part of this deal was only available to National Mutual customers? A. It wasn't put in those terms. My understanding was the investment plan was only available through Citibank. At one stage he did mention that someone was trying to organise some other form of finance, or something slightly different - I can't remember, of course, but he did say it was causing problems and he didn't think they could do it, that the only way of doing this was through Citibank, because it had been set up and it was already in place. Q. Did you understand from that that it had been set up by National Mutual with Citibank? A. My understanding was that Dennis had made contacts with Citibank and those people were au fait with the investment plan, and he was dealing direct with them, and there was no problem with the finance. It had all been arranged. They were up to date with what was going on and that was how the finance was all [being] arranged. Q. So, in other words, do I understand what you are saying to be this: What you understood from Jones was that he personally had taken this arrangement to Citibank? Is that what you are saying? A. That was my understanding. Q. Not, in other words, National Mutual through anybody else, but he himself? In other words, he wasn't suggesting that this was done at top level in Citibank or National Mutual; he was suggesting that he personally had gone to Citibank? A. That was my understanding, yes." 942 In cross-examination, Fraser-Bell said he had always known Jones to be a NM agent: "Q. And he was known to you as a National Mutual agent? A. Yes. Q. At all times? A. Yes. Q. And you believed him to be a National Mutual agent right up till the end of your dealings with him in that capacity; is that right? A. That's correct. Q. That would be some time in the early 1990s? A. Yes. Q. And he had an office, did he, in Manly? A. Yes, he did. Q. Were there National Mutual insignias in that office, do you remember? A. Yes, there were. Q. Did he have on that wall some awards from National Mutual? A. Yes. Q. Plenty of them, almost like wallpaper? A. Numerous. Q. Numerous awards. Would it be right to say that in his office, the only company name that was on display was that of National Mutual? A. To the best of my recollection, yes." There was also the following passage: "Q. May we take it that the impression that you gained from looking around his office was the same as you had before you went to his office, namely, that he was a National Mutual agent? A. There was no question. Q. And you believed that was his sole job in life, to be a National Mutual agent? A. That's correct." 943 I find that Fraser-Bell thought that Jones was an agent of NM, but not of Citibank, and understood that he was dealing with Jones accordingly.

Paul Frederick Garden and Denise Valda Garden 944 Garden said Jones was a "nephew of [his] wife's foster parents" and that Jones had dealt with all the Gardens' insurance needs since about 1979 and was their only source of "financial advice". As at June 1989, the Gardens held five NMLA insurance policies. When Mrs Garden telephoned Jones on an insurance matter, he suggested the Gardens come to see him about an "idea" that was "great news". 945 Garden stated in his affidavit that he knew Jones was a NM agent but did not know what his relationship with Citibank was. 946 Garden was cross-examined on his understanding as to whom Jones was representing, at a meeting at Jones' office, which an unidentified man from Melbourne attended: "Q. On that occasion, Mr Garden, did you form any belief as to who, if anybody, Mr Jones was representing? A. As far as we knew from our personal knowledge of Dennis, he only worked for National Mutual." 947 Although Garden's evidence is vague on the point, he seemed to think that his solicitors, Morton and Harris, who complained on his behalf to NM in 1990/1991, had also complained on his behalf to Citibank. In fact a statement of claim filed in the Supreme Court of New South Wales in August 1993 on behalf of the Gardens by those solicitors named Citibank as fourth defendant (it named Jones and Martin William Barnes trading as "Manly Warringah Insurance Agents" as first defendants, Hacopian as second defendant and NMLA as third defendant). The evidence is too vague, however, to persuade me to conclude that back in 1990/91, the Gardens themselves, as distinct from their solicitors, thought they had cause for grievance against Citibank because Jones had acted as Citibank's representative. 948 The Gardens believed that Jones represented NM. I am not satisfied, however, that prior to entering into the transaction they also believed that Jones was authorised by Citibank to represent it or to speak for it or on its behalf in promoting Mortgage Power. Rather, they thought they were dealing with Jones as a NM agent alone, and that for convenience, he possessed a stock of Citibank Mortgage Finance Proposal forms.

Gregory Alan Jorgensen and Anne Maree Jorgensen 949 Jorgensen met Bahr through Bahr's son who was on the staff of the school where Jorgensen was also employed. Bahr gave a presentation about superannuation to the staff and shortly afterwards Jorgensen took out NM superannuation through Bahr. Subsequently, Bahr telephoned him and invited him and his wife to FKB's office to discuss "an investment". 950 Jorgensen's affidavit does not state his understanding of the relationship between Bahr, NM and Citibank. Nor does his cross-examination explore this issue. (The closest it came to doing so was when Jorgensen was asked whether he believed Bahr or NM was the culprit!) 951 Like the other Investors, Jorgensen was not concerned with the detailed terms of the deed of settlement with NM. He said he had seen it and any dealings between NM and its agents as "NM's business". Jorgensen's deed of settlement differed from the usual form in that while it contained an assertion that NM was liable for the actions of the agent, it was silent on the liability of Citibank. 952 I am satisfied that the Jorgensens assumed in dealing with Bahr that they were dealing with a NM agent. I am not satisfied, however, that he appeared to them to be also a Citibank agent or representative or as having authority from Citibank to act for it or on its behalf in selling Mortgage Power.

Frank Lorenz and Ann Gudrun Lorenz 953 Jones telephoned Lorenz and advised him that he (Jones) was replacing Trevor Bailey as Lorenz's "insurance agent". Lorenz said Jones became the Lorenzes' "insurance broker". He said that when Jones moved from AMP to NMLA he persuaded the Lorenzes to transfer their insurances to NMLA. Lorenz said he had "regular contact with D Jones concerning [his] insurance requirements". In November or December 1989, when Jones was at the Lorenzes' home discussing their insurances, he told them they could make a lot of money, and should call on him in his office to hear more. 954 Lorenz's affidavit statedthat Lorenz knew Jones was a NM agent and believed "the scheme was a whole package, with Citibank being an integral part of it". Lorenz maintained that he met Kelly either at the first or second meeting with Jones. 955 On Lorenz's behalf, Hocking sent NM a letter outlining details of the Lorenzes' claim. The letter contained the usual claim that the agent had failed to disclose any commercial or agency relationship with Citibank. Lorenz was cross-examined as to his understanding of the relationship between Kelly, Jones and Citibank and about Hocking's letter as follows: "Q. [Hocking] is putting forward on your behalf an allegation that National Mutual or Kelly or Jones failed to disclose any commercial or agent relationships, where such existed, with Citibank. If I can ask you about your meeting with Hocking, and what you thought then. When you spoke to Hocking about your dealings with Jones and Kelly, did you then believe that those men had been acting for Citibank? A. No, I didn't believe that then, no. Q. Because you wouldn't be complaining about them not disclosing relationships if you had been told of relationships? A. No. I don't understand what you mean. Q. What the letter is saying is that no relationship is disclosed to you, so you were telling Hocking that you knew of no relationship? A. Yes." 956 Lorenz knew, however, that Jones was a NM agent. I infer that Lorenz also understood Kelly to be a NM agent. He knew that Kelly had "created the plan". 957 I find that Lorenz believed that Jones and Kelly were NM agents, but not that he also believed Kelly or Jones or both to be agents or representatives of Citibank.

Phillip Ross Lowe and Deborah Joan Lowe 958 Lowe first met Jones when Lowe was a "nipper" at the Freshwater Surf Club where Jones was an "official" who was actively involved in the "nippers" programme. In late 1991 or early 1992 Jones approached Mrs Lowe in regard to "an investment arrangement" in which the Lowes might be interested. I infer that the Lowes already knew that Jones was a NMLA agent. 959 On entering the scheme the Lowes had a pre-existing Mortgage Power facility, the extension of which they feared would involve a fee. In his affidavit, Lowe said he believed Jones "had some arrangement with Citibank enabling the Negative Gearing Investment to be put in place". This belief was reinforced in Lowe's mind when Jones told Lowe that he (Jones) would take care of any such Citibank fee. The cross-examination of Lowe included the following: "Q. You already had your Citibank loan in place? A. Yes. Q. Didn't you? When you had your Citibank loan, you of course appreciated that the money that was available to you was part of the Mortgage Power loan for any purpose you wanted to use it for? A. Yes. Q. And the same would be true with the additional moneys to be made available to bring it up to $180,000? A. Yes. Q. When you had arranged your Citibank loan in the first place, I take it you had arranged it directly with some officer of Citibank? A. Yes. Q. In a branch or - A. In a branch at North Sydney. Q. And you didn't think that either Crawford or Jones or any of the National Mutual people you were dealing with were agents or officers of Citibank? A. No. I just thought that Dennis Jones knew someone in Citibank that - Q. Was your understanding this, that it was being proposed to you by National Mutual agents that you should increase your indebtedness to Citibank, so that you could obtain some money to be used in a National Mutual investment; is that correct? That's what you understood? A. Yes. Q. You didn't think that you were being approached by Citibank agents or servants or officers for that purpose, did you? A. No. Q. And, so, the paragraph that I have just drawn to your attention doesn't mean anything, does it, in that context, that you didn't think Citibank would have been offering to lend you money as part of the negative gearing scheme if [sic - unless] such a loan suited your financial position? That doesn't accord with your understanding of the matter at all, does it? A. I thought that Citibank wouldn't have wanted to see me go under, so to speak, and lose my house. So I thought that if they had seen anything wrong with extending the loan, the credit facility, they would have contacted me and let me know that something I was getting into might have been wrong. Q. But, you see, you didn't have to ring? A. That was the understanding I had with the bank officer. Q. You didn't have to ring Citibank and say, 'I'm going to use some of my Mortgage Power money for this purpose or any other purpose', did you? A. No. That was the nature of the loan. Q. The nature of the loan was that you could do what you liked with the money? A. Yes. Q. And the people you were dealing with were not Citibank people; they were National Mutual people? A. Yes. Q. And the only relevance of Citibank Limited was that you had a Mortgage Power loan which you could extend so as to enable you to do what you liked with the additional money; isn't that right? A. Yes. Q. Whereas paragraph 31 [of Lowe's affidavit, which stated: 'In particular I believed Citibank would only have been offering to lend more money to me as part of the Negative Gearing Package if such a loan suited my financial position.'] reads as if the whole negative gearing scheme was being put to you, not by National Mutual representatives but by Citibank representatives, doesn't it? You see that? Just read 31 to yourself. You see what I mean? A. Yes. I see what you mean, but I - Q. Was that paragraph suggested to you by somebody else? A. No. Q. It does appear, I can tell you, in most, not all, but most of the affidavits we have in this case, a paragraph in very similar terms to that, paragraph 31? A. Uh-huh. Q. What I want to suggest to you is that it doesn't really represent your state of mind at all. It is just language that was put to you by whoever prepared this affidavit; is that correct? A. No, because I think that the people that we originally dealt with at Citibank liked to make you feel that they were very much caring about what we were actually doing with our money and stuff like that. I really felt that if - if - they thought that I was doing something wrong, the officer who we contacted and made the loan with originally would have let us know. Q. Did you ring him up and say, 'Look, do you realise that what I am going to do here is act on a negative gearing scheme which was proposed to me by Mr Crawford or Mr Jones under which I am going to use some of your money for the first tranche and then National Mutual Property Services are going to lend me four times as much so I can have five times as many units as I could buy using your money?' Did you do that? A. No. I didn't ring her up at all. Q. No. Indeed, your only contact with Citibank itself about this matter was to say, 'This is to apply for an increase in the facility from $120,000 to $180,000,' and to be told, 'Yes, you can have that increase'; is that right? A. Yes. Q. And there wasn't even a need to revalue your house because it had been revalued for the purposes of the earlier facility within six months? A. I think there was another drive-by revaluation." (my emphasis) 960 I find that Lowe believed that in dealing with him, Jones was acting as an agent of NM. I am not satisfied that he appeared to Lowe to be an agent of Citibank or to be acting for or on behalf of Citibank in connection with the transaction.

Giuseppe Guido Minichini and Rosa Minichini 961 Minichini met Jones through Minichini's brother-in-law some 18 to 20 years prior to swearing his affidavit in 1997. Jones became "a close family friend" and attended the Minichinis' wedding in 1981. When Jones changed jobs (from AMP to NMLA) the Minichinis "transferred" three policies they had from AMP to NMLA. In early 1989 Jones telephoned Minichini and invited him and his wife to attend Jones' office to hear about an "investment" in which he thought they would be interested. 962 In his affidavit Minichini stated that he knew Jones was a NM agent, and, in relation to Citibank, only that he believed he had a relationship with Citibank which enabled him to "secure" the loan. 963 Minichini was not cross-examined on his perception of Jones' relationships with NM and Citibank. But he was cross-examined on his understanding as to whether the NM "salesmen" would receive commission and said it was "common sense" that they would. 964 Minichini could not say with certainty that the man from Melbourne who was present at the meeting with Jones was Kelly. He did, however, remember that it was Jones who wrote on the whiteboard, and I have treated Minichini as a Jones Investor. 965 I find that Minichini understood Jones to be a NM agent. Minichini's evidence does not, however, establish that he believed Jones was speaking or acting as representative of Citibank or for it or on its behalf.

Robert Leonard Parsons and Ngaire Carmel Parsons 966 Parsons met Wass in early or mid 1989 when she was the insurance agent for the Department of Administrative Services for which Parsons worked. The Parsons took out "a superannuation policy" for Mrs Parsons and Wass became the Parsons' "insurance agent". In October 1989 Wass telephoned Parsons and said she had a "scheme for investing money in property" which she thought would interest the Parsons. 967 Parsons stated in his affidavit that he believed Wass, Kelly and Jones had "some connection with Citibank". He stated that Wass gave him and his wife a form to sign which she told them was for the Citibank loan. They knew nothing of Citibank and did not know how to contact it. Wass was their only avenue of communication with Citibank. 968 In cross-examination Parsons said he could not recall there having been any references to banks in Jones' Manly office, and that he had believed that Wass, Kelly and Jones were working only for NM. His cross-examination included the following two passages: "Q. But while there was [sic - were] plenty of references to National Mutual around the Manly offices, I take it there were no references to any banks? A. Well - Q. No references up on the wall? A. As far as logos and that go, no, not that I can remember. Q. Did it ever enter your mind that commissions might be payable by any bank to Anna Wass, first of all? A. No. Q. To Lance Kelly? A. No. Q. To Dennis Jones? A. No. Q. And did it ever enter your mind that any of those people were working for any bank in any way, working for those banks? A. Not at that time, no. Q. The only company that you thought they were working for, if I understand your evidence, was National Mutual? A. Yes, that's correct. Ľ Q. I take it none of them [Kelly, Jones and Wass] ever told you whether they had actually been given any of this information [in relation to the expected growth in their money invested in the Package] from National Mutual or not, as such, but I take it they never told you that, or did they? A. No, I can't remember them ever saying that. Q. But was it your belief that whatever you were being told by these people was company policy of National Mutual? A. Yes." (my emphasis) 969 Like the other Investors, Parsons had no role in drafting the deed of settlement with NM. In his case the deed referred only to Wass and Jones, and not to Kelly, although Kelly was in fact involved. This omission is a particular illustration of the unpersuasiveness of the standard form of deed. 970 Parsons was cross-examined on his understanding of Wass's relationship with NM as follows: "Q. Did you understand her [Wass] to be a National Mutual agent? A. I just thought she worked for National Mutual. Q. Worked for National Mutual? A. Yes. Q. Did she give you a card at any time with National Mutual's logo on it or name? A. She has give [sic - given] me a few cards over the time. It used to have National Mutual up the top, and Anna Wass. Ľ Q. Where were her offices? A. I have seen her at three offices, one at Dee Why, one at Manly and one at Mosman. Q. And were any of those her own offices, as you understood it? A. They were National Mutual. Q. All National Mutual? A. Yes. Q. Ľtheyhad National Mutual signs on the premises? A. Yes." Parsons understood Jones to be a NM agent also: "Q. So, Dennis Jones and Anna Wass - did she introduce you to Dennis Jones as a National Mutual agent? A. I can't remember now. Q. Did you understand him to be a National Mutual agent? A. Yes, I did. Q. We have heard some other evidence about his Manly office. Was there anything on the wall about Mr Jones, do you remember any awards on the wall, National Mutual? A. No, I can't remember. Q. Do you remember there being a whole lot of framed pieces of paper on the wall in his office? A. We went into a room that was just a little bit smaller than this, and it had a big conference table and it just had a whiteboard there. I really didn't pay too much attention to what was around the walls or whatever." As can be seen from Parsons' cross-examination at [968] above, he also understood Kelly to be a NM agent. 971 It is interesting to note that the assessor's "Claim Assessment Report" for the Parsons recorded that the reason they had given the assessor for having accepted the Adviser's recommendation to invest was greed and the fact that they had trusted Wass and NM (they did not mention Citibank). The report records that the Parsons referred to Wass as "their NMLA agent" (the words of the report) and that they had viewed Wass as their "trusted insurance agent". 972 I am not satisfied that the Parsons understood Wass, Jones or Kelly to be a Citibank agent or representative or as having any authority from Citibank to sell Mortgage Power for it or on its behalf. They did however, understand that all three were NM agents and were representing NM in connection with the transaction.

Gary Allan Pickworth and Tina Jane Pickworth 973 Pickworth first met Jones when Pickworth was twelve years old and Jones was his football coach. Later when Jones was an insurance agent of AMP, Pickworth took out insurance through him, and later still, after Jones had transferred from AMP to NMLA, Pickworth "switched" the policies to NMLA. In his affidavit, Pickworth stated: "I regarded D Jones as my insurance agent and left all my insurance needs up to him." In about November 1989, Jones contacted Pickworth about "an investment idea" in which he might be interested." 974 In regard to Jones' relationship with Citibank, Pickworth merely stated in his affidavit that he believed Jones could "organise the Citibank facility". 975 Pickworth's initial cross-examination did not explore his perception of the relationship between Jones and Citibank or Jones and NM. The closest it came to doing so was in the following passage: "Q. And did he [Jones] make any statements to you about whether that facility [the Mortgage Power facility] was available from other banks? A. No, I do not think there was any other - as far as I knew. Q. In terms of what he actually said to you, can you recall what he said to you? A. ĽI got the impression that the whole - Citibank was all tied up, and that is the way we were going to go." 976 Pickworth later testified that he believed that in his dealings with Jones, Jones was acting solely as a NM agent: "Q.Did Jones tell you anything about commissions? A. No. Q. Did you have any information that he was a commissioned agent dealing with you, D. Jones? A. I never really Ľ thought about it. Q. You knew him as a National Mutual agent? A. Yes. Q. And that is what you believed he was when he was advising you, a National Mutual agent? A. Yes. Q. And nothing else? You didn't believe him to be acting independently for example? A. To no-one else, no." 977 I find that Pickworth understood Jones to be an agent of and to represent, NM, but not Citibank, in connection with the transaction.

Peter John Quaife and Gail Christine Quaife 978 Michael Dunn, a friend of Quaife, introduced Quaife to Kelly and about a year later advised Quaife to telephone Kelly about "an investment programĽknown as a negative gearing investment". Quaife thought Mr Dunn, who worked in Kelly's office, arranged Quaife's first appointment at Kelly's office. 979 In his affidavit Quaife testified that he believed Kelly had represented Citibank and that Kelly had said he was an agent for Citibank. But his cross-examination on the matter was as follows: "Q. But you did understand him [Kelly] to be a National Mutual because he told you that he was? A. Yes. Q. And you understood him to be working in some way with National Mutual; is that right? A. Yes. Q. Either on a salary or on a commission? A. Either way. I didn't know Ľ Q. But the only possible source of income of which you were aware was National Mutual? A. Okay, yes. Q. That would be right? A. Yes. Q. For example, you didn't think he was working for other insurance companies? A. No. Q. Or for any bank? A. Until Lance said to me about the loan from Citibank - Q. Yes? A. I guessed he was working for him [sic - it] then, because he told me there would be no problems in getting a loan. Q. That is the full extent to which he referred to Citibank, that he thought there would be no problems in getting a loan? A. He didn't think. He said there would be no problems in getting a loan. Q. But beyond that, there was nothing he said to you to indicate any relationship he might have with any bank? A. He said to me, There will be no problem in getting a loan from Citibank because I am an agent' - I am fairly certain he said I'm an agent for Citibank' - a loans officer, or something. Q. Pardon? A. Or it could have been a loans officer for Citibank. Q. You have just said, first of all, that he told you that there would be no problem about the loan? A. That's right. Q. You can remember him saying that, if I understand you? A. Yes. Q. And then you are not sure, is this right, whether he said anything more than that at all, or you're not sure? A. I'm not sure, no. Q. But you think he may have said more than that? A. That's right. Q. And then, if he did say more than that, is this right, you are not sure what more he may have said, whether he referred to a loans officer or an agent; is that correct? A. That's correct." 980 The unsatisfactory nature of Quaife's testimony on the matter may be explained by the fact that he was in a serious car accident when he was seventeen years old and (he agreed) had a poor memory. 981 Quaife also agreed in cross-examination that he had understood Citibank's role in the scheme to be merely that of a lender: "Q. So would it be right to say this, that the role of Citibank as you understood it in this transaction, was as a lender only? A. Yes. Q. And it was lending on the security of your house $90,400? A. Yes. Q. $55,000 of which would go to the earlier mortgagee and the rest was up to you to do with as you wished? A. Yes. Q. And it was not your belief that Citibank was in any way supervising, or even aware of, what you were doing with the rest of the money? A. That's correct." 982 Quaife understood Kelly to be a NM agent. Before entering the scheme Quaife had a mortgage with the National Mutual Royal Bank (not organised by Kelly) and this fact gave rise to the following cross-examination: "Q. When you decided to go into the Citibank transaction, was it any matter of comment between you and Kelly that the bank that you were leaving in order to go to Citibank was the National Mutual Royal Bank? A. No. Q. In other words, did you understand him to be a National Mutual agent? A. I did then, yes. Q. And did you understand the National Mutual Royal Bank to have some connection with National Mutual? A. No. Q. You didn't? A. No."(my emphasis) 983 Quaife could not recall seeing any awards on the walls of Kelly's office, the details of Kelly's business card or Kelly's having mentioned anything about his position in NM. However, he recalled Kelly stating that he was a NM agent. I find that Quaife understood Kelly to be a NM agent. 984 Quaife also understood that Kelly was in a position to assure him that there would be no difficulty in his obtaining a loan from Citibank. I am not satisfied, however, that Kelly said anything about his being an "agent" or "loans officer" of Citibank. Quaife's testimony on the issue was unsatisfactory. At the time of Kelly's conversation with Quaife, LKFM had not been appointed an agent of Citibank. It is unlikely that Kelly would have said he was an "agent" or a "loans officer" when he was neither. Kelly may have said things that gave Quaife to understand that he was in a position to process that application or to know it would be successful. Even if Kelly said that he was an "agent" or "loans officer" of Citibank and on that basis appeared to Quaife to hold some such position, they were a statement and an appearance for which Citibank was not responsible, since Kelly lacked any actual authority from Citibank at the time: Crabtree-Vickers.

Peter James Richards and Beverley Anne Richards 985 In early 1988, Ken Courtney, a fellow employee at Coca Cola, recommended that Richards go and see Kelly for financial advice. The Richards went to see Kelly at his home (later they were to meet in Kelly's office at Cheltenham). The presentation given by Kelly on that occasion did not concern the Package, but instead, the Richards' taking out insurance with NMLA and obtaining finance from RESI Statewide Building Society in order to purchase an investment property. In April 1989 Richards resigned from Coca Cola and commenced work with Leigh-Mardon Pty Ltd where he earned significantly less than he had during his employment with Coca Cola. Soon after resigning from Coca Cola, Richards organised a meeting with Kelly as he (Richards) was concerned about meeting payments on the insurance policies and RESI loan. It was on that occasion that the Richards were introduced to Blee and to the Package. 986 Like Eberts, Richards stated in his affidavit that he knew that Kelly and Blee were NM agents and believed that Blee "also represented Citibank": "I knew L Kelly and A Blee were National Mutual agents. When A Blee explained the Negative Gearing Investment to meĽincluding the need to obtain a Citibank Mortgage Power Loan, and gave me the Citibank form Ľ I believed he also represented Citibank. I had never previously heard of Citibank." 987 In cross-examination, Richards could not recollect Blee saying anything about his relationship with Citibank and could recall only that his understanding at the time was that the "package was set up". Although Richards did not specify the nature of the relationship between Kelly and Citibank that he believed existed, he came to understand as his dealings with Kelly progressed "that Citibank was involved": "Q. The only company that you ever believed Mr Kelly represented was Ľ National Mutual; isn't that right? A. At the outset yes. Q. Pardon? A. At the start, yes. Q. What do you mean 'at the start'? A. Well, it seemed to become clear further down the track that Citibank was involved. Q. Citibank was involved with what? A. This other scheme that- what is his name - Q. Blee? A. Exactly. Q. But at the moment I was asking about Mr Kelly, not Mr Blee, you see. You never knew of any association between Mr Kelly and any other company than National Mutual? A. That's right. Q. I think you told us that you had been told even before you met Mr Kelly by your workmate that he was an agent for National Mutual, isn't that right? A. No. I think from memory he said he was a financial adviser. Q. No, but didn't you tell me that you had been told that he was a National Mutual agent even before you met him? You told me that today, didn't you, at the hearing today? A. That became clear at that first meeting." 988 In cross-examination, senior counsel for Citibank attempted to have Richards accept that there was a similarity between his perception of Kelly as an "introducer" for the RESI Statewide Building Society in relation to an earlier purchase of property by the Richards, and Kelly's role in promoting his Negative Gearing Package. His testimony in cross-examination as a whole again suggests that Richards believed there was some relationship, albeit unidentified, between Citibank and Blee: "Q. What did Mr Kelly have to do with RESI Statewide, as far as you understood it? A. Purely as an introduction, I would say. Q. And that was your belief in 1988? A. Yes. Q. You didn't think he was in any way part of the RESI Statewide Building Society, did you? A. Not to my knowledge. Q. No. And the fact that he had a loan application form for you to fill out did not make you think that he had something to do with the RESI Statewide Building Society? A. No. Q. Is this right, because the mere fact that somebody might have forms for a financial institution didn't mean to you that that person was in some way related to that financial institution? A. Didn't enter my head." The cross-examiner took up the matter again: "[D]o you remember telling me that, in effect, the fact that Kelly produced to you an application form from RESI Statewide did not suggest to you that Kelly had any particular relationship with RESI Statewide other than that introduction. You remember telling me that? A. That's right. Q. And when, later in 1989, either Penny Van Minnen or Mr Blee produced this form of document, the Citibank Mortgage Finance Proposal, I suggest to you that similarly that would not have suggested to you that there was any particular relationship between Van Minnen and Citibank or Blee and Citibank? A. I do not know. Q. You don't know. You didn't know what their relationship may have been with Citibank? A. Not really. I just presumed it was part of their - of the whole business. Q. You say 'presumed it was part of the whole business'. That is what you presumed the previous year when you signed the form for the RESI Statewide, isn't it? A. Well, it is a normal course of events when you are taking a mortgage out. Q. But it didn't occur to you the previous year that the fact that Kelly had the form for RESI Statewide meant that Kelly was associated with RESI Statewide himself, did it? A. I do not know this. Q. No. And, similarly, in 1989, when Van Minnen or Blee produced this form to you, that didn't satisfy you that there was any particular relationship between Citibank and them, did it? A. Well, I presumed there was some sort of an agreement. Q. But you didn't presume it the previous year when Mr Kelly showed you a form from RESI Statewide, did you, or did you? A. I presumed it was just a normal thing. Whether he was acting as an agent for RESI Statewide, I do not know. Q. And similarly, whether Mr Blee or Penny Van Minnen were acting as an agent for Citibank you don't know either? A. That's right." (my emphasis) 989 It was Richards' belief that Kelly and Blee would receive commissions from Citibank in relation to his Mortgage Power application. When Richards read in the newspaper that Kelly had been banned by the ASC from operating as an investment adviser, it was to NM and not to Citibank that he wrote. 990 Richards' testimony in cross-examination as to the relationship between Kelly and NM was as follows: "Q. ĽI suppose you read in the paper that he had been a National Mutual agent; would that be right? A. I was always led to believe he was a National Mutual agent, even from when I was told about him from the chap at work. Q. So he told you when you met him that he was a National Mutual agent? A. Mmm. Q. The chap at work? A. [The witness nods] Q. And you never had any other belief about him? A. No, no. He had a business card, from memory, that had National Mutual written on it. Q. Do you remember seeing that, do you? A. Yes, I do." 991 Richards said he was under the impression that Blee was also a NM agentas he (Blee) sat in on Kelly's initial presentation to the Richards that lasted until about 3 am, in, he thought, 1988: see [985] above. 992 Richards believed Kelly and Blee to be NM agents, but I am not persuaded that he understood either of them to be similarly an agent of Citibank authorised to speak for it or on its behalf in selling Mortgage Power, as distinct from a mere, perhaps regular, introducer of business, and, as such, familiar with Citibank's forms and requirements. I am not dissuaded from this view by Richards' testimony that he assumed that Kelly and Blee would receive commissions from Citibank.

Dominic Tavoletti and Melina Tavoletti 993 Tavoletti met Jones through friends who had bought insurance policies through him. Jones attended the Tavolettis' wedding. Tavoletti stated in his affidavit: "We regarded [Jones] as our insurance agent as well as a casual friend. He would visit our home socially on occasions such as Christmas." In mid 1989 Jones called on the Tavolettis at their home and told them he had "a really great scheme". The Tavolettis called on Jones at his office by arrangement to hear more not long afterwards. 994 Tavoletti stated in his affidavit that he believed Jones was a NM agent who had an arrangement with Citibank to get loans approved. According to Tavoletti, Jones "presented the Citibank line of credit as part of the scheme" and "there was no option as to whether you took it out or not." 995 The Tavolettis engaged Hocking to complain on their behalf to NM. A letter by Hocking to McDonald of NM made the usual allegation that Jones had failed to disclose any "commercial or 'agent' relationships [where they existed] with Citibank and/or other parties". In cross-examination on this matter, however, Tavoletti stated unequivocally that he had not believed that Jones had a relationship with Citibank, and that at the time of engaging Mr Hocking he had had no knowledge of any relationship between Jones and Citibank. 996 The Tavolettis' understanding was that Jones was a NM agent, but not an agent of Citibank authorised to speak for it or on its behalf in selling Mortgage Power.

David Bruce Weaver 997 Weaver's friend, Ian Peterkin, who had already met Kelly and had attended one or two presentations of the Package, suggested Weaver accompany him to a presentation of the Package at Jones' office at Manly. Weaver did so. 998 In his affidavit, Weaver said he believed Kelly had "some relationship with Citibank which meant he was in a position to get the loan approved". Citibank was the only bank mentioned by Kelly, and Weaver understood Citibank to be the element which instigated the whole scheme. No doubt Weaver meant by this that it was the borrowing from Citibank which, by enabling acquisition of the initial units, provided the "springboard" for Kelly's Package as a whole. 999 Weaver was not cross-examined as to his understanding of Kelly's and Jones' relationship with Citibank. 1000 Weaver stated in his affidavit that he knew Kelly to be a NM agent and gave oral evidence that he thought Kelly was "working for [NM]". 1001 Weaver's Claim Assessment Report records that he acted on Kelly's and Jones' recommendations, as: "Adviser was trusted, because of National Mutual backing, National office, managers of branch, top performers." 1002 In cross-examination, Weaver elaborated on this evidence as follows: "Q. This answer of the assessor's [Geoffrey Wall's] seem[s] to be that the adviser was trusted because of National Mutual backing National office? A. True. Q. Is that Mr Kelly? A. Mr Kelly and Mr Jones. I think they were in the round table or something. They were both recognised as top performers. Q. Did they tell you that? Did one of them tell you that? A. Yeah. I remember seeing a certificate or, you know. Q. You saw a certificate on the wall, did you? A. Yeah, something like that. Q. Did that give you some confidence in what you were being told? A. I think so." 1003 According to his claim assessment report, Weaver also stated: "…cannot understand why this was allowed to go on by National Mutual, nor why National Mutual had not stopped the reinvestment of income." 1004 In my view, Weaver believed, when dealing with them, that Jones and Kelly were acting for and on behalf of NM, not Citibank.

Barry Philip West and Jacqueline Anne West 1005 In his affidavit, West stated that a NMLA agent named Blakelock came to Qantas in about 1987 "selling insurance policies/investment plans" to Qantas employees. As a result, the Wests bought "Flexible Security Plans" for West, his wife and their three children. Later, Mr Blakelock telephoned West about a "magic plan" he had. It was arranged that West would meet Mr Blakelock and Jones at Jones' office in Manly. 1006 West's affidavit states that West knew Jones was a NM agent and that "When [Jones] explained the Negative Gearing Investment … including the need to obtain a Citibank Mortgage Power Loan, [and gave him the Mortgage Finance Proposal] [West] believed [Jones] knew people at Citibank who could arrange the finance, and that Citibank was an integral part of the plan." West was cross-examined on this testimony as follows: "Q. There are some other paragraphs in your affidavit I wish to take you to. Under the heading 'Citibank', there is a paragraph 27, page 8 [the reference is to the testimony referred to above]. Would you mind going to that please. A little earlier today I asked you some more detailed questions about that matter, but, Mr West, the first sentence is: 'I knew D Jones was a National Mutual agent.' There is no doubt about that; you did? A. That's right, that's true. Q. And he was, in effect, dealing with you throughout, as your understanding, as a National Mutual agent? A. That's correct. Q. The second sentence is the basis upon which you have signed an affidavit, including the second sentence, that, first, he explained to you that this Citibank mortgage power mortgage was available only to National Mutual clients who were going into the negative gearing investment, and he was able to arrange that for you because he was a National Mutual agent? A. That is the impression I got. Q. That is the impression you got and it was because you believed those things that you were prepared to sign the affidavit saying what the second sentence of paragraph 27 says; is that correct? That was your basis of being prepared to say what was in paragraph 27? A. I didn't know it was a mortgage power loan until it was approved. Q. No? A. He just said, 'We can get funds from Citibank' - 'we' - that is all he said. Q. We, National Mutual - A. He didn't say National Mutual. He said 'we'." 1007 In cross-examination, West said Jones told him that he was a NM agent: "Q. Did Jones tell you that he was a commissioned agent? A. Only for National Mutual. Q But did he tell you that he was a commissioned agent or did he just say he was an agent for National Mutual? A. He just said he was a National Mutual agent." 1008 A letter from Hocking to McDonald of NM in relation to West's settlement with NM made the common allegation, previously referred to, of a failure by Jones to disclose "any commercial or 'agent' relationships [where such existed] with [NM], Citibank and/or other parties". West's cross-examination in relation to this allegationmerely revealed that he believed there was some relationship between Citibank and Jones, as Jones had given him the impression that only he (Jones) could arrange the Citibank loan and that it was not available to the general public: "Q … If I understand what you have said, you did understand that he was a National Mutual Agent? A. I did. Q. But you did not understand, do I take it, that there was any commercial or agent relationship with Citibank? A. How he put that was, when I found out it was a mortgage power [facility], anyone can get them. That wasn't told to me at all these meetings. He was the only one who could secure the loan from Citibank. No mention of Mortgage Power. He said it was done between Citibank and National Mutual as a special deal, 'only I can do it', or words to that effect." and: "Q. The way in which he explained to you that he was able to do that was because of his connection with National Mutual; is that right? A. That's correct. Q. National Mutual he was saying, had this special deal with Citibank, and he as a National Mutual agent was able to introduce you to it? A. That's correct." (my emphasis) 1009 Of course the true position was that anyone could apply for a Mortgage Power facility and that there was no "special deal" between NM and Citibank at all. In so far as Jones gave West the impression that it was only through him or NM that he (West) could access Mortgage Power, he misled West. 1010 West agreed he was not aware of having made a claim against Citibank similar to the one he made against NM, and he in fact still retained the Mortgage Power facility after settling with NM. 1011 In West's case, according to the Pleading, "Citibank rang the Investor and said the loan was approved and to contact Jones". West's affidavit testimony was that shortly after he and his wife received Citibank's letter of offer dated 2 November 1989, he received a telephone call as follows: "My name is Cathy. I'm from Citibank. Your loan has been approved. I suggest you contact DennisJones." 1012 West maintained in cross-examination that he had indeed received a phone call from "Cathy" at Citibank informing him that his loan had been approved and that a letter was on the way to him, and asking him to let Jones know. He also maintained he had been directed by Jones to speak only to Cathy if he ever rang Citibank. In fact, however, West had only the one conversation with Cathy. It was put to West in cross-examination that Citibank had not been able to identify a "Cathy", but West adhered to his testimony on the matter. 1013 The first observation to be made is that the conversation in question is one that post-dated any conduct that induced West to apply for the Mortgage Power facility. Indeed, it occurred after Citibank had decided to grant the facility. In my view, the evidence is equally consistent with Jones' being NM's agent or a non-agent independent introducer, as with his being a representative of Citibank. (Citibank's TQC Mortgage Checklist referred to the "Agent" as Kelly, Agent No 2524885018, and to the purpose of the loan as being to pay out an existing mortgage and to invest in NM Property Trusts "with Lance Kelly", while other documents referred to Kelly as the "introducer" of the Wests.) I do not think that the telephone call constitutes evidence that Citibank had previously authorised Jones to act as its representative or for it or on its behalf in promoting and selling Mortgage Power. Citibank understood that Jones was West's financial adviser and that, as such, Jones had introduced him to Citibank. In that context a suggestion by Citibank that West contact Jones did not point to Jones' being an agent of Citibank. 1014 West believed that Jones was a NM agent but I do not think he believed that Jones was authorised by Citibank to represent it or to act for it or on its behalf in selling Mortgage Power to him. West did believe, on the basis of Jones' statement, that the Package was a special NM-Citibank arrangement which he could access through NM, but that is a different matter. He dealt with Jones on the footing that he was an agent of NM, not of Citibank.

Conclusion 1015 My findings based on the evidence to which I have referred in this chapter can be summarised as follows:

Adviser Did Investor understand Adviser to be acting as selling agent of NM in transaction? Did Investor understand Adviser to be acting as selling agent of Citibank in transaction? Investor Alder Jones, Roberts Yes No Appelman Kelly Yes No Bachmann Buttars, Blee Yes No Boulter Kelly Yes No Crawford Jones Yes No Daniels Naughton, Kelly Yes Yes Douglass Blee, Jones Yes No Eberts Kelly No No Emery Kelly Yes No Farrar Kirby No No Fraser-Bell Jones Yes No Garden Jones Yes No Jorgensen Bahr Yes No Lorenz Jones, Kelly Yes No Lowe Jones Yes No Minichini Jones Yes No Parsons Wass, Jones, Kelly Yes No Pickworth Jones Yes No Quaife Kelly Yes No Richards Kelly, Blee Yes No Tavoletti Jones Yes No Weaver Kelly, Jones Yes No West Jones Yes No

1016 NM held out all the Advisers as its agents with authority to sell its products, including insurance products, and, more importantly for present purposes, its investment products, such as units in the Property Trust and in the NM Equity Imputation Fund. All the Investors, except Eberts and Farrar, believed that the Advisers with whom they respectively dealt were NM agents with authority from NM to represent it and to act for it and on its behalf in selling those products, and that they were acting in that capacity when presenting the Package to them. 1017 Except in the case of Daniels, Citibank did not hold out any of the Advisers to the Investors as its agents or representatives with its authority to sell Mortgage Power for it or on its behalf. None of the Investors except Daniels believed that the Adviser with whom they dealt was a Citibank agent or representative with such authority. Generally speaking, the Investors thought that the Advisers were in a position in relation to Citibank which enabled them to be confident that their (the Investors') applications for Mortgage Power finance would be approved. However, they could only speculate as to what the relationship, if any, between the Advisers and Citibank might be that placed the Advisers in that position. The confidence to which I referred was consistent with mere familiarity, based on past experience with Citibank's practices, policies and requirements in relation to Mortgage Power borrowings. Even if an Adviser did appear to an Investor to be an agent for Citibank, Citibank was not, except in the case of Daniels, responsible for that appearance: in particular, the supply of its stationery was not a relevant holding out of an Adviser as its agent to sell Mortgage Power. 1018 In so far as apparent authority may be relevant in the present context of vicarious liability in tort, there is no scope, except in the case of Daniels, for basing a vicarious liability of Citibank on the Advisers' having had operative apparent authority from Citibank. And even as to Daniels, the apparent authority in question is no wider than an apparent authority to promote and sell Mortgage Power, but, as decided elsewhere, the statements complained of lie outside the class or scope of statements authorised by an appointment of an agent to promote and sell Mortgage Power.

CHAPTER 6 ACTUAL AUTHORITY OUTSIDE LKFM'S AGENCY AGREEMENT OF 3 APRIL 1989

Introduction 1019 In most of this chapter I am concerned to examine the evidence, outside LKFM's agency agreement of 3 April 1989, on which NM relies to establish that Kelly and the other Advisers possessed actual authority from Citibank. In the case of Kelly, this evidence assumes special significance in relation to the Investors he introduced prior to the appointment of LKFM as an agent of Citibank on 3 April 1989. There is only one of these: Quaife. In relation to Quaife, NM can rely only on the facts referred to as establishing a grant of authority. NM also relies on facts extraneous to the agreement as showing that even after 3 April 1989 Kelly's actual authority was wider than that given by his agency agreement of that date. Finally, NM relies on such facts to establish that Jones and the K/J Associates were not "mere introducers" but were authorised by Citibank to act as its representatives and for it and on its behalf in selling Mortgage Power. 1020 Before I turn to that evidence, it is appropriate to note again the general context. The Colonial principle requires the presence of some actual authority in A, namely, actual authority to represent or to act for or on behalf of P in soliciting persons to enter into transactions with P. P will then be vicariously liable in respect of statements made by A which are within the "scope" or "class" of statements that A was authorised by P to make on its behalf by reason of that grant of actual authority. I see no difference, for the purpose of questions of vicarious liability, between this notion of the scope or class of authorised statements and that of statements made "in the course of the execution of the agency". 1021 As noted in Chapter 3, not every person who introduces one person to another for the purpose of their making a contract is necessarily an agent of that other (cf Branwhite; Custom Credit Corporation Ltd v Lynch, both above) and Citibank distinguished in the course of its business between mere introducers of business and the "agents" it appointed. The real estate agents, accountants, solicitors and insurance agents who, for the benefit of their clients, introduced them to Citibank, would not, without more, be agents or representatives of Citibank capable of enlivening the Colonial principle and therefore of rendering Citibank vicariously liable by making negligent statements to their clients, even about Mortgage Power, let alone about "their own product". The reason is that they would not have any authority at all from Citibank to represent it or to act for it or on its behalf in soliciting business for it. 1022 It is perhaps instructive to consider an example. Assume that a real estate agent had a dilapidated building for sale and thought that a buyer might find it convenient to have a form of financial accommodation which would enable him or her to purchase the property and to renovate it progressively. Let it be assumed that the real estate agent, being aware of Mortgage Power, thought it ideally suited for the purpose, in particular, because it would be a matter for the buyer how often and in what amounts to draw on the facility, and because interest would accrue only on the debit balance outstanding from time to time. The real estate agent might make various kinds of representations and recommendations calculated to induce the buyer to buy the property and to obtain the facility from Citibank. He or she might make misrepresentations about the nature of Mortgage Power itself, about the property, or about the suitability of Mortgage Power for the purpose in view. In none of these cases could Citibank be rendered vicariously liable. The reason is that there would not have been between Citibank and the real estate agent an antecedent legal relationship of a kind required by the law as an element of vicarious liability. In particular, and in terms of the Colonial principle, Citibank would not have appointed the real estate agent its representative with authority to make statements for it or on its behalf to induce persons to apply for and to take the Mortgage Power product. 1023 No doubt, a mere introducer of business to Citibank could become an agent of Citibank without, or prior to, the formality of a written agency agreement. But since actual authority depends on consensus, due respect must be accorded to Citibank's intention that there be a distinction between mere introducers and its appointed agents, a distinction that I infer was known to the other Advisers because of the practice according to which their clients' applications could be and were forwarded by them to Kelly for submission to Citibank. 1024 Any "appointment" of an agent must pre-date the solicitation in question. In the case of LKFM, the written agency agreement of 3 April 1989 established a régime which governed the relationship between LKFM and Citibank in respect of solicitations by Kelly after that date. There was no comparable régime governing the relationship between Citibank and the other Advisers. I accept that a pattern of informal dealing between Citibank and a particular introducer could establish such an agency régime. That is, it is possible that an introducer became possessed at some point in time of actual authority from Citibank for the purpose of the Colonial principle, and so passed from the status of mere introducer to that of agent. It seems to me, however, that this is a difficult case for NM to make. How is the informal transmogrification from the role of introducer to that of agent to be reconciled with Citibank's insistence that its agents be limited to persons formally appointed as such, following the vetting of them by Citibank? 1025 What is to be looked for in this chapter is not simply evidence that Citibank knew that an Adviser was following a systematic course of introducing his or her clients for the purpose of their obtaining Mortgage Power accommodation, or that Citibank knew that an Adviser was recommending that Mortgage Power was suitable to enable acquisition of a NM investment product, or that Citibank profited from the Adviser's introductions, or that the Adviser was familiar with Citibank's requirements and policies. What is to be looked for is evidence that Citibank actually authorised the Adviser to act as Citibank's representative or for Citibank or on behalf of Citibank in selling Mortgage Power. 1026 There is, however, the distinction, previously referred to, between the general class or scope of authorised statements and a particular tortious statement that is actually authorised. The former is the concept invoked by the Colonial principle. A's tortious statement, such as a defamatory or fraudulent one, falling within that class or scope will render P vicariously liable even though the particular defamatory or fraudulent statement was not itself authorised. This chapter is concerned with both the "general class or scope of authorised statements" issue and the "particular tortious statement actually authorised" issue. 1027 NM's submissions involve some difficulty. While they are to the effect that Kelly, Jones and the K/J Associates had actual authority from Citibank to make all the statements they made, often the cross-examination of Citibank officers (some of which is referred to below) referred only to Kelly. NM's submission is that all of Kelly, Jones and the K/J Associates were "the voice of" Citibank, and so much stood in its place in dealing with the Investors that anything they said that was calculated to induce the Investors to invest in accordance with the Package was said with the actual authority of Citibank. That is, NM does not submit that Citibank knew and approved of each of the numerous particular statements referred to in Schedules 2 and 4 (Annexure 1 to these Reasons), but submits that Citibank actually authorised all of those individual statements nonetheless because Kelly, Jones and the K/J Associates were Citibank at the point of sale. As ever, it must be recalled that NM would not welcome a conclusion that Citibank incurred only vicarious liability to the Investors against which it would be entitled to be indemnified by the Advisers. 1028 NM's submissions do not emphasise LKFM's written agency agreement. Rather, NM points to the many other facts referred to below with a view to showing that by virtue of them, Kelly, Jones and the K/J Associates were Citibank at the point of sale. 1029 Against the above background, I turn to consider the evidence on which NM relies to establish both the class or scope of statements which the Advisers (including Kelly) had authority from Citibank to make on its behalf (potentially giving rise to vicarious liability), and the actual authority they had from it to make particular tortious statements on its behalf (potentially giving rise to direct liability).

The evidence on which NM relies as showing that the Advisers had actual authority from Citibank to sell Mortgage power as its representatives and for it and on its behalf, outside the written agency agreement between Citibank and LKFM of 3 april 1989

Introduction 1030 NM submits that the following activities were left by Citibank to the Advisers and that the confiding of these tasks to them establishes that they were its agents:

1. Promoting and selling Mortgage Power as part of the Negative Gearing Package;
2. On behalf of Citibank, answering questions from the Investors;
3. Conducting all face-to-face dealings with the Investors on behalf of Citibank;
4. Completing mortgage finance application documents when closing sales;
5. Making contracts between Citibank and the Investors at point of sale;
6. Discharging various legal obligations of Citibank; 7. Performing the functions of a Citibank branch; 8. Obtaining information on behalf of Citibank, including information concerning the needs and financial circumstances of the Investors; 9. Quality control; 10. Delegation of authority. 1031 I will address these alleged activities in summary form, in turn, generally following the structure of NM's submissions.

1.1 Promoting and selling Mortgage Power as part of the Negative Gearing Package 1032 Citibank knew that the Advisers were NM agents and were promoting Mortgage Power to their clients to enable them to acquire NM units and policies. A comparable observation could have been made of the car dealer in Branwhite. To say that Citibank knew that the Advisers were promoting Mortgage Power "as part of" the Package raises two questions: the extent of Citibank's knowledge of what the Advisers were saying to their clients; and the difference between knowledge that the Advisers were saying something and authority to say it "as a representative of", or "for" or "on behalf of" Citibank. In my view, the notion of "authorisation" relates to a point of time prior to the making of the statement in question, and requires at least that the Adviser was not entitled to make the statement if Citibank objected, that is, that Citibank was entitled to prevent the Adviser from saying what he or she was about to say (cf University of New South Wales v Moorhouse (1975) 133 CLR 1 at 12-13); and see the discussion of the broader expression "on behalf of" in Chapter 9. 1033 I will refer to the evidence on which NM relies. 1034 Clark, Citibank's Victorian Manager, said he understood that Kelly was a NM agent and that he sold insurance policies and investment products on behalf of NM and that he was recommending that his clients borrow from Citibank in connection with those sales. His testimony included the following: "On more than one occasion Kelly showed me an example of what he said was his standard presentation of investment advice to his clients, where he recommended they borrow against the equity in the client's property by the use of the Citibank Mortgage Power facility. This consisted of an oral explanation in which Kelly explained in dollar terms how funds could be borrowed against the property and used towards the purchase of units in a National Mutual property trust. I do not recall whether Kelly's presentation identified Citibank as being the source of those borrowings. According to Kelly's explanation, the returns from the property trust (and income tax benefits) would exceed the interest costs of borrowing, with the effect that after a number of years, the client would obtain a substantial profit on his or her investment." 1035 Carter, the Victorian Sales Manager, testified as follows: "On one occasion Kelly showed me an example of what he said was his standard presentation of investment advice to his clients. The presentation consisted of an oral explanation, in conjunction with a use of the whiteboard, in which Kelly explained how the equity in the investor's property could be used to borrow funds for the purpose of investing in a National Mutual property trust. Kelly identified the National Mutual projections for the returns from the property trust and the income benefits, in the form of tax deductions." Carter continued by saying that Kelly did not supply him with any written account of the nature of his recommendations to his clients and that he understood only that Kelly was recommending investment in "a National Mutual property trust". Carter's cross-examination included the following: "Q. Is this right, once a relationship was established with Kelly, shall we say before the agency agreement was entered, the agency agreement being the agreement referred to in your affidavit - A. Yes. Q. During that period, Kelly became a source of a large number of mortgage finance proposals? A. Yes. Q. Those mortgage finance proposals, in large portion, were proposals which you understood to involve the sale of the Citibank Mortgage Power financial product in conjunction with investment in the National Mutual unit trust? A. Yes. Q. At that time, that is to say in the period up to the point when the written agreement was made, did you at any time take any steps to learn how it was that Kelly was marketing the Citibank financial product? A. Yes, I did. Q. What were those steps? A. As per my affidavit, I met with Lance Kelly at his office, and Lance Kelly demonstrated, both verbally and on a whiteboard, the marketing strategy and thrust that he would take with his clients. Q. Is this right, to the best of your recollection, you were the person who organised an occasion at which Kelly would demonstrate to you his sales track? A. Unsure whether I organised it. Q. Is this right, it was your recollection that this occasion was early in history at a point when Kelly had just started marketing the Citibank financial product in conjunction with [the] National Mutual financial product? A. Yes, it was. Q. So, is this right, you saw a few deals coming through the office which involved Mortgage Power and units in the National Mutual Property Trust? A. Yes. Q. And having seen those come through, you thought it appropriate to meet with Kelly and have him describe to you the technique of presentation that he was adopting? A. Yes. Q. So, is this right, this occasion to which you refer was in all probability some time in 1988? A. Quite possibly." 1036 Dyring, the Victorian Agency Manager, stated in his affidavit: "I was aware that Kelly was selling units in National Mutual's unit trusts in conjunction with the Bank's Mortgage Power product. I was not aware (though I have later been told) that National Mutual promoted a 'negative gearing package' under which a National Mutual mortgage trust lent money to investors on the security of their units in a National Mutual property trust. I was therefore not aware that Citibank's Mortgage Power product was being sold by Kelly in conjunction with his National Mutual negative gearing package. I did not inquire from Kelly and he did not inform me of the nature of the investment advice he was providing to his clients…" 1037 The cross-examination of Meyrick (formerly Garvey) included the following: "Q. But so far as you were concerned, from your point of view he could say what he liked at point of sale? A. He was a professional, I assume, so he would behave that way. Q. For example, if he was recommending a 100 per cent geared investment in the National Mutual unit trust, with 100 per cent gearing being supplied by a Mortgage Power facility to a particular investor, that would not have been of any concern to you? A. No. Q. Similarly, if he was recommending to potential borrowers, say, 20 per cent as a deposit on some investment in some such units, that wouldn't have been of concern to you? A. No. Q. It wouldn't have concerned you if he was recommending as part of the package the use of the Mortgage Power facility to provide, as it were, the deposit for some units in the National Mutual trusts with the balance to be borrowed from National Mutual. That wouldn't have concerned you? A. It wasn't my position to be concerned about what he was doing for the fund. As long as they were for a while worth while [sic], and I was advised that they were for property unit investment, not more specific than that. Q. Indeed, use of the Mortgage Power product in that way, that is, say, 20 per cent deposit on the acquisition of some units with a balance to be funded by some other lender and the Mortgage Power facility being used to manage the financial commitments which result, would be a use of the Mortgage Power facility which accorded with your understanding of its virtues? A. Yes. Q. So far from discouraging it, that would be the type of use of a product that you, had you ever been called upon, would have encouraged? A. Well, if it met with the policy guidelines, there was no reason you could reject it. Q. And, indeed, that is the way the package as you understood it worked, isn't it? A. Very similarly, yes. Q. It might have had a few little variations. For example, there might have been life insurance policies taken out over the lives of the borrowers so as to protect their financial position over the period of their investment? A. Possibly. I believe in life insurance, so I don't really know whether they did or not. Q. And had you known that the life insurance policies over the lives of the borrowers concerned was an element of the package, that wouldn't have concerned you at all? A. Not really." (my emphasis) 1038 NM also refers to the area manager's handwritten comments on Citibank's TQC (Total Quality Control) mortgage check lists. These were the comments of Stewart, Ravanelli (Storm), Hawkins (Durnan), Hall, Macrow, Gilroy, Sweeney and Ross. The documents commonly note the purpose of the borrowing as "refinancing" and "providing finance for investment". In many cases the investment is referred to more specifically as an investment in a NM property trust through Lance Kelly. Hawkins, in particular, appears to have used a common formula to describe the purpose in terms to that effect. Often an estimated return of, variously, 8 per cent or 9 per cent from investment in the Trust through Kelly was mentioned. Macrow referred to Investor Johnstone (not one of the present 23 Investors) as a person who required the Mortgage Power facility to pay out an existing first mortgage of $40,000 to the State Bank and the balance for investment "with National Mutual income & property growth with negative gearing". Macrow also referred to "negative gearing" in his note of the purpose of the loan in the cases of several other investors. I cannot be certain, however, as to what Macrow had in mind when he wrote "negative gearing": as noted earlier, the expression can be used to refer to a use made of Mortgage Power money alone to buy NM units. 1039 Citibank's answers to interrogatories show that its officers knew that Kelly was selling Mortgage Power to investors to enable them, inter alia, to invest in NM units. This activity was regarded by Citibank as a valuable selling opportunity. Carter said that the technique of "cross-selling", that is, the selling of the financial product as an adjunct to the selling of the investment product, was an important aspect of market development which he managed on behalf of Citicorp (later, Citibank). There are other references to the technique of "cross-selling" as a technique by which Citibank, without conventional bank branches, could expand its business. In relation to Kelly, Citibank, through Ravanelli (Storm) and Carter, treated the selling of life insurance products as giving rise to opportunities for the cross-selling of Citibank's financial products. 1040 The extent of their understanding of what Kelly was saying to his clients varied as between Citibank officers. Carter, who went to Kelly's office in order to witness a presentation of the kind that Kelly said he gave to prospective investors, knew that Kelly was selling NM units and Mortgage Power together as part of "a negative gearing plan". His cross-examination included the following: "Q. Is this right, although you are unable to give a precise time to the occasion when you attended and received this presentation from Kelly - A. Yes. Q. - you would be able to say with some confidence that it was at a time when he had commenced putting through deals which had Citibank financial product[s] being sold in conjunction with National Mutual - A. Yes. Q. - units in the trust? A. Yes. Q. And by this time there had been quite a few of those? A. Don't know the number, but believe there were a few. Q. Would it have been before the date in 1989 when some form of written agency agreement was made, or after that date, as best you recall? A. It would be before. Q. Was it any part of your purpose in going out to see this presentation to make recommendations to the bank about whether or not Kelly should be offered an agency? A. No, it was not my role. Q. Your role was simply to find out for yourself how it was that he was selling the Citibank product? A. Primarily, as well as introducing myself as a senior manager and just really reinforcing what our products were and what we expected. Q. Was it part of your role on this occasion to ensure that the presentation that he was making was a presentation that was acceptable to Citibank? A. It did come about, yes. Q. Is this right, part of your function on the occasion when you went out and received this presentation was to check on the quality of Kelly's presentation? A. Yes. Q. If he was overselling, to use a general phrase, it was part of your role on this occasion to bring him back into line? A. Yes. Q. And if he was underselling, that is to say, understating or misstating the virtues of the Citibank product, it was part of your role on this occasion to bring him up to speed? A. Yes." 1041 Dyring said in cross-examination that he had a clear recollection that Kelly told him that he was marketing "a financial plan" which involved NM investments, and recommending that his clients borrow from Citibank for the purpose of it. Dyring agreed that Kelly told him that the gravamen of the plan was that it was a "negative gearing plan". Dyring also agreed that Kelly told him that he was recommending that his clients invest in NM property trusts in order to make a capital gain. Dyring's cross-examination contained the following: "Q. Did he not say to you that the gravamen of the financial plan that he would be recommending to his clients was that it would be a negative gearing plan? A. Yes. Q. And you understood by that that there would be a cost differential between the interest paid on the borrowings to fund the investment and the likely income from the investment which would provide the client with a tax deduction during the course of the administration of the financial plan? A. Yes. Q. And Kelly told you that that was part of what he was advising or recommending to his clients? A. Yes. Q. And he told you also, I suggest, that the way this plan would work to the advantage of the client would be that, at the end of a period such as 10 years, after capital appreciation, the client would be able to sell units in the Mortgage Trust and thereby make a substantial gain? A. The 10 years I can't recollect, but the gist of the question is correct. Q. After all, there is no point in having a negative gearing scheme unless it is to make a capital appreciation along the way, is there? A. Agreed. Q. And you understood that? A. Correct. Q. You understood that a part of Kelly's financial plan that he was recommending to his clients would be that they could use the Mortgage Power financial product for the purpose of their participation in this plan? A. Correct. Q. And you understood it to be the case, by the time you were having these lunches with Kelly, that he had been selling this plan to a large number of people already? A. Yes. Q. And you understood that the Mortgage Power financial product had been used already for the purpose of this plan? A. Yes. Q. Is this right, you weren't really interested in the minute details concerning the financial working of the plan? A. Correct. Q. But it is certainly the case that he, Kelly, did inform you of the nature of the investment advice that he was providing to his clients in that he informed you about the aspects of this financial plan that he was recommending? A. Yes." 1042 I find that Citibank knew of, saw no problem in, and raised no objection to, Kelly's encouragement of prospective investors to apply to Citibank for a Mortgage Power facility to be used as part of some kind of negative gearing arrangement, according to which the income from the investment would be less than the interest on the money borrowed, in the hope of a capital gain after a certain number of years. But I do not think that this state of affairs is probative of authority in Kelly, as representative of or for or on behalf of Citibank, to recommend investment in the units, either in isolation or as part of a negative gearing plan. 1043 Before Kelly promoted the use of Mortgage Power to fund the acquisition of NM units, he had been encouraging his clients to use it as part of negative gearing arrangements by which they invested in "investment properties" directly (apparently through his connection with LJ Hooker, Cheltenham). It would be difficult to maintain that knowledge of Citibank of this practice would have been probative of authority from Citibank to Kelly to act as representative of or for or on behalf of Citibank in making representations about those investment properties, their prospects for capital growth or the desirability of investing in them as part of a negative gearing arrangement. 1044 The evidence and submissions addressed in some detail the question whether Citibank knew of the second tier of borrowing, that is the borrowing from NM on the security of a mortgage over all the units. In my view it does not matter if it did, although I will address the issue later in this chapter. The conclusion which I there reach is, in sum, that I am not persuaded that Citibank, through its officers, knew of the second limb of Kelly's Negative Gearing Package. But if it did, I do not think that that knowledge, coupled with Citibank's non-objection, establishes that Citibank gave Kelly (or any of the other Advisers) actual authority to promote the Package as representative of or for or on behalf of Citibank or that he (or any of the other Advisers) was "the voice of" Citibank.

1.2 On behalf of Citibank, answering questions from the Investors 1045 In support of a conclusion that the Advisers answered the Investors' questions about Mortgage Power and its suitability to meet their needs, NM relies on the following passage from the cross-examination of Meyrick: "Q. If a question arose at point of sale about the suitability of the Mortgage Power product for use by, say, a Kelly client, it was your understanding that Kelly would be providing the client with information about the Citibank product? A. Yes. Q. If the client was seeking advice as to which out of several possible avenues of finance the client might use to go ahead with something like an investment in the National Mutual Property Trust, it was your understanding that Kelly would be positively promoting the Citibank product? A. Yes. I mean, he was using Citibank to provide the funds for his purpose of suggesting National Mutual Property Trusts. Q. But he was a Citibank agent? A. Yes. Q. And he was a person that, from your point of view, was understood to be selling and positively promoting [the] Citibank product? A. Yes. Q. Not the product of some competitor bank? A. Yes. Q. If a question was raised about the suitability of the Citibank financial product for use by a particular customer, you expected Kelly to answer that query in terms which would be consistent with the virtues of the Citibank product? A. Yes. Q. I mean, he was marketing it for you? A. Correct. Q. And you were, by your organisation, wishing to give him every assistance? A. Yes. Q. So as to sell as many as possible? A. Yes, to the right customers, I assume, yes." (my emphasis) 1046 Meyrick was answering the cross-examiner's questions against the assumed background that Kelly was a duly appointed agent of Citibank. The passage adds nothing to the terms of LKFM's written agency agreement. That agreement authorised LKFM to act as Citibank's "agent for the promotion and sale" of Mortgage Power. In my opinion this express authority included implied authority to answer questions posed by prospective borrowers about: the nature of a Mortgage Power facility; how, when, in what amounts and for what purposes it might be drawn upon; the interest payable; the security required; the facility's suitability to provide particular kinds of funding. I do not treat Meyrick's positive answer to the question about "the suitability of the Citibank financial product for use by a particular customer" as agreement by Meyrick that she expected Kelly to perform the role of financial, investment or tax planner or adviser as representative of or for or on behalf of Citibank. Meyrick was agreeing only that she expected Kelly to say whether the features of Mortgage Power enabled it to respond to needs enunciated by or on behalf of a particular prospective borrower. 1047 I do not think Meyrick's "understanding" or "expectation" that Kelly would answer Investors' questions about the suitability of Mortgage Power establishes that he (or any other Adviser) had actual authority from Citibank to represent it or to act for it or on its behalf or that he (or any other Adviser) was "the voice of" Citibank.

1.3 Conducting all face-to-face dealings with the Investors on behalf of Citibank 1048 Because Citibank did not operate through conventional branches, there was no contact between prospective customers and Citibank staff. Face-to-face dealings with Investors were conducted by the Advisers. Carter's cross-examination contained the following passage: "Q. Wasn't it the system that was put in place one in which Kelly - we will leave aside the New South Wales people at the moment and other agents - wasn't the system or procedure one in which Kelly was the face-to-face contact with the borrower? A. Yes, he was. Q. The only face-to-face contact with the borrower? A. At that stage, yes. Q. And one of the tasks that you expected Kelly to perform was to find out what the requirements or needs of the customers were? A. Yes. Q. The last thing you would want would be for a customer to be sold something, a Citibank product that he didn't need? A. Yes. Q. And it was your understanding that it was he, Kelly, who would be promoting the Citibank product for sale to his customers in conjunction with this investment in the unit trust? A. Yes. Q. And you understood it was part of his task to explain to the customer how the two financial products would operate in conjunction with each other as part of this plan? A. Yes. Q. Indeed, didn't you see him, Kelly, as some form of expert in this area? A. No. Q. You expected him to answer whatever questions the customer might raise about how this plan operated? A. Yes." (my emphasis) It was, indeed, the task of Kelly as a selling agent of Citibank under the agreement of 3 April 1989 to explain how Mortgage Power would operate in connection with any use proposed by or on behalf of a prospective customer. Of course, Carter would also expect Kelly, as an agent of NM, to explain how any NM product involved in his plan would operate. Similarly, Carter would naturally expect that Kelly would explain how any plan that was "his" operated. But Carter's testimony does not, in my view, establish that he expected Kelly to do the latter two things as representative of or for or on behalf of Citibank. 1049 Similarly, Meyrick, who had been the head of the CSU at the time, testified as follows: "Q. But by 1990, you'd agree with me, would you not, that you had obtained some experience as a banker? A. Yes. Q. And you had obtained some knowledge of other banking practices, that is to say, the practices at point of sale by other banks? A. Yes. Q. You knew, for example, that at this time the ordinary bank, if I can so describe them, would normally interview a customer before making a loan? A. Yes. Q. The purpose of such an interview, in your understanding, would be to do a number of things, including to ascertain the purpose of any applied for loan? A. Another bank would, yes. Q. At Citibank, during this period when the Mortgage Power product was being marketed, the investor was interviewed by Lance Kelly, and the like, correct? A. Yes. Q. He or she was not interviewed by anybody from the bank except Lance Kelly? A. I would assume so, yes. I'm not certain. I wasn't there. Q. But as a matter of procedure there was no step in the procedure for loan application and offer which involved any face-to-face interview with anybody other than the, on behalf of the bank, the point of sale person, in this case, Lance Kelly or the like? A. Correct, but that's also the case with any other customer. It could have been done through the mail and on the phone. There was no need for face-to-face. Q. But in the case of Citibank, is this right, the face-to-face contact, as you understood it, with the bank took place when Lance Kelly interviewed these investors? A. Yes, he was an agent of Citibank. Q. And because he, Lance Kelly, was the person who was actually selling and promoting the sale of the Citibank product? A. Correct. Q. It was he, Lance Kelly, if you like, who was the bank [at] point of sale? A. Yes. Q. That's one of the reasons why you and other officers of the bank, to your knowledge, were concerned to ensure that Kelly was aware of all the positive attributes of this Mortgage Power facility, so that he could sell? A. Yes. Q. Is this right, Kelly was provided with pads of application forms? A. Yes." (my emphasis) 1050 Meyrick also agreed that the responsibility for face-to-face dealings with the Investors on behalf of Citibank extended to the later stages of the transaction: "Q. In a case in which there had been, for example, a rejection, but some additional information that might encourage the view that, if there was additional security or the like, or additional information, a proposal might have a better chance and should be resubmitted, that would be within the sphere of tasks which were given to Kelly, would it not? A. Yes. When we would advise him of either rejection or required further information, it would be his task to find out whether he could resubmit it with further information or whether it was a waste of time. Q. He was really performing all of the tasks on behalf of the banks which involved face-to-face communication with the intended borrower? A. Correct. Q. Really, performing all of the tasks that, in an old fashioned sense, the traditional or old fashioned bank manager would be performing? A. I have never actually sat down with a bank manager, so I can't really answer that question, but similar tasks, I assume." (my emphasis) 1051 As noted earlier, Citibank did not operate through branches, and its new business came through persons, such as accountants, real estate agents, solicitors and insurance salespersons, who were carrying on their own businesses and professions quite independently of Citibank. According to that system, all face-to-face dealings were between that person and his or her client. It may seem unjust in that situation that if the person misrepresented Mortgage Power to his or her client, Citibank, having reaped the benefit of the introduction of the business, should not be answerable. But neither this consideration nor the concessions made in the passages set out above require a conclusion that what the accountant, real estate agent, solicitor or insurance salesperson said to his or her client was said by that person as representative of or for or on behalf of Citibank. It is necessary to consider carefully the particular statement and the relationships and other circumstances involved in the particular case. Carter's and Meyrick's answers must be understood against the background of their knowledge that Kelly was an agent of NM who became also an agent of Citibank 1052 Generally the Citibank officers believed that Kelly's scheme was simply no concern of Citibank. Accordingly, for them there was no conflict in Kelly's being both "the bank at point of sale" and in its being Kelly's own concern, not Citibank's, to explain his Negative Gearing Package. For them, it was obvious that Kelly wore two or perhaps three hats: a Citibank hat, a NM hat, and perhaps his own hat as financial manager or planner. 1053 When he sought from an Investor and conveyed to Citibank additional information required by Citibank, Kelly acted as agent for Citibank, or for the Investor, or for himself as an "intermediary" or "go-between" who had his own financial interest in seeing his client's Mortgage Finance Proposal accepted. He may have been acting as agent for Citibank in communicating its requirement, then receiving and passing on information. But that agency was of a very limited kind and duration. It was of an administrative or clerical nature and did not itself import a role of selling Mortgage Power or of making representations for that purpose, let alone representations or recommendations about the NM units or the Negative Gearing Package or any other form of financial advice or planning. 1054 I do not think the fact that Citibank expected all face-to-face dealings with Investors would be conducted by Kelly itself signifies actual authority for him to act as representative of or for or on behalf of Citibank to sell Mortgage Power or caused him to be "the voice of Citibank". A similar observation applies in respect of the other Advisers. Such an expectation seems to have been held by the financiers in Branwhite and Custom Credit v Lynch.

1.4 Completing mortgage finance application documents when closing sales 1055 The expression "when closing sales on behalf of Citibank" is problematical. Kelly was not authorised to accept applications or to commit Citibank to lend. The expression is used to refer to Kelly's obtaining the prospective customer's signature on Citibank's Mortgage Finance Proposal form. 1056 That form varied over the years. In respect of many Investors, the system was that the form was completed in triplicate, the original copy bearing the printed instruction "RETURN THIS COPY TO CITIBANK", the second copy bearing the printed words "CITIBANK AGENT'S COPY", and the third copy bearing the words "CUSTOMER'S COPY". (A different white four-page foldout form was used in respect of Investors Alder, Appelman, Daniels, Douglass, Farrar, Jorgensen and Lowe, and the original forms in respect of some of the Investors are not in evidence.) Citibank expected Kelly to fill in the form with information supplied by the applicant, have it signed, and distribute the three copies as mentioned. On this topic, the cross-examination of Meyrick included the following: "Q. Is this right, it was part of your understanding that this form would be filled out by, for example, Lance Kelly when he had before him a prospective investor? A. With the customer, yes. Q. So your understanding of the procedure was that Kelly would be there in his office trying to talk people into buying [the] Citibank product at the same time as they are buying [the] National Mutual product, and when he has got to the point where he is about to close a sale, he goes ahead and he starts getting this sort of information from the customer and filling out the top copy of this document? A. Yes, I assume so. Q. Then, it is your understanding of the system that he would return the top copy to Citibank? A. I think so, yes. I am trying to remember. I think the green one was the only one we received. The application form changed so many times that I really can't remember, but, yes, the green one was all we required at the bank. Q. And the customer's copy was a copy that, I suggest, was understood by you to be a copy which was to be left in the hands of the prospective borrower? A. Yes. Q. And the agent's copy was the copy that you understood and expected would be retained by Lance Kelly? A. Yes." (It is significant that Meyrick seems to have been uncomfortable with the term "prospective investor" as distinct from "customer" - a position consistent with the Citibank officers' general lack of interest in the investment in NM products that Kelly's clients were making.) 1057 Meyrick also said she instructed her account managers, when they went to Kelly's office to collect signed Mortgage Finance Proposal forms, to check that they had been completed and signed and were accompanied by any necessary attachments and payment of the appropriate fees. 1058 In my view, the role of Kelly (or any other Adviser) in holding a stock of Citibank's Mortgage Finance Proposal forms (and other related Citibank forms), being aware of any policies and practices of Citibank relevant to their completion, filling them in in conformity with information provided by the Investors, and processing them, did not make Kelly (or any other Adviser) "the voice of" Citibank or an agent of Citibank. In substance, this was the kind of activity in which the motor car dealer in Branwhite engaged. In that case, the activity was engaged in for the purpose of facilitating the sale of the dealer's own motor cars; in the present case it was engaged in to promote the sale of NM products which Kelly and the other Advisers were already agents to sell.

1.5 Making contracts between Citibank and the Investors at point of sale 1059 As already noted, NM does not suggest that Kelly was authorised by Citibank to accede to applications for Mortgage Power and so to make contracts for loan. NM submits, however, that Kelly (and, I presume, each other Adviser), was authorised to make another and lesser contract. That lesser contract related to the terms on which Citibank would receive and deal with the application for Mortgage Power finance. 1060 Citibank's standard form of Mortgage Finance Proposal contained a section headed "LOAN APPLICANT'S ACKNOWLEDGMENT". The printed material under that heading varied as between editions of the form. For example, in one version (the earliest used for any of the 23 Investors of present concern), reference is made to Citibank's "Agent", whereas in later editions the reference is to "3rd Party Introducer". By the Loan Applicant's Acknowledgment, the applicant acknowledged that "in consideration of" Citibank's processing the application, he or she would pay Citibank's application fee and valuation report fee, and further that a refund of the whole or part of the application fee would be made only if Citibank rejected the application on certain specified grounds. The nature of the grounds determined whether 100 per cent or some lesser percentage of the fee was to be refunded. In some of the later forms, the Acknowledgment contained a promise by the applicant that if the application was approved, he or she would pay all costs, outlays and out-of-pocket expenses necessarily incurred by Citibank, whether the advance was actually made or not. The applicant warranted the truth and correctness of information set out in the form and authorised Citibank or its Agent (or 3rd Party Introducer) to check the information inserted in the document. 1061 In my view, notwithstanding the understanding of certain Citibank officers to which I will refer below, no contract came into being when Kelly filled in the form, had it signed by the applicant, accepted the applicant's cheque or credit card payment authorisation in favour of Citibank, and handed over the signed form and these "payment documents" to the Citibank account manager, or did any particular one or more of those things. The act of acceptance which the form contemplated was the "processing [of the] loan application" by Citibank itself or, perhaps, its beginning to process the loan application. That is, I think the contract was a "unilateral" one because the contemplated act of acceptance by Citibank and the consideration flowing from Citibank were one and the same. 1062 The cross-examination of Meyrick contained the following passage: "Q. Now, is this right, your understanding of the position was that at point of sale, it was important for Citibank's purposes to make a clear-cut agreement on the topic of the obligation to pay fees on the one hand, and the circumstances in which fees might be refunded on the other? A. Yes. Q. And your understanding was that when this document was signed up, one of the things that would be achieved would be a binding, legal relationship dealing with and rendering certain matters such as refunds, so that there wouldn't be any argument later on? A. Correct. Q. And that is something that you taught to the account managers, I take it? A. Yes. Q. You sought to get the message across to them that at point of sale, when there was a signature applied, there would be a legal commitment made as between Citibank and the customer on whatever topics are covered in this bit of the form? A. Yes. Q. Because in your experience an unsuccessful loan applicant sometimes wants all his money back? A. Yes. Q. And it was your understanding of the position that things such as processing an application and obtaining a valuation report generated expense to Citibank? A. Yes, but if the loan was rejected, they received all the fees back again. Q. Certainly. But it was your understanding that at point of sale, the person, the investor, would be committing himself to a legal obligation making clear at least those matters? A. Yes. Q. And you taught that? A. Yes. Ľ Q. Is this right, your understanding of the position was that by signing off at the bottom of the document, making available a cheque, and specifically initialling in that box at point of sale, obligations would also be brought into existence about the truth of the matter, the information contained in the document? A. Yes. Q. And about the topic of the payment of commissions in paragraph number 3, for example? A. Yes. Q. And also, the obtaining of an authority in favour of Citibank or third party introducer to set about checking information or obtaining from other sources such other information as might be required to verify? A. Yes. Ľ Q. And it was your understanding of the point of sale process that not only would the likes of Lance Kelly sell and promote the Mortgage Power product, but he would at point of sale, on behalf of Citibank, obtain a legally binding commitment from the intending borrower on each of those topics? A. Yes." 1063 Meyrick also understood that Kelly and the other Advisers made binding arrangements on behalf of Citibank at the point of sale in relation to the Privacy Act 1988 (Cth) as amended by the Privacy (Amendment) Act 1990 (Cth). Her evidence in this respect was as follows: "Q. Finally, may I take you to the document at 26354 [this document formed part of a later version of Citibank's Mortgage Finance Proposal form]. Do you see there part of a standard form application headed up 'Privacy legislation - acknowledgments and agreements'? A. Yes. Q. And do you recall that there came a time when the Privacy Act of 1988, as amended by the Privacy Amendment Act 1990, imposed certain requirements on banks, including Citibank? A. Yes. Q. Beforehand, it had been part of Citibank's procedure to do a check with the CRA, that is to say, the Credit Reference Association of Australia? A. Correct. Q. And not only to obtain reports, but also to make reports? A. Yes. Q. Which were sometimes adverse to customers? A. I was never privy to what they wrote, but - Q. Sure. But it was your understanding that, once this additional batch of legislation came into operation, additional matter needed to be made the subject of an agreement between Citibank and its customer at point of sale? A. Yes. Q. And once again, the persons to whom the task of making that agreement were confided were - in the context that we are talking about - Lance Kelly and the various persons who worked for or with him, including his network of agents through New South Wales? A. Yes. Q. So it was your understanding throughout this period that, where the point of sale for a transaction, which then came on down through Kelly to Victoria, was in New South Wales, various persons in New South Wales who were associated in some way, shape or form with Kelly, would be making binding agreements with Citibank's intending customers on behalf of Citibank? A. Yes. Q. And in relation to these various matters? A. Yes. Q. And collecting money from these various people? A. Yes, payable to Citibank. Q. And it was your understanding of the position that these various agreements would be made at the point of sale and would bind the investor, or the borrower, from that moment onwards? A. Yes." 1064 The earliest form of Loan Applicant's Acknowledgment in evidence is that relating to a Mr Anders dated 28 October 1988. Mr Anders is not one of the 23 Investors with whom I am presently concerned. In this earliest form, Citibank "agree[d] to promptly refund the credit facility fee paid in the event that [the applicant's] application is not approved." The later forms do not contain an express undertaking by Citibank to that effect. 1065 The second form of agreement (a "blue" form) was used in relation to fourteen of the present 23 Investors, namely, Bachmann, Crawford, Eberts, Emery, Fraser-Bell, Garden, Minichini, Parsons, Pickworth, Quaife, Richards, Tavoletti, Weaver and West. In this version, the applicant acknowledged that a fee or commission in respect of the application would be payable to the "Agent" by Citibank, but not by the applicant, although the applicant consented to the payment. 1066 A third slightly modified version of the same form (a "green" form) was used in respect of Investors Boulter and Lorenz. This form marked a shift in the obligation to pay commission away from Citibank to the applicant. As well, it was with this form that reference to "3rd Party Introducer" was introduced in place of "Agent". 1067 A fourth slightly modified version of the form (a "white" form) was used in respect of the remaining seven of the present 23 Investors, namely Alder, Appelman, Daniels, Douglass, Farrar, Jorgensen and Lowe. However, the section of the Loan Applicant's Acknowledgment referring to commission is similar to that which appeared in the third version (referred to above); that is, the applicant, not Citibank, was obliged to pay any commission payable to the 3rd Party Introducer. 1068 Other forms of acknowledgment were also used. 1069 I have considered all the forms used but am not persuaded that a contract came into being at the point of sale. Accordingly, I do not accept NM's submission that Kelly, let alone the other Advisers, was authorised by Citibank to conclude on its behalf any contract with prospective investors at that time. I find the evidence of Meyrick's understanding of little assistance on the present issue. 1070 It will be noted at the outset that Kelly did not sign on behalf of Citibank. He had his clients sign and he forwarded the signed form with their cheque or other payment document to Citibank. 1071 In the case of each version, the document was expressed to be an "acknowledgment". It was an acknowledgment of the terms on which Citibank would receive and process the application. The matters "acknowledged" were the terms on which Citibank was prepared to deal with the applicant. In my view, Citibank was at liberty upon receiving the application and the accompanying payment to return them without processing the application at all. I do not think that Kelly had previously bound Citibank not to take this course. But once Citibank dealt or commenced to deal with the application, the terms of the Acknowledgment operated contractually as between Citibank and the applicant. 1072 Even if Kelly (or any other Adviser) had the authority to make the kind of contract described by NM, that authority would have been of a very limited kind and Kelly's (or any other Adviser's) associated agency for Citibank would have been commensurately confined. Unlike an authority to promote and sell, this authority to make a contract of such a narrow scope would not have carried with it authority to make, on behalf of Citibank, representations of the kind on which NM relies and would not have made Kelly (or any other Adviser) "the voice of" Citibank.

1.6 Discharging various legal obligations of Citibank 1073 The Financial Transaction Reports Regulations were made under the Financial Transaction Reports Act 1988 (Cth). (Originally the word "Cash" rather than "Financial" appeared in the title, and, accordingly, the abbreviation "CTR" appears in some of the Citibank documents.) Regulations 3 and 4 laid down a verification procedure applicable in various circumstances including the opening of a bank account. A Mortgage Power facility involved the opening of a bank account and the issue of a cheque book. The Act and Regulations required that verification be undertaken by the "identifying cash dealer", in this case, Citibank: see ss 18 and 20A of the Act and Regulations 3 and 4. NM submits that Kelly discharged that obligation on behalf of Citibank. 1074 In cross-examination Meyrick agreed that Citibank supplied to Kelly stocks of "Account Opening ID Verification" forms on Citibank stationery. NM relies on the following passage from her cross-examination: " Q. When this document [headed "Account Opening ID Verification"] refers to 'sighted document details', as a matter of procedure, what was happening was that somebody in Kelly's office on behalf of the bank was sighting these documents? A. Someone, yes, who - Q. As a matter of procedure, the documents didn't come on into the bank? A. Correct. We couldn't proceed without these at application stage, I think. Q. So what was happening here is that the task of discharging the bank's legal obligation in accordance with the new law, as you understood it, was here being done by Lance Kelly? A. Yes. Q. Or if I can take you over the page, where you see 'Agent's signature', you see Penny Van Minnen? A. Yes. Q. And it is stamped off against Lance Kelly (Financial Management) and his agency number. So, is this right, as you understood the procedure, either Lance Kelly himself could perform this task of identification on behalf of the bank, or Penny Van Minnen on behalf of Lance Kelly could perform this task of identification on behalf of the bank? A. It would appear so. I don't know what training was involved or that part of it. Q. Was verification of identity part of the kit that you prepared? A. I think so. I can't remember without looking. Q. In any event, I think you will agree with me, don't you, that once this regulation or body of law came that [sic-into] existence and cast a legal obligation on the bank, the bank put in place this document and a system under which the task of discharging that legal obligation, in your understanding, was done for you by the agent? A. Yes. Q. And I think there were other types of account opening identification and verification. May I show you this document.With this document we have a different heading at the top 'Account opening ID verification'. We have similar reference to sighting the documents. Then we have a box down the bottom for somebody in the bank to sign. This is another variation to the system that was put in place, so that the agent might sight documents and do the discharge [sic], the legal obligation of the bank, in your understanding? A. Yes." (my emphasis) 1075 Meyrick prepared a "Citibank Agent's Kit" which included provision for the obtaining by Citibank agents of verification of the identity of an applicant by way of a driver's licence or passport. 1076 NM also relies on the Mortgage Finance Proposals of some of the Investors which show that the Advisers signed against the printed words "sighted by", to indicate that they had sighted the Investor's driver's licence, passport or other means of identification, and, therefore, as showing that they had carried out the identification and verification work which the legislation required of Citibank. 1077 Citibank also had standard printed forms headed "AGENT ACCOUNT OPENING ID VERIFICATION" and those relating to Investors Appelman, Daniels and Jorgensen are in evidence and are referred to in Chapter 5 at [863]. They show that Van Minnen performed the verification task on behalf of LKFM in relation to the Appelmans and that Kelly did so in relation to the Daniels. In the case of the Jorgensens, it was performed by Ross of Citibank; accordingly, the Advisers did not perform this task in relation to all the Investors. 1078 I find that Citibank actually authorised LKFM after 3 April 1989, in its capacity as Citibank agent No 2524885018, to verify the identity of persons who applied to open a Mortgage Power cheque account with Citibank. Performance of that task was something which the law required of Citibank. For the particular internal clerical or administrative task, Citibank authorised Kelly to act for it or on its behalf. But I do not think that an "agency to verify", standing alone, would be probative of actual authority in Kelly as representative of or for or on behalf of Citibank to promote and sell Mortgage Power, let alone to promote and sell units in the Trust in accordance with the Package. Nor would it make him "the voice of" Citibank. In fact it was nothing more than an incident of LKFM's appointment as agent No 2524885018.

1.7 Performing the functions of a Citibank branch 1079 NM submits that Kelly performed many of the functions of the conventional branch of a bank. An internal Citibank document headed "Mortgage Loan Acceptance Procedures" dated 9 April 1991 set out tasks to be performed within Citibank when it was approached by an applicant for a mortgage product. The first task was to have the applicant complete Citibank's standard form of Mortgage Finance Proposal. Kelly used to complete this form, inserting information supplied by the applicant, and have the applicant sign it. The second task identified in the document was to obtain all relevant supporting documents - a further task performed by Kelly. The third task was to prepare the TQC (Total Quality Control) sheet - a task performed, not by Kelly but within Citibank. The fourth task was to collect bank fees such as the application fee and valuation fee. Kelly obtained a cheque or credit card authorisation from the applicant, but did not bank the amount into his or Citibank's account and simply passed it on to Citibank. The fifth task was to obtain the valuation of the security property - a task performed, not by Kelly but within Citibank. The sixth and final task was to submit the application, fees and valuation to the relevant "Administration Unit" by overnight bag - a task performed, not by Kelly but within Citibank. 1080 Meyrick confirmed that Kelly performed the first, second and fourth tasks, and, in particular, that the supporting documents which he obtained were the Account Opening ID Verification form, a "letter of employment" if the applicant was not self-employed, three trade references, and two signature cards. Meyrick also said she understood that the tasks Kelly performed in relation to Victorian Investors were performed in relation to New South Wales Investors by persons in that State who were somehow associated with Kelly. 1081 It follows that Kelly was active in relation to three of the six "branch" tasks, although one of these three, the fourth task mentioned above, involved the branch's actually receiving payment of the fees, whereas Kelly had no authority actually to be paid fees and merely passed on the cheque or credit card authorisation to Citibank. In my opinion, when Kelly filled in Mortgage Power Proposal forms and any other Citibank documents associated with the opening of a Mortgage Power account in accordance with his clients' instructions, had his clients sign them and obtained supporting documents and forwarded to Citibank these documents and payment of application and valuation fees, he was acting as agent of his clients, not as agent of Citibank. 1082 But if Kelly (or any other Adviser) was performing the three tasks as agent for Citibank, in my opinion that limited agency does not suggest he was "the voice of" Citibank and is not probative of authority to promote and sell Mortgage Power as a representative of or for or on behalf of Citibank or, it follows, to make representations of a kind involved in doing so, let alone to make representations or recommendations in that capacity about NM units or the Negative Gearing Package.

1.8 Obtaining information on behalf of Citibank, including information concerning the needs and financial circumstances of the Investors 1083 Kelly, Jones and the K/J Associates obtained information concerning the needs, desires and financial capacity of their clients during the course of their presentations to them. Clause 2 of the printed terms of the second and third versions of Citibank's form of Mortgage Finance Proposal and clause 3 of the third modified version included a provision that Citibank or its Agent (later, 3rd Party Introducer), was authorised to check all information supplied by an applicant from any source and to obtain such other information as might be required to verify that supplied by the applicant. 1084 Carter agreed that Kelly and Jones were each the "repository of knowledge" about Victorian and New South Wales borrowers respectively. The cross-examination of Carter also included the following passage: "Q. Is this right, that your perception of Kelly's role is that he was the person who had obtained, on behalf of the bank, whatever information the bank required, and you were entitled to obtain that information from him? A. Yes. Q. Part of his task carried out on behalf of the bank was to get financial information from the borrower, for example? A. Yes. Q. And to get information about the borrower's purposes? A. Yes. Q. As you understood it, he was the person in the apparatus of the bank whose knowledge you were entitled to share? A. Yes." 1085 In answering these questions, Carter no doubt had in mind the fact that Kelly was indeed a duly appointed agent of Citibank. But in any event, in obtaining and furnishing to Citibank information required by it, Kelly (or any other Adviser) might as well have been acting as agent for the prospective customer as for Citibank. In any event, even if he was acting as agent for Citibank, the "agency" to seek and obtain information the applicant supplied and forward it to Citibank did not make the Adviser "the voice of" Citibank and was not probative of actual authority to promote and sell Mortgage Power as representative of or for or on behalf of Citibank, let alone, in that capacity to make representations about NM units or the Negative Gearing Package.

1.9 Quality control 1086 Citibank did not object to Kelly's sample sales presentations. He "performed" these "samples" for several Citibank officers. It is important, however, to distinguish between these demonstrations, which lasted only a few minutes and the actual presentations to the Investors that often occupied hours and often took place on several occasions over a sometimes lengthy period. It is also important to appreciate that the Citibank officers were not closely interested in Kelly's brief, rapid and self aggrandising demonstrations, because they regarded his selling presentations to his clients as done by him as agent for NM or as an independent financial adviser, not as agent for Citibank. 1087 Carter said he found Kelly's presentation impressive and considered it acceptable to Citibank and worthy of Citibank's endorsement and support. So much so, that he said he was prepared to provide Kelly with whatever administrative support he might need in order to maximise his sales. Carter agreed he did not query anything in the presentation, and, in particular, did not suggest that Kelly should state qualifications or warnings about, for example, the impossibility of being able to predict with certainty the income from, or capital growth of, the Property Trust. 1088 Carter agreed he took no steps to check on the sales presentations that were given by Jones or any of the K/J Associates. He also agreed he assumed that Kelly would train the persons associated with him to make presentations of the same kind as that which he had demonstrated to Carter and that he (Kelly) would supervise those associates to ensure that they adhered to his pattern. 1089 Clark agreed he did not seek to direct Kelly as to what he should say or not say at point of sale and that from his point of view, Kelly could have confused people if he had chosen to do so. He agreed he had not instructed any other officer of Citibank to seek to direct Kelly about what he said, and conceded that so far as he (Clark) was concerned, Kelly could "literally say what he liked at the point of sale". 1090 Ravanelli (Storm) testified that Kelly once did a presentation for her over a cup of coffee and drew figures and graphs on a pad. She said: "However the presentation was very baffling as he went through a lot of figures very quickly and the presentation did not follow any logical sequence. I gained the impression that the presentation was designed to baffle. I did not follow the presentation and did not pay much attention to it as I did not own a property and it appeared to me that this was a necessary component in what he was selling." Her cross-examination included the following passage: "Q. You say … that you found the presentation very baffling as he went through a lot of figures very quickly, and the presentation did not follow any logical sequence. Is this right, as you understood it, he was giving you some example of what he described as a standard presentation? A. He never explained it as a standard presentation. He was giving me a presentation of the type of content that he would give to other people, yes. Q. He was giving you an example of how he was going about selling this financial plan? A. Yes. Q. And going about showing that [sic] the customers how these various financial products could be sold on the basis that, working together in the way he demonstrated, they had the potential of producing this substantial positive result at the end of the day? A. Yes. Q. You gained the impression that the presentation was designed to baffle. By that you mean you gained the impression that the presentation was intended to be confusing? A. Yes. Q. Although you suggest here that you didn't follow the presentation and didn't pay much attention to it because you didn't own a property, you nevertheless formed a view of the quality of the presentation, namely, that it was very baffling? A. Yes. Q. And you got the impression, didn't you, that a customer who received one of these presentations would in all likelihood also be confused as a result? A. Yes." (my emphasis) Ravanelli agreed she did not suggest to Carter or anyone else that Citibank should not let Kelly sell Mortgage Power because he would confuse people. 1091 Dyring said he did not see himself as having a responsibility to oversee the quality of Kelly's point of sale behaviour, which he regarded as Ravanelli's job. He did not instruct Kelly as to any warnings he should give and said he expected Kelly to be promoting Mortgage Power "as the customer's potential best friend, not his worst enemy". The words just quoted have a particular significance. When Dyring became Victorian Agency Manager in mid 1988, he prepared an "Agent's Kit". He was responsible for updating it from time to time while he remained in Melbourne until September 1989. The Agent's Kit included an extract from an article by George Cochrane, headed "Home Equity Loans not for Battlers", which stated: "Home equity loans are most useful to people who use debt extensively in their business and private lives and who have the money to carry a fluctuating debt burden. Ľ Home equity loans as they are currently structured are of little use to a family living on average income and struggling to make ends meet. Ľ The traps lie in the ease with which your debt can grow in times of trouble without your having to accept the usual discipline of applying for further credit." Dyring said: "My objective in putting that [the Cochrane article] in [the Agent's Kit] was really to demonstrate that a home equity loan could be your best friend or your worst enemy." (my emphasis) 1092 I do not regard Dyring's inclusion of the Cochrane article or his testimony as showing that Mortgage Power was a "dangerous product" from which Citibank had a duty to protect prospective users of it. The evidence referred to is consistent with the view that the Mortgage Power borrower had to accept responsibility for the use he or she might make of the facility. 1093 Hawkins (Durnan), who became an account manager in or about December 1989, was instructed to assume responsibility for Citibank's day-to-day dealings with Kelly. In this role she succeeded Stewart, who had himself succeeded Ravanelli. In her affidavit Hawkins stated: "On those occasions when I visited Kelly's offices, I often saw Lance Kelly there. When I saw Kelly at the office he would talk incessantly at a fast pace and invariably in a self congratulatory manner. On one such occasion, whilst I was waiting for Penny van Minnen to give me the completed loan application forms, Kelly said that he wanted to show me a brief explanation of the investment product he was selling. I agreed to listen to this and Kelly began giving his investment advice with the use of a whiteboard. The presentation was fast, lasting only a couple of minutes, very complicated and confusing, involving numbers, graphs and charts. I did not concentrate on what he was saying and I could not understand much of it anyway." (my emphasis) Hawkins went on to say that although she knew Kelly was promoting the use of Mortgage Power to buy units in the Trust, she did not know that the units themselves were then being mortgaged to NM as security for a further borrowing to enable the purchase of yet further units. She said she did not know that this "double gearing" was possible or even that it was possible to borrow against units in a property trust at all. In cross-examination she agreed she had never attempted to control what Kelly was saying at point of sale and that for all she knew he could have been misrepresenting Mortgage Power. 1094 In his affidavit Hall described a presentation by Kelly and agreedit was "what might be described as a heavy selling presentation". He gained the impression that the presentation was "confusing", and, at least for him, "a bit tricky". His cross-examination included the following: "Q. But, from your point of view, you came away from the sample presentation feeling that you didn't really understand it? A. That's right. Q. And you came away from the presentation feeling that it was really just a bit too heavy as a sales track? A. Yes. Q. You felt yourself confused by it? A. Yes. Q. When reference was made to tax savings, for example, do you feel that when you came away from the sample presentation, you actually were able to understand the manner in which the tax saving could be achieved? A. No." (my emphasis) 1095 Ross was a Citibank account manager from May 1990 apparently until April 1995. As an account manager, he had the responsibility of sourcing (finding) new introducers of customers. He knew that Fitcher, Kirby and Bahr were NM agents and operated through FKB. He promoted Citibank's financial products, and, in particular, Mortgage Power, to FKB. He understood that FKB would, when it thought it appropriate for its clients, advise the use of Mortgage Power as a means of debt consolidation and investment in real property and insurance products. He knew that FKB's clients used Mortgage Power to buy units in a NM property trust. He did not know, however, that the units were then mortgaged to NM for a further borrowing to enable the acquisition of further units. Ross had no dealings with Kelly although he had heard his name. Ross saw Bahr outline an investment on a whiteboard on which he wrote certain figures and words. He agreed in cross-examination that so far as he was concerned, Kirby, Bahr or Fitcher could say whatever they liked at the point of sale and that he took no steps to control what they said or to suggest that they sound a note of caution. He also agreed that to the extent that Mortgage Power might have been part of a financial package presented by them, he was indifferent as to what they said about its suitability for their client. 1096 There is in fact considerable evidence to the effect that Ross was not interested in the presentations made by Bahr and Kirby to the clients or the use to which the clients put their Mortgage Power facility. According to Kirby, Ross did not attend any of his presentations and on Kirby's asking Ross whether he knew about the Package, Ross replied, "I know about the package but I don't really want to know about it". Ross denied having said those wordsbut admitted that he would have said something to the effect of, "I know what you are doing, but spare me the details. I'm in a rush." Ross did not comment on the Package to Kirby or suggest the adoption of different procedures. On one occasion Bahr gave Ross a brief outline of the Package,but Bahr testified it was clear to him that Ross was not interested in the details and was interested only in receiving as many applications for Mortgage Power as possible in order to earn the maximum bonus. 1097 In cross-examination, Ross testified as follows: "Q. Is this right, from your point of view, it was just completely irrelevant to Citibank what purpose anybody might have when he was proposing for a Mortgage Power facility? A. Correct. Q. You didn't have any interest at all in what was being said at point of sale by the gentle[men] at FKB when it came to the suitability of the Mortgage Power facility for any particular purpose? A. Correct Q. You didn't have any interest at all in anything that was being said by the gentlemen at FKB at point of sale? A. I wasn't there at point of sale. Q. But my question is: you didn't have any interest in what was being said at point of sale? A. Correct. Q. So far as you were concerned, Mr Kirby, Mr Bahr or Mr Fitcher could say whatever they liked at point of sale? A. Correct." And Ross said: "with most of the Mortgage Power deals I did, whether they were from a general inquiry or whether they were from a coupon or whether they were from FKB or some of the other introducers I dealt with, most of the time I did not know exactly how they were going to use the balance of the fund. In FKB's case, I had a pretty good idea that they were either going to go into National Mutual Property Trusts or they were going to go into the Queensland real estate market. But, given that I was indifferent as to where those funds went, and given that we were not assuming any income was going to be derived from whatever investment they made, it was completely irrelevant to inquire as to whether it was going to National Mutual or the Gold Coast." 1098 Although Ross claimed not to have known that the initial units were being mortgaged to NM as part of the security for NM finance to enable the purchase of further units, it seems clear from his evidence that he would not have been concerned by such a use of Mortgage Power. But even if Ross had known all the details of the Package and had not attempted to control the manner in which Bahr and Kirby presented Mortgage Power, this would not, in my view, be probative of Citibank's authorising Bahr and Kirby to represent or to act for or on behalf of Citibank in selling Mortgage Power, or of their being "the voice of" Citibank. 1099 Many of the Investors testified to the effect that they were confused by the presentation of the Package. I accept that they were. I accept that Kelly, Jones and the K/J Associates did not take pains to bring home to the Investors, that is, to ensure they appreciated, that there was any risk or disadvantage to be weighed against the benefits of the Package, or that the Investors had to accept responsibility for the decision to invest in accordance with the Package and for future decisions in relation to drawdowns. 1100 On the basis of the evidence of the Citibank officers, I find that Citibank knew of, and did not object to, the following matters: · that Kelly was probably "hard-selling" to his clients; · that Kelly's manner of presentation to his clients was likely to be fast, confident, "heavy", boastful, and confusing or baffling; and · that the Citibank officers did not attempt to direct or control Kelly in the content or manner of his presentation, did not take any particular interest in it, and did not regard it as something with which they needed to concern themselves. 1101 I do not think, however, that this non-exercise of "quality control" over Kelly (or Jones or any of the K/J Associates) is probative of a conferral of authority by Citibank upon him. Like so many of NM's submissions of "knowledge and non-objection", this one tends to assume agency rather than to prove it. I put to one side misrepresentations by Kelly about Mortgage Power itself: that is not this case.

1.10 Delegation of authority 1102 NM submits that Citibank knew that Kelly was using "other agents" to promote and sell Mortgage Power "in the Kelly manner", that is, as part of Kelly's Negative Gearing Package. I take the expression "other agents" in this submission to refer to other NM agents. The other NM agents included Jones, and NM agents in New South Wales associated with him (the Jones Associates) and the NM agents in Victoria who were associated with Kelly (the Kelly Associates). I accept the substance of the following submission by NM: "The opportunity to access the client base of LKFM and the network of NM agents in Victoria and NSW with which Kelly had some business connection created an opportunity for widespread cross-selling which Citibank sought to exploit. As a recent entrant in the consumer banking market, without a network of branches, Citibank actively pursued a marketing or distribution strategy which placed its financial products in the hands of networks of real estate agents, accountants, financial planners, car dealers and the like, in its aggressive pursuit of market share." 1103 Before long, the combined effect of New South Wales and Victorian deals enabled LKFM to surpass all other Citibank agency networks in Victoria, even though LJ Hooker, Stenhouse and other agents appointed by Citibank had more outlets than Kelly, who had only the one at Cheltenham. Citibank's Victorian division and its senior management were heralded as Citibank's top performers. The sale volumes credited to them earned some of the Melbourne staff and their partners a trip to Paris as a reward. This success was achieved "because of the efforts" of LKFM. 1104 LKFM's first and unsuccessful application (dated 21 July 1988) for appointment as a Citibank agent stated: "We have recently relocated to leased premises in Cheltenham, currently employing 5 people. We are commencing a comprehensive expansion program in which we anticipate the Citibank Agency playing an integral part. As an investment consultancy, we are concerned with sourcing the best available services for our clients. Citibank's Mortgage Power provides our clients with the flexibility necessary to fund substantial investment portfolios. Since commencing the marketing of Mortgage Power some six weeks ago [in June 1988], we have submitted 30 applications, all of which have been approved. This test period for Mortgage Power, based only on a selection of our client base, has provided encouraging results. Our application for a Citibank Agency Agreement is the culmination of this successful test period and our belief that within the Agency framework, our firm will generate very substantial Mortgage Power business." (my emphasis) 1105 Under the heading "Proposed Marketing Activities - Citibank Products", the application stated: "The marketing of Mortgage Power will take place during client consultation. We do not envisage advertising Mortgage Power outside of the personal interview environment. Our existing client base, totalling 2,000, and our referral prospects, sourced from a number of Real Estate Agencies, accounting firms and legal firms, will be offered Mortgage Power as a unique component of our overall service. In addition to this, we propose establishing contacts interstate for the sole purpose of generating Mortgage Power business." (my emphasis) 1106 In her supporting memorandum dated 28 July 1988 addressed to Citibank's General Manager and Head of Distribution, Mr G Lemair, Ravanelli stated: "Lance Kelly's business derives a large portion of its new clients through existing client referrals and other introducer contacts. Given the incentive, he could also market Mortgage Power to his existing client base and through his numerous contacts within the National Mutual Insurance Agent network." 1107 In LKFM's second and successful application (dated 3 March 1989) for appointment as a Citibank agent, Kelly stated that since submitting to Citibank thirty applications in his first six weeks of selling Citibank products for which he had been paid nothing, he had submitted a further thirty applications. 1108 A memo from Dyring to Clark headed "Agency Banking Network Vic/Tas June Report" dated 30 June 1989 (just under two months after Kelly's appointment as an agent of Citibank on 3 April 1989) gives some idea of the size of Kelly's operation and its importance to Citibank at the time. The memo included the following: " Agent Deals Value HLC 2 383,999 Stenhouse/Fin Foc 1 248,000 Regional agents 5 551,500 Metro Bus Agents 23 4,874,995 National Access 1 80,000 --- ------------ 32 6,138,500 [sic- 6,138,494]

" 1109 There were only two "metropolitan business agents" in Melbourne: Kelly and a Mr Arbuthnott. But as appears in the following passage in the same document, Mr Arbuthnott had not placed a single deal with Citibank; that is, all twenty-three "Metro Bus Agents" deals referred to in the above table had emanated from Kelly: "4 METROPOLITAN BUSINESS AGENTS A. Lance Kelly with the assistance of Tim Stewart has written 21 deals for $4,152,500 [2 of the twenty-three deals submitted had been rejected by Citibank]. A fantastic effort! Lance Kelly is pushing for an increase in commission from current $175.00. B. Arbuthnott who elected the higher rate have [sic] not placed 1 approved deal with us to date. Will take a serious look at Agency in July." 1110 It is clear from what Kelly had said in both of LKFM's applications for appointment as a Citibank agent and from Dyring's memorandum, that Citibank understood that Kelly was exploiting and proposed to continue to exploit a network of his existing NM clients and of fellow NM agents. 1111 The evidence as to why Jones funnelled his client's Mortgage Finance Proposals through Kelly's office is equivocal. It was put to Carter in cross-examination that it was odd that they should be sent to Kelly's office in a suburb of Melbourne then forwarded by Kelly to Citibank's office in the city. Carter replied that Citibank's Melbourne office had assigned an account manager specially to Kelly to enable the processing of his business more efficiently (it will be recalled that Kelly had insisted upon this when agreeing to accept a commission of "only" $175 per transaction). He denied that a reason was to enable the Melbourne staff of Citibank to earn bonuses and incentive rewards. However, he said that another factor was that Jones had complained that his clients' applications were not being processed with sufficient speed by Bill Macrow, the account manager in Citibank's Sydney office. Carter's evidence about his approval of the interstate arrangement was, however, clear, as the following passage shows: "Q. To make it perfectly clear, your understanding of the situation was that Kelly had delegated his tasks, the tasks he was performing on behalf of Citibank, to Jones; is that right? A. I understood, as per my affidavit, that Mr Jones was a subagent of Mr Kelly and a National Mutual agent, and he was generating business for the bank. Q. And you didn't see any problem at all in Kelly delegating in that way? A. No. Q. Quite the opposite, it was something of which you heartily approved? A. Heartily approved? Yes. Q. He generated considerable volume? A. Yes." (my emphasis) 1112 I find that Citibank did not object to Kelly's carrying on his activities as a Citibank agent by allowing, indeed encouraging, such NM agents as he saw fit in Victoria and New South Wales, in particular, Jones and the K/J Associates, to promote Mortgage Power and to introduce their clients to LKFM so that LKFM could introduce them to Citibank. 1113 But the notion of "delegation" is a difficult one. The evidence does not establish that Citibank agreed to a delegation by Kelly in the sense that any of the Advisers were substituted for, or added to, Kelly as an agent of Citibank. "Sub-agents" they may have been, in the sense of agents of Citibank's agent Kelly, but that is the most they may have been (Blee, Crawford and Hacopian were employees of DJC but their status rises no higher than that of DJC). Significantly, Carter seems to have been anxious to make this point in the passage set out above when he declined to accept the suggestion that Jones was performing tasks "on behalf of Citibank" and insisted that he was an "agent" of NM and only a "sub-agent" in relation to Citibank. 1114 In my view, the fact that Citibank knew that a network of NM agents, associated somehow with Kelly, promoted NM units, Mortgage Power and the two in combination, and introduced their prospects to Citibank through LKFM, does not establish that Citibank conferred actual authority on Kelly or any of those other NM agents, to sell Mortgage Power as representatives of or for or on behalf of Citibank, or that they were "the voice of" Citibank. The evidence to which I have referred is consistent with their being mere introducers. (As ever I put to one side the undoubted agency of Kelly under the agreement of 3 April 1989.)

2. The scope of Kelly's authority from Citibank 1115 In the many preceding paragraphs I have addressed ten considerations on which NM relies as showing that Kelly, Jones and the K/J Associates were, apart from the agency agreement of 3 April 1989, "the voice of" Citibank, and its representatives with actual authority to sell Mortgage Power for it and on its behalf. In its written submissions, NM addresses separately the issue of the "scope of authority". Clearly, however, there is an overlap between the concepts of "existence" and "scope". 1116 NM makes submissions on the scope of Kelly's authority under four headings: 2.1 The voice of Citibank; 2.2 The Negative Gearing Package; 2.3 The manner of sale; and 2.4 Financial advice.

2.1 The voice of Citibank 1117 NM submits that like Ridley in Colonial, Kelly was "the voice of" his principal and that it follows that Citibank authorised every statement he chose to make in selling Mortgage Power. I disagree. As explained earlier, it was held in Colonial only that Ridley's statement defaming Producers was within the class or scope of statements Ridley was authorised to make, not that he had authority from Colonial to make the particular defamatory statement. 1118 While Citibank conferred actual authority on LKFM to "promote and sell" Mortgage Power, and, therefore, to make statements within a certain class or scope to that end, I do not think that Citibank would be without remedy against LKFM if its statements within that class or scope were made fraudulently or negligently or were misleading or deceptive. Citibank did not actually authorise LKFM to act in those ways. Nor do I think this position is altered by characterising Kelly as "the voice" of Citibank in dealing with the Investors or because the officers of Citibank made no attempt to direct or constrain him in what he said to them. 1119 While it is true that Citibank did not have face to face contact with the Investors and did not, apart from the terms of the written agency agreement, seek to constrain Kelly, to describe him as "the voice of" Citibank does not dictate the answer to any question I have to decide. Kelly was not the mind of Citibank, an employee of Citibank or part of the Citibank organisation. He worked in and from his own office and not from the premises of Citibank. He was a longstanding agent of NM. He was not obliged to attempt to sell Citibank products at all. He was at liberty to introduce his clients to other sources of finance and did so. All these factors suggest that he was far from being the mind of Citibank so that inevitably whatever he said was said by Citibank itself. 1120 By virtue of the written agency agreement, Kelly was given authority to promote and sell Mortgage Power and therefore to make statements within a certain scope or class. A tortious statement falling within that scope or class will give rise to vicarious liability. A particular statement actually instigated or authorised will give rise to direct liability. The enquiry whether statements about NM investment products or the Negative Gearing Package are of either kind is not aided by characterising Kelly as "the voice of" Citibank.

2.2 The Negative Gearing Package 1121 NM made lengthy and detailed submissions with a view to showing that Citibank knew, not only that Kelly was selling Mortgage Power to enable his clients to invest in the Trust, but specifically that it knew about the "second tier" of borrowing from NM on the security of a mortgage over both the initial units (bought with Mortgage Power money) and the further units (bought with a fully drawn loan from NM). In the view that I ultimately take, it does not matter whether they knew of this or not. But because of the attention given to the issue in submissions and against the possibility that the case may go further, I will deal with it. 1122 Citibank knew that Kelly was selling Mortgage Power for, among other purposes, the purpose of enabling his clients to acquire NM insurance and investment products. In some cases insurance products were mentioned, in some cases units in the Trust, in some cases both. Citibank did not object. The following questions arise: (a) Did Citibank know about the second tier of lending by NM on the security of both the initial units and the further units? (b) Did Citibank authorise Kelly as its representative and for it and on its behalf, to make representations about NM products and the advantages of investing in them in accordance with Kelly's Negative Gearing Package? 1123 I will consider these two questions in turn.

(a) Did Citibank know about the second tier of lending by NM on the security of both the initial units and the further units? 1124 Citibank does not dispute that it knew Kelly was recommending his clients use Mortgage Power to invest in NM products and in NM units in particular. But it submits that its officers were not aware of the "second tier" of borrowing from NM for the acquisition of further units on the security of a mortgage over both the initial units and the further units. 1125 I will shortly review the evidence relating to the state of knowledge of the various Citibank officers, but it is convenient first to refer again to the nature of Mortgage Power. Until capacity testing was introduced as from 1 January 1991, Citibank's only concern was to ensure that if the facility were ever drawn on to its limit, there was sufficient security in place. Its policy in relation to the maximum permissible LSR varied from 70 per cent to 75 per cent. According to the testimony of Citibank officers, it was of no concern to Citibank for what purpose the customer used the facility (apart, of course, from the necessity of discharging any existing first mortgage so that Citibank could become first mortgagee). The Investor had a cheque book and could draw cheques at will. It was not a term of the facility that the Investor was not to borrow elsewhere. Accordingly, the Investor might not only draw a cheque for $X to purchase initial units, but also borrow from NM $4X in order to buy further units. 1126 Citibank itself advertised Mortgage Power as something which facilitated negative gearing. The advertisement of it in the Australian Financial Review of 25 January 1989 was set out earlier. NM submits that it is one thing to allow an investment to be funded up to 100 per cent out of the approved Mortgage Power facility, but it is a different matter for the customer, while having the benefit of that facility not fully drawn, to borrow 80 per cent of the cost of an investment from another source. Most of the 23 Investors could not, by resorting to their approved Mortgage Power facility alone, have acquired both the initial units and the further units. The position is analysed in Annexure 4 to these Reasons. 1127 I will now consider in some detail the evidence of the various Citibank witnesses on which NM relies. Clark (State Manager for Victoria) 1128 In his affidavit, Clark stated as follows: "17. On more than one occasion Kelly showed me an example of what he said was his standard presentation of investment advice to his clients, where he recommended they borrow against the equity in the client's property by the use of the Citibank Mortgage Power facility. This consisted of an oral explanation in which Kelly explained in dollar terms how funds could be borrowed against the property and used towards the purchase of units in a National Mutual property trust. I do not recall whether Kelly's presentation identified Citibank as being the source of those borrowings. According to Kelly's explanation, the returns from the property trust (and income tax benefits) would exceed the interest costs of borrowing, with the effect that after a number of years, the client would obtain a substantial profit on his or her investment. 18. Kelly did not then, or at any other time, show me or supply me with the prospectus for the property trust nor any written material setting out the nature of the investment he was recommending be acquired with the funds to be borrowed from the Bank. Other than knowing that he was recommending a National Mutual property trust, I did not know any specific details about the National Mutual financial products which he was promoting. 19. I cannot now recall whether Kelly used the expression 'negative gearing package' during his discussions with me. I did not know that National Mutual offered a 'negative gearing package'. 20. Kelly did not tell me and I then did not otherwise know (although I have later been told) that in the period from 1989 to 1992 many of Kelly's clients who became borrowers from the Bank under Mortgage Power facilities were simultaneously arranging substantial borrowings on Kelly's advice from a National Mutual mortgage trust for the purchase of units in the National Mutual property trust and for National Mutual insurance policies." 1129 Kelly said he recalled meeting Clark; did not recall giving him a sample presentation of the Package; remembered discussing with him various aspects of his method; did not dispute Clark's evidence that he (Kelly) did not tell him that the clients were simultaneously arranging a substantial borrowing from NM for the purchase of units in the Trust; said he spent very little time with Clark; and did not dispute Clark's evidence that on more than one occasion he showed him an example of what he (Kelly) said was his "standard presentation of investment advice to his [Kelly's] clients". The following exchange occurred in Kelly's cross-examination: "Q. How would it happen, then, Mr Kelly, that you could show Mr Clark on more than one occasion a standard presentation of your investment advice and yet Mr Clark would not know from that that your clients were borrowing on the security of National Mutual Property Trust units unless you were sanitising the presentations that you were giving to him? A. It was quite simple really. If I gave him the presentations, which I don't recall doing, the presentation necessarily included the regearing. Every presentation I did showed you take this much from Citibank and this much was borrowed from a [sic] National Mutual and the whole thing is done on the overall amount. If he saw the presentations he must have known. He says he doesn't know. It may have been from general discussions. I would accept that, if that is the fact, he wouldn't know because if he didn't come up, he wouldn't have seen a full presentation." 1130 In cross-examination, Clark agreed that Citibank did not seek to direct or constrain Kelly in what he said at point of sale; that Kelly's first presentation for Clark's benefit preceded LKFM's agency agreement of 3 April 1989; that the first presentation took place in a lounge area in the front foyer of Citibank's office at 185 William Street, Melbourne; that the second presentation was at Clark's desk in his office; that on the first occasion, only Clark and Kelly were present; that on the second occasion a further person, Carter, Dyring or Padgham, was also present; and that the second presentation was on the occasion of Kelly's seeking an increase in commission. Senior counsel for NM put to Clark the various elements of Kelly's "standard presentation" but Clark said in relation to many of them that he could not recall whether Kelly had mentioned them. Clark said he recalled Kelly stating that the income from the units would help offset the interest payable under the mortgage to Citibank and would in fact cover that interest. He said his understanding was that there was no "negative gearing element" in Kelly's financial plan as he represented it and that there was nothing more to it than the consolidation of debts through the Mortgage Power facility and the use of the balance to acquire units in the Trust. He said that having heard Kelly's presentation, he saw no reason to impose any limitation on what Kelly might or might not say about the suitability of Mortgage Power for use in conjunction with NM investments in the financial plan that Kelly was putting to his clients. Clark's cross-examination included the following: "Q. Did he say anything along the lines that he was marketing the financial plan to self-employed and high net worth individuals? A. I believe so. Q. I suggest that the gravamen of what was being said to you was that this was a financial plan that was being sold to people who had a tax advantage, a tax advantage to be found in the plan? A. Possibly. Q. I suggest to you that the way Kelly presented the plan to you was clearly to the effect that it was a negative gearing plan? A. No, it wasn't. Q. What is the basis for your denial of the concept of negative gearing as being any part of the plan? A. Clearly, from our point of view, it would have posed a greater credit risk if there was any aspect of negative gearing associated with it. Equally, our credit people would not have approved the applications. Q. When you say 'our credit people would not have approved the applications', of whom are you speaking? A. The staff in the Central Processing Unit in Sydney. Q. It was your understanding, was it, that if any mortgage finance proposal had come through Kelly and the Melbourne office and up to the CPU, including, on its face, a statement that this was a proposed use of the mortgage proportional [sic - Mortgage Power] financial product, for negative gearing purposes, the application would have been rejected? A. We wouldn't have submitted it. Q. So it would have been rejected at the Melbourne branch office level? A. Clearly. Q. You say 'clearly'. Why? A. Because it exposed the bank to a much greater risk. By any involvement whatsoever with negative gearing, you have absolutely no control as to the volume of money you have out, and the only security you have is your mortgage. Q. So is this right, you expected the various account managers or area managers, or however you describe them, who were having direct contact with Kelly in the processing of the deals that were coming in through Kelly, to refuse to accept any proposal which had any element of negative gearing in it? A. Yes. Negative gearing was never ever mentioned. Q. Sorry. Perhaps I have not made my question clear enough. Did you expect your account managers or area managers to reject any deal that was coming in through Kelly which had any element of negative gearing referred to in it? A. Yes. Ľ A. To answer your question, there was never any suggestion of negative gearing. If there had been, the deals would have been rejected. Q. And they would have been rejected at the Melbourne branch level? A. Yes. Q. You wouldn't have wasted the time of the Central Processing Unit? A. Absolutely not. Q. Did you have some sort of policy directive in the Melbourne branch office telling your area or account managers that any applications which had a negative gearing purpose should be rejected? A. No. Q. Did you just assume that your account managers or area managers would reject any application which had as part of its purpose a negative gearing purpose? A. No. What we had was a set of guidelines that were issued by the Central Processing Unit, where you stepped out of those guidelines at your peril. Q. So is this right, there was something in some guideline that told the account or area managers to reject any proposal of Mortgage Power finance for a negative gearing related purpose? A. As I said, negative gearing was never mentioned. Q. Negative gearing was never mentioned at all? A. No, sir. Q. By anybody at Citibank? A. Obviously, it would have been mentioned over a period of time. It was never mentioned in relation to these deals that were coming up being submitted on behalf of Lance Kelly. Q. Is this right, never mentioned, so far as you can recall? A. As far as I can recall." The re-examination of Clark included the following: "Q. … You might recall during the morning that you were saying that if it came to the attention of Citibank, in effect, that the purpose of the use of Mortgage Power was negative gearing, that it wouldn't have been submitted to head office, and so on? A. Yes. Q. Why was that? A. The company policy at the time was to allow people to invest in a passive investment and whether that passive investment be the purchase of stocks or bonds or property, or units in a property trust, that was considered to be acceptable. But by double gearing, if you like, it was considered unacceptable. Q. What do you mean by double gearing, then? A. Utilising the funds that you have borrowed to borrow more. Q. In this present case, do you understand that any double gearing actually occurred in the present case? A. No. Q. I meant, in fact, with a National Mutual product? A. Not at the time, no. Q. What do you mean not at the time, sorry? A. Well, we were aware that people were borrowing from a Citibank Mortgage Power to invest in units in the National Mutual Property Trust. Q. Is there anything you now know that you didn't then know about that? A. Well, I believe that what they were doing was borrowing additional funds. Q. From? A. Whoever, I'm not sure. Q. Was that something that you had in mind earlier when you were saying that negative gearing would have caused the application not to be referred to head office? A. Yes." (my emphasis) 1131 I do not accept that Kelly brought home to Clark that Kelly's clients were using Mortgage Power to fund part of an investment in NM units and were funding the much greater remainder by borrowing from NM on the security of a mortgage over both the initial units and the further units. I accept Clark's testimony that he was not aware of any second tier of borrowing. But I do not accept that Citibank had a guideline in place to prevent this happening. There is no documentary evidence before me of such a guideline and no other Citibank witness referred to one. I think Clark's recollection is mistaken in this respect. 1132 Clark's testimony above is to the effect that in its own interests Citibank would not have processed an application if it had known that "double gearing" or "re-gearing" was in contemplation. But I am not sure that it would not have done so, at least in all cases. It must be borne in mind that an advertised advantage of Mortgage Power was that the customer could use it for any purpose of his or her choice. It would be inconsistent with that kind of promotion of Mortgage Power, for customers to be prevented from using it to fund a "deposit", to use Kelly's term, on which to borrow elsewhere. A question would also have arisen as to how Citibank could have prevented "double gearing" in the future. 1133 I think it might have been surprising and perhaps alarming to Citibank to appreciate that Mortgage Power was being used as a foundation for the making of a further large borrowing which, in the case of all Investors, had the potential to take, and in the case of most Investors already did take, the amount of the Investor's total borrowings beyond the approved ceiling of the Mortgage Power facility itself. I think that at least Citibank might have called a halt to Kelly's practice so that the ramifications could be considered, perhaps on a case by case basis. Carter (State Sales Manager, Victoria) 1134 In his affidavit, Carter testified about Kelly's presentation as follows: "12. On one occasion Kelly showed me an example of what he said was his standard presentation of investment advice to his clients. The presentation consisted of an oral explanation, in conjunction with the use of the whiteboard, in which Kelly explained how the equity in the investor's property could be used to borrow funds for the purpose of investing in a National Mutual property trust. Kelly identified the National Mutual projections for the returns from the property trust and the income benefits, in the form of tax deductions. 13. At no time did Kelly show me or supply me with any written material setting out the nature of the investment he was recommending to his clients. Other than knowing he was recommending a National Mutual property trust, I did not know any specific details about the National Mutual financial products which he was promoting. Nor did I know that National Mutual made lending facilities available for the purchase of its investment products." 1135 In his affidavit in response, Kelly said only that on one occasion Carter telephoned him and asked for the current prospectus for the Trust, which Kelly caused Van Minnen to provide to him. In cross-examination Kelly agreed he showed Carter what he said was his standard presentation to his clients, which consisted of an oral explanation in conjunction with the use of a whiteboard on which he explained how the equity in the client's property could be used to borrow funds for the purpose of investing in a NM property trust. He also agreed that he identified in that presentation NM's projected returns from the Trust and benefits in the form of tax deductions. It was then put to Kelly that he had not made it known to Carter that NM would lend to enable the acquisition of further units, to which he replied: "In that presentation I said, 'there is the $20,000 that comes from Citibank. Here is the $80,000 that is borrowed from National Mutual. The whole thing works on the $100,000, the dividend on it from the Trust, and this is the interest component, some to you and some to National Mutual.'" Senior counsel for NM cross-examined Carter on his affidavit testimony about Kelly's presentation. Carter agreed there came a time after Ravanelli had had several communications with Kelly and some results were starting to flow through to Citibank, when he (Carter) deemed it appropriate to meet Kelly and go through his sales presentation with him. He said he sought this because it was his role to develop the marketing of Citibank products and he liked "to get a feel for the introducers that were generating a fair substance of leads and, thereby, applications." 1136 Carter agreed Kelly told him that the presentation (which Carter agreed preceded the appointment of LKFM as a Citibank agent) was his "standard" presentation; that nothing said by Kelly in the course of it gave him any cause for concern; that he gained the impression from the presentation that Kelly was "a very skilful salesman"; that it was a feature that there was "a negative gearing element in the presentation"; and that he (Kelly) was informing Carter that he would be encouraging his clients "to maximise their gearing". Carter said, however, that Kelly did not mention the further borrowing from NM and that he understood Kelly's reference to maximising the gearing to be a reference to the desirability of drawing down the maximum amount on the Mortgage Power facility and spending it on NM units. As noted earlier, this was indeed a form of negative gearing that Mortgage Power alone could be used to effectuate. Carter said that Kelly's presentation illustrated the following "principle": "The principle was Lance Kelly would ascertain outgoings. He would get a client to estimate the value of their property, as you said, an example being $2,000 [sic]. The maximum we would lend in a metropolitan area was $260,000, being 80%. Let us say, for want of a figure, outgoings may have been a mortgage, Visa, a couple of personal loans, which totalled $60,000. Therefore, they had $100,000 to invest in clear equity into National Mutual Property Trust, and Lance was projecting figures which seemed quite reasonable at the time. I can't recall what they were, but they seemed most reasonable given my experience in unit trusts and, therefore, that would be used to repay part of the loan. And there is also gearing advantages, as you have already gone through." 1137 Carter agreed with the cross-examiner that the then Citibank interest rate was significantly greater than the nominated return from the Trust, and that he could not suggest that "these customers would not be facing a net negative flow of funds". But he still maintained that it was his understanding of the plan presented to him by Kelly that there would be a full drawdown against the whole of the balance of the Citibank facility for the purpose of maximising investment in the Trust. Carter agreed he had not attempted to sound any note of warning or to restrict Kelly in what he was to say to prospective investors. He said: "My role was to ascertain as to whether Lance knew the mechanics and the workings of the Mortgage Power product. Lance was, as far as I was concerned, an insurance-cum-financial adviser, whatever we may call it, with National Mutual; therefore looking after his own client's investment needs. We provided the tool to be able to work those investment plans." (my emphasis) 1138 I have emphasised the whole of this passage because it encapsulates what I find was the understanding of the Citibank officers generally - an understanding which I find in substance reflected the true legal position. 1139 The difference between the positions taken by Citibank and NM is captured in the following part of Carter's cross-examination: "Q. Is this right, you really didn't care what he said at the point when he was selling and promoting your product? A. No. Q. That's not the case? A. No. Q. You did have some interest in what he was saying at the point of sale? A. Obviously, yes. Q. And did you take any steps at all to direct what he was saying at point of sale? A. He presented to me, as we have been through, and what he had presented to me showed me that he knew our product very well, the facets of the product and the selling features. We were not there to give financial advice. Q. Your agent was there to give financial advice, though, wasn't he? A. Not on our behalf. Q. You retained - A. He was an agent for Citibank to introduce business to Citibank, which he would be paid for. Q. You were aware that at point of sale he was selling your product in conjunction with National Mutual financial products? A. Yes. Q. You expected him to be saying things to your customers, or the people who were proposing to become your customers, about each of those financial products? A. Yes. Q. And you expected that the people at point of sale would be taking into account what was said when making their decision about whether to go ahead with investment in this plan? A. Yes. Q. And in that way, is this right, you were of the belief that these customers would be relying upon what Lance Kelly said at point of sale? A. Yes. Q. Relying upon what he said about this investment plan in order to determine whether or not they should go on into it? A. Yes." (my emphasis) 1140 Carter's understanding was that Kelly was authorised to represent Citibank in making representations and answering questions about the "facets" and "selling features" of the Mortgage Power "tool" to work "investment plans" that Kelly, the "insurance-cum-financial adviser", devised for his clients, but not in giving "financial advice" or recommending NM products, although he understood that Kelly would in fact be doing these things in a different capacity. I think Carter's understanding was correct. 1141 I prefer the evidence of Carter to that of Kelly on the issue whether Kelly included in his sample presentation to Carter a reference to the second tier of borrowing. It is true that Citibank had advertised Mortgage Power as a product which would itself facilitate negative gearing and that some of the Investors could have acquired the same number of units by resorting to their Mortgage Power facility alone. But there were considerations that might have led Kelly not to reveal clearly the second stage of the Package to Citibank officers. If the nature of the second stage were made explicit, the officers might ask themselves why Kelly had not offered the additional lending business to Citibank, and whether the client would be able to service both borrowings. If these concerns took root, Citibank might begin to raise difficulties for Kelly's Negative Gearing Package in so far as it involved the use of Mortgage Power. 1142 It is true that there are considerations pointing in the opposite direction. Kelly was proud of the Package and was not one to hide his light under a bushel. But ultimately I think that what happened in Kelly's presentation to Carter, and I so find, was that Kelly did not bring home to Carter the fact that the client was using a drawdown on the Mortgage Power account to pay for only one part of the units to be acquired and was borrowing elsewhere on the security of all units to pay for the much greater remainder. I do not accept Kelly's evidence to the contrary. Ravanelli (formerly Storm and before that, Heyes - Account Manager) 1143 Ravanelli gave affidavit testimony as follows: "15. Kelly once did a presentation to me, over a cup of coffee with him drawing figures and graphs on a pad. However the presentation was very baffling as he went through a lot of figures very quickly and the presentation did not follow any logical sequence. I gained the impression that the presentation was designed to baffle. I did not follow the presentation and did not pay much attention to it as I did not own a property and it appeared to me that this was a necessary component in what he was selling. 16. I knew that he was advising his clients to use the funds borrowed from the Bank to purchase National Mutual products but I was not aware that he was recommending that they then should borrow additional money through National Mutual over the security of the National Mutual product or property trust units. I never heard Kelly use the expression 'negative gearing package' or 'negative gearing' in connection with the National Mutual product/property trust. I understood that because of his connection with L J Hooker, Kelly scoured for 'bargain' properties to be purchased as a part of 'negative gearing' I understood he was advising his clients to get into. 17. Kelly did not give me or show me any written material connected with the investment advice he gave his clients, such as the prospectus for the property trust. He did not say what were the properties in the property trust or anything else about the nature of the property trust." 1144 In his affidavit in response, Kelly stated: "15. I refer to paragraphs 15, 16 and 17 of [Ravanelli's] affidavit. The basic form of the presentation I did to promote the Mortgage Power loan as a means of a negatively geared investment in the Property Trust remained the same throughout the period I was using the Mortgage Power, that is, from about October 1988 to about October 1991 when I ceased using Citibank. 16. To the best of my recollection, almost all investors I dealt with who used their Mortgage Power loan to purchase units in the Property Trust borrowed further from NMPS to purchase further units. 17. I made a number of presentations to Ms Ravanelli. If she was not paying much attention to a presentation it would not surprise me if she found it baffling. 18. I refer to paragraph 16 and say that whilst it is true that initially we were using the Mortgage Power facility to purchase investment properties, we soon started using an investment in the Property Trust instead of a direct investment in property. 19. I say that my presentations to Tracie Ravanelli may not have used the expression 'negative gearing package' because this was the expression used on the NMPS Loan package but I did use it once we started selling the Property Trust instead of direct investment in property. I did use the expressions 'negative gearing' as well as the expressions 'neutral gearing' and 'positive gearing' in my presentations to Tracie Ravanelli." 1145 Citibank submits that Kelly could not have described his Negative Gearing Package to Ravanelli because the NMAM negative gearing arrangement was not introduced until after she ceased to be employed by Citibank. Ravanelli testified that she "left the Bank in August 1988" and this was not challenged in cross-examination. I find that she ceased working with Citibank in August 1988. It is necessary, in order to understand Citibank's submission, that I refer in more detail to the evidence relating to the origin of Kelly's Negative Gearing Package - a matter that is referred to for a different purpose in Chapter 11. 1146 The Trust was constituted and governed by the National Mutual Australian Property Trust No 1 Trust Deed dated 19 February 1985 between NMAM as Manager, PTA (then called "Permanent Trustee Nominees (Canberra) Limited") as Trustee, and Permanent as Guarantor. Clause 89(a)(v) empowered the Trustee with the Manager to alter the principal Deed in certain circumstances. Pursuant to that power, on 5 August 1988 a supplemental deed varied the principal Deed to empower NMAM, upon the request of a unit-holder, to enter the name of a mortgagee in the register of unit-holders. The board of NMAM approved the adoption of a negative gearing arrangement on 21 October 1988. The minutes read: "The Board reviewedthe Information Paper on Negative Gearing Package - Unlisted Property Trust and agreed to the proposal. Management were requested to inform National Mutual Royal Bank and Mercantile Credits of the proposal." 1147 The "Information Paper on Negative Gearing Package - Unlisted Property Trust for Board Consideration" took the form of a document dated 17 October 1988. It recommended the launch of a negative gearing facility with funds obtained from the NMAIF to assist "clients" to purchase units in "the unlisted property trust". The paper described the "need for such a package" as being to lift the returns obtained on loan funds of the NMAIF, and to offer a service similar to that being afforded by the managers of other trusts. The document noted that the National Mutual Royal Bank was already offering borrowers "just such a facility" but that there was "scope for an in house finance package to be provided." The document described a "[l]oan approval procedure" which commenced with the filling out of an application for finance form by the proposed borrower/investor in conjunction with an insurance agent. The applicant was to attach a cheque for the loan approval fee and 20 per cent share of the equity in the units. The LVR was to be 80 per cent gross (maximum) and the loan amount was to be a minimum of $20,000. The security was to be the whole of the units, that is, the 20 per cent and the 80 per cent. NMAM was to draw on Permanent, the trustee of the NMAIF, for the loan funds and was to pass to Permanent the Unit Trust Certificates, which were not to be released until the debt was discharged. If the value of the units fell, the borrower would be required either to reduce the debt to the new 80 per cent LVR level or to provide additional security to ensure that that level was maintained. 1148 The similarity between this NMAM negative gearing arrangement and Kelly's Negative Gearing Package is striking. The only additional element in the latter is the use of Mortgage Power to fund the acquisition of the "20 per cent deposit". For this purpose Kelly also used the Bank of Melbourne, and Jones also used the GIO. 1149 Although Kelly was introducing clients to Citibank as early as June 1988, he could not have given a presentation (let alone "a number of presentations") of the Package to Ravanelli before she ceased working for Citibank in August 1988 because the Board of NMAM did not establish the NMAM negative gearing arrangement until 21 October 1988. This tells against the credibility of Kelly's testimony on the matter. 1150 The evidence to which I have referred above also has an obvious significance in establishing that Kelly's Negative Gearing Package was founded squarely on the NMAM negative gearing arrangement and suggests that Mortgage Power was, as Kelly himself described it, one "tool" of several which he used to enable his clients to take advantage of the NMAM negative gearing arrangement. Dyring (Account Manager from June 1987 to mid 1988 then State Agency Manager for Victoria until September 1989) 1151 Dyring gave affidavit testimony as follows: "11. I was aware that Kelly was selling units in National Mutual's unit trusts in conjunction with the Bank's Mortgage Power product. I was not aware (though I have later been told) that National Mutual promoted a 'negative gearing package' under which a National Mutual mortgage trust lent money to investors on the security of their units in a National Mutual property trust. I was therefore not aware that Citibank's Mortgage Power product was being sold by Kelly in conjunction with his National Mutual negative gearing package." 1152 In cross-examination, Dyring said he knew, by the time he met Kelly, that Kelly was recommending to his clients an investment plan that involved investment in "National Mutual unit trusts, property trusts". Dyring agreed he knew that part of the plan was that the clients take a Mortgage Power loan and use it to acquire NM property trust units. Dyring also agreed that Kelly told him that his plan was a "negative gearing plan", by which Dyring understood: "that there would be a cost differential between the interest paid on the borrowings to fund the investment and the likely income from the investment which provide the client with a tax deduction during the course of the administration of the financial plan." 1153 Kelly did not give a whiteboard presentation to Dyring. Dyring received information from Kelly about what he was doing at lunches they sometimes had together. Dyring agreed he thought he should distance himself from any giving of financial or investment advice by Kelly and deliberately took no steps to direct or control Kelly at point of sale, adding: "In relation to finance, he was constrained by our guidelines. In relation to the investment advice, I have no knowledge." 1154 It was not put to Dyring that he knew that part of Kelly's recommended plan was that his clients borrowed from NM to enable acquisition of a much larger number of further units, using the initial units and the further units as security. 1155 I am not satisfied that Dyring knew of the second tranche of borrowing and unit acquisition. Meyrick (formerly Garvey - initially Account Manager then manager of the CSU from May 1988 to 1996) 1156 Meyrick gave affidavit testimony as follows: "9. I met Lance Kelly only once and was aware in general terms that he was connected with National Mutual property trusts. I recall that many of the applications from Kelly recorded the purpose of the borrowing from the Bank as being for investment in the National Mutual property trust. I knew of National Mutual as a large insurance company and believed them to be a reputable organisation. It did not seem to me to be a matter for concern on behalf of the Bank or its borrowers that borrowings from the Bank were being used in the purchase of interests in National Mutual property trusts." 1157 Meyrick was not cross-examined on the present issue and I am not persuaded that she knew that Kelly was recommending the second tier of borrowing and unit acquisition. Hawkins (formerly Durnan - Account Manager from late 1989 in place of Tim Stewart) 1158 As noted earlier, Kelly gave Hawkins a whiteboard presentation which was "fast, lasting only a couple of minutes, very complicated and confusing, involving numbers, graphs and charts" and on which she did not concentrate. Hawkins' affidavit also contained the following: "Although I was aware that Kelly was promoting the use of funds obtained through Mortgage Power to purchase units in National Mutual property trusts, I did not know that the units themselves were then being mortgaged to National Mutual for the purpose of borrowing further funds to purchase further units. I knew that 'negative gearing' meant borrowing for investment purposes, where the interest payable on the borrowings was tax deductible if the income on the investment fell below the interest on the borrowings. I did not know that 'double gearing' was possible. Nor did I know that it was possible to borrow against units in a property trust. At no stage, apart from the time I have referred to above, did Lance Kelly explain what the National Mutual investment was and how it worked. I do not recall Kelly using the expression 'negative gearing' or 'negative gearing package'." 1159 In his affidavit in response Kelly said he gave more than one presentation to Hawkins and that his presentations were in standard form and included reference to the second limb (borrowing from NM to enable further units to be acquired using the initial and further units as security). He also stated he used the expressions "negative gearing package" and "negative gearing". 1160 In cross-examination, Kelly agreed that what Hawkins saw in his office was fast and lasted only a few minutes. In relation to her description of the presentation, Kelly said: "It wasn't confusing to me. I can't judge whether it was confusing to her. I can accept her word for it." 1161 Kelly disputed Hawkins' testimony that she did not know that the units purchased with Mortgage Power funds were mortgaged to NM, or that "double gearing" was possible, or that it was possible to borrow against the security of units in a property trust. In cross-examination he said he told Hawkins what cheques were to be drawn on settlement and that one of these was for "the fees on the National Mutual loan", that one was for the Comptroller of Stamps for stamp duty in connection with the NM loan, and that one was for interest on that loan. 1162 Hawkins was cross-examined at some length on the present issue. She said that there was only the one occasion on which Kelly gave any form of presentation of his plan to her, although she conceded that there could have been an occasion before she left Citibank when she was at Kelly's office in the company of Hall when Kelly gave a sample presentation to Hall. She said that the occasion she remembered was one in which she sat in Kelly's office for five or ten minutes; that she did not understand all of what Kelly said; that she did not think of what he was saying as a "sales track"; that she did not really understand what he was trying to do; and that her memory of the five or ten minutes was that Kelly was talking very fast, drawing and erasing on the white board. She repeated her testimony that she did not know that the units being acquired with Citibank money were being mortgaged to NM in connection with the borrowing from it of further funds to purchase further units, after which her cross-examination proceeded as follows: "Q. Is it your evidence that you have a positive recollection that on the occasion of the presentation, which you deal with in your affidavit, Kelly did not say anything about the units themselves then being mortgaged to National Mutual? A. No, that's not true. Q. So, is this right, Kelly may well have said to you on this occasion that the units were subsequently being mortgaged to National Mutual for the purpose of clients borrowing further funds to purchase further units? A. I don't recall what he said. Q. But he may well have said something along those lines which you now simply can no longer remember? A. I don't know. He may have done. I don't know. Q. You do understand the difference between saying that he did not say such a thing, that is, that you have a recollection that he did not say that? A. Right. Q. And on the other hand saying, 'He may have said that, I cannot recall'? A. Right. He may have said that. I cannot recall." 1163 Hawkins' cross-examination on the present issue concluded as follows: "Q. What did you understand at this time the National Mutual Property Trust was? A. I understood that National Mutual Property Trust units could be bought and negatively geared to create a negative gearing effect to help people save tax. Q. And you understood, didn't you, from what he, Kelly, told you on the occasion of this presentation, that that was part of what he was selling to his clients? A. I don't recall what he said at that presentation. Q. At all? A. I don't, I'm sorry. Q. I have no [sic - a] need to suggest to you that he said that words to the effect that 'Once the clients had a Mortgage Power facility in place, they could use part of it to acquire some units in the National Mutual Property Trust'. You remember that, don't you? A. I don't recall him saying that to me, but I did - sorry - I don't believe [sic - recall] him saying that to me, no. Q. I suggest to you that he went on to say that the clients could then borrow from National Mutual to increase their investment in units? A. No, I don't recall him saying that. Q. Do you have any recollection of anything at all that was in fact said by Kelly on the occasion of the presentation…? A. No, I don't. Q. It is just a total blank? A. Yes. Q. He was writing on the whiteboard. You can remember that? A. Yes. Q. You certainly felt confused as a result of what he had said? A. Yes. Q. You felt that you couldn't really understand what he was saying to you? A. Yes. Q. But you didn't ask him to clarify anything? A. I didn't. Q. On what basis did that presentation end? A. I think that Penny had, or he - I don't remember how it finished, sorry. Q. You say in your affidavit that you did not know that double gearing was to be - what is double gearing? A. Well, I now know that in this case they were borrowing against the asset that they had originally purchased using Mortgage Power. I didn't realise they were doing that. Q. You weren't listening or concentrating when Kelly spoke to you on the occasion of his presentation. Is that not more accurately the position? A. That may be true." 1164 Hawkins' testimony that Kelly did not refer to the second borrowing (from NM) on the security of the units is adversely affected by her poor recollection and by her testimony that, in any event, she did not understand what he was saying. I accept her as a truthful witness. In particular, I accept that she did not recall having gained at the time an understanding that Kelly's clients were borrowing further money from NM against the security of the units bought with Mortgage Power money, to acquire the further units. Kelly's affidavit and oral testimony were alike clear: he referred to the fact that a further loan was obtained from NM to finance the purchase of the bulk of the units and that only the initial units, to which he referred as the "deposit", were financed from the Mortgage Power facility. 1165 My assessment of Kelly is that he had an excessive and unjustified confidence in his recollection of events: the same confidence, perhaps, that had enabled him to succeed as a salesman. He was not disposed to question himself or to express doubts. He is the kind of person who could not comprehend, or be sensitive to, the state of knowledge and understanding of his hearers. He is the kind of person who would not be able to appreciate that a statement made once in the course of a rapid and brief presentation is apt to communicate nothing. 1166 Of course Kelly knew, at the times of the transactions and of testifying, clearly and precisely how his Negative Gearing Package worked. But either, like the worst of teachers, he was simply incapable of appreciating his listener's lack of understanding and giving a slow, step by step explanation, or it suited his purposes that his listener should not fully understand what he was saying. 1167 Kelly may have mentioned to Hawkins the further borrowing from NM but I am not persuaded that he did so in such a clear, deliberate and measured way that I should regard its significance as having been reasonably conveyed to her. Of course, the terms of the Mortgage Power facility did not prevent the customer from borrowing further money from any other source with or without security. It would have been possible for Kelly to have referred to a borrowing from NM in a manner and context that did not signify that the drawdown on the Mortgage Power account to buy the initial units was merely the tip of the iceberg, and that the bulk of that iceberg was the second stage borrowing and acquisition. 1168 I am not persuaded that Kelly brought home to Hawkins the fact that Mortgage Power was being used to enable the acquisition of "deposit" units which would provide the "springboard" from which the customer would be enabled to borrow a much larger amount from NM to acquire a much larger number of further units, using both the initial units and the further units as security. Stewart (Account Manager from May 1988 to March 1989, Senior Account Manager from March 1989 to August 1989, State Agency Manager, Victoria from August to October 1989) 1169 In his affidavit Stewart said that at no stage did Kelly demonstrate to him his sales presentation on the whiteboard or otherwise. In an affidavit Kelly said he "went through" his presentation with, among others, Stewart. In a later affidavit he affirmed he "did make presentations" to Stewart in a manner which he described in more detail in that affidavit. These presentations referred to the purchase of initial units by the use of the Mortgage Power facility, followed by the obtaining of a further loan of four times as much from NM to finance acquisition of the bulk of the units. He deposed that he used the expressions "negative gearing package" and "negative gearing scheme" to Stewart. Of course, this was not apt to convey the notion of "double gearing" or "second (NM) stage gearing". He also said that when Stewart visited his office, he (Kelly) had NMPS loan forms on his desk and he said to Stewart: "These are the applications to borrow the money for the balance of the units in the property trust." 1170 In cross-examination Kelly adhered to his testimony that he had given a sales presentation to Stewart. He said Stewart spent "a lot of time" in his (Kelly's) office where there were "a lot of National Mutual forms about, prospectuses, gearing packages." Kelly testified: "I would say to him - I explained to him the way it worked. I would say, 'the money from Citibank goes in here. I use this form here to get the National Mutual loan organised. That is where it goes into'. So, to say he had never seen any of the National Mutual literature is not true." 1171 Notwithstanding what he had said in his affidavit, in cross-examination Kelly said he could not recall whether he had ever used the expression "negative gearing package" or "negative gearing scheme" when speaking to Stewart. Also in cross-examination, Stewart affirmed, not merely that he could not remember a presentation by Kelly, but that there never was an occasion on which Kelly gave him a demonstration of his sales presentation. 1172 I am not persuaded that Kelly did give a sample "sales presentation" to Stewart. Again, this is not to say that Stewart did not know that a drawdown on the Mortgage Power account was being used to acquire units in the Trust or even that there may have been further aspects of the plan which involved further dealings between Citibank's customer and NM, such as, a further drawdown or further drawdowns to acquire further NM units. But I am not persuaded that Kelly brought home to Stewart that the Investor was immediately to borrow anything like four times as much from NM to acquire anything like four times as many units as the number bought with the drawdown on the Mortgage Power account, and would use the initial units and the further units as security for that larger borrowing from NM. Moreover, the facts that Stewart was often in Kelly's office and that there were many NM forms lying about are not probative of Stewart's state of knowledge of the Package. Hall (from November 1989 to September 1991, Account Executive in the CSU) 1173 In an affidavit Kelly said he "went through" an example of his presentation with, among others, Hall. But in his affidavit, Hall stated as follows: "4. I did not have to establish any relationship with Kelly as there was already in place a system of processing loan applications submitted by him and conveying any changes in procedure to him. Consequently, I had no reason to spend significant time with Kelly or Penny Van Minnen except time spent at their office picking up completed loan application forms. On one occasion when I attended Kelly's office, I was asked to listen to a sales presentation of Kelly's. This took about five minutes and was given on a whiteboard. I did not understand it then nor do I recall it very well now. It was very fast and confusing. As I recall, Kelly said words to the following effect, 'This is an investment in a National Mutual property trust which has a [stated] percentage return on the investment. You invest [a dollar figure which I do not now recall] and after [a certain period] you get a [stated] return on the investment. The whole thing can then be cashed in.' I recall the presentation was about tax savings although I do not recall exactly how it was put. At the time Kelly made the presentation to me he made representations to me about the amount of money that could be made selling this kind of product." 1174 In his affidavit in response Kelly said he did give Hall his standard presentation, which, included reference to the second part of the Package. 1175 In cross-examination Kelly agreed he had given a five minute presentation on a whiteboard to Hall who succeeded Hawkins as account manager. I will set out the whole of the cross-examination on the present issue as it reveals something of Kelly's defensive, sometimes aggressive, approach: "Q. And did you say in his presence, 'This is an investment in a National Mutual Property Trust which has a stated percentage return on the investment.' Did you say that in his presentation? A. I don't recall the exact words I said in his presentation. It was too long ago. Q. Then you said that 'You can invest X dollars and then after a certain period you get a stated return on the investment' is that what you said? A. What do you mean by a stated return? Do you mean a certain percentage? Q. Yes. In other words, what I am putting to you is that he has no recollection of the dollar figure that you mentioned or the period that you mentioned or the particular return, but says you said, 'You invest X dollars' - whatever they were - 'for such and such a period' - whatever it was - 'and you get such and such a return on the investment' - whatever the return was. Is that correct? A. If he has made the statement six years after the time I said it, I am not surprised he doesn't remember. I don't remember the exact figures either. Q. And he says that you said, `The whole thing can then be cashed in'; is that right? A. When? Q. When you did your five-minute presentation for him? A. He said I said, 'The whole thing could be cashed in'? Q. After whatever the period was, whatever number of years it was? A. You can sell an investment at any time, can't you? Q. And he recalls that the presentation was about tax savings; you agree with that? A. The tax savings came into it. Q. He said that at the time you made the presentation you made statements to him about the amount of money that could be made selling this kind of product. Do you remember doing that? A. Yes, I do. Q. And he said that he did not know that you were advising your clients to enter into a second level of borrowing from National Mutual and to reinvest in the purchase of further property trust units or other National Mutual products. Do you agree with that? A. No, I don't agree with that. Q. He says that he does not recall that being mentioned by you in the presentation which he attended? A. Craig was more interested really than any of the other Citibank account executives in how that worked and he had full knowledge of what was happening. Q. Mr Kelly, did you sanitise the presentations which you made to Citibank personnel? A. What do you mean by sanitise? Q. Did you take out for them any reference to gearing up on the Citibank money with National Mutual money? A. They were well aware that the money was going in and it was being regeared through National Mutual. They had seen the forms. It had been explained to them. Yes. I do not know why they have all got instant amnesia. Q. Was it an omission from the presentation which you did to the Citibank personnel that there would be gearing up on money lent by Citibank units mortgage power investment [sic] with National Mutual loans? A. No, because not only did I tell them about the loans, when we were working out the costs and the costs that were drawn, all the different things that related to that National Mutual loan. I can't believe they would say they didn't know about the regearing. I just can't believe it." 1176 Hall was not cross-examined specifically on the "double gearing" aspect. He agreed he understood that a Mortgage Power customer was at liberty to use Mortgage Power to provide 100 per cent of the acquisition price of another investment and even to fund "a deposit on another investment." The cross-examination continued: "Q. And in such a case, enabling them, thereafter, to borrow the balance of the purchase price of another investment through some other facility? A. What they chose to do with the money could enable them to do anything they wanted to with that facility, so, yes, I guess the answer is yes. Q. It was part of your understanding of the product, as it was taught to you, was it not, that one of its advantages was that it would enable a person to fund the deposit on an investment if he so chose? A. I don't remember promoting it, that being one of the promoting factors." 1177 Hall agreed he understood that Kelly was selling a package of financial products to his customers which comprised investment in the Trust and the taking of a Mortgage Power facility to enable acquisition of that investment. He also agreed he saw a large number of proposals coming in through Kelly which had originated in New South Wales as well as in Victoria, and that he understood that NM agents in New South Wales were funnelling their clients' applications through Kelly. 1178 On the evidence, I am not persuaded that Kelly brought home to Hall that the Investors' drawdown on the Mortgage Power facility was merely to acquire the "deposit" units on the basis of which the Investors would borrow a much larger sum from NM to acquire the bulk of the units, using both the initial units and the further units as security for that second borrowing. 1179 I can now state my conclusions on the issue of the Citibank officers' knowledge of what Kelly was saying to prospective investors. 1180 The various Citibank officers understood it was a matter for the customer when, in what amounts and for what purposes to draw down on the Mortgage Power facility, and whether he or she accepted financial planning advice from Kelly. Consistently with this understanding, it should, in general, have been of no concern to them that the customer might be using a drawdown to acquire a "deposit" of initial units in the Trust with a view to borrowing a much larger amount from NM to acquire a much larger number of units, using both the initial units and the further units as security. 1181 I find that the Citibank officers were in fact not particularly interested in what Kelly had to say about his plan, provided he did not misrepresent Mortgage Power itself. This unconcern was consistent with the feature of Mortgage Power that it was available for any purpose of the customer's choice, and with the officers' view of Kelly as a NM agent and finance planner. 1182 Kelly's method of "demonstration" was not conducive to the Citibank officers' appreciation of the implications of his plan. I have no doubt that any presentation or description of it that he gave them, like the much lengthier and more detailed ones he gave prospective investors, was fast, confident and glib. His descriptions of his plan to the Citibank officers occupied only a small fraction of the time he gave to the Investors: there was no money for Kelly in talking to them, and if they understood his plan thoroughly they might begin to question its impact on their customers' capacity to service their borrowings. 1183 It is possible that somewhere along the line Kelly did mention to some Citibank officer that Mortgage Power was being used to acquire only "deposit units", and that a borrowing from NM was to fund the remainder on the security of all the units. But if he did, he did so in a manner that did not reasonably or sufficiently convey the position. 1184 If it had been brought home to the Citibank officers that the result of Kelly's Negative Gearing Package was that the Investors were becoming, or might become, indebted to Citibank and NM in a total sum that went above the approved ceiling on the Mortgage Power account itself, it is difficult to know what Citibank would have done. It might well have become alarmed and in its own interests ceased lending to Kelly's clients at all, or introduced a restriction, at least in the case of some of the Investors, designed to prevent this happening.

(b) Did Citibank authorise Kelly as its representative and for it and on its behalf, to make representations about NM products and the advantages of investing in them in accordance with Kelly's Negative Gearing Package? 1185 In my opinion, the answer to this question is "No", for the reasons given in Chapter 3 and in the course of the above discussion.

2.3 The manner of sale 1186 NM submits that Citibank did not effectively restrict the Advisers' "manner of sale". Citibank's officers agreed that they did not do so at point of sale. But LKFM's agency agreement did so. Contrary to NM's submission, in my opinion that agreement restricted LKFM's actual authority, so that if LKFM's conduct toward the Investors was tortious or contravened s 52 of the TP Act, this rendered LKFM liable to indemnify Citibank. (The question of the Advisers' liability to indemnify Citibank is addressed in Chapter 12.)

2.4 Financial advice 1187 Contrary to NM's submissions, the knowledge of Citibank officers that Kelly was giving his clients advice of a financial planning nature does not establish that Citibank was authorising Kelly to do so as its representative or for it or on its behalf. The officers' understanding was consistent with Kelly's giving the advice on his own account or as agent for NM. I find that this was their understanding and that their understanding was correct.

Conclusion 1188 I summarise my conclusions on actual authority outside LKFM's agency agreement of 3 April 1989 as follows: 1189 (1) The Advisers other than LKFM/Kelly were not "the voice of" Citibank and had no actual authority from Citibank to represent it or to act for it or on its behalf in promoting and selling Mortgage Power. 1190 (2) LKFM/Kelly was not "the voice of" Citibank and had no such actual authority except that conferred by the agency agreement of 3 April 1989. 1191 (3) It follows that the only cases in which there is a possibility of vicarious liability based on the Colonial principle and a class or scope of authorised statements to be considered are those of Investors to whom LKFM, through Kelly and any employees of LKFM, sold Mortgage Power pursuant to the agency agreement of 3 April 1989. 1192 (4) If, contrary to my view, LKFM/Kelly or any other Adviser, had further actual authority from Citibank as its agent to perform specific minor clerical or administrative tasks in relation to the Investors, that actual authority was very limited in scope and duration and did not carry with it authority to promote and sell Mortgage Power, let alone to promote and sell NM units in accordance with the Package. 1193 (5) The class or scope of statements that LKFM's authority to promote and sell Mortgage Power carried with it was statements to prospective borrowers as to the nature, terms and merits of Mortgage Power and how they "fitted" with particular kinds of use proposed. 1194 (6) That class or scope of statements did not include: · representations or recommendations about NM products, such as units in the Trust or life insurance; · representations, recommendations or advice of an investment, tax, or financial planning nature, such as the devising or recommending of a financial plan (including the Negative Gearing Package) supposed to accord with the circumstances of a particular Investor. 1195 (7) Citibank did not actually authorise the making by Kelly or any of the other Advisers, as its representatives or for it or on its behalf, of any of the particular tortious statements of which complaint is made. 1196 (8) Neither Kelly nor any other Adviser so far "represented" Citibank that he or she was its mind and that any statement he or she made about NM products, Mortgage Power or the Package was a statement by on organ of Citibank, that is, by Citibank itself.

CHAPTER 7 RATIFICATION 1197 P may become liable by ratifying the tortious act of A done on behalf of P after it was committed, and a ratification has, in general, the same effect as a prior command or authority to do that very tortious act: Wilson v Tumman (1843) 6 Man & G 236 (134 ER 879) at 242-243 (ER 882); Dawson v Bulli Shire Council (1927) 27 SR (NSW) 509. The liability that results from ratification is therefore personal, not vicarious. 1198 I do not think NM's case that Citibank incurred liability to the Investors through ratification, raises any issues different from those relevant to the other grounds of liability relied on by NM. The parties' submissions proceeded on that basis. For this reason, I will deal with ratification briefly. 1199 There are three essential elements of ratification of an agent's tortious conduct: first, the act must have been done on behalf of the ratifier; second, the principal must have had sufficient knowledge of the act; third, the principal's act of ratification must have been of an appropriate kind.

1. Did the Advisers act on behalf of Citibank? 1200 The person primarily liable must have acted, not for himself (or, no doubt, for another principal), but on behalf of the ratifier (Eastern Construction Co Ltd v National Trust Co Ltd [1914] AC 197 at 213 ("Eastern Construction Co"); and in the contractual context, Keighley Maxsted & Co v Durant (t/a Bryan Durant & Co) [1901] AC 240 (HL)). 1201 The meaning of the notion "on behalf of" in the present context is not clear. Is the unrevealed intention of A enough or must A's intention be disclosed? If A's intention must be disclosed, what is a sufficient disclosure? 1202 I need not resolve these questions because I do not think that any of the Advisers even intended to act on behalf of Citibank when they made representations or recommendations about the units in the Trust or other NM products or the Negative Gearing Package. With the exception of Kelly during the period after 3 April 1989, they did not intend to act on behalf of Citibank when they made representations or recommendations about Mortgage Power either. They knew that they were agents of NM, that they were not agents of Citibank, and that LKFM was (after 3 April 1989) an agent of Citibank. 1203 In respect of the period after 3 April 1989, Kelly intended that representations and recommendations he made about Mortgage Power be made on behalf of Citibank because of LKFM's appointment as an agent of Citibank on that date. But no complaint is made about any representations or recommendations made by Kelly (or by any other Adviser) about Mortgage Power.

2. Did Citibank have sufficient knowledge of the STATEMENTS Said to have been ratified? 1204 For an effective ratification, P must have had "full knowledge of all the essential facts": Eastern Construction Co, above, at 213. There might be a question as to what were "all the essential facts" as to the Advisers' conduct. 1205 I have explored the question of the Citibank officers' knowledge of Kelly's "presentation" earlier and concluded that they did not know of the second limb of the Package, that is, of the acquisition of four times as many further units as the number of the initial ones, and the borrowing from NM to enable their acquisition, on the security of a mortgage of both the initial units and the further ones. This was the most important part of the Package. It accounted for four fifths of the hoped for capital growth, income return and tax saving. In my opinion, absent that knowledge, Citibank cannot be said to have ratified the actual tortious making of representations and recommendations about the units or the Package. 1206 The express representations made to the respective Investors differed as between them. I am not satisfied that Citibank had full knowledge of what was said to each of them. 1207 Citibank had seen and heard Kelly illustrate his presentation of his Negative Gearing Package and found it confusing and difficult to follow. But this falls far short of "full knowledge of all the essential facts" necessary for ratification.

3. Was Citibank's act of alleged ratification of an appropriate kind? 1208 The relevant conduct of Citibank is that it did not seek to control Kelly (or any other Adviser) in respect of presentations made to the Investors (the Citibank officers thought, correctly in my view, that this was NM's or the Advisers' business, not that of Citibank) and it received, dealt with and accepted the Investors' applications for Mortgage Power finance. 1209 In view of my conclusions as to the first and second elements of ratification, it is hypothetical and perhaps not useful to enquire as to the sufficiency of this conduct of Citibank to constitute acts of ratification. It suffices to say that in my view that conduct did not constitute the "clear adoptive acts" required for ratification (Eastern Construction Co, above, at 213).

CHAPTER 8 NM'S CLAIMS BASED ON THE SECURITIES INDUSTRY CODE AND THE CORPORATIONS LAW 1210 NM pleads cases based on contravention by the Advisers of the SIC in the case of investments made from 1 November 1989, and equivalent provisions of the Law in the case of investments made from 1 January 1991. The provisions said to have been contravened were in substance the same in the two legislative régimes, those of the Law having replaced those of the SIC. The contraventions are pleaded in substantially identical terms in relation to the Jones Investors (pars 27-29 of the Pleading), the Kelly Investors (pars 84-86 of the Pleading) and the Citibank Investors (pars 113, 114 of the Pleading) (at [57], [73] and [85] above respectively). 1211 In each case, NM pleads that the relevant Adviser made a recommendation with respect to the units in the Property Trust to an Investor who might reasonably be expected to rely on the recommendation, yet, in contravention of the legislation, did not (i) disclose all commissions, fees and other benefits the Adviser would obtain from the Investor's entering into the Package, or (ii) have a reasonable basis for making the recommendation. NM's case is that the Advisers made the recommendations in the course of acting as a representative of both NM and Citibank, with the result that both became liable to the Investors, firstly under the general law principles providing for vicarious liability, and, secondly, under express provisions of the legislation. NM, having settled with the Investors, claims to be entitled to recover contribution from Citibank. 1212 In order to understand the claims, it is necessary to understand the legislation. In the following account I will give the SIC references, showing after them in parentheses the references to the comparable provisions of the Law. 1213 The ultimate provision which, NM submits, imposed liability on the Advisers is SIC s 68F (Law s 852), which provided that a "securities adviser" was liable to pay damages to his or her "client" in respect of certain loss or damage. The section applied where a "securities adviser" contravened SIC s 68C (Law s 849) or SIC s 68E (Law s 851) in relation to a "securities recommendation" made by the securities adviser to a person ("the client"); the client, relying on the recommendation, did or omitted to do, a particular act; it was reasonable, having regard to the recommendation and all other relevant circumstances, for the client to do, or to omit to do, the act in reliance on the recommendation; and the client suffered loss or damage as a result of having so acted or omitted to act. NM submits that the Advisers were securities advisers and contravened SIC s 68C (Law s 849) and SIC s 68E (Law s 851) in relation to securities recommendations they made to the Investors in respect of the units (which are "securities"), not in respect of the Mortgage Power facility (which is not a "security"). 1214 The legislative scheme that prevailed as from 1 November 1989 under the SIC and later the Law was that "dealers" and "investment advisers" were required to be licensed; their representatives were required to be natural persons and not bodies corporate; their "representatives", who had previously also been required to be licensed, were not required to be licensed but were required to be issued with "proper authorities" by their "principals" (as the dealers and investment advisers were called in the legislation); and the dealers and investment advisers were required to maintain a register of the holders of proper authorities issued by them. Accordingly, a representative was required to be a natural person who held a proper authority issued by a licensed dealer or licensed investment adviser. The abandonment as from 1 November 1989 of the requirement that representatives also be licensed marked a transfer of responsibility for their fitness to the dealers and investment advisers whom they represented. 1215 SIC s 68C (Law s 849) applied where a "securities adviser" made a "securities recommendation" to a "client" who might reasonably be expected to rely on it. The section required the securities adviser to disclose to the client particulars of any commission, fee or other benefit or advantage, whether pecuniary or not, and whether direct or indirect, that the securities adviser or an associate of the securities adviser had received or would or might receive in connection with the making of the recommendation or in connection with a dealing by the client in securities as a result of the recommendation. 1216 This section, like the later s 68E (Law s 851), invoked several definitions found in the legislation. The expression "securities adviser" was defined in SIC s 4 (Law s 9) to mean "a dealer, an investment adviser or a representative of a dealer or of an investment adviser". The same section defined a "dealer" as, relevantly, a person who carried on a "securities business". The expression "securities business" was defined in SIC s 6J (Law s 93) as "a business of dealing in securities". The expression "securities" was defined in SIC s 4 (Law s 9) to include, relevantly, "a prescribed interest". The expression "prescribed interest" was defined in SIC s 4 (Law s 9) to mean, relevantly, "a participation interest". The expression "participation interest" was defined in SIC s 4 (Law s 9) widely enough to include the units in the Property Trust. 1217 The expression "investment adviser" was defined in SIC s 4 (Law s 9) to mean, relevantly, a person who carries on an "investment advice business". The expression "investment advice business" was defined in SIC s 6E (Law s 77) to mean, relevantly, "a business of advising other persons about securities". I referred to the definition of "securities" above and noted that the units in the Property Trust were securities. 1218 NMAM was a licensed dealer. Kelly and some of the other Advisers held proper authorities issued by NMAM. NM submits that NMAM was, at the relevant time, in fact carrying on an investment advice business and was therefore an investment adviser and that all the Advisers were its representatives and were therefore "securities advisers". Citibank does not submit to the contrary. In fact, however, NMAM was carrying on a business of dealing in securities, namely, the units in the Property Trust. I will treat NM's submissions as amended accordingly. I will also proceed on the assumption that the Advisers were securities advisers by reason of their being representatives of the dealer, NMAM. 1219 In the SIC, the important definition of "representative" is found in s 6H which provided, relevantly, as follows: "(1) Subject to subsection (2), a person is a representative of another person if, and only if, the first-mentioned person is employed by, or acts for or by arrangement with, 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 6F(1)(b): (a) a person who holds a proper authority from a licensee or recognised licensee is a representative of the licensee or recognised licensee; and (b) a person who holds an invalid authority from another person is a representative of the other person. (3) Subject to subsection (4), a person does an act, or engages in conduct, as a 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 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 IV, a person who holds himself, herself or itself out to be a representative of another person does an act as a representative of the other person." (my emphasis) The approach taken to the definition of "representative" in the Law was a little different. Section 9 of the Law defined "representative" to mean, in Chapter 7, a "securities representative" and in Chapter 8, a "futures representative". We are concerned only with the former. Section 94 of the Law defined a "securities representative" in identical terms, subject to necessary cross-reference adjustments to the terms of the definition of "representative" in s 6H of the SIC set out above. 1220 NM submits that SIC s 68C (Law s 849) had the effect that the Advisers, as securities advisers, were required to make full disclosure to clients to whom they were making securities recommendations on which the clients might reasonably be expected to rely, of the commissions they received from NM for procuring the clients' investment in the units and in any NM insurance policies, and also the fee payable by Citibank to LKFM, since, by reason of them, both the Advisers and their associate (LKFM) received direct or indirect benefits in connection with the making of the securities recommendations. The notion of an "associate" is defined in SIC s 6 (Law s 13) but in view of the conclusion that I reach below, I need not discuss it or the question whether LKFM was an associate of the Advisers. (It might also have been submitted that where there was a sharing of the NM commission, the fellow NM agent was an "associate" of the Adviser so that the Adviser was obliged to disclose the share payable to him or her as well as the share payable to the Adviser, but the submission would be inconsequential in view of the case sought to be made that the Adviser did not even disclose his or her own commission.) 1221 SIC s 68E (Law s 851) had the effect of providing that the Advisers, if they were securities advisers, must not make a recommendation with respect to the units to a person who might reasonably be expected to rely on it if they did not have a reasonable basis for making the recommendation to that person. The section provided in subs (2) that for the purposes of this prohibition: "…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." 1222 NM submits that the Advisers contravened SIC s 68C (Law s 849) and SIC s 68E (Law s 851) in relation to the Investors. I am content to assume that they did; that all the Investors reasonably acted in reliance on the Advisers' recommendations by investing in the units in accordance with the Package and suffered loss or damage as a result of doing so; and that the Advisers, as representatives of the dealer NMAM, incurred a statutory liability to pay damages to the Investors under SIC s 68F (Law s 852) in respect of that loss or damage (in fact, as noted at [671] of Chapter 3, of the Advisers, only Buttars, Hacopian and Kinross were not the holders of proper authorities issued by NMAM, but I need not stay to discuss the implications of this fact for present purposes - it makes no difference to the result and I will not distinguish between the Advisers). 1223 The question arises how Citibank comes to be liable in respect of that primary liability of the Advisers. 1224 First, NM submits that general law principles render Citibank vicariously liable. This submission raises two questions: first, whether there can be vicarious liability in accordance with general law principles in respect of the primary liability created by SIC s 68F (Law s 852); second, whether, when the Advisers recommended that the Investors acquire the units, they were acting as representatives of or for or on behalf of Citibank for the purpose of the general law principles governing the vicarious liability of principals. 1225 I need not decide the first question (the question of vicarious liability in respect of a primary liability that is created by statute is a vexed one, on which the leading Australian authority, usually cited against the existence of the liability, is still Darling Island Stevedoring and Lighterage Co Ltd v Long (1956) 97 CLR 36) because, for reasons stated in earlier chapters, in my opinion the Advisers did not make the recommendations as representatives of or for or on behalf of Citibank. (I note in passing that it is not a ground for holding that the general law principles of vicarious liability do not apply, that a principal is made liable by SIC s 61A (Law s 817): see SIC subs 61F(2) (Law subs 822(2)).) 1226 Second, NM relies on the express provisions of the legislation as burdening Citibank with liability. SIC s 61A (Law s 817) provided that where a person engaged in conduct "as a representative" of another person ("the principal"), then as between the principal and a third person such as an Investor, the principal was liable in respect of that conduct in the same manner and to the same extent as if the principal had engaged in it. NM submits that in the present case, each Adviser engaged in the relevant conduct as a "representative" of Citibank as well as of NMAM. 1227 NM also relies on SIC s 61C (Law s 819). According to subs (1) of that section, the section applied where a representative was, relevantly, a representative of two or more persons ("the indemnifying principals") and the client did or omitted to do a particular act because the client believed in good faith that the representative engaged in particular conduct on behalf of an assumed principal in connection with a securities business or investment advice business carried on by the assumed principal, and it was 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 particular act because of that belief, whether or not the representative's conduct was or would have been within the scope of the representative's employment by, or authority from, any person. Subsection (2) of the section provided that as between any one of the indemnifying principals and the client, that indemnifying principal was liable in respect of that conduct in the same manner, and to the same extent, as if that indemnifying principal had engaged in it. Subsection (3) provided that the indemnifying principals were liable to pay damages to the client in respect of any loss or damage that the client suffered as a result of doing, or omitting to do, as the case might be, the particular act referred to. 1228 With respect, it seems to me that s 61C poses no issues of construction different from those arising under s 61A. 1229 Two concepts underlie the legislative scheme that culminates in these provisions: that of a person being a representative of another, and that of a person doing an act or engaging in conduct as a representative of another. The latter notion, which is central to s 61A (Law s 817) is defined in SIC s 6H (Law ss 9, 94). The definition requires that the person do the act or engage in the conduct "in connection with a securities business or investment advice business carried on by the other person" while the first personis a representative of the second person. The same section provides that one person is the representative of another if the first person acts for or by arrangement with the second person "in connection with a securities business or investment advice business carried on by the other person." But in my opinion (a) Citibank did not carry on such a business, and (b) none of the Advisers acted for or by arrangement with Citibank in connection with such a business carried on by it and was therefore a "representative" of Citibank. 1230 On their proper construction, the provisions do not impose a liability on anyone other than a dealer or investment adviser in respect of the acts or conduct of a person who is in fact its representative (as defined) done or engaged in in connection with the carrying on of its business of dealing in securities or its investment advice business, as the case may be. The provisions operate within the boundaries of the securities industry. 1231 This construction of the provisions is supported by reference to the Second Reading Speech on the Co-operative Scheme Legislation Amendment Bill 1989 which gave rise to the enactment of the provisions: "To ensure that proper responsibility is taken for the activities of their representatives, dealers, brokers and advisers will be made more fully liable for the conduct of persons who are, in fact, their representatives." (Cth Parl Debs, Senate, 26 May 1989, at p 2783.) 1232 It is not necessary for me to consider the basis for contribution which NM asserts would have applied if Citibank had been liable to the Investors under the SIC (the Law).

CHAPTER 9 TRADE PRACTICES ACT 1233 According to the Pleading, the Advisers' representations gave rise to contraventions of various provisions of the TP Act. NM seeks to sheet the representations home to both itself and Citibank, with the result that I find them coordinately liable to the Investors under the TP Act. 1234 The case under the TP Act is pleaded in pars 20, 24, 25 and 26 of the Pleading in relation to the Jones Investors; in pars 77, 81, 82 and 83 in relation to the Kelly Investors; and in pars 106, 110, 111 and 112 in relation to the Citibank Investors (see Chapter 1). NM pleads that it was represented to the respective Investors that the Package was safe and risk free and suitable for the Investors and that each of those representations and of the express representations set out in Schedule 2: "(a) was a representation of existing fact and was false; alternatively (b) was a representation as to future matters, and was made without a reasonable basis; alternatively (c) was a representation of opinion, and was not honestly held and reasonably based." 1235 Section 82 of the TP Act provides that a person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part V of that Act may recover the amount of the loss or damage by action against that other person. The "other person" must be a corporation that engaged in the misleading or deceptive conduct in trade or commerce. In the present case, both NM and Citibank are the corporations that are said by NM to have contravened the TP Act in that manner. This raises the question whether both corporations engaged in the contravening conduct, that is, made the representations which the Advisers in fact made. 1236 Subsection 84(2) of the TP Act provides, relevantly, as follows: "(2) Any conduct engaged in on behalf of a body corporate - (a) by a director, servant or agent of the body corporate within the scope of the person's actual or apparent authority, or (b) by any other person at the direction or with the consent or agreement (whether express or implied) of a director, servant or agent of the body corporate, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, servant or agent, shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate." (my emphasis) 1237 There is no serious suggestion that subs 84(2) was not satisfied as between the Advisers and NM and I will discuss the operation of the subsection only in respect of the relationship between the Advisers and Citibank. 1238 Subsection 84(2) has two limbs. In relation to both limbs the question arises whether the conduct of the Adviser was conduct engaged in "on behalf of" Citibank. If so, additional questions arise. The issues under subs 84(2) in this case can be stated as follows: (A)Did the Adviser make the representations 'on behalf of' Citibank? (B)If 'yes' to (A), (1) Was the Adviser an 'agent' of Citibank? (2) If 'yes' to (B)(1), (a) Did the Adviser make the representations within the scope of the Adviser's actual or apparent authority? (3) If 'no' to (B)(1), (a) Were the representations made with the consent or agreement, express or implied, of a servant or agent of Citibank? (b) If 'yes' to (B)(3)(a), was the giving of the consent or agreement within the scope of the actual or apparent authority of the servant or agent? 1239 I will turn first to question (A). What is the meaning of the expression "on behalf of" in the opening words of subs 84(2)? 1240 In R v Portus; Ex parte Federated Clerks Union of Australia (1949) 79 CLR 428 at 435, Latham CJ observed that the phrase "'on behalf of' is not an expression which has a strict legal meaning". In The Queen v Toohey; Ex parte Attorney General for the Northern Territory of Australia (1980) 145 CLR 374, in a joint judgment Stephen, Mason, Murphy and Aickin JJ said of the expression (at 386): "…it bears no single and constant significance. Instead it may be used in conjunction with a wide range of relationships, all however in some way concerned with the standing of one person as auxiliary to or representative of another person or thing." The expression was considered more recently by Kirby P in the New South Wales Court of Appeal in Citizens Airport Environment Association Inc v Maritime Services Board (1993) 30 NSWLR 207, esp at 221-223, but as his Honour recognised, since the meaning of the expression is influenced so much by the statutory context in which it appears, authorities relating to a different statutory context afford little guidance. 1241 It has been accepted that subs 84(2) is an enlarging provision, that is, one that is intended to make proof of corporate responsibility for conduct easier than it is at common law by providing additional means of proving that matter: cf Trade Practices Commission v Queensland Aggregates Pty Ltd (No 3) (1982) 61 FLR 52 (Morling J) at 66; Trade Practices Commission v Tubemakers of Australia Ltd (1983) 47 ALR 719 (FCA/Toohey J) at 739; Walplan Pty Ltd v Wallace (1985) 8 FCR 27 (FC) at 36-37, 38; J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers - Western Australian Branch (1992) 111 ALR 502 (FCA/French J) at 531-532. 1242 In Walplan Ptd Ltd v Wallace, above, Lockhart J (with whom Sweeney and Neaves JJ agreed) stated (at 37): "The phrase 'on behalf of' is not one with a strict legal meaning and it is used in a wide range of relationships. The words are not used in any definitive sense capable of general application to all circumstances which may arise and to which the subsection has application. This must depend upon the circumstances of the particular case, but some statements as to the meaning and operation of the subsection may be made. In the context of s 84(2) the phrase suggests some involvement by the person concerned with the activities of the company. The words convey a meaning similar to the phrase 'in the course of the body corporate's affairs or activities'… Section 84(2) refers to conduct by directors and agents of a body corporate as well as its servants. Also, the second limb of the subsection extends the corporation's responsibility to the conduct of other persons who act at the behest of a director, agent or servant of the corporation. Hence the phrase 'on behalf of' casts a much wider net than conduct by servants in the course of their employment, although it includes it." 1243 I accept that it is neither necessary nor sufficient that the person whose conduct is in question ("the actor") intended his or her conduct to be for the benefit of the corporation, let alone that it in fact be for its benefit; cf Walplan Pty Ltd v Wallace, above, at 38. 1244 It seems to me that an act is done "on behalf of" a corporation for the purpose of subs 84(2) if either one of two conditions is satisfied: that the actor engaged in the conduct intending to do so "as representative of" or "for" the corporation, or that the actor engaged in the conduct in the course of the corporation's business, affairs or activities. This view accords with what Kiefel J said in Lisciandro v Official Trustee in Bankruptcy (1995) ATPR 41-436 at 40,903-40,904. 1245 In my respectful opinion, except for the conduct of LKFM in promoting the sale of Mortgage Power under the agency agreement dated 3 April 1989, none of the Advisers intended to act "as representatives of" or "for" Citibank, and their conduct in promoting the sale of the units in accordance with the Package, including the introduction of the Investors to Citibank and to Mortgage Power, did not take place in the course of Citibank's business, affairs or activities. 1246 Accordingly, the Advisers did not make the representations on behalf of Citibank for the purposes of subs 84(2) of the TP Act and I answer question (A), "No". 1247 This conclusion makes it unnecessary for me to consider the other issues set out above. If I had answered (A) "yes" I would have answered the other questions as follows: (B)(1): "Yes" in respect of LKFM/Kelly while the written agency agreement of 3 April 1989 was on foot; "No" otherwise and in respect of the other Advisers. (B)(2)(a): "No". (B)(3)(a): Some of the representations by one or more of the other Advisers, and by Kelly outside of the agency agreement of 3 April 1989, may have been made with the knowledge of one or more servants or agents of Citibank but not with their "consent" or "agreement" in the sense in which those words are used in the subsection, because the representatives were not made "on behalf of" Citibank. (B)(3)(b): "Not necessary to answer".

CHAPTER 10 CITIBANK'S "SPECIAL" OR "POSITIVE" DEFENCES

INTRODUCTION 1248 The conclusions that I have reached in earlier chapters make it unnecessary for me to consider certain "special" or "positive" defences raised by Citibank. 1249 Citibank listed these defences as follows in its written submissions: 1250 (1) NM's claims are statute-barred in a number of cases, both as to the claims for contribution by NM as a coordinate tortfeasor and as to its claim for equitable contribution in respect of the liability said to have arisen under the TP Act. (I deal with this issue later in this chapter.) 1251 (2) Citibank was not a "dealer" or "investment adviser" under the SIC (the Law) and accordingly it did not attract the liability provided for in that statute. (I dealt with this issue in Chapter 8.) 1252 (3) In the case of some of the Investors, NMAM's representatives procured the funds for investment without providing the Investors with the relevant prospectus for the Trust, with the result that the transaction was "illegal" and NM is disentitled to recover. 1253 (4) The Investors' losses resulted, not from the causes identified by NM, but from the following causes: (a) NM's solicitation of the claims from the Investors in consequence of the ASC's investigation pursuant to s 13 of the Australian Securities Commission Act 1989 (Cth); (b) The values attributed by NMAM to the units in the Trust from time to time, pre-investment and post-investment; (c) The general fall in the value of the Australian commercial property market; (d) The loss of investor confidence in unlisted property trusts that had occurred by 1993; (e) The extension of the period within which units were required to be redeemed, that was effected by the Corporations (Unlisted Property Trusts) Amendment Act 1991 (Cth). 1254 (5) The dealer's licence issued to NMAM was subject to conditions with which NMAM failed to comply, namely: (a) Under s 51 of the SIC and reg 19B of the Securities Industry Regulations, that NMAM should take reasonable steps to supervise the conduct of its agents; and (b) Under s 786 of the Law and reg 7.3.02 of the Corporations Regulations, that NMAM should ensure that each of its agents was adequately supervised in the performance of the duties that he or she was required to perform, was sufficiently trained in relation to those duties before acting as a representative of NMAM, and was kept up to date in relation to those duties by means of continuing training programs. 1255 (6) The Investors' losses were due to the inadequate disclosure and misleading information contained in the prospectuses for the Property Trust, and the Advisers' misrepresentations were, for the most part, merely a paraphrase of misstatements to be found within the prospectuses and other official literature of NM. 1256 (7) A fundamental cause of the Investors' losses was the fact that two of the major assets of the Property Trust, namely, properties at Camberwell in Victoria and North Ryde in New South Wales, were purchased from companies within the NM group for prices which were, as it was ultimately recognised, considerably above their true market values. 1257 (8) It is just and equitable in terms of the legislation providing for contribution among coordinate tortfeasors that NM should bear the whole of the losses occasioned by the Negative Gearing Package, since the Package and the marketing methods used to promote it to the public were devised, implemented and approved by the management of NM. (I deal with this question in Chapter 11.) 1258 I will deal only with the limitation defences. But two observations are called for at the outset: first, in relation to at least some of the Investors, there would appear to be substance in Citibank's contention that the loss is not shown to have been caused by the causes identified by NM; secondly, although NM may have been motivated to approach and settle with the Investors by the ASC investigation and adverse publicity or the threat of it, this does not, in my view, exclude the possibility that the Investors suffered loss "as a result of a tort" or that NM was a "tort-feasor liable in respect of that damage" (s 5(1)(c) of the LR (MP) Act)or that NM was "a person liable in respect of any damage suffered by" the Investors (s 23B(1) of the Wrongs Act).

Limitation defences 1259 Citibank relies on limitation defences which fall into two categories. First, there are those which it submits were available to NM (and would have been available to Citibank) to defeat the claims made by the Investors at the times when NM and the respective Investors settled as between themselves. Second, Citibank submits that the making by NM of the claim for contribution against Citibank itself is defeated by a statutory limitation period. 1260 In relation to the first class of limitation period, the period for the negligence claims was six years running from the date on which the cause of action first accrued to an Investor (Limitation Act 1969 (NSW) s 14(1)(b); Limitation of Actions Act 1958 (Vic) s 5(1)(a)). In relation to the claims of contravention of the TP Act, the period was three years after the date on which an Investor's cause of action accrued (TP Act subs 82(2)). 1261 In relation to the second category of limitation period, the position differs as between New South Wales Investors and Victorian Investors. In relation to New South Wales Investors, subs 26(1) of the Limitation Act 1969 (NSW) provided that an action on a cause of action for contribution under subs 5(1) of the LR (MP) Act was not maintainable if brought after, relevantly: "a limitation period of two years running from the date on which the cause of action for contribution first accrue[d] to the plaintiff or to a person through whom he claim[ed];Ľ" Subsection 26(2) provided that for this purpose the date on which the cause of action for contribution first accrued was, in the circumstances of the present case, the date on which the settlement agreement was made between an Investor and NM. 1262 In relation to Victorian Investors, the relevant provisions are found in ss 23B and 24 of the Wrongs Act 1958 (Vic) and are more complex. Subsection 23B(1) provides that a person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage. I will, without prejudgment, refer to those three persons as "NM", "the Investors" and "Citibank", respectively. It is no obstacle that NM has ceased to be liable, provided it was liable immediately before it agreed to make the payment to an Investor in respect of which the contribution is sought: subs 23B(2). 1263 Subsection 23B(4) is as follows: "(4) Ľa person who in good faith has made or agreed to make any payment in settlement or compromise of a claim made against that person in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not the person who has made or agreed to make the payment is or ever was liable in respect of the damage provided that that person would have been liable assuming that the factual basis of the claim against that person could be established." Subsections 24(2) and (2B) are (set out in Chapter 11 at [1284]). Subsection 24(4) provides as follows: "(4) Notwithstanding any provision in any statute requiring a notice to be given before action or prescribing the period within which an action may be brought, where under section 23B any person becomes entitled to a right to recover contribution in respect of any damage from any other person, proceedings to recover contribution by virtue of that right may be commenced by the first-mentioned person- (a) at any time within the period- (i) within which the action against the first-mentioned person might have been commenced; or (ii) within the period of twelve months after the writ in the action against the first-mentioned person was served on him- whichever is the longer; or (b) Ľ." 1264 The Investors did not serve a writ on NM. Accordingly, NM had only the period within which an Investor might have commenced action against NM, in which to bring an action against Citibank for contribution. In the case of an action founded on tort, that period was six years from the date on which the Investor's cause of action accrued: Limitation of Actions Act 1958 (Vic) s 5(1)(a). 1265 The issue which has been contentious between the parties is the date on which the supposed causes of action for negligence and for contravention of the TP Act accrued to the Investors. Citibank submits that this date is the date of the making of the Investors' application for the Mortgage Power facility, while NM contends for a much later date. 1266 Annexure 5 to these Reasons is a table setting out in respect of the 23 Investors, subject to the observations made below and in the Table itself, the following information: · The date of the application for the Mortgage Power facility; · The date of the original settlement of that facility, that is, the date the Mortgage Power facility was made available and the investment in the initial units was made; · The date of the settlement deed between the Investor and NM; · The date when NM sought in this proceeding contribution from Citibank in respect of the Investor. 1267 Citibank submits that except for the claims in relation to Alder, Jorgensen, Lowe and West, NM settled with the Investors after the expiry of the three-year period applicable to the causes of action under the TP Act and in the case of two Investors, Richards and Eberts, the six-year period applicable to the causes of action in negligence as well. 1268 In oral submissions, counsel for NM took the position that while it would be useful to resolve the limitation point in relation to the claims under the TP Act, to do so would not "provide much of additional interest to the result". In consequence, he did not address submissions to the TP Act limitation period as it applied in respect of the individual Investors. He submitted that it was only in the cases of Richards and Eberts that the remaining limitation defence could provide a complete defence and accordingly he dealt with those two Investors alone. 1269 In view of my conclusion on other grounds that Citibank did not incur liability to the Investors, I propose only to make certain observations on the question of the date of accrual of the causes of action by reference to Citibank's submission that when NM settled, the Investor's cause of action against it was statute barred, and by reference only to the Investors Richards and Eberts. But in doing so, I do not decide or suggest that the limitation period fixed in subs 24(4) of the Wrongs Act does or does not bar NM's claim against Citibank for contribution in respect of them or of any other Victorian Investors.

Richards 1270 Citibank submits that since Richards' application for Mortgage Power was dated 28 April 1989 and the date of his deed of settlement with NM was 15 June 1995, any cause of action he may have had against NM for damages for negligence was statute-barred by the date of the deed of settlement. 1271 But Citibank did not make the Mortgage Power facility available to the Richards until 21 June 1989, the date of their mortgage. 1272 The suffering of loss or damage is an essential element of an Investor's cause of action in negligence. I do not think the Richards suffered loss or damage at the moment when the units were issued to them and I am certainly of the view that no cause of action accrued to them prior to that time. They were not "committed" to the Package and could have withdrawn at any time down to 21 June 1989. Nor do I think that the contract between them and Citibank pursuant to which they paid application fees and valuation fees involved the incurring of loss or damage by them for present purposes. Those amounts did not represent an "ascertained or ascertainable loss" suffered by the Richards until much later (see the discussion below in relation to Eberts).

Eberts 1273 There is not a date on Eberts' form of application for the Mortgage Power facility but the date of the cheque for her application and valuation fees was 10 May 1989 and I infer that she signed her application form on or about that date. The application was received in the CSU on 15 May 1989. The deed of settlement between Eberts and NM was dated 30 June 1995 - one to two months after expiry of a period of six years from 10 May 1995. 1274 Citibank made available the Mortgage Power facility to Eberts on 29 June 1989 and that was the date of the settlement of their Mortgage Power facility. According to the evidence, Kelly urged that the facility should be settled before the end of the financial year. Since the deed of settlement was dated 30 June 1995, this was one day outside a period of six years from 29 June 1989. 1275 NM puts two submissions. First, NM submits that it would have been estopped in favour of Eberts from relying on expiry of the limitation period. In support, NM submits that negotiations towards the settlement had been in train from 20 March 1995 and that it would have been unconscionable for it to have taken the point that the deed happened to be executed one day outside the limitation period. NM refers to The Commonwealth v Verwayen (1990) 170 CLR 394 and China Ocean Shipping Co Ltd v P S Chellaram & Co Ltd (1990) 28 NSWLR 354 (CA). But in the latter case the New South Wales Court of Appeal rejected a submission generally along the lines of that put by NM. 1276 While the facts of a particular case may activate an estoppel of the kind relied on by NM, it is not shown, in my view, that the principle applied in favour of Eberts. So far as the evidence reveals, negotiations between her and NM took place without anyone thinking about the limitation period. NM did not represent that it would not rely on the expiry of that period. The fact that it paid over the settlement moneys to Eberts suggests that it was not conscious of the fact that the limitation period had passed. In my view, notions of conscientious behaviour did not require NM, in Eberts' interests, to identify in advance the date when the limitation period would expire and advise her of this so that she could commence an action against it before that date. 1277 The second submission made by NM has more substance. This is that Eberts did not suffer loss when she acquired the initial units and settled the Mortgage Power facility, that is, on 29 June 1989. 1278 Eberts first appreciated she was "in trouble" as a result of the Package in early 1991 when she was having difficulty meeting interest on the Citibank mortgage. That interest was nearly $2,000 per month which was more than the whole of her "take home" pay of $1,600-$1,700 per month. By December 1992, if not earlier, she had used the full limit of the Mortgage Power facility and had no credit remaining available to her to service the Package. 1279 In my view, the present issue would have been resolved in favour of Eberts, and therefore is now resolved in favour of NM, by Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514, because, as at 29 June 1989, it was not ascertained or ascertainable that Eberts had suffered actual loss. As at that date, for all that was known, the investment might have turned out to be profitable, and the amounts she paid for application and valuation fees to Citibank on 10 May 1989 totalling $1,175 well spent. 1280 It is unnecessary to seek to identify any particular later point of time when it became known that Eberts had definitely sustained actual loss - it suffices to say that it was much later than 30 June 1989, and, accordingly, the particular six-year limitation period being considered had not expired by 30 June 1995. 1281 In further support of the Wardley test of "actual, not prospective loss" for identifying the time when loss is suffered in a case such as the present one, reference may be made to Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35(FC) at 40-44 per Burchett and Hill JJ, 45-48 per Sackville J; Qanstruct Pty Ltd v Bongiorno Ltd (1993) 113 ALR 667 (FCA/Ryan J) at 675-676; MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 (FCA/Lindgren J) at 374-377. Another way of arriving at the same result, at least in this case, is to find, as I would do, that the supposedly wrongful acts of NM that induced Eberts to contract, supposedly on 10 May 1989, and to settle on 29 June 1989, continued to influence her to act to her detriment by retaining the investment, that is, to be "operative" or "effective", for at least a further one day, that is, until 30 June 1989; cf Hawkins v Clayton (1988) 164 CLR 539 at 589-590 per Deane J.

conclusion 1282 The above are no more than my views in relation to one of Citibank's limitation defences, that applicable as at the date of the deeds of settlement, in relation to two only of the Victorian Investors.

CHAPTER 11 AMOUNT OF CONTRIBUTION RECOVERABLE BY NM FROM CITIBANK

INTRODUCTION AND General 1283 If I had concluded that Citibank was liable to the Investors in respect of damage suffered by them for which NM was also liable to them, a question would have arisen as to the amount of contribution, if any, that NM was entitled to recover from Citibank. This chapter is concerned with that hypothetical question. 1284 Subsections 5(1)(c) and (2) of the LR (MP) Act are as follows: "5. (1) Where damage is suffered by any person as a result of a tort (whether a crime or not) - (a) … (b) … (c) any tort-feasor liable in respect of that damage may recover contribution from any other tort-feasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise,… (2) In any proceedings for contribution under this section the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage; and the court shall havepower to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity."(my emphasis) Subsections 23A(1), 23B(1) and 24(2) and (2B) of the Wrongs Act are as follows: "23A(1) For the purposes of this Part a person is liable in respect of any damage if the person who suffered that damage … is entitled to recover compensation from the first-mentioned person in respect of that damage whatever the legal basis of liability, whether tort, breach of contract, breach of trust or otherwise." "23B(1) Subject to the following provisions of this section, a person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with the first-mentioned person or otherwise)." "24(2) …in any proceedings for contribution under section 23B the amount of the contribution recoverable from any person shall be such as may be found by the jury or by the court if the trial is without a jury to be just and equitable having regard to the extent of that person's responsibility for the damage; and the jury or the court if the trial is without a jury shall have power to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity." (my emphasis) "24(2B) If in any proceedings for contribution under section 23B the jury or the court, if the trial is without a jury, finds that the amount of any payment made or agreed to be made in settlement or compromise of a claim was excessive the jury or the court (as the case requires) in assessing the amount of the contribution recoverable from any person shall disregard any part of the payment which appears to it to have been excessive." 1285 The New South Wales provision applies only where both the claimant and the person from whom contribution is claimed are "tort-feasors". The cause of action under the TP Act is entirely statutory and the common law plays no part in the creation of it: Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 (FC) ("Bialkower") at 11. Section 23B of the Wrongs Act, on the other hand, is not so restricted: because of subs 23A(1) of that Act, s 23B applies "whatever the legal basis of liability". 1286 In Bialkower, a Full Court of this Court held, following Sheppard J (with whom Hill J agreed) in Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535, that s 87 of the TP Act did not confer power to order contribution as between persons made liable by that Act in respect of contraventions of it. The Court thought that general law principles permitted an order for contribution to be made, but doubted that they authorised the unequal apportionment made by the trial judge in that case (75 per cent/25 per cent). The Court referred to the maxim "equity is equality", but accepted that the "equality" to which the maxim refers is not literal or mathematical equality but "proportionate equality", citing In re Steel, dec'd; Public Trustee v Christian Aid Society [1979] Ch 218. The question whether the general law principles permitted an unequal apportionment was not argued before their Honours and they did not need to resolve it, since the apportionment made by the trial judge was supportable by reference to s 23B of the Wrongs Act. 1287 The general law principles of contribution were discussed more recently in Burke v LFOT Pty Ltd [2000] FCA 1155 ("Burke") by the respective members of the Full Court in that case, Lee, Heerey and Lehane JJ. In Burke, a vendor company ("Jagar") and a director of it ("Tressider") were held liable to the purchaser ("Hanave") of a property consisting of tenanted shops arising out of contravention of s 52 of the TP Act by Jagar constituted by a representation and non-disclosure by it. Jagar and Tressider cross-claimed against Burke, alleging that he had acted as Hanave's solicitor on the purchase, but had failed to advise it to make proper inquiries as to the financial position of tenants of the property. The trial judge ordered Burke to contribute 50 per cent of the amount for which Jagar and Tressider were liable. 1288 On the appeal, Lee J thought that the general principles of equitable contribution did not permit the making of an order for contribution at all, but that if they did, the only apportionment permissible was an equal one, that is, one third as to each of Jagar, Tressider and Burke. Heerey J described Bialkower as "clear authority" for the availability of the general principles of contribution in the circumstances of the case, considered that Jagar's misrepresentation and Burke's negligence were effective causes (although not the only causes) of Hanave's loss, and decided that an equal apportionment appeared to be a rational conclusion and that, in any event, for the reasons given by the Full Court in Bialkower, it was doubtful that the general law of contribution authorised an unequal apportionment. Lehane J thought that in Bialkower the Full Court had expressed the clear opinion that contribution under the general law might be ordered as between persons liable under s 82 of the TP Act and that the Full Court's doubts expressed in that case as to whether the general law permitted contribution to be refused or adjusted by reference to perceived degrees of culpability were fully justified. Heerey J and Lehane J noted that the parties had not contended that application of the principle of equality called for a result different from that arrived at by the trial judge, that is, a recovery of 50 per cent from Burke, and their Honours were content to proceed accordingly. 1289 I accept, in accordance with the views expressed in Bialkower and Burke, that if there were nothing more to be considered than coordinate liabilities of NM and Citibank under the TP Act, general law principles would authorise only an equality of treatment of NM and Citibank, and, therefore, only a recovery by NM from Citibank of one half. But there is more in the present case. The facts which (hypothetically) activate s 5 of the LR (MP) Act also give rise to coordinate liabilities in negligence. (The causes of action under the common law and the TP Act also enliven s 23B of the Wrongs Act but, as noted above, that section gives rise to no difficulty and the present discussion relates only to those Investors in respect of whom the Victorian provision may not be available.) 1290 Later in this chapter I decide in the context of both statutory provisions that if I had found Citibank liable, NM's recovery should be only 5 per cent having regard to the extent of Citibank's responsibility for the damage. This would leave NM bearing 95 per cent. The problem which arises under the New South Wales statute can be illustrated as follows: · If Citibank, rather than NM, had settled with the Investors and had sought contribution from NM only under s 5 of the LR (MP) Act on the basis of the parties' respective liabilities to the Investors in tort, NM could hardly be heard to say that it should have to contribute only 50 per cent because that is all that it could have been ordered to contribute if Citibank had, instead, sought contribution under general law principles based on the parties' respective liabilities under the TP Act; · If, on the other hand, NM had sought contribution based on the general law principles on account of the parties' respective liabilities only under the TP Act, why would Citibank have been entitled to insist that its contribution be limited to 5 per cent on the basis that that is all that it would have been ordered to contribute if NM had, instead, sought contribution under s 5 of the LR (MP) Act in respect of the parties' respective liabilities in tort? 1291 I venture the opinion that the answer to this conundrum is that it would not be found to be an equitable result that contribution be ordered under the general law principles, since the LR (MP) Act provides an adequate remedy. To express the matter differently, I do not think that equity would order recovery of a contribution of 50 per cent, when s 5 of the LR (MP) Act provides expressly and more comprehensively for the achievement of a more just result by allowing the extent of Citibank's responsibility for the damage to be taken into account in aid of the ordering of a different percentage if appropriate. 1292 In the result, it is sufficient for me in this chapter to address the question of the amount of contribution recoverable by NM from Citibank only by reference to s 5 of the LR (MP) Act and s 23B of the Wrongs Act. I turn now to that question. 1293 NM submits that the just and equitable amount of contribution which Citibank should be ordered to make is one third of the amount of compensation provided by NM. In support, NM submits as follows: "(a) Citibank had sufficient knowledge of the nature of the presentations being made by the advisers to the borrowers; (b) in particular Citibank knew that its product was being used as an essential element in the larger scheme: its product provided both the deposit for the purchase of units in the property trust and the means whereby borrowers of limited means and sophistication, could, for a while at least, fund a highly geared negative investment scheme; (c) Citibank deliberately shut its eyes to the way the advisers were selling its product; Citibank made no attempts to train, regulate or supervise the advisers in the selling of its product; (d) Citibank was aware from the outset of the matters later recorded in its warning bulletin of 8 May 1992 [ … ], but both before and after this date did nothing to apply this warning to the Kelly scheme; (e) [f]or the pre-December 1990 borrowers, the failure to conduct any capacity testing was reckless behaviour; (f) Citibank's use of a network of National Mutual agents in order to divorce Citibank from steps taken by a conventional bank manager to ensure customers were not being lent into trouble; (g) [f]rom June 1989 onwards, Citibank risk management was aware of rising interest rates, increasing delinquencies with Mortgage Power and dropping property values, yet made no attempts to assess capacity until January 1991, notwithstanding that senior CPU officers (Moses, Horsefield, Fiedler) were urging this as the only responsible course; (h) but for the availability of the Citibank product, most if not all investors would never have entered the scheme or suffered their losses; (i) it was Citibank's failure to observe its own requirement that the borrowers receive a solicitor's protection which led to the Mortgage Power facility being available which was an essential element of the scheme; (j) [t]he Citibank letter of offer repeated the false assertion that Van Minnen was a solicitor looking after the borrowers' interests, and the Citibank solicitors acquiesced in her presentation as a solicitor knowing this not to be so; (k) the pivotal act was the act of one agent speaking, as it were, for himself and for two principals." 1294 As noted earlier, NM submits that it, the Advisers and Citibank should be seen as responsible in equal thirds for the damage suffered by the Investors. 1295 As noted in the summary of the Pleading in Chapter 1 at [114] and [115], in its defence Citibank listed numerous considerations which it says show that it is just and equitable that the extent of its contribution should be nil or that it should be exempted from liability to make contribution. 1296 In dealing with the present question, I must make certain assumptions that are inconsistent with my earlier conclusions in favour of Citibank. But what assumptions? Do I assume that Citibank incurred direct liability or vicarious liability or both? I will assume that Citibank incurred only purely vicarious liability for the Advisers' conduct. 1297 In the following paragraphs: · I do not address submissions that NM incurred no liability to the Investors or that the amount for which it was liable was less than the amount of compensation provided; · I do not address Citibank's contention that NM's liability in respect of which NM seeks contribution from Citibank is not a liability in "tort".

The most persuasive considerations 1298 To my mind the most persuasive considerations relevant to the respective responsibilities of NM and Citibank for the damage suffered by the Investors are as follows: · In acting as they did, the Advisers were faithfully implementing instructions from, and the policy of, senior management levels within NM about NM investment products (of which Citibank knew nothing) and the NMAM negative gearing arrangement (of which Citibank had only slight and incomplete knowledge). · The statements of which complaint was made related to the NM units and the benefits the NMAM negative gearing arrangement would provide to the Investors, not to Mortgage Power itself, which was not misrepresented at all. · What induced the Investors to participate was the prospect of capital and income returns from the NM units, not the borrowing of money involved in Mortgage Power. · Kelly's Negative Gearing Package was derived from the NMAM negative gearing arrangement, not from the fact that it was possible to put Mortgage Power to negative gearing uses. Indeed, Kelly's Negative Gearing Package was theNMAM negative gearing arrangement with Kelly's optional feature, adopted in the case of the Investors, that the 20 per cent "deposit" was funded by the use of Mortgage Power. · Borrowing 80 per cent of the cost of the investment in NM units from NM and the investment of it in the units was a required part of the NMAM negative gearing arrangement, while borrowing from Citibank was not: investors, including even clients of Kelly, could and sometimes did fund the acquisition of the initial units in other ways. · Many of the Investors were introduced to the Package through an earlier association between themselves or relatives or friends of theirs and a NMLA agent, and these were associations that NM instructed the agents to exploit in promoting the NMAM negative gearing arrangement. · As Chapter 5 shows, with one exception (Daniels) it appeared to the Investors that the Adviser was acting as agent of NM or as an independent financial adviser and not as an agent of Citibank. · Citibank's Mortgage Power product was merely one "tool" by the use of which the initial units could be acquired, and for all the evidence reveals, the 22 Investors who invested in accordance with the NMAM negative gearing arrangement (the Alders are the exception) would have been persuaded to do so, to their loss, even if Mortgage Power had not been available, or had ceased to be available, for the purpose (a comparable observation applies in the case of the Alders).

Commercial background 1299 Most of this chapter is concerned with the evidence in support of the first consideration identified above (the evidence relating to the other considerations has been referred to in earlier chapters) but it is not amiss, first, to note certain commercial background. I do not, however, take into account the following matters as relevant to the statutory criterion of the extent of Citibank's responsibility for the damage suffered by the Investors: they are not relevant to that issue. · Citibank funded the acquisition of 20 per cent of the total number of units to be acquired while NM funded the acquisition of 80 per cent of them. On the assumption that approximately equal rates of interest were being charged by Citibank and NM, the Package gave NM the opportunity of earning four times as much interest as Citibank. Through the Property Trust, NM also had the benefit of the use of 100 per cent of the money invested in the units. Citibank also had the opportunity of earning interest on the further drawdowns made or yet to be made by the Investor on the Mortgage Power facility, including the immediate drawdown to discharge the existing first mortgage. · On each successful introduction of any of the Advisers' clients to Citibank through LKFM, Citibank paid LKFM a fixed fee of $175, but the commissions payable by NM were much greater. The evidence does not permit me to say precisely how much greater. The commissions and other forms of remuneration (rewards and bonuses) earned in respect of the selling of insurance policies differed from those earned in respect of the selling of units in the Trust. Kelly was required to disclose to prospective investors that he would be entitled to receive commission on the investment in the Trust of not more than 3 per cent of the amount invested as well as a commission on any insurance policy. A computer print-out in evidence discloses that Kelly earned the amounts of commission specified below in respect of the six Investors named below: Investor Date of payment of commission Amount of commission paid to Kelly Appelman 10 Jul 92 1,260 10 Jul 92 540 Boulter 14 Sep 90 420 14 Nov 90 1,200 Crawford 23 Nov 89 600 7 Feb 90 2,400 Douglass 4 Apr 91 180 23 Apr 91 420 Emery 4 Apr 90 750 4 May 90 3,000

These figures suggest that Kelly was being paid a commission of 3 per cent by NMAM in respect of the Investors whom he introduced. In June 1992, the Appelmans invested $42,000 and $18,000 in units in the Trust, and at 3 per cent these investments would give rise to commissions of $1,260 and $540 respectively (the amounts stated above). Similarly, in March 1989, the Emerys invested $25,000 and $100,000 in units in the Trust, 3 per cent of which would yield commissions of $750 and $3,000 respectively (again, the amounts stated above). In the case of some of the other Investors, such as the Douglasses, Kelly's commission was less as he was entitled to only a percentage of the total NM commission, the remainder going to another Adviser, in the case of the Douglasses, Blee and DJC/Jones. Against NM's commissions of the dimension indicated, the fixed fee of $175 paid by Citibank per transaction is small. On the 23 Investors with whom I am presently concerned, it amounts to only $4,025 (23 x $175), which may be compared to the NM commissions totalling $3,750 paid in respect of Investor Emery alone.

The evidence that the Advisers were faithfully implementing instructions from, and the policy of, senior management levels within NM 1300 Citibank made lengthy and detailed submissions with a view to supporting its submission that: "…NM should bear the whole of the losses occasioned by the negative gearing package, since the package and the marketing methods which were used in its sale to the public, were devised, implemented and approved by the management of NM." It seems to me that there is such force in this submission, made over some 135 pages of Citibank's written submissions, that it is desirable that I attempt to summarise and illustrate it because it is a principal reason for my view that, in substance, NM is wholly responsible for the damage suffered by the Investors. 1301 As noted earlier, the NMAM negative gearing arrangement was devised in late 1988. A "Memorandum for Board" from Kevin Ryan, of NMAM, dated 20 September 1988, had attached to it a 15 page Working Paper dated 19 September 1988. The Working Paper included the following: "NMPS faces a funding risk, that is, the ability to generate sufficient investor funds to finance an existing loan portfolio and future loans. To overcome this, other sources of finance apart from NMAIF have to be sought; NMLA and NMSL are two possible sources. … At present NMPS obtains new loans through lending to existing borrowers, referrals from agents and finance brokers. Over the next 12 months an advertising campaign, a programme of contracting accounting/legal firms and developing greater rapport with NMLA agents will be pursued. The next major initiative is the launch of a negative gearing package to finance borrowers into NMAPT. … Proposals … A negative gearing package (for NMAPT) be launched. … SOURCE OF BORROWERS It is pertinent to examine NMPS's source of borrowers at present. Essentially, there are 3 main avenues: a) present NMLA clients (direct); b) agent force (as intermediaries); c) finance brokers (as intermediaries) … b) the National Mutual agent force is one of our best potential sources and our marketing efforts (as is explained later) will be geared to encourage them to refer business to NMPS… MARKETING Marketing our services will not be easy in view of the competition and our recent entry into the market. However, the first step has been taken with a mass marketing campaign to the NMLA agency force, through letters addressed to each agent on a personal basis. The initial response has been extremely encouraging and a medium term task is to ensure that this prime source of borrower referral is continually cultivated. … Perhaps the most important marketing thrust will be the introduction of a negative gearing package to enable clients to purchase units in NMAM's unlisted property trust. It is anticipated this will be launched during September 1988. The brief details of the proposal are to draw up an application form which will double up as a loan submission. This form will be filled in by the investor with help from the agent. The usual credit checks and lending assessment will be carried out by the branches when these forms are received from agents and the money advanced once trustee approval (upon NMAM's recommendation) is received. The launch of the product will have the following consequences: - · it will increase the overall returns to NMAIF, as interest rates in negative gearing packages are between 15.00-16.00% pa; · it will sell additional units in the unlisted property trusts and therefore be of benefit to NMPS and NMAM; · the involvement of NMPS personnel will be fairly limited, as the details of the credit assessment will be obtained by the agents; · the facility will be marketed by the agents again requiring limited involvement by NMPS; · the relative risk as against the return is good because the investment is sound and the security offered, the property trust units, is easily realisable…" (my emphasis) 1302 An Information Paper dated 17 October 1988 signed by Daryl La Brooy and Joe Curlewis, that was before the board of directors of NMAM on 21 October 1988, stated: "It is proposed that NMPS launch a negative gearing facility with funds obtained from NMAIF to assist clients purchase units in the unlisted property trust. The need for such a package has been identified for two reasons, a) to lift the returns obtained on NMAIF's loan funds; and b) offer a similar service to that being afforded by other trust managers. At present NMRB [National Mutual Royal Bank] is offering borrowers just such a facility but it is suggested by NMAM that there is scope for an in-house finance package to be provided. The operation of this facility would be as follows: Loan amount - $20,000 and over Loan to valuation ratio 80% gross (maximum) Security - Unlisted Property Trust Units … Loan approval procedure is as follows: a) application for finance form is filled out by the proposed borrower in conjunction with an insurance agent; … (h) if for some reason the actual value of the property trust units fall[s] in the future we would look to the borrower to either reduce the debt to the new 80% LVR level or provide additional security to ensure the maximum LVR is maintained. This requirement would be clearly spelled out to the client in our letter of approval. Under this facility there would be no need for a loan submission to be prepared; the application would serve as the submission. The processing should be fairly quick and at worst there should be a 48 hour turnaround time. The administrative work required would be minimal in comparison to a normal commercial loan. Essentially, as far as this facility is concerned, we look to the security as our fall back. If a borrower gets into difficulty and cannot meet the repayments, we would immediately call up the security held (ie the property trust units). The liquidity of the security is such that we can lend a much higher ratio (80% of gross unit value) than we can against real estate. At the same time, because of the higher loan to valuation ratio (LVR) if an arrears case develops, we have to act quickly to prevent a capital loss occurring. … From NMAM's viewpoint, the only downside would be if there was a large number of loans in arrears, caused say by adverse economic factors, so that the lienee forced disposals of the certificates, causing liquidity problems. This would be one of the few types of lending where we would actually look primarily to the security held, rather than the borrower's ability to repay. … Attached for information purposes is … Barry Strong's advice on lending to Staff and Agents. We will adhere to these instructions. Board approves the principle of this negative gearing package into the unlisted property trust." 1303 The above documents show that the NMAM negative gearing arrangement devised within NMAM in September/October 1988 contained from the outset all the essential elements of the Package: a lending from the NMAIF of 80 per cent of the cost of units in the Property Trust on the security of a mortgage over the 80 per cent and the other 20 per cent, with a "security top up provision" designed to ensure maintenance of the 80 per cent LVR. 1304 I turn now to the matter of NMAM's "COBBER" and "COBBER quotes". In a memorandum dated 6 September 1991 to all Dealer Representatives, Ron Campbell stated of the NMAM negative gearing arrangement: "Benefits

1. Increases the amount of the clients [sic] investment. 2. You can arrange the complete 'package' without the client going to another Lending Institution, thereby reducing the risk of the client investing elsewhere.
2. Another service you can offer your clients. Why not prepare a negative gearing illustration on COBBER?" "COBBER" was a computer program provided by NM to its agents for the purpose of their applying it to the financial circumstances of a particular prospective investor to demonstrate how his or her wealth would increase as a result of investment in the Trust, supported by a borrowing on a negatively geared basis. It enabled NM agents to generate attractive figures, using the rates of capital growth and dividend return fed to them by NM. 1305 Citibank submits that when, in late 1992 and early 1993, heavy losses were incurred by the Investors, NMAM faced these difficulties: "a) in its capacity as the manager of the Property Trust, the Property Trust had performed poorly; b) in its capacity as the manager of the National Mutual Australian Income Fund No. 1, the performance of that Trust would be adversely affected by significant default which might occur on the part of the negative gearing package borrowers; c) in its capacity as the guarantor of the National Mutual Income Fund No. 1, it was contingently liable for losses which might occur through defaults in respect to loans made by the Trust to negative gearing package investors." Citibank submits that NM's decisions to make margin calls in December 1992/January 1993, to abandon the promotion of the NMAM negative gearing arrangement, to cancel the proper authorities of those NMAM representatives who had been active in that promotion, and to offer compensation to the Investors, may all properly be seen as having originated in the decision made in late 1988 to launch "the National Mutual Australian Income Fund No. 1 and its flagship product, being the Negative Gearing Package." I accept the substance of Citibank's submission. It seems that the outcome for the Investors (and therefore for NM) would have been the same if an Investor had borrowed the amount of the 20 per cent "deposit" elsewhere than from Citibank or even withdrawn it from his or her own available cash. 1306 Voluminous documents establish that NMAM representatives promoted the NMAM negative gearing arrangement in accordance with directions and encouragement emanating from senior levels within NM. I have already mentioned the COBBER computer program and the preparation of COBBER quotes for clients. The representatives were issued with many brochures and training manuals. The instructional material contained the following: (a) mathematical calculations supposed to represent the financial return that would be received under the NMAM negative gearing arrangement, typically over a ten year period, and on certain supposed rates, often a capital growth at a compounding rate of 7 per cent per annum and income distributions at 9 per cent per annum (together with tax advantages); (b) comparisons between the returns available under the NMAM negative gearing arrangement, which the material described as an "active" form of investment, and returns from investment in the Trust of the investor's own funds alone, described as a "passive" form of investment; (c) the absence of any significant reference to financial risk or significant qualification of the calculations of projected capital growth and income returns; (d) the absence of any significant reference to the risks associated with negative gearing; (e) favourable statements in relation to the claimed safety of investment in accordance with the NMAM negative gearing arrangement, by contrast with alternative forms of investment, such as the stock market, direct investment in real estate, and superannuation; (f) the absence of any limitation on the class of investor for whom the NMAM negative gearing arrangement might be appropriate, other than general statements that it was particularly appropriate for investors in the highest tax bracket. 1307 Because the evidence in support is so voluminous, I will refer to only a few examples. 1308 NM issued a booklet entitled: "NATIONAL MUTUAL ASSETS MANAGEMENT LIMITED GEARING PACKAGE" The booklet contained much information about the NMAM negative gearing arrangement, and the statement: "For further information regarding Negative Gearing please contact: Ron Campbell Marketing Manager Dealers Representatives" This was followed by Mr Campbell's contact details. 1309 Of the many statements contained in the booklet, the following are noteworthy: "The loan: A loan can be arranged for the purpose of buying units in the National Mutual Australian Property Trust No.1. The deal: Investments in property trusts which produce an assessable income return to the investor can generally be 'negatively geared', that is, the difference between income derived and interest payments made by the investor can be claimed as a deduction and offset against the investor's other income. The borrower: Investors should have enough income to support the interest repayment on the loan - while the investment appreciates in its capital value. The amount: An amount equal to four times the clients contribution can be borrowed. 100% borrowing can be negotiated. The type and term: An interest-only loan, in which monthly interest payments are made and the outstanding principal is repaid at the end of the term, usually five years. A further loan then may be taken out. For investment purposes an interest-only loan is usually preferred. An annual interest payment in advance would be charged at a discounted rate. … Security: A mortgage over the units purchased and, where applicable, guarantees. (For example, from directors, partners and spouses.) On 100% borrowing, security will be required to cover the 20% liquidity component. Borrowing ratio: Up to 80% of the gross value of units purchased. The borrowing ratio may exceed this figure if extra security is provided. If the outstanding balance of the loan ever exceeds the agreed value of the security held, the lender may require the borrower to repay part of the loan, or provide more security. … Purpose of the loan: The money borrowed must be used only to buy units in the National Mutual Australian Property Trust No.1." 1310 Under the heading "Negative Gearing: The Rewards", the booklet gave an illustration by reference to an investment of $100,000, comprising $20,000 in personal funds and $80,000 borrowed as an interest-only loan at 17.25 per cent per annum, that is, $13,800 per annum. The booklet stated: "PROJECTED RETURNS FROM INVESTMENT Capital Growth (ie. increase in value of units) 7.0% p.a. compounded Income Return (based on capital value of units) 9.0% p.a. compounded" The same page bore calculations of attractive returns over a 10-year period based on these rates. The booklet stated that the NMAIF was an attractive vehicle through which investors might negatively gear an investment. 1311 Some eight pages of the booklet set out comparative rates of return from the NMAM negative gearing arrangement as compared to a "passive investment" in the Property Trust. The "active" or "negative gearing" arrangement was shown to be clearly more profitable. There were set out projections based on a $20,000 investment, which, at the end of the tenth year, was shown to give an investment value of $382,502, representing, it was said, a compound rate of return of 27.17 per cent per annum. The booklet stated (at p18): "The illustrations are conservatively based on a combined capital growth and income return of 16% per annum. The actual rate of return to investors in 1989 was 21.0% p.a and in 1988 was 24.3% p.a. and in 1987 was 22.26% p.a. Assuming the 16% p.a. rate of return, after a period of 10 years, the net investment will provide a pre-tax return of an impressive 31.51% p.a. compared to a pre-tax return of 22.68% p.a. for a non-geared investment. While investment in the National Mutual Australian Property Trust No. 1 provides investors with attractive returns from a low risk investment negative gearing can enhance the returns to investors and provide additional benefits including taxation advantages. Negative gearing offers distinct advantages to investors including tax advantages particularly to investors in the higher tax brackets." 1312 NMAM provided to its representatives a further booklet called "Gearing - The Tax Effective Growth Alternative - An Introductory Guide". This purported to explain the nature and advantages of negative gearing and also contained illustrations of wealth creation by negative gearing as against passive investment. At page 9 it gave an illustration of a person who invested $30,000 and borrowed $70,000. Over five years, a capital growth to $146,933 was achieved. This was said to represent an effective after tax return of 17.6 per cent per annum. Appendixes to the booklet gave illustrations, including negative gearing into the Property Trust as well as into the NM Equity Imputation Fund. Appendix A9 stated that the gearing concept was applicable to both share market and property trusts and was available on the COBBER system. The Appendix stated that "to successfully gear the client's marginal tax rate should be 38% and above". In fact, however, this did not mean that the client must be a person in receipt of a particularly high level of income: for the year 1991/1992, the marginal income tax rate of 38 per cent for resident taxpayers was applicable to annual taxable incomes as low as between $20,700 and $35,999. Appendix A9 also instructed the NM agent to prepare a COBBER quote for the client, and stated "key in … appropriate lender - in most cases it will be National Mutual Property Services." 1313 On 16 January 1990 Gary Kilburn, the National Marketing Manager of NMAM, sent a memo to all NMAM Marketing Managers headed "NMAPT No.1 - GEARING - PHASE II UPDATE". It commenced as follows: "In the next week Cobber will introduce a new release which incorporates the ability to add new investment geared funds to an existing investment made at a previous time. … With all those clients with Key man insurance who have loan values in the policies this must be an opportunity to place those funds with NMAPT No.1. Particularly when the National Mutual Life interest rate on loans against policies are so attractive." 1314 There was annexed to Mr Kilburn's letter a form of "presentation" bearing date 17 January 1990 containing detailed projections of capital growth and income. The document required only the name of the prospective investor to be inserted. In Mr Kilburn's memo, the idea was advanced that clients who had policies against which they could borrow should be encouraged to do so and to apply the borrowed funds towards the NMAM negative gearing arrangement. This was reflected in a "Negative Gearing Prospect Worksheet" which was given to Kelly by Trevor Allen, and which commenced: "Life insurance clients - policies with a cash value of $10,000 or more, which may be used as equity in property trust gearing." 1315 In addition to these "life insurance clients", "prospects" or "targets" identified on the worksheet were "Insurance Bond Clients", "Superannuation Clients", "Property Investors" and "Self Employed/Business People". The attachment to Mr Kilburn's memo mentioned earlier set out an estimated annual income from the Property Trust of 9 per cent per annum, and an estimated annual capital growth of 7 per cent per annum, and stated: "after a period of 19 years, your net investment will provide an equivalent pre-tax return of 23.81% per annum". The document then set out a calculation giving rise to an ultimate investment value of $4,468,129 from an original investment of only $100,000. Even this initial $100,000 was to be provided as to only $20,000 by the investor, the remaining $80,000 being borrowed from the National Mutual Royal Bank. Over the first four years of the plan, a further $60,000 of the investor's funds was required. 1316 I could refer to other documents in which the "COBBER" system was recommended by NM to its agents and which show that it was actually used by them in their presentations. The documents are too many and voluminous to refer to. 1317 A typical feature of the NMAM negative gearing arrangement, whether in its COBBER or whiteboard form, was the calculation of the return from the borrowed funds over a ten year period. However, the NMAM loan was, according to the formal documentation of it, for a period of five years only. The loan application form stated "with option to extend for a further five years" but this was not reflected in the ultimate documentation. 1318 The further NM promotional material to which I have referred included: · a booklet titled "Financial Strategies for the Year 2000"; · a flyer or handbill with a drawing of a commercial building depicted in the form of a battery with sparks coming from it below the heading "Our new negative gearing package can liven up your investment in property"; · a "Business Security Plan" or "Wealth Creation Plan 2000"; · a video taped example of Jones' presentation. 1319 In February 1993, NM calculated the number of negative gearing clients to whom it might be necessary to pay compensation as follows: Clients of Kelly and Jones: 274 All clients: 552 1320 What is clear from the evidence is that NM instructed and prepared its agents to promote the NMAM negative gearing arrangement, according to a pattern or formula, to as many people as possible, without qualification and on the basis that it was suitable for everyone, and that the NM agents acted accordingly. This was the engine that drove the Package and that led to the Investors' entering into it. 1321 NM provided its agents with a constant stream of positive propaganda, praising the merits of the Property Trust and the NMAM negative gearing arrangement. While there were some statements that could be construed as cautionary notes, such as a statement that the NMAM negative gearing arrangement was best suited to persons who enjoyed higher income levels and paid higher marginal rates of tax, the general tenor of the material was that it was suitable for everyone and should be promoted to all at every opportunity. 1322 Even when the value of the Trust's assets, the value of the units and the rate of return to unit holders all fell, NM maintained an unfailingly optimistic note. Illustrations are found in the various issues of the "NMAM Client Review". Promotion of investment in the Trust by reference to 7 per cent projected capital growth and distributions of 9 per cent seem to have continued uninterrupted. The repurchase period was shown throughout as a seven day period, although NMAM boasted that it achieved redemptions within five days of request. 1323 In December 1990, the NMAM Client Review informed unit holders: "With the recent moves by other Fund Managers to extend the existing redemption periods and the proposed listing of an unlisted property trust, NMAM confirms it has no intention of proposing any such changes in respect of the National Mutual Australian Property Trust No.1. The redemption period will remain at 7 business days." 1324 In July 1991, Mr Killen, the Chairman of NMAM, wrote to all unit holders about the regulations operative from 23 July extending to 12 months the "redemption period" applicable to unlisted property trusts. Mr Killen's letter stated: "For almost a year the unit trust industry has been waiting for the Commonwealth Government to issue the Regulations. The Regulations were necessary following a liquidity crisis faced by a number of unit trust managers last year… The Government's decision to increase the [redemption] period to 12 months was taken to ensure that, in future, trusts will have plenty of time to sell properties if a large number of investors want to liquidate their investments. … Although our own trust, National Mutual Australian Property Trust, was not seriously affected by redemptions during the past year or so … the move to a longer redemption period will take pressure off those trusts which did not have liquidity and which needed to sell properties. This will benefit all trusts including National Mutual Australian Property Trust, as it will lead to property values increasing sooner than would otherwise be the case. … National Mutual Assets Management Limited, as Manager of National Mutual Australian Property Trust, supports the Government [sic - Government's] decision." 1325 Mr Killen's letter did not mention that the Government's action was taken in consequence of an approach to Government made by a consortium of six institutional fund managers in April 1991 seeking legislative relief from their legal obligations to redeem their investors' units, or that NMAM was one of the six institutions. There was an approach on behalf of the consortium to the Government at a meeting at the Attorney-General's Department in Canberra on 12 April 1991, of which Kevin Ryan of NMAM had been advised on 9 April 1991. 1326 The institutional fund managers were severely criticised in the press for the covert nature of their activities. It emerged that NM, together with some other fund managers, had been accepting investment into their unlisted property trusts while the discussions with the Government were taking place. 1327 In the September 1991 edition of the NMAM Client Review, NMAM informed its clients that it was a misconception to think that the legislation announced by the Commonwealth Government on 23 July 1991 imposed a "freeze" for twelve months. The Review explained that unit holders were still entitled to make redemption requests at any time; and that the effect of the change was merely that they would have to wait for twelve months after making a request to receive the money, and that the amount payable would be calculated on the unit price as at the time of payment rather than the time of request! The author of the Review pointed out that since people purchase their own homes for the longer term, an investment in a property trust should be viewed in the same way, and that units should not be redeemed unless this was necessary just as a home should not be sold unless this was necessary. The Review stated: "…Investors need to maintain the same faith they had when investing originally, that the manager they selected will provide regular income and capital growth over the medium to long term." 1328 In relation to the freeze on redemptions, NM submits as follows: "Ľduring the period after 23 July 1991 there was a statutory freeze on redemptions for all unlisted property trusts unless twelve months' notice was given. The [A]dvisers ought to have warned clients who entered the scheme during this period that their investment was illiquid and difficult to extricate themselves from should their financial circumstances worsen." I agree. But NM's submissions also contain the following: "Ľsome of the [I]nvestors agreed that it was explained to them that they could redeem their units on short notice (except when the freeze was in force)Ľ" The two passages are not inconsistent: NM's submission is that once the freeze was in place, the Advisers did not positively misrepresent that units could be redeemed on short notice when they could not be because of the freeze, but the Advisers should, nonetheless, have given express warning of the existence of the freeze. 1329 Although the submissions of Citibank and NM may well be at one on this matter, there is no clear evidence that any of the present 23 Investors suffered loss because of the non-disclosure. The most that can be said is that NM's positive and optimistic statements may have caused them or some of them not to seek redemption. I therefore do not take the present matter into account in allocating to NM and Citibank respectively, "extent[s] of responsibility for the damage". 1330 The training provided to the NMAM representatives did not teach them how to give competent investment advice. Rather, it simply trained them to sell units in the Property Trust in accordance with the NMAM negative gearing arrangement. 1331 The two leading sellers were Kelly and Jones, both of whom were highly regarded within the NM organisation. They received awards over the years in question, based on their sales. They were encouraged to train other NM agents. A representative of NMAM who failed to achieve an annual sales figure of $50,000 suffered automatic loss of his or her proper authority. 1332 From December 1990 to December 1992 NM received complaints from dissatisfied investors, complaining of misleading sales techniques which NMAM representatives had used in relation to the NMAM negative gearing arrangement, and of the inappropriateness of the financial advice that they had been given. Yet until December 1992, NM management did not question the appropriateness of their conduct. It was only at the end of 1992 that questions began to be asked within NM. 1333 In fact, Crawford referred to Jones having used the NM logo on a pamphlet which was handed out at the "1992 Australian International Home Show" which was a trade show at Darling Harbour in July 1992 organised principally by Jones with some funding assistance from NM. Crawford said that he was involved in the preparation of the pamphlet which was "run past head office". The document is in evidence. The front bore the NM logo and the name "Dennis Jones and Co Pty Ltd", Jones' address at "Level 1, 1-3 Brady Street, Mosman 2008" and his telephone and fax numbers. It also bore pictures of a home and a pot of gold and stated: "In your home is your future wealth". The interior of the pamphlet was as follows: "Your Home Is Over the last 20 years, Dennis Jones and Company have shown thousands of people how to achieve financial peace of mind. Dennis and his team are now proud to present to you, at the 1992 Australian International Home Show, the concepts that you can use to turn your most valuable asset, the family home, into your own pot of gold and in doing so, provide you with financial peace of mind. Your Future Learn the secrets of wealth creation. We can show you how: · Use your home to pay less tax. 1) you can pay your home off sooner · Your home is not just bricks and mortar . . . it's dollars and cents! 2) to pay less tax and put more money into your pocket · Saving won't make you rich, but your home can! 3) saving won't necessarily make you rich but your home certainly can · Your home is the pot of gold you have been looking for . . . ask us how. 4) your home is the pot of gold right on your own doorstep · Learn the secrets of wealth creation. With sound financial management now, people can own their own home in much less time than it usually takes. This means that many families will be able to enjoy much sooner the real peace of mind and security which comes with a debt-free home." · Don't pay more tax than you have to. · Did you know your mortgage can be tax deductible? Our clients come from many walks of life, one happens to be [a] very well-known media personality, Brian Bury, who is only too happy to endorse how he has been able to use his home to find his own pot of gold. His exclusive story can be seen on our video at the 'Your Home Is Your Future' stand at the Homeshow.

Finally, the form invited the reader, by ticking boxes and otherwise, to provide information concerning the reader's personal and financial circumstances. 1334 Roberts said he participated in the promotion at the "Home Show" at which a video presentation explaining the Package was shown and copies of the brochure were handed out. Roberts said Jones received some money from NM "to help defray the cost of the exercise". 1335 By approving of the form, bearing as it did the NM logo, NM was actually authorising Jones to make statements conforming to the pamphlet, and holding him out to the public as authorised to do so. No doubt this encouraged Jones in his selling of the NMAM negative gearing arrangement as a representative of NMAM. 1336 It was at the end of 1992 that margin calls began to be made on Investors. It will be recalled that in many cases the Investors were relatives or longstanding friends of the Advisers. Encouraged by NM, the Advisers had: · Led their clients to have high expectations; and · Expanded their own businesses and "networks". Accordingly, both Investors and Advisers complained to NM over the making of the margin calls. For example, Jones protested that his clients would be unable to meet the calls. There were meetings and urgent telephone calls over the "crisis". An undated "News Flash" to NMAM representatives instructed them that as from 5 January 1993 the Trust would be "CLOSED to any form of geared investment, including negatively geared investments". A NM file note of a conversation with Jones, on 15 January 1993 rather graphically demonstrates his position: "Conversation with Dennis Jones:- Promotion of the gearing package must cease immediately until further notice. Delicacy of the situation:

1. Media interest
2. ASC interest
3. ASC intention to investigate given the Advance bank scenario. Formal notification will be given to all licensed agents shortly. 10.20am Spoke to Dennis. Got as far as advising that promotion must cease without giving reasons why when Dennis terminated our discussion and advised he would call me back shortly (had clients in his office). 10.39am Dennis Jones called back. With him were his associates Craig Roberts and Alan [sic - Allan] Crawford and his agency manager Paul Edwards. Confirmed that following our meeting on Tuesday 12th, all margin calls will need to be pursued. Repeated that the promotion of gearing packages must cease immediately until further notice explained the reasons why (as above). Dennis responded:- 'Makes me sick' 'shut down of my business' 'I'll have to take a walk to think this through' 'My initial thoughts are, that's it, I'm finished' Dennis revealed 4 cases in the pipeline. Redwood and Buko (paperwork signed). Holten (paperwork unsigned). An appointment at 11.00am I confirmed that Holten would not be accepted. The 11.00am appointment should not go ahead. I will advise the situation with regard to Redwood and Buko." It is clear to my mind that NM had led both the Investors and the Advisers into a predicament from which there was no escape, unless NM itself provided the solution, as, of course, it did. 1337 In the early period of the promotion by Kelly and Jones of the NMAM negative gearing arrangement, the recommended lender, where a client was not using his or her own savings, was typically Citibank. But in the later period Kelly typically recommended the Bank of Melbourne and Jones began to recommend the GIO. In all essential respects, the features of the NMAM negative gearing arrangement remained unchanged, regardless of the identity of the outside lender. 1338 The things said by Kelly, Jones and the other Advisers to prospective investors about the merits of the Package, the use they made of the prospectuses, the things they said about the desirability of the commercial properties that underlay the Trust, the projections of capital growth and income returns, the advantages of investing in units rather than directly in property, and the benefits of taking out insurance, were all totally in line with what the NM organisation had encouraged them to say. 1339 The Investors were induced to invest in NM products in accordance with the Package by reason of what NM had instructed its agents to say, not because of the benefits of Mortgage Power.

Citibank's responsibility 1340 Citibank did not encourage the Advisers to say the things they said about the NM units, the Property Trust or the Package. It was a bystander. Its (hypothetical) error was to think that these matters were no concern of Citibank's and that it was entitled to treat them exclusively as a concern of NM's. But the fact remains that its supposed error in failing to act pales into insignificance as indicating responsibility for the damage suffered by the Investors, when compared to the systematic and forceful selling engaged in by the NM organisation. 1341 What steps should Citibank have taken? It was not entitled to intervene in the principal-agent relationship between NM and its agents. It could not prevent NMAM's representatives from selling units in the Trust and promoting the NMAM negative gearing arrangement. Nor could it prevent NMLA's agents from selling insurance products. It could not prevent any of the Advisers from introducing their clients to other sources of finance. What it could have done was to cease to make Mortgage Power available, at least unless the Advisers mended their ways to its satisfaction. But apparently this would not have prevented the Investors from suffering the losses they sustained. In fact, from September/October 1991, Kelly ceased "using" Citibank for the purpose of the NMAM negative gearing arrangement and directed his clients to the Bank of Melbourne (as noted earlier, Citibank formally terminated LKFM's agency on 25 March 1992). Thus, so far as the evidence reveals, for Kelly it remained "business as usual", for more than a year after September/October 1991. Questions did not begin to be asked within NM until the end of 1992, NMAM did not terminate the appointment of Kelly as a representative until 20 January 1993 and NMLA did not terminate the appointment of LKFM as an agent until 21 April 1993.

Conclusion 1342 If I had found both NM and Citibank liable to the Investors and had been called upon to find what amount it was just and equitable that NM should recover from Citibank by way of contribution, having regard to the extent of Citibank's responsibility for the damage suffered by the Investors, I would have decided that Citibank's responsibility was minimal and that the amount of its contribution should be likewise minimal and should be fixed at 5 per cent of the amount of compensation provided by NM to the Investors.

CHAPTER 12 CITIBANK'S CROSS-CLAIMS AGAINST THE ADVISERS, PERMANENT AND AHA FOR INDEMNITY OR CONTRIBUTION 1343 Since I have held that Citibank is not liable to NM, Citibank's cross-claims against the Advisers, Permanent and AHA fall away, and the First Cross-Claim will be dismissed. But I will address Citibank's cross-claim against the Advisers for indemnity or contribution, the facts relevant to which have been canvassed in earlier chapters. 1344 The pleading of Citibank's cross-claim against the Advisers was summarised in Chapter 1 at [118], [119]. As putative vicariously liable tortfeasor, Citibank cross-claims for indemnity, alternatively for contribution, under subss 5(1)(c) and (2) of the LR (MP) Act and subss 23B(1) and 24(2) of the Wrongs Act (those provisions were set out in Chapter 11 at [1284]). The parties treated this claim as enlivened only if Citibank's liability is purely vicarious and I will proceed on the assumption that Citibank is so liable, contrary to my conclusion arrived at earlier. Accordingly, the submissions of Kelly and Jones were, in large part, directed to establishing that Citibank was directly liable, rather than merely vicariously liable - a submission which I have rejected. The Adviser cross-respondents submitted that Citibank was directly liable to the Investors on two bases. First, they submitted that Citibank was directly liable by reason of breach of a personal and non-delegable duty of care - a submission that I rejected in Chapter 4. Second, they submitted that Citibank actually authorised the particular statements of the Advisers that constituted their tortious conduct - a submission that I rejected in Chapter 6. 1345 On the assumption that Citibank incurred a purely vicarious liability to the Investors, it would be liable to them jointly and severally with the respective Advisers. More precisely, Citibank would be jointly and severally liable to each Investor with the Adviser whose conduct gave rise to the liability to that Investor. 1346 Citibank pleads and submits that on the supposed facts, the Adviser cross-respondents were in breach of implied terms of their agencies from Citibank (pars 14 and 15 of Citibank's cross-claim referred to in Chapter 1 at [118]). 1347 Ordinarily, a faultless party bearing a purely vicarious liability will be entitled to indemnity from the primary tortfeasor - a proposition that has often, though not always, been discussed in the context of vicarious liability based on the master-servant relationship (cf Ryan v Fildes [1938] 3 All ER 517; Davenport v Commissioner for Railways (1953) 53 SR (NSW) 552; Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555; and see Sinclair v William Arnott Pty Ltd (1963) 80 WN (NSW) 798 at 800, on appeal at (1963) 81 WN (Pt 2) (NSW) 204 at 210-212; Voli v Inglewood Shire Council (1963) 110 CLR 74 at 100; Canberra Formwork Pty Ltd v Civil and Civic Ltd (1982) 67 FLR 66 at 87; Higgins v William Inglis & Son Pty Ltd [1978] 1 NSWLR 649; Sherras v Van der Maat [1989] 1 Qd R 114; Thompson v Henderson & Partners Pty Ltd (1990) 58 SASR 548 at 562). 1348 In McGrath v Council of the Municipality of Fairfield (1985) 156 CLR 672, the High Court noted (at 679) that it had not been settled at High Court level whether an employer is entitled to a full indemnity where it incurs vicarious liability because of its employee's negligence and is not itself at fault. In the master-servant context in New South Wales, the Employees' Liability Act 1991 (NSW) makes the question moot, but it remains a live one in the principal-agent context. 1349 In my opinion, the general proposition set out in [1347] above is also applicable in the context of the principal-agent relationship. 1350 The Kelly/Jones Associates contend that I should accept the submission made by Citibank in response to NM's head claim that they were not agents of Citibank. They submit as follows: "2. Citibank's primary argument and the only one it has adopted while the oral evidence was being given, was that apart from the written agency agreement between Kelly and it, Jones and the Kelly/Jones Associates were not agents. 3. The Kelly/Jones Associates in their affidavits, say that they did not believe they were agents of Citibank. 4. The agency relationship therefore arises out of legal and factual inferences and is now to be imposed upon them ex post facto. In those circumstances, it is submitted that any assessment of the course of conduct between the Kelly/Jones Associates and Citibank should not infer any recognition by them at the relevant times of an existing relationship of principal and agent. Ľ 12. Ľit is submitted that the Kelly/Jones Associates were merely gratuitous agents acting as introducers for Citibank either through Kelly's or Jones' office or directly when Kelly lost his authority to make those arrangements." 1351 I have in fact already held that the Advisers other than LKFM/Kelly were not agents or representatives of Citibank with authority from it to sell Mortgage Power for it and on its behalf, but were mere introducers of business. This is a reason why NM's claim against Citibank has failed in so far as it is based on the statements made by them. But for the purpose of Citibank's cross-claim against them, I assume, contrary to that conclusion, that they were such agents or representatives of Citibank, as LKFM itself was. Moreover, I assume, contrary to my earlier conclusion, that the statements of LKFM/Kelly and of the other Advisers were made by them within the course of the execution of an agency to promote and sell Mortgage Power. That is, I assume that they fell within the general class or scope of statements that Citibank authorised them to make as its agents, even though Citibank did not authorise the particular tortious statements that gave rise to the liability. 1352 On the assumption that Citibank incurred vicarious liability to the Investors as a result of the negligence of the Advisers, those Advisers are, in my view, prima facie liable to indemnify Citibank fully because they were subject to a duty to Citibank, contractual in the case of LKFM, tortious in the case of the other Advisers, not to exceed their actual authority and to exercise the degree of skill and care reasonably to be expected of them, in particular, with a view to ensuring that they did not expose their principal to that liability; cf Bowstead & Reynolds on Agency (16th ed, 1996) Articles 38, 42, 44; Halsbury's Laws of England vol 1 (4th ed, Reissue), pars 92, 93, 100. (By its written agency agreement, LKFM promised Citibank "[n]ot to engage in misleading or deceptive conduct or practices in relation to the promotion and sale of CITIBANK products".) 1353 I do not see why there is not a concomitance between the duty the Advisers owed to the Investors and that which they owed to Citibank. It was, ex hypothesi, their failure to exercise reasonable care in the discharge of their duty to the Investors that gave rise to their own liability to them. It was, ex hypothesi, obvious that that failure would render their supposed principal, Citibank, vicariously liable to the Investors commensurately. On the finding I have made that Citibank did not incur direct liability to the Investors, the failure of the Advisers to exercise reasonable care renders them liable to indemnify Citibank fully in respect of its vicarious liability. 1354 Citibank made further submissions in relation to the respective Advisers' "responsibility for the damage" if that question should arise. Citibank submitted that the Advisers' misrepresentations fell into two classes: those authorised by NM, and those not authorised by NM but the Advisers' own work. Citibank submitted in respect of the first class, that the Advisers are entitled to full indemnity from NM, and as to the second class, that the misrepresentations were not merely negligent but dishonest and fraudulent, so that the only "just and equitable" contribution for the Advisers to make is 100 per cent, as against nil for Citibank. The cross-respondent Advisers strongly resisted Citibank's characterisation of the misrepresentations of any of them as fraudulent, fraud not having been pleaded. Citibank relied on testimony of Kelly denying the statements attributed to him by the Investors and agreeing that the statements would have been untrue. Citibank submitted that there was no requirement that it plead fraud in the circumstances, since it relied on fraud, not to establish a cause of action, but merely to support its submission on the question of contribution that a fraudulent tortfeasor (supposedly Kelly) should indemnify a merely negligent one (supposedly Citibank). 1355 In view of my conclusion that Citibank is not liable to NM, and that if it had been, the Advisers should provide a complete indemnity under the apportionment legislation for other reasons, I see no reason why I should seek to resolve the issues mentioned. 1356 Since Kelly and Jones did not, as to the particular tortious statements made, simply implement actual authority or direction given them by Citibank, their cross-claims against Citibank for indemnity or contribution will also be dismissed.

CHAPTER 13 CONCLUSIONS 1357 The following is a summary of my conclusions which appear in more ample and detailed form in the preceding chapters. 1358 (1) Of all the Advisers, only LKFM/Kelly was an agent or representative of Citibank with authority, for it and on its behalf, to promote and sell Mortgage Power. 1359 (2) All of the other Advisers were mere introducers of business, but if I am wrong, in that any were sub-agents, a principal is not vicariously liable in respect of the tortious conduct of a sub-agent with whom (as here) the principal is not in a direct principal-agent relationship. 1360 (3) It follows that only statements by LKFM/Kelly (including any employees) had the potential to render Citibank vicariously liable to the Investors. 1361 (4) The agency of LKFM/Kelly was confined to that established by the written agency agreement of 3 April 1989. 1362 (5) The scope or class of statements Citibank authorised LKFM/Kelly to make by virtue of its appointment of LKFM as its agent to promote and sell Mortgage Power was limited to statements about the nature of Mortgage Power, its merits and its appropriateness to serve purposes suggested. 1363 (6) That scope or class of statements did not include statements promoting the sale of NM products in accordance with the Negative Gearing Package. 1364 (7) If, contrary to my findings, any of the other Advisers were agents or representatives of Citibank with authority, for it and on its behalf, to promote and sell Mortgage Power, conclusions (5) and (6) above, with necessary adjustments, apply in respect of those other Advisers. 1365 (8) The notion, for the purposes of vicarious liability, of the scope or class of statements an agent is authorised to make is synonymous with the notion of statements made by an agent in the course of the execution of the agency. 1366 (9) In so far as it may be relevant, except as to Investor Daniels the Advisers did not have operative apparent authority to promote and sell Mortgage Power as representatives of or for or on behalf of Citibank. 1367 (10) If I am wrong as to (9), an apparent authority of the kind there described would not include apparent authority to make statements promoting the sale of NM products in accordance with the Negative Gearing Package. 1368 (11) It follows from (1) to (10) that Citibank did not incur vicarious liability to the Investors as a result of any negligence of any of the Advisers. 1369 (12) Citibank did not ratify the tortious statements of any of the Advisers. 1370 (13) Citibank did not owe a personal non-delegable duty of care to the Investors arising from its having assumed the role of their financial adviser or because of an analogy between Mortgage Power and dangerous physical things. 1371 (14) Citibank did not actually authorise the making of any particular tortious statements by any of the Advisers that rendered the Advisers directly liable to the Investors. 1372 (15) As a result of (13) and (14), Citibank did not incur personal or direct liability to the Investors. 1373 (16) Because the Advisers did not act "on behalf of" Citibank when making the statements of which complaint is made, Citibank is not liable to the Investors under ss 52 and 82 of the TP Act. 1374 (17) For the same reason, and also as a matter of statutory construction, Citibank is not liable to the Investors under the SIC or the Law. 1375 (18) If, contrary to my conclusion, Citibank is vicariously liable to the Investors, the amount NM is entitled to recover from it by way of contribution is 5 per cent of the amount of compensation NM provided to the Investors. 1376 (19) If, contrary to my conclusion, Citibank is vicariously liable to the Investors, it is entitled to be indemnified fully by the respective Adviser cross-respondents in relation to that liability and, therefore, in respect of the amount of contribution referred to in (18) in so far as it applies to Investors introduced by them. 1377 Since the above was written, the High Court delivered judgment on 5 October 2000 in Scott v Davis [2000] HCA 52. The case concerned the negligent flying of a light aircraft with the owner's consent for a social purpose connected with the owner. Their Honours' reasons for judgment contained discussion of the question of the vicarious liability of principals for the negligent conduct of their agents. But because the present case, unlike Scott v Davis, concerns statements made by A to induce TP to contract with P, that is to say, a situation of a kind in respect of which the Colonial principle establishes the possibility of vicarious liability, I have not thought it necessary, with respect, to revise what I have written in order to refer to what their Honours have said. Scott v Davis is of special relevance to the cases on the negligent driving of motor cars with the owner's consent to which I referred in Chapter 3 at [520]. Colonial is referred to in several of the judgments, in some detail in that of McHugh J (dissenting) at [56]-[72], (his Honour concluded that there is a general principle of vicarious liability of principals for the acts of their agents committed in the course of the execution of their agency). 1378 I will make no orders at present but will publish these reasons and give the parties an opportunity to consider them and their implications, not only for the 23 Investors of present concern, but also for the other 109 Investors. The proceeding will be listed on 5 December 2000 for the making of orders, if the parties by then agree on the orders to be made; if not, for the giving of directions for the filing of written submissions as to the orders to be made, including orders to be made as to costs. I certify that the preceding one thousand three hundred and seventy-eight (1378) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate: Dated: 10 November 2000 Counsel for Applicants; 2nd, 4th, 19th and 20th Cross-Respondents; and Cross-Claimants on 2nd and 3rd Cross-Claims: Mr J C Kelly SC, Mr J T Gleeson and Mr C Moore

Solicitor for Applicants; 2nd, 4th, 19th and 20th Cross-Respondents; and Cross-Claimants on 2nd and 3rd Cross-Claims: Cutler Hughes & Harris

Counsel for Respondent; Cross-Claimant on 1st Cross-Claim; and Cross-Respondent to 2nd and 3rd Cross-Claims: Mr B W Rayment QC, Mr S D Epstein and Ms R P Rana

Solicitors for the Respondent; Cross-Claimant on 1st Cross-Claim; and Cross-Respondent to 2nd and 3rd Cross-Claims: Deacons Graham & James

Counsel for 5th, 6th, 8th, 10th, 11th, 14th to 18th and 21st Cross-Respondents: Mr J A Loxton

Solicitors for 5th, 6th, 8th, 10th, 11th, 14th to 18th and 21st Cross-Respondents: Wood Marshall Williams

Dates of hearing: 24-28, 31 August 1998 1-4, 11, 16, 17, 23 September 1998 13-16, 19-23, 26-30 October 1998 1-5, 8-12, 15-19, 22-26 February 1999 1-5, 8-12, 15-19, 22-25 March 1999 3-7 May 1999, 25 May 1999

Date last submission received: 8 June 1999

Date of judgment: 10 November 2000

Schedule of Investors and of the Advisers relevant to them Investor Name Time of solicitation according to Adviser Comments the Pleading

1. Alder 1990 - March 1992 Jones, Roberts Alder had known Jones as a family acquaintance for approximately twenty-five years. Roberts was Alder's brother's insurance agent. Alder organised a meeting with Roberts at Jones' Manly office to discuss sickness and accident insurance. That meeting, however, was conducted by Jones, who presented the Package. Roberts was also present. A second presentation was made by Jones and Roberts. Subsequent presentations were made by Jones or Roberts or both. NM pleads that Jones and Roberts gave the presentation to the Alders and submits the Alders are "Jones/Roberts" Investors, whereas Citibank classifies them simply as Jones Investors. Roberts regularly phoned Alder, encouraging him to invest. Roberts gave the Alders the presentation which substituted the Equity Imputation fund for the Property Trust. Jones was also present. Alder testified that he invested as a result of the representations made by Roberts and Jones. Roberts looked after the Alders' paper work for the Mortgage Power facility and in March 1993 arranged for them to invest $4,500 in the Equity Imputation fund. Roberts wrote to Alder in May 1991 on DJC letterhead, although Roberts' company, Folborn Pty Ltd, was a NMLA corporate agent of which Roberts was the nominated accredited agent, and Roberts himself was a representative of NMAM. The evidence relating to the sharing of commissions was complex: see [751].
2. Appelman August 1991 - 10 July 1992 Kelly Clear Both NM and Citibank treat the Appelmans as Kelly Investors.
3. Bachmann November 1989 - April 1990 Blee, Buttars Buttars was the Bachmanns' insurance agent and it was he who first mentioned the Package to them and organised an appointment with them. Blee, in the presence of Buttars, gave a whiteboard presentation at Jones' office. It seems that this was during the period when Blee had moved to Sydney to work in Jones' office. Bachmann gave evidence that he invested in the Package as a result of the statements made to him by both Buttars and Blee. Both Citibank and NM refer to the Bachmanns as Blee clients and NM submits that Blee made the presentations to the Bachmanns "under the Jones umbrella".
4. Boulter July - 12 September 1990 Kelly Clear Both NM and Citibank treat the Boulters as Kelly Investors.
5. Crawford 1989 - March 1990 Jones The first presentation was by Jones, assisted by someone from Melbourne who Crawford believed was an employee of Citibank, although he could not recall the basis of this belief. The second presentation appears to have been by Jones alone. The identity of the person from Melbourne is irrelevant as Crawford relied on the assurances given by Jones in deciding to enter the Package. Crawford testified that the man from Melbourne was not Kelly. Both NM and Citibank treat the Crawfords as Jones Investors.
6. Daniels January 1991 - April 1991 Naughton, Kelly Daniels responded to a newspaper advertisement by returning a coupon to Citibank. Judd (identifying himself as Kelly's marketing manager) contacted him in response and conducted the first meeting at the Daniels' home. Judd then invited the Daniels to Kelly's office for a second meeting where Naughton was introduced and took over. Kelly was introduced to the Daniels once, probably on this occasion. Naughton had a third meeting with the Daniels. Daniels said he was induced to enter the Package as a result of the meeting with, and the statements made by, Naughton. LKFM paid the Citibank Mortgage Power application and valuation fees, for which it was later reimbursed on settlement. The Daniels' applications for units in the Trust show that the NM commissions on the applications were shared equally by Naughton's company, JPN Financial Planner P/L, and Kelly, which is curious as such a share would suggest that Kelly took part in the presentation, and did not simply process the Daniels' applications. NM pleads that Naughton was the presenter and made the solicitations on behalf of Kelly. Citibank classifies the Daniels as Kelly Investors. Kelly could not recall having met the Daniels and Daniels stated he met Kelly only once and that it was Naughton who "organised everything" "all the way through". The Daniels' "Status of Your Investment Questionnaire" referred to LKFM as their Adviser.
7. Douglass December 1990 - August 1991 Blee, Jones Blee made at least 3 whiteboard presentations and all of the pleaded representations were made by him. The Citibank application and valuation fees were paid by Jones. According to the Douglasses' applications for units in the Trust, commission was shared amongst DJC, Blee and Kelly as follows: DJC 50%, "Alve Enterprises Pty Ltd" (Blee's company) 30% and Kelly 20%. Blee was originally associated with Kelly's office in Melbourne and travelled to Sydney to do presentations for clients of Jones and the Jones Associates. At some unspecified time, Blee moved to Sydney to work with Jones full time. The evidence suggests Blee's status with DJC was that of an employee. NM submits that Blee made the presentation "under the Jones umbrella" and Citibank classifies the Douglasses as Blee Investors.
8. Eberts May 1989 - 30 June 1989 Kelly Clear Both NM and Citibank treat Eberts as a Kelly Investor.
9. Emery 1988 - 4 May 1990 Kelly Clear Both NM and Citibank treat the Emerys as Kelly Investors.
10. Farrar February 1992 - 23 July 1992 Kirby Clear Both NM and Citibank treat the Farrars as Kirby clients.
11. Fraser-Bell November 1989 - 30 March 1990 Jones Clear Both NM and Citibank treat the Fraser-Bells as Jones Investors.
12. Garden June 1989 - 6 December 1989 Jones Jones was Mrs Garden's cousin and had been the Gardens' insurance agent since 1979. The Gardens attended a presentation by Jones at his office. A NM representative from Melbourne was also present. Regardless of his identity, it is clear that Jones conducted the presentation and wrote on the whiteboard. The pleaded representations were all allegedly made by Jones. Both NM and CB treat the Gardens as Jones Investors.
13. Jorgensen August - 25 November 1992 Bahr Clear Both NM and Citibank treat the Jorgensens as Bahr clients.
14. Lorenz January - June 1990 Jones, Kelly Jones had been the Lorenzes' insurance agent since 1975 and it was he who first mentioned to the Lorenzes the possibility of investing in commercial property and contacted them to arrange a meeting. The first presentation was made by Kelly. Kelly did most of the talking. Jones was also present. The second presentation was given by Jones and was similar to the first. Hacopian was present. The Lorenzes attended a third meeting at Jones' office, with Jones alone. Lorenz maintained in cross-examination that Kelly (not one of the Kelly Associates) gave one of the presentations, although he was later unclear as to whether he met Kelly at the first or second meeting. Kelly could not remember meeting the Lorenzes. The commission on the NM applications for units in the Trust was shared between Kelly (20%) and Jones (80%), which suggests that Kelly's role was a "paperwork only" one in comparison to that of Jones. Jones and Blee are named as personal referees on the Mortgage Finance Proposal form. NM treats the Lorenzes as Kelly Investors while Citibank submits they are Jones Investors.
15. Lowe November 1991 - July 1992 Jones Clear Both NM and Citibank treat the Lowes as Jones Investors.
16. Minichini August 1989 - September 1990 Jones Jones was a close family friend of the Minichinis. The first presentation was conducted by Jones alone. The second presentation was conducted by a man with a "major role in the scheme down in Melbourne". Despite references to Kelly in Minichini's affidavit, Minichini was unable in cross-examination to identify Kelly positively as the man from Melbourne. Minichini gave affidavit evidence that the man from Melbourne dominated the second presentation, while his oral evidence was to the effect that it was Jones who wrote on the whiteboard during that presentation. Minichini testified that he was induced to enter the Package by representations made by Jones. Kelly testified that he had never met the Minichinis and the NM commission split of Jones -80% - and Kelly- 20% - tends to confirm this, since that was the "split" when Kelly did no more than attend to the paperwork. Both NM and Citibank treat the Minichinis as Jones Investors.
17. Parsons October 1989 - February 1991 Wass/Jones/Kelly Wass was the insurance agent for the Commonwealth Department of Administrative Services where Parsons worked. Mrs Parsons purchased a superannuation policy through Wass in 1988. Wass first contacted the Parsons in October 1989 and gave a presentation at their home. A few weeks later, she called the Parsons and invited them to attend a presentation by Jones at his office. Wass played a secondary role of reassuring the Parsons that what Jones was saying was correct. After the meeting, the Parsons, particularly Mrs Parsons, had doubts about investing, so Wass invited them to attend a presentation by Kelly at Jones' office. Parsons gave affidavit evidence that as a result of the meetings with Wass, Jones and Kelly, they decided to invest. It appears that the presentations had a cumulative effect, with Kelly's presentation "selling" Parsons the Package and overcoming his concerns. Kelly's presentation seems to have clinched the matter. (Mrs Parsons still had concerns). The Parsons invested in several stages. The commission for the first three stages was shared as follows: Both NM and Citibank treat the Parsons as Kelly Investors, but NM's submissions refer to Wass/Jones/ Kelly as the agents. Original investment on 6 December 1989: 25% Anna Wass & Assoc Pty Ltd Manly; 25% DJC; 25% Alve Enterprises Vic; 25% Kelly 7 May 1990: 60% Wass; 20% DJC; 20% Kelly Kelly could not recall meeting Parsons and said the commission share indicated he would not have had a major part in the transaction. He suggested that as Alve Enterprises Pty Ltd was Blee's company, Blee may have been the man from Melbourne who gave the whiteboard presentation. Parsons maintained it was Kelly who gave the second presentation and that he had never met Blee. For reasons given in the judgment as to Kelly's credit, I prefer Parsons' evidence, and find that Kelly gave the Parsons a whiteboard presentation. The Parsons' claim assessment report completed by Wall does not mention Kelly and cites Wass and Jones as the Parsons' Advisers. However, the Parsons' "Statement of Your Investment Questionnaire" refers to the Parsons having received "independent" advice from Kelly in relation to the Citibank loan. NM pleads its case in relation to the Parsons in terms of solicitations made between October 1989 and February 1991. The commission share on the investment subsequent to 6 December 1989, and Parsons' evidence, suggest that Wass was instrumental in the Parsons increasing their investment in the Trust after the initial investment in December 1989. Wass also advised the Parsons to take out two Business Security Plans in December 1989 with yearly premiums of $5,000 each (Policies Nos 2032950/4 and 2032949/6). Moreover, it was Wass who initially promoted the scheme to the Parsons and singled them out as a couple for whom the scheme would be suitable. She, Kelly and Jones were involved in inducing the Parsons to invest. In the Mortgage Finance Proposal form filled in by Wass, Wass and Jones were identified as personal referees.
18. Pickworth 1989 - December 1990 Jones Clear Both NM and Citibank treat the Pickworths as Jones Investors.
19. Quaife March - June 1989 (however, the Pleading is incorrect. The Quaifes applied for Mortgage Power on or about 2 February 1989) Kelly Clear Both NM and Citibank treat the Quaifes as Kelly Investors.
20. Richards June 1989 - 29 June 1990 Blee, Kelly The Richards met Kelly in early 1988 when he organised insurance policies for them and a home loan which they used to buy an investment property. When Richards experienced a drop in income in April 1989, he arranged a meeting with Kelly, who referred him to Blee, stating Blee would be able to help him with his financial difficulties. Blee gave Richards a presentation at Kelly's office and all the pleaded representations were allegedly made by Blee. The commission on the Richards' applications for units was shared equally between Kelly and Blee. Kelly knew that Richards' income had dropped significantly since purchasing the insurance policies and the investment property in 1988, and that Richards was finding it difficult to meet the insurance premiums. According to Richards, although Blee conducted the presentation, Kelly oversaw Blee's work and was "in on the act". The evidence is unclear as to whether Kelly attended the presentation given by Blee. Richards' affidavit evidence suggests that Blee alone was present, however, the Richards' Claim Assessment Report refers to Kelly and Blee as the Advisers and states that both were present at the meetings. Although Kelly played a role in connection with the Richards' decision to invest in the Package, the Richards were principally Blee Investors. NM pleads that Blee conducted the presentation on Kelly's behalf (NM does not put the Richards in a "pure Kelly" category). Citibank treats the Richards as Blee Investors.
21. Tavoletti January - October 1989 Jones The Tavolettis attended a meeting with Jones at his office. Another man, whose name Tavoletti could not recall, was also present. Jones conducted the whiteboard presentation and the pleaded representations were all allegedly made by him. Tavoletti's cross-examination proceeded on the basis that he was a Jones Investor. Application fees on the Mortgage Power application were paid by Jones and refunded to him on settlement. Both NM and Citibank treat the Tavolettis as Jones Investors.
22. Weaver August - 29 September 1989 Kelly, Jones Weaver attended whiteboard presentations at Jones' office on two occasions. At the first meeting, Kelly made the presentation, with Jones in the room part of the time. Weaver testified that Kelly did most of the presentation. At the second meeting, Kelly, Jones and another couple were present. Weaver does not explicitly state that Kelly gave this presentation, however, his evidence as a whole centres on Kelly and the representations made by him. The pleaded representations were all allegedly made by Kelly. Kelly was not cross-examined about Weaver. Both NM and Citibank treat Weaver as a Kelly Investor.
23. West October 1989 - 26 March 1990 Jones Clear Both NM and Citibank treat the Wests as Jones Investors.

Dramatis Personae - Citibank Officers ALLEN, James Gerard: became employed by Citibank about 10 October 1989; after three days' training was employed as a Mortgage Specialist Officer (credit approving officer) in Sydney in the Central Processing Unit ("CPU") which was the credit approving area for residential mortgage loans for the whole of Australia; until May 1991 Allen reported initially to Greg Fiedler. BARBOUR, Robert Thomas: employed by Citibank as a Settlements Supervisor from 1987/88 to 1992/93, in the Bank's Settlements Department in Victoria. CARTER, Martin James: employed by Citibank as State Sales Manager, Victoria from 1986-1993; responsible for several Account Managers and the sales support team known as the Central Sales Unit ("CSU"). In the period 1988-1992, the Account Managers who reported to him included Tracie Storm, Tim Stewart, Jane Durnan and Craig Hall. He reported to the State Manager Martin Clark. CHRISTIE, Wayne Keith: joined Citibank in March 1990; previously employed by CBC Bank then National Australia Bank for 17 years; employed by those banks for eight years "in a credit role"; at Citibank title was "Mortgage Specialist Officer" or "Mortgage Acceptance Officer" from March 1990 to 1992; assessed applications for loans to be secured on real estate; also had function supervising settlements; for a time reported to Moses. CLARK, Martin John: first joined Citibank in 1986 as State Investment Manager; had a short period away and returned and was appointed State Manager for Victoria and Tasmania in relation to "the consumer side" in 1989; he initially reported to Gary Lemair, General Manager and Head of Distribution; the staff under his supervision included Martin Carter (State Sales Manager) Neil Herron (State Operations Manager), Bart Dyring (State Agency Manager) and Sally Meyrick (then Garvey) (Head of the CSU). DAVIES, Kevin John: Acceptance Specialist Officer in the CPU for about the first half of 1989; involved in the administration aspects of the loan approval process; had previously worked for National Mutual Royal Bank and before that for its predecessor, The United Permanent Building Society for some eight years, approving residential and personal loans. DURNAN, Jane: (see Jane HAWKINS) DYRING, Bart: Account Manager from June 1987 to mid 1988 in the Mortgage Sales Division in Victoria, then State Agency Manager, Victoria, from mid-1988 to September 1989 when he was made National Agency Manager and moved to Sydney; as State Agency Manager, Victoria, he reported to the State Manager, Clark; in September 1989, he was replaced by Andrew Padgham as State Agency Manager, Victoria. FIEDLER, Gregory: employed by Citibank since 7 November 1988 in credit role; in 1989 commenced working for Citibank as a supervisor in "Variations and Loans Increases" in the CPU (had previously worked for Westpac at Neutral Bay for, he thought, a 12-18 month period from 1987 to 1988 as the manager's assistant); in March 1990 became Loans Processing Manager there; he reported directly to Horsfield; he was the manager of the team dealing with New South Wales and the Australian Capital Territory although on occasions he was called on to approve applications from Victoria because of his senior ranking; he was on the second tier in the CPU; in 1992 he moved to the loans settlements area; expressed concerns to Horsfield that Mortgage Power was being provided to "ordinary folk" and that area managers were making substantial commissions as a result of its availability to the wider market and that "ordinary folk" might end up losing their homes. GARVEY, (now MEYRICK) Sally Anne: (see "Sally Anne MEYRICK") GILROY, Chantal: her comments were recorded on certain Total Quality Control Mortgage Checklists; she was not a witness. HALL, Craig Anthony: from November 1989 to September 1991, Account Executive in the CSU reporting to Meyrick (then Garvey); for first six months assisted Jane Durnan; after she left the Bank in September 1990 dealing with Kelly from about October 1990 to September 1991. HAWKINS, Jane (formerly Jane DURNAN): employed from April 1988 to September/October 1990 in the CSU, at first handling telephone inquiries; in late 1989 she became an Account Manager in place of Tim Stewart; as such she assumed responsibility for day to day dealings with Kelly; she reported to Victorian State Sales Manager, Martin Carter. HEYES, Tracie: (see Tracie RAVANELLI) HERRON, Neil Sidney: employed from June 1981 to July 1994; from 1982-1994 as Operations Manager for Victoria; responsible for Settlements Department. HORSFIELD, Jennifer: employed from 1979 to 1997; General Manager of the CPU, and as such responsible for its overall administration, from March 1986 to March 1990; reported successively to "Risk Managers" David Gardner and Jay Bishop; supervised Gregory Fiedler. LEMAIR, Gary: General Manager (also "Head of Distribution"). MACROW Bill: Account Manager in the Sydney office of Citibank to whom Jones sent his clients' Mortgage Finance Proposal forms after LKFM's agency for Citibank was terminated on 25 March 1992. MEYRICK (formerly GARVEY) Sally Anne: became employed in 1987; initially an Account Manager then Manager of the CSU from May 1988 to 1996; reported to State Manager, Martin Clark; became State Manager, Sales and Service in 1996. MOSES, Gayle: employed by the Citicorp/Citibank group since about 1976; from about early to mid 1988 to about early to mid 1989 as an area manager in Queensland sold Citibank products directly to the public and through introducers; from mid 1989, Senior Manager, Mortgage Operations in CPU Sydney; in about March 1990 became Executive Manager of Loans Processing at CPU, taking over from Horsfield; held that position until mid to late 1991. NIXON, Geoff: from February 1990 for two years as Mortgage Specialist Officer, then Supervisor; then a Manager then took on Project Management role; reported directly to Horsfield (among others); he was the manager of the team dealing with New South Wales and the Australian Capital Territory; he was on the second tier in the CPU; in 1992 he moved to the loans settlements area. PADGHAM, Andrew John: employed from November 1989 to 1997; appointed as State Agency Manager, Victoria in November 1989, replacing Bart Dyring; remained in that position until he became Operations Manager, Victoria in 1995; as State Agency Manager, serviced existing agents and sourced (found) new ones in country Victoria. RAVANELLI, Tracie Joy (formerly Tracie Storm and before that, Tracie Heyes): from 1987 to August 1988 (appointed when called Tracie Heyes) "Account Manager" or "area manager" with Citicorp Australia Ltd's Consumer Services Group, responsible for direct selling on telephone and sourcing (finding) new business in south eastern suburbs of Melbourne, including Cheltenham; married in 1988, becoming Tracie Storm; reported to State Sales Manager, Martin Carter; she was the person at Citibank whom Kelly first contacted about Mortgage Power (in early 1988). ROSS, Ian Alistair: employed from July 1989 apparently to April 1995, including a period as Account Manager in the Melbourne office from May 1990 to April 1995; he reported to the Victorian State Sales Manager, Martin Carter. STEWART, Timothy Douglas Capel: Account Manager who took over from Tracie Ravanelli in May 1988; in March 1989 promoted to Senior Account Manager; from August to October 1989, State Agency Manager for Victoria and Tasmania; as Account Manager and Senior Account Manager reported to the State Sales Manager, Martin Carter. STORM, Tracie: (see Tracie RAVANELLI) WEBSTER, Peter David: employed in the CPU as a Mortgage Specialist Officer from March 1990 to mid 1991 when promoted to supervisor.

Equity remaining after deducting amount secured by previous mortgage, as compared with total AMOUNT investED in NM units

annexure 4 Equity remaining after deducting amount secured by previous mortgage, as compared with total amount invested in NM units Citibank Mortgage Power limit Amount secured by previous mortgage** Equity remaining after deducting amount secured by previous mortgage** Total Investment Date on which NM Units issued Number of Units Allocated Amount Invested Investor in NM Units*** Alder $160,000 $53,203 $106,797 $4,500 23 June 93 3,027 $4,500 [Equity Imputation Fund] Appelman $120,000 $33,712 $86,288 $60,000 10 July 92 35,936 $42,000 14 July 92 15,402 $18,000 Bachmann $297,500 $55,313 $242,187 $200,000 5 April 90 27,765 $40,000 17 May 90 110,947 $160,000 Boulter $105,750 $45,265 $60,485 $54,000 14 Sept 90 10,059 $14,000 14 Nov 1990 28,740 $40,000 *Crawford $146,000 $75,000 $71,000 $200,000 23 Nov 89 28,480 $40,000 "Citi2nd" 14 Feb 90 111,121 $160,000 *Daniels $126,000 Owned own home $126,000 $150,000 8 Apr 91 36,677 $50,000 16 Apr 91 73,353 $100,000 Douglass $189,000 $70,300 $118,700 $100,000 8 Apr 91 22,006 $30,000 23 Apr 91 51,347 $70,000 *Eberts $132,000 $75,648 $56,352 $75,000 30 Jun 89 10,658 $15,000 30 Jun 89 42,631 $60,000 *Emery $206,400 $23,615 (Westpac home loan) $102,669 $125,000 4 Apr 90 17,353 $25,000 $80,116 (purchase of the Frankston investment property Total: $103,731 7 May 90 69,411 $100,000 *Farrar $108,750 $68,290 $40,460 $80,000 23 Jul 92 68,437 $80,000 *Fraser-Bell $176,250 $59,080 $117,170 $150,000 23 Feb 90 20,836 $30,000 30 Mar 90 83,293 $120,000 Garden $88,000 $37,104 $50,896 $50,000 12 Oct 89 7,172 $10,000 (based on the Pleading) 6 Dec 89 28,480 $40,000

Citibank Mortgage Power limit Amount secured by previous mortgage** Equity remaining after deducting amount secured by previous mortgage** Total Investment Date on which NM units issued Number of Units Allocated Amount Invested Investor in NM Units*** *Jorgensen $96,000 $28,168 $67,832 $100,000 4 Jan 93 89,954 $100,000 *Lorenz $250,800 $52,593 $198,207 $300,000 29 Jun 90 41,606 $60,000 29 Jun 90 166,421 $240,000 Lowe $180,000 $37,500 $142,500 $83,000 18 Aug 92 21,297 $24,900 2 Sep 92 49,811 $58,100 *Minichini $141,600 $29,500 $110,842 $150,000 13 Nov 89 14,240 $20,000 7 Dec 89 56,959 $80,000 16 Aug 90 6,955 $10,000 20 Sep 90 28,740 $40,000 Parsons $185,000 $12,699 $172,301 $100,001 14 Dec 89 3,560 $5,000 (decreased to $175,000 in Oct 91) 14 Mar 90 13,891 $20,001 5 Jun 90 10,402 $15,000 22 Jun 90 41,606 $60,000 *Pickworth $141,700 $44,413 $97,287 $100,000 4 Jan 91 21,555 $30,000 24 Jan 91 50,291 $70,000 *Quaife $90,400 $55,746 $34,654 $50,000 24 May 89 7,124 $10,000 6 Jun 89 28,420 $40,000 *Richards $112,000 $60,633 $51,367 $100,000 26 Jun 89 14,211 $20,000 30 Jun 89 56,841 $80,000 Tavoletti $150,000 Owned own home $150,000 $100,000 10 Oct 89 14,344 $20,000 31 Oct 89 56,959 $80,000 *Weaver $100,000 $60,526 $39,474 $50,000 8 Sep 89 7,172 $10,000 29 Sep 89 28,688 $40,000 *West $108,750 $23,380 $85,370 $100,000 6 Apr 90 13,883 $20,000 7 May 90 55,474 $80,000

• An asterix indicates where an Investor would have been unable to finance the purchase of the NM units from the Mortgage Power facility after the Investor's previous mortgage had been discharged. ** The amount shown as secured by previous mortgage does not include amounts drawn down at settlement for reimbursement of application and valuation fees, stamp duty, legal fees and disbursements, life insurance premiums, and pre-payment of interest. In the result, the total drawn down at settlement was, in every case, greater than the base amount paid to discharge the previous mortgage. The amount remaining available was correspondingly less than the amount shown above. As a result some Investors in addition to the fourteen indicated by * could not have funded their investment in NM units from their Mortgage Power facility. *** I include subsequent investments in units that were not part of the initial transaction.

Limitation Defence Table Name of Investor Date of Citibank application Date of original investment (settlement of Mortgage Power facility) Date of deed of settlement with NM Date NM sought contribution from Citibank in respect of Investor ALDER (NSW) 27 December 1991 2 March 1992 18 May 1994 15 March 1996 APPELMAN (VIC) 4 September 1991* 30 October 1991 7 May 1995 15 March 1996 BACHMANN (NSW) 15 November 1989 27 March 1990 23 May 1995 15 March 1996 BOULTER (VIC) 19 July 1990* 31 August 1990 9 May 1994 4 November 1994 CRAWFORD (NSW) 20 June 1989** 25 October 1989 7 September 1994 4 November 1994 DANIELS (VIC) 13 February 1991* 26 March 1991 13 January 1995 15 March 1996 DOUGLASS (VIC) 25 October 1990 22 March 1991 16 June 1994 4 November 1994 EBERTS (VIC) 10 May 1989* 29 June 1989# 30 June 1995 15 March 1996 EMERY (VIC) 28 November 1989 26 February 1990 3 August 1995 15 March 1996 FARRAR (VIC) 2 June 1992 14 July 1992 21 August 1995 15 March 1996 FRASER-BELL (NSW) 6 November 1989 12 January 1990 25 May 1994 4 November 1994 GARDEN (NSW) 7 June 1989 31 August 1989 18 January 1995 15 March 1996 JORGENSEN (VIC) 9 November 1992 23 December 1992 10 November 1993 4 November 1994 LORENZ (NSW) 20 March 1990* 27 June 1990 20 July 1994 4 November 1994 LOWE (NSW) 17 June 1992 20 July 1992 10 November 1993 4 November 1994 MINCHINI (NSW) 8 June 1989 2 November 1989 20 July 1994 4 November 1994 PARSONS (NSW) 19 September 1989 6 December 1989 9 May 1994 4 November 1994 PICKWORTH (NSW) 6 December 1989*** 17 December 1990 27 September 1994 4 November 1994 QUAIFE (VIC) 2 February 1989* 31 March 1989 22 February 1994 4 November 1994 RICHARDS (VIC) 28 April 1989* 21 June 1989 15 June 1995 15 March 1996 TAVOLETTI (NSW) 9 June 1989* 14 September 1989 20 July 1994 4 November 1994 WEAVER (NSW) 13 June 1989* 30 August 1989 18 May 1994 4 November 1994 WEST (NSW) Mid October 1989** 26 March 1990 27 October 1994 15 March 1996

Units issued 30/6/89

• Date from cheque for application/valuation fees ** Date received by Citibank *** Date from Credit Profile Number in loan file