Pattinson v Bellwether Agriculture Pty Ltd [2018] NSWSC 38 | Case summary

Relief sought by Mr Pattinson

In the Amended Summons, both Mr Pattinson and Binna Burra sought relief. The relief sought by Mr Pattinson included an order under s 72 of the Fair Trading Act that Mr Richardson pay $1,000,000, or such other sum as the Court thinks appropriate, to Binna Burra. Section 72 of the Fair Trading Act relevantly provides: 72 Other orders (1A) … (1) … (2) Without limiting the generality of section 65, the Supreme Court may, on the application of a person who has sustained, or is likely to sustain, loss or damage by conduct of another person that contravened a provision of Part 3, 4, 5, 5B, 5C, 5D, 5E, 5F or 8 or on the application of the Director-General in accordance with subsection (4) on behalf of such a person or 2 or more such persons, make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders specified in subsection (5)) if the Court considers that the order or orders concerned will compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, wholly or in part for the loss or damage or will prevent or reduce the loss or damage. (3) … (4) … (5) The orders referred to in subsections (1) and (2) are: (a) an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, or of a collateral arrangement relating to such a contract, to be void and, if the Supreme Court thinks fit, to have been void from its beginning or at all times on and after such date before the date on which the order is made as is specified in the order, (b) an order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date before the date on which the order is made as is so specified, (c) an order refusing to enforce any or all of the provisions of such a contract or arrangement, (d) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage, (e) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage, (f) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at the person's own expense, to repair, or provide parts for, goods that had been supplied by the person who engaged in the conduct to the person who suffered, or is likely to suffer, the loss or damage, (g) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at the person's own expense, to supply specified services to the person who suffered, or is likely to suffer, the loss or damage, and (h) an order, in relation to an instrument creating or transferring an interest in land, directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to execute an instrument that: (i) varies, or has the effect of varying, the first-mentioned instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the first-mentioned instrument. (6) An application under subsection (2) may be made at any time within 6 years after the date on which the cause of action that relates to the conduct accrued. (6A) …
Mr Pattinson contends that he is a person who has or is likely to sustain loss or damage as a consequence of Mr Richardson's breach of s 42 of the Fair Trading Act (which is in Part 5) because, as a consequence of that breach, he is likely to receive less by way of distributions from the trust and that an appropriate order that will make good that loss is to place the trust in the position it would have been in if it had retained the $1,000,000 that it invested in Bellwether. Although an order that the person in contravention pay money to a third person is not one of the orders set out in s 72(5), the court is not confined to making orders of those types and may make any order "the Court thinks appropriate against the person who engaged in the conduct".
In the alternative, Mr Pattinson seeks to value the income he has lost from the trust and will lose in the future and seeks to recover that loss as damages under s 68 of the Fair Trading Act.
Binna Burra also sought relief on the basis that it relied on representations made to it in investing $1,000,000 in Bellwether. However, that claim was not pursued in final submissions.
Before dealing with Mr Pattinson's claim, it is necessary to set out some more background.
As I have said, the original investment was made by Mr Pattinson personally. It is not entirely clear how that investment was funded. It appears that $550,000 was funded from a facility that Mr Pattinson had with the NAB and that the balance was funded from Mr Pattinson's personal resources. However, it is unclear from the evidence whether Mr Pattinson sold other investments in order to fund the balance or whether the balance was at the time held in a bank account. Mr Pattinson's total borrowings from NAB at that stage were $1.55 million.
As I have said, I accept that in making the investment Mr Pattinson relied on statements made to him by Mr Richardson which were misleading and deceptive.
In March 2009, Bellwether was taking steps to issue shares to investors in accordance with the investor agreements. In that context, Mr Pattinson sought advice from his accountant and tax advisor, Mr Russell Franey, concerning who should own the shares. Mr Franey advised that it would be desirable to hold the shares through a discretionary trust. Acting on that advice, Binna Burra was incorporated on 24 March 2009 with Mr Pattinson as its sole shareholder and director and the Binna Burra discretionary trust was established by trust deed dated 1 April 2009. The evidence given by Mr Pattinson suggests that Binna Burra was incorporated to hold the shares. However, the evidence given by Mr Franey is that he had recently taken over advising Mr Pattinson on his financial affairs following the retirement of Mr Pattinson's previous accountant and that he advised Mr Pattinson that it would be desirable if he held his assets through a discretionary trust. The likelihood, then, is that Binna Burra would have been incorporated and Mr Pattinson would have transferred his assets to it irrespective of the investment in Bellwether.
On 3 September 2009, Mr Franey sent an email to Mr Pattinson advising "to have the loan account owing to the Family Trust" and suggesting that that be achieved by Bellwether repaying Mr Pattinson's loan, Mr Pattinson gifting that amount to the Family Trust and the Family Trust lending the money on the same terms to Bellwether. In fact, what happened was that Binna Burra obtained a loan from NAB for $1,000,000. That amount was paid (by way of bank cheque) to Bellwether by providing ANZ, Bellwether's bank, with the cheque. At the same time, ANZ provided Mr Pattinson with two cheques. One was for $550,000 and was payable to Mr Pattinson. It was used to discharge his loan to NAB referable to his investment in Bellwether. The other, for $450,000, was payable to Binna Burra and represented a gift by Mr Pattinson to Binna Burra of that amount.
The primary relief sought by Mr Pattinson has two steps.
First, Mr Pattinson submits that if he had not been misled he would not have paid away $1,000,000. Mr Pattinson was entitled to interest on that amount from the time the money was lent until the time it was repaid and the shares in Bellwether transferred to Binna Burra (that is, 1 April 2009) in accordance with s 100 of the CPA. That amount comes to $132,136.98. Mr Pattinson received only one payment on account of interest from Bellwether in the amount of $48,206.16, leaving a balance of $83,930.82.
Second, Mr Pattinson submits that it follows that, but for Mr Richardson's misleading and deceptive conduct, he would have been able to add $1,083,930.82 to the assets of the trust. If he had done so, he submits that the assets of the trust would, as at 31 October 2017, have been $4,859,854.33 more than is now the case. In making that submission, Mr Pattinson relies on evidence given by Mr Bernard Perkins, an investment advisor engaged by him. According to Mr Perkins, he established a portfolio for Binna Burra on 1 April 2009 consisting of shares in "approximately 10 companies, valued at approximately $100,000 each". Mr Perkins' evidence is that the portfolio has generated a return of 19.35 percent, comprising both capital growth and income, compounded, every year from the period 1 April 2009 to 28 February 2017. Mr Perkins says that if Mr Pattinson had had available an additional $1,083,930.82 to invest he would have advised him that Binna Burra should purchase approximately double the number of shares in each company than it actually did rather than purchasing shares in additional companies. He says that he is "very confident" that Mr Pattinson would have accepted that advice. On that basis he applies the same rate of return as earned by Binna Burra in the period from 28 February 2017 to 31 October 2017 to the additional $1,083,930.82 to conclude that the total value of the fund referable to the $1,083,930.82 was $4,859,854.33 as at 31 October 2017 (ignoring a small arithmetic error in Mr Richardson's favour). Mr Pattinson seeks an order that that amount (or that amount increased at the same compounding rate until the date of judgment) be paid to Binna Burra in order to compensate him for the loss that he has suffered.
In addition to that amount, Mr Pattinson claims: 1. bank fees on the cheques obtained in connection with the transfer of the loan to Binna Burra of $1,405.00 together with interest on that amount, which up until 31 October 2017 was $775.55; 2. amounts provided to the liquidator of Bellwether to fund public examinations with a view of seeking to recover sufficient funds to enable the liquidator to repay the amount owed to Binna Burra and Mamaal, which total $307,832.05 together with interest on that amount, which up until 31 October 2017 was $64,840.82; 3. legal and accounting fees incurred by Mr Pattinson in seeking to recover the loans which total $337,846.92 together with interest on that amount, which up until 31 October 2017 was $128,101.25.
Like Mamaal, Mr Pattinson made some recoveries. With one exception, the costs incurred exceeded the amount recovered. The exception relates to a recovery of $730,000 in relation to a claim Mr Pattinson brought against his legal advisor. I accept the evidence given by Mr Pattinson's solicitor, Mr Chapman, that the costs incurred in relation to that claim (after apportioning the costs incurred) total $385,943.62. On that basis, Mr Pattinson made a net recovery of $344,056.38. Mr Pattinson accepts that that amount must be deducted from the amount that he claims.
In the alternative, Mr Pattinson submits that his loss can be measured by valuing the additional distributions he would have received and could have been expected to receive from the trust if it had received an additional $1,082,862.33 on 1 April 2009. That amount is calculated by Mr Franey. Mr Franey took the amount that the trust did receive ($947,543.00). If it had also received $1,082,862.33, then its total assets as at 30 June 2009 would have been $2,030,405.33, which was an increase of 114.28 percent. Mr Franey assumes that in each year the trust assets, and the amount available for distribution, would be increased by that proportion. He gives evidence of the advice he would have given to Mr Pattinson concerning the distributions he would have recommended in those circumstances. Mr Pattinson says that he would have accepted that advice. In substance, that advice would have been that distributions should be made to Mr Pattinson up to the point where his income in the relevant year was approximately $180,000. On that basis, Mr Franey expresses the view that the additional distributions that Mr Pattinson would have received in respect of the financial years ending 30 June 2010 to 30 June 2016 would have been $448,049. He concludes that Mr Pattinson would also have received an additional income stream of $98,821.20 over the next 25 years (representing his life expectancy). He calculates the present value of that income stream using a discount rate of 3 percent to be $1,720,788.15. Mr Pattinson submits that it is necessary to add to those amounts the net interest forgone between 4 December 2007 and 1 April 2009 of $83,930.82 and the mitigation expenses of $645,678.97, making a total (before interest) of $2,898,446.94. From that amount must be deducted the recovery of $344,056.38.
The way in which Mr Pattinson puts his damages claim raises four issues. First, can it be said that Mr Pattinson suffered a loss as a consequence of Mr Richardson's conduct when he was repaid the $1,000,000 he invested on 1 April 2009? Second, assuming that it can, is it appropriate to calculate Mr Pattinson's loss by reference to the assumed increase in value of the trust assets if the trust had invested approximately a further $1,000,000 in April 2009? Third, should the court in the exercise of its discretion make an order under s 72 of the Fair Trading Act of the type sought by Mr Pattinson? Fourth, if not, how should Mr Pattinson's damages be assessed?
As to the first issue, I am satisfied that it is correct to characterise Mr Pattinson's loss as the loss in the value of his interest in the Binna Burra trust. One of the reasons the trust was established was for the purpose of holding Mr Pattinson's interest in Bellwether. Mr Pattinson remained exposed to an inability to recover the value of that investment through a diminution in the value of the assets of the trust. That exposure did not come to an end on the repayment of the loan to Mr Pattinson. The direct exposure Mr Pattinson did have only came to an end because it was replaced by an identical exposure held by the trust. It is true that the trust is a discretionary trust and that Mr Pattinson is one of a number of discretionary beneficiaries. However, in circumstances where the trust is controlled entirely by Mr Pattinson, it is still the case that if the trust suffers a loss then Mr Pattinson will or is likely to do so as well.
As to the second issue, in my opinion it is not correct to assume that the trust would have had an additional $1,000,000 to invest in the same portfolio of shares it did invest in if it had not invested in Bellwether. In determining the loss suffered by Mr Pattinson, the question that must be asked is what would have happened if the misleading and deceptive conduct had not occurred. On Mr Pattinson's case, if the conduct had not occurred, he would not have invested $1,000,000 in Bellwether. There is no evidence that he would have borrowed the amount he did borrow ($550,000) to invest in Bellwether to invest in shares at that stage. Nor is there any evidence of how the other $450,000 was held. Assuming that Binna Burra would have been established in April 2009 to hold Mr Pattinson's assets even if Mr Pattinson had not invested in Bellwether, it might be inferred that at that stage Mr Pattinson would have had an additional $450,000 that he could and would have gifted to Binna Burra. However, I do not think that it can be inferred that Binna Burra would have borrowed an additional $550,000 to make further investments. It is one thing for it to borrow that amount in order to permit Mr Pattinson to repay a debt he incurred in connection with his investment in Bellwether. It is another thing for Binna Burra to borrow $550,000 to invest in shares, particularly given that the global financial crisis had occurred not that long before. Consequently, the approach underlying Mr Pattinson's assessment of damages is flawed. The correct question is how much better off Mr Pattinson would have been if he had not invested in Bellwether, not how much better off he would have been if the trust had invested an additional $1,000,000 in April 2009.
In my opinion, there is a further difficulty with the way in which Mr Pattinson seeks to prove the additional assets the trust would have held but for the investment in Bellwether. No evidence is given of what shares the trust held and the actual returns that the trust earned from the investments it made in each year after allowing for distributions to Mr Pattinson. Consequently, there is no way of testing Mr Perkins' evidence concerning the returns the trust made. Moreover, the average return that the trust is said to have made appears to be notional because it does not take into account distributions made to Mr Pattinson. Lastly, Mr Pattinson's calculations assume that the trust continued to earn the same average return up until 31 October 2017 and that the court should use that average up until the date of judgment. Again, however, it would be more appropriate to use the actual income earned by the trust during the relevant period for the purpose of calculating the income the trust would have earned if it had acquired additional shares of the same type.
As to the third issue, in my opinion, this is not an appropriate case in which to make an order under s 72 of the Fair Trading Act. I say that for three reasons. First, it is apparent that Mr Richardson will not be able to comply with such an order. He is bankrupt. There is no suggestion that he has available to him assets from which he could satisfy any order made by the court. In my opinion, the court should not readily make an order under s 72 which it knows Mr Richardson cannot comply with. Mr Pattinson submitted that the court could not be certain that Mr Richardson will not be able to comply with the order some time in the future. However, on any view the amount that Mr Richardson would be ordered to pay would be substantial; and there is no reason to think that Mr Richardson will ever be able to comply with that order.
Second, any order made by the court for payment of money to the trust may have the effect of conferring a windfall on a third party - that is, on some other beneficiary of the trust. Mr Pattinson's primary case is that the trust should receive the same damages as he would have been entitled to if he had not established the trust and if he had made the same investments personally as were made by the trust. But in my view that is not correct. When Mr Pattinson established the trust and gifted his assets to it, he made a decision to substitute for his absolute right of ownership of the assets a lesser right. He did so because that had tax benefits. It is not clear why he should be entitled both to the tax benefits and to receive compensation (paid to the trust) which in effect is calculated on the basis that the transfer was never made. In my opinion the court would only make such an order if it were satisfied that there is no other mechanism for compensating Mr Pattinson for the loss that he now will suffer.
Third, and connected to the second point, although it may be difficult, it is possible to compensate Mr Pattinson for his loss without conferring a windfall on a third party, as Mr Pattinson's alternative damages calculation recognises. In my opinion, where an adequate remedy is available under s 68 of the Fair Trading Act, there is no reason to make an order under s 72.
As I have said, in the present case, the correct question is what would have Mr Pattinson's position been if he had not invested $1,000,000 in Bellwether. That has two components. First, before 1 April 2009, Mr Pattinson would not have incurred the borrowing costs that he did on the $550,000 and presumably would have earned some income on the $450,000 (or used that amount to reduce his remaining debt to NAB). On the other hand, he would not have received the amount of $48,206.16 which was paid to him by Bellwether. In my opinion, interest on the $1,000,000 under s 100 of the CPA from the time the investment was made until 1 April 2009 is a reasonable proxy for the borrowing costs Mr Pattinson incurred on the $550,000 and income forwent on the $450,000. Consequently, I am prepared to accept that Mr Pattinson's loss for that period is $132,136.98 less the amount he received ($48,206.16), making a total of $83,930.82. Mr Pattinson is also entitled to interest on that amount under s 100 of the CPA from 1 April 2009 up until the date of judgment, since he has been out of pocket by that amount during that period.
Second, in respect of the period after 1 April 2009, Mr Pattinson is entitled to recover the amount of any additional distributions that would have been made to him and will be made to him by the trust assuming that the trust had not borrowed $1,000,000 from NAB. Unfortunately, the evidence before the court does not enable that amount to be calculated. The position appears to be that the Binna Burra trust would have been established at the same time. At that time, Mr Pattinson would have had an additional $450,000 to give to the trust, which I accept would likely have been invested in the same way as the amount that was gifted to the trust at that time. In addition, the trust would not have incurred the costs that it did in relation to the borrowing of $1,000,000 and would not have had the liability to repay that amount. The evidence of Mr Franey is that he would have advised Mr Pattinson to cause distributions of income to him up to $180,000 each year. I accept that evidence. There is no evidence that other distributions would or are likely to have been made to Mr Pattinson. The question, therefore, is what additional income (up to a maximum of $180,000) would have been available for distribution to Mr Pattinson in those circumstances. The evidence before the court is inadequate to permit the court to make a proper assessment of that amount. However, in circumstances where Mr Pattinson's claim was not contested and any reduction in the claim he makes arises from matters the court considers appropriate to take into account on an ex parte hearing, Mr Pattinson should be given an opportunity to provide the court with additional evidence to enable damages to be assessed in accordance with the court's conclusions. In performing those calculations, it seems to me reasonable to assume that Mr Pattinson's life expectancy is 25 years and that an appropriate discount rate to use is the 3 percent used by Mr Franey. Of course, it will still be necessary to deduct the net recovery made my Mr Pattinson of $344,056.38.
Mr Pattinson also claims mitigation costs. Those costs consist of the costs of funding the liquidator to conduct public examinations and legal and accounting costs of pursuing other claims in order to reduce his loss.
The evidence concerning those mitigation costs is scant. As to the costs of funding the liquidator to conduct public examinations, Mr Pattinson simply says that he "funded the Liquidator to investigate the affairs of [Bellwether] with a view to recovering sufficient funds to enable repayment of Binna Burra's and Mamaal's loans to [Bellwether]. Those investigations included the conduct of liquidator's examinations of persons involved in [Bellwether]". No explanation is given of what potential claims were investigated or how the examinations that were conducted were thought to assist the investigation of those claims. In the absence of evidence of that type, it is not possible to form a view that the costs that were incurred were reasonable.
Similarly, the only evidence given in relation to the legal and accounting costs is that Mr Pattinson incurred a total of $337,156.87 "on solicitors' and accountants' costs and disbursements since about May 2010 up to the commencement of this proceeding". No explanation is given of what the costs relate to. Mr Pattinson did tender a bundle of the relevant invoices. However, for the most part the descriptions of the work that was done were redacted, presumably on the basis that it was the subject of a claim for client legal privilege, and it is not possible from the invoices to get any real sense of what work was done and to what extent the work was unrelated to the current court proceedings. It may be inferred that some of the work related to the costs of serving statutory demands on Bellwether for the debt claimed by Mr Pattinson and for subsequent winding-up proceedings on the basis that Bellwether was insolvent. I accept that those costs, to the extent that they are reasonable, would be recoverable. However, there is no means of determining what they are on the basis of the evidence before the court. It is also apparent that the work that was undertaken related to claims brought by Mamaal and two other investors. Again, in the absence of more detail, I am not satisfied that the amount claimed is reasonably recoverable as mitigation costs.
Mr Pattinson bore the onus of proving that the costs he incurred were reasonable and that they were incurred to mitigate his loss rather than in connection with the current court proceedings. He has failed to discharge that onus. They are matters that Mr Pattinson could reasonably have been expected to address at the time he filed his evidence. For those reasons, I do not think that he should be given a further opportunity to address this aspect of his claim for damages.

Pattinson v Bellwether Agriculture Pty Ltd

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Judgment (9 paragraphs)

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Cases Cited (10)