[2009] HCA 25
Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486
[2012] HCA 39
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Ireland v WG Riverview Pty Ltd (2019) 101 NSWLR 658
Source
Original judgment source is linked above.
Catchwords
[2019] FCAFC 187
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266[1977] UKPCHCA 1
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304[2009] HCA 25
Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486[2012] HCA 39
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Ireland v WG Riverview Pty Ltd (2019) 101 NSWLR 658[2019] NSWCA 307
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Judgment (9 paragraphs)
[1]
Introduction
The second plaintiff, Mr Robert Andrew-Smith, is the sole director of the first plaintiff, RAS Capital Investments Pty Ltd (formerly known as Robert Bruce Capital Pty Ltd) (RAS). He carries on business as a mortgage finance broker for large developments through RAS and as a sole trader trading under the business name "Mezzanine & Commercial Funding" (MCF). The first defendant, Goldfields Run Land Pty Ltd (GRL), was established by the second defendant, Mr Graham Welsh, on 28 September 2012 to acquire and to develop a large parcel of land located to the northwest of Melbourne (the Project). Mr Welsh is the sole director and shareholder of GRL.
The Project was to be undertaken in various stages. The first stage (referred to as Part A) involved the acquisition of certain land (the Land) from Whittlesea Properties Pty Ltd, a company controlled by a friend of Mr Welsh for an amount initially fixed at $19.5 million but later reduced to $16.5 million. Further stages (referred to respectively as Parts B to F) involved the acquisition of adjacent land and the development of that land as well.
GRL engaged the plaintiffs to assist in raising funds for the Project. It is common ground that GRL has paid the plaintiffs $905,000 in five instalments of $11,000 and 34 instalments of $25,000. The plaintiffs claim that those payments were made to discharge liabilities arising under agreements by which the plaintiffs agreed to and did arrange financing for GRL. In these proceedings, the plaintiffs seek to recover from GRL, whose obligations are said to have been guaranteed by Mr Welsh, the balance of the amounts said to be owing under the agreements, which totals $261,080 plus interest.
The defendants' case is somewhat confused. What was said to be their primary position was that they did not owe the plaintiffs anything and that GRL was entitled to recover the amount that it had paid. That case was put on three bases. First, it was alleged that the amounts paid by GRL were advance payments for the plaintiffs arranging a loan to replace those that were already in place, which never happened. On that basis, by a cross-claim GRL claims to be entitled to recover the total amount it has paid to the plaintiffs. Second, by their cross-claim, the defendants plead a case that the plaintiffs engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL) or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) that induced GRL to make the payments to the plaintiffs and to forego the opportunity of obtaining financing elsewhere. Lastly, they claim the plaintiffs provided financial product advice within the meaning of ss 766A(1)(a) and 766B(1) of the Corporations Act 2001 (Cth) without holding an Australian financial services licence with the result that the defendants are entitled to rescind the agreements under which the money was paid (which they have done) and recover the amount paid.
The defendants' alternative case was that, even taking the plaintiffs' case at its highest, the plaintiffs were not entitled to recover any more than they had already been paid. The defence is confused because what is said to be the defendants' primary case (apart from the case that the plaintiffs had given financial product advice) received little attention in the defendants' submissions. Rather, the submissions appeared to accept the agreements on which the plaintiffs sue, or at least some of them, and sought to demonstrate that on the correct construction of those agreements nothing further was owing by them.
[2]
Background
Mr Welsh signed the contract to acquire the Land on or about 6 October 2012. Under the contract, he had a right to nominate a substitute buyer. He nominated GRL. Settlement of the sale was due to occur by 8 October 2013.
After entering into the contract, Mr Welsh sought unsuccessfully to obtain financing for the purchase price from mainstream lenders. Following those unsuccessful attempts, sometime in 2013 he approached Linna Hong Yu of BMC Mortgage Corporation Pty Ltd to assist in arranging a loan to fund the purchase price. Mr Welsh's evidence is that GRL agreed to pay Ms Yu an "introducer's fee" of one percent of the loan amount if she could obtain a loan to fund the purchase of the Land. Ms Yu in turn approached Mr Andrew-Smith.
There is a dispute between Mr Andrew-Smith and Mr Welsh about when they first made contact. However, it seems clear that at some stage in early 2014 Mr Welsh met Mr Martin Smethills, who at the time was a funds manager and chief executive officer of Winton Partners. Mr Andrew-Smith says that he introduced Mr Smethills to Mr Welsh. Mr Smethills met with Mr Welsh in Melbourne and on returning to Sydney told Mr Andrew-Smith that he hoped to be able to arrange a facility in the next couple of weeks through a lender referred to as Pacific Alliance Group (PAG), which was based in Asia. Mr Smethills told Mr Andrew-Smith that the loan would be made through an Australian entity and that Winton Partners would act as mortgage managers.
Following that conversation, on 17 March 2014, Mr Andrew-Smith travelled to Melbourne to meet Mr Welsh (for the first time) and to inspect the Land. He flew back to Melbourne about a week later. During that visit, he says he had a conversation with Mr Welsh in which he raised the question of his fees, which he said were one percent of the loan plus GST. According to Mr Andrew‑Smith, Mr Welsh replied "That's fine". In a later conversation during the same trip, Mr Andrew‑Smith says that he and Mr Welsh had a conversation to the following effect:
Me Are you able to pay me when the loan settles?
Graham Mate, I'm a bit short.
Me What if you paid me $10,000 plus GST a month?
Graham It'll have to come off my credit card or super but I can manage $11,000 a month.
Mr Welsh denies those conversations. He says that he first spoke to Mr Andrew‑Smith in or about March 2014 when he was introduced to him by Ms Yu at a dinner at the Atlantic Restaurant at the Crown Casino in Melbourne. He says that during that discussion, Ms Yu said that she was working with Mr Andrew‑Smith and that he would assist GRL by introducing it to brokers who could secure funding for the land and project.
On or about 27 March 2014, the defendants entered into a loan note subscription agreement that had been arranged by Mr Smethills. Under that agreement, PA Glorious Opportunity V Limited agreed to lend GRL the sum of $13,741,000 for a period of 12 months. In connection with the Loan Agreement, GRL entered a put option in respect of the Land and granted the Security Trustee power of attorney to exercise the put option if the loan was not repaid. As a result, GRL ran the risk of losing the Land if the loan was not repaid on time.
On 3 April 2014, GRL paid Ms Yu the sum of $137,000. According to Mr Andrew-Smith, after the settlement of the loan he had a conversation with Mr Welsh during which he asked Mr Welsh when Mr Welsh would start paying him. Mr Welsh asked for a couple of months, to which Mr Andrew-Smith agreed.
At some stage in about April or May 2014, Mr Andrew-Smith became involved in arranging further financing. According to Mr Welsh, at that stage GRL was looking to obtain an initial project loan. He says that Mr Andrew-Smith told him that he (Mr Andrew-Smith) could refinance the project loan on behalf of GRL on better terms after the Land was rezoned for residential use and pre-sales of residential lots had been commenced. He says that he agreed that GRL would engage Mr Andrew-Smith "to position the Project so that it could refinance the initial project loan at an appropriate time and to assist GRL arranging funding for Part B and Part C" and that he also agreed that GRL would make monthly payments in advance for that service, even though the plaintiffs were to be remunerated through a success fee.
It is the defendants' case that the amounts paid to Mr Andrew-Smith or his company were paid to arrange that replacement loan, which never eventuated. However, Mr Welsh's evidence on the point cannot be accepted. It is not supported by any documents. It is not consistent with subsequent events. It is apparent that Mr Andrew-Smith was closely involved in arranging what Mr Welsh described as "an initial project loan". On the defendants' case, those services were apparently provided for free. It is not plausible that Mr Andrew-Smith would be engaged to arrange a loan to replace a loan that had not itself been arranged. It was important that a replacement loan be arranged since, as I have said, GRL ran the risk of losing the Land if the PAG loan was not repaid. Although Mr Welsh had tried to raise funds in China, there is no evidence that he was likely to be able to do so within the available time. Taking those matters into account, it seems plain that Mr Andrew-Smith was engaged by GRL to assist it to raise project financing to be used at least in part to repay the PAG loan.
Mr Andrew-Smith and Mr Welsh met on a number of occasions in May and June 2014. Mr Andrew-Smith says that on a number of those he raised the question of payment of the $137,000 plus GST said to be owing to him. Mr Welsh denies those conversations. There is, however, in evidence an email exchange on 28 June 2014 between Mr Andrew-Smith and Mr Richard Christian, who worked for Mr Welsh, which was copied to Mr Welsh. In the earlier of the emails, Mr Christian says:
Rob,
Hope you are well. Apologies for delay. Have a great day.
Graham
Payment has been made to Rob, as a matter of urgency, as per our meeting this morning.
Regards,
RC
That email included a copy of an email that Mr Andrew-Smith had sent to Mr Welsh which Mr Welsh had provided to Mr Christian. That email relevantly said:
Hi Graham, really good to speak with you this morning. Great effort in China! Good luck in Beijing next week.
Looking forward to catching up in Melbourne upon your return. Please see bank details below. As agreed, $11K per month - ($10K + GST), until re-zoning occurs with balance outstanding being paid at that time. Kindest regards, Rob.
Please text once payment is made in order that I can alert Peter.
The email concluded by providing details of the trust account of Diamond Conway, the plaintiffs' solicitors.
Mr Andrew-Smith responded to Mr Christian's email to him a short time later relevantly saying:
Thanks Graham/ Richard ..... Look forward to catching up at 3 pm Wednesday.
It can be inferred from this exchange of emails that Mr Andrew-Smith raised the question of the payment of $11,000 per month with Mr Welsh, who asked Mr Andrew‑Smith to provide the bank details of the account into which the money was to be paid. Mr Welsh provided those details to Mr Christian who arranged for the payment to be made. The first payment was made on 30 June 2014. Further payments of $11,000 were made on 4 August 2014, 5 September 2014, 14 October 2014 and 17 December 2014. Mr Welsh says in relation to the email that he does not know why GRL paid Mr Andrew-Smith $11,000. That evidence is not plausible.
Coincidentally, some time in April or May 2014 Mr Andrew-Smith was introduced to Mr Andrew Turner, the managing director of Banner Asset Management Pty Limited (Banner). According to evidence given by Mr Andrew-Smith, Banner is an asset manager specialising in debt and equity opportunities in the Australian real estate market. Following that introduction, Mr Andrew-Smith was introduced to Mr Brian Osborne, Banner's chief operating officer. They discussed the possibility of Banner arranging to refinance the PAG loan.
At about the same time, in mid-June 2014, Mr Andrew-Smith says that he had a conversation with Mr Welsh in which Mr Welsh said that a Chinese investor had floated the idea of investing $65 million with an entitlement to 50 percent of the profits. Mr Andrew-Smith says that the conversation continued in words to the following effect:
Me Equity is probably the most expensive money. What if I said I can get $65 million at better terms than the Chinese? You might only have to give away 40% of the profit, not 50% of the profit?
Graham It'll be great if you could do that.
Me Then I'd want some of the 10% you saved - a "bonus payment".
Mr Welsh did not refer to this conversation in the first affidavit he swore in response to Mr Andrew-Smith's affidavit. However, in a subsequent affidavit, he gives some details of various visits he made to China and says that he told Mr Andrew-Smith that he was considering funding the Project using equity from Chinese investors and that Mr Andrew-Smith said that "he was confident that he could obtain a better deal for GRL".
Negotiations continued between Mr Andrew-Smith and Banner during the first part of July 2014. Mr Andrew-Smith says, and there is no reason to doubt, that they discussed both a loan to pay out the PAG and a larger loan to fund the Project.
Some time in early July 2014, Mr Andrew-Smith raised the question of his fees for the new loan with Mr Welsh. On 9 July 2014, Mr Andrew-Smith sent Mr Welsh an email attaching a copy of a retainer letter dated 3 July 2014. In the email he offered to discuss with Mr Welsh the retainer letter (which the parties referred as "the Mandate") at a meeting in Melbourne the following week.
The Mandate was on the letterhead of "Robert Bruce Capital". It was addressed to "Goldfields Run Pty Ltd", which was clearly intended to be a reference to GRL. The letter states:
You hereby confirm that you have appointed Robert Bruce Capital Pty Limited ("RBC") as your consultant to obtain a loan(s) and act on your behalf on the following terms:
• The loan amount/ facility to be up to $65,000,000.00 Sixty Five Million Dollars or such other amount acceptable by you for the purpose of providing funding for the development described as "Spring Lakes" [that is, the Project]
STRATEGY
• To complete the due diligence and financial analysis from Information provided by you and create a proposal as the base document to support the loan proposal/ application.
• To negotiate with new bankers / financiers the facilities sought to enable the objectives to be achieved.
Under the heading "Costs", the letter relevantly states:
We have discussed the fee arrangement for the development funding of $65M for Spring Lakes, Western Freeway, Victoria, and agreed by exchange of emails - 27th June 2014.
You have nominated the amount of $43M as a Profit Share to a joint venture partner, we will use this amount as the base. Our fee will be 50% of the amount I can save below the $43M with a funder for the project. EG. If the eventual profit share/ cost is $40M then the saving is $3M x 50% is $1.5M.
The costs are determined by the total payment over and above the principal of $65M OR a flat fee of $650,000.00, whichever is the greater.
As agreed - Total:
• RBC's fee will be payable only in the event and at the time that RBC obtains a loan approval in accordance with the above conditions and irrespective of;
a) Whether you take up the loan or not.
b) Whether the loan ls ultimately accepted on different terms and/or for a different amount than originally agreed between us
c) The fact that the valuation obtained in respect to your security proves to be unsatisfactory to the lender or is for a lesser amount that [sic] the current valuation/estimate.
Under the heading "Confirmation", the letter relevantly states:
All parties to the agreement must initial any amendments.
You confirm that you will charge the security property to RBC as security for the payment of the fees and expenses payable under this letter and acknowledge that RBC may lodge a caveat on the title to the security property to note our Interest under this provision and be entitled to charge Interest at the rate of 1% per month.
At the end of the letter was a form of acceptance, which Mr Welsh signed on 18 July 2014 during a meeting he had with Mr Andrew-Smith.
Mr Welsh says in his second affidavit (he said nothing about it in his first) that before signing the Mandate, Mr Andrew-Smith made the following statements:
(a) equity from Chinese investors would be expensive and dangerous in that they would try to impose themselves over the Project and tamper with the process as it went through the whole five years;
(b) dealing with the Chinese investors would be administratively time consuming;
(c) GRL should not raise equity from Chinese investors;
(d) he felt strongly that GRL should obtain initial financing from Banner as a short-term measure;
(e) he was confident he could obtain funding on more favourable terms than those then being offered by the Chinese Consortium (being the potential Chinese investors with which GRL's discussions had proceeded the furthest at the time);
(f) within 2 years, he would obtain a better deal for GRL in that he would assist GRL in obtaining finance via a managed fund and/or via a new loan from a bank or higher tier lender on more attractive terms than the initial project loan and that GRL would thereby make more profit on the Project than if GRL were instead to fund the Project using equity from Chinese investors;
(g) he would build an algorithm to work out when the initial project loan (being the OCP Loan) could be refinanced on more attractive terms to GRL than the initial project loan that became the OCP Loan; and
(h) that he could assist GRL by raising debt and equity that GRL could use to acquire and develop other development projects, including Part B and Part C.
Mr Welsh says that he relied on this advice when he signed the Mandate and that he signed the Mandate reluctantly because of the time and money he had spent in establishing relationships in China.
Attached to the Mandate was also an indemnity and guarantee signed by Mr Welsh in which Mr Welsh agreed personally to guarantee "payment of all fees, charges and disbursements payable to Robert Bruce Capital Pty Limited, by the company in accordance with the Agreement".
During the period from July to October 2014 negotiations with Banner continued and a number of draft term sheets were circulated which contemplated a loan of up to $112,000,000 from "One or more Funds managed by OCP".
Mr Andrew‑Smith says that in mid to late July 2014, it became apparent to him that Banner was willing to arrange more funding than he had originally anticipated. As a result, he thought that the fee he had negotiated was too low. He proposed to Mr Welsh that in addition to the fees set out in the Mandate he be paid a further fee equal to 0.5 percent of the facility, which would be funded through the facility. A number of the drafts of the term sheet reflected that proposal. So, for example, a draft circulated by Banner on 31 July 2014 contained the following clause under the heading "Fees Payable by the Borrower":
7. The Borrower will also pay the introducing broker an Origination Fee being 0.5% (plus GST) of the total Facility Amount, payable from the progressive drawdowns during the Facility Term
A revised draft which was sent by Banner to Mr Andrew-Smith on 18 August 2014 and which Mr Andrew-Smith copied to Mr Welsh on the same day contained an identical term.
A final version of the term sheet for the OCB loan was signed on 24 October 2014. The lender was stated to be "One or more Funds managed by OCP". The borrower was GRL and the "Asset Manager" Banner. Clause 7 of the draft term sheet was replaced by cl 3 in the final version, which provided for the following fee to be paid:
3 Origination Fee of 0.5% (plus GST) of the total Facility Amount - payable to the Asset Manager for onward payment to the introducing broker as described below from the proceeds drawn down under the Facility
On 30 October 2014, Mr Andrew-Smith sent an email to Mr Welsh which relevantly said:
As discussed on Tuesday afternoon please find reconciliation on fees and repayment schedule and profit share agreement for portions "B & C".
Given payment of $11K on 1/11/14 the total payments to date will be $55K against the outstanding $150K, leaving a balance of $95K in relation to the facility drawn for settlement of the Spring Lakes land/ site.
Once the new facility from Banner Asset Management settles the fee of $650K, as per the Mandate, will be due and payable. However as we have discussed, I'm prepared to accept payments of $25K per month (or such other amount as agreed) to assist the project.
As you're aware, in regard to portions B & C, Banner Asset have confirmed their appetite to provide equity & debt funding on the basis Welsh Developments receive a management fee and 30% profit share. As agreed, my nominee will be entitled to 5% leaving 25% to your nominee.
Mr Andrew-Smith says that some time after sending that email, likely in early November 2014, he met with Mr Welsh. During that meeting, Mr Welsh said to him "Rob, I want you to come on as a consultant and I will pay you 1% of the GP". Mr Andrew-Smith replied "let me think about it but I would have thought, 1% of the GP per annum would be more appropriate". Mr Welsh says that he has no recollection of that conversation.
Mr Andrew-Smith also says that in the meantime he was advised by his accountant to restructure his businesses. As a result of that advice, he decided that MCF could receive the fees payable by GRL in respect of the Project. He says he mentioned the restructure to Mr Welsh during one of their conversations at that time and that he recalls Mr Welsh saying "mate, as if I care".
On 13 November 2014, Mr Andrew-Smith sent Mr Welsh an email which relevantly said:
I refer to ongoing discussions regarding your request for MCF to provide my services to be retained by Goldfields Run Pty Ltd to provide assistance during the next few years with the development of "Part A" - "Cottrell Park", Victoria.
This email will serve to confirm my acceptance and acknowledge how excited I am to be involved with the development.
As we've discussed and agreed, it makes good commercial sense for the arrangement to be based on an annual fee of 1% per year of the pre-tax profit from "Part A". Clearly, profit/ funds will not be available until the mortgagee is discharged. We will review the situation annually and if in agreement will continue the arrangement until completion of the project.
Please send me an email confirming your agreement to the above and email below and I'll prepare a plain English doc for us to execute.
On 27 December 2014, Mr Andrew-Smith and Mr Welsh signed a document headed "Agreement" dealing with fees payable to MCF (the MCF Agreement). The agreement was expressed to be between "Goldfields Run Pty Limited" and "Robert Andrew Smith trading as Mezzanine & Commercial Funding". Clause 1 of the agreement was in the following terms:
1 Covenants
1.1 The Company was/is indebted to MCF in the sum of $150,000.00 for services rendered for arranging finance for "Part A Thornhill Park" and the balance remaining unpaid as at the date hereof is $95,000.00. The parties acknowledge that the balance remaining unpaid will be repaid in accordance with this agreement and can be varied from time to time between the parties.
1.2 The Company acknowledges the MCF has arranged a finance facility and once the finance facility is settled, the Company will be indebted to MCF in the sum of $650,000.00. MCF has agreed to accept monthly instalments for approximately 36 months of $25,000.00 from the Company beginning on the day of such settlement and monthly thereafter until the sum of $650,000.00 and $95,000.00 is repaid in full, unless otherwise agreed between the parties from time to time.
In addition to arranging the finance facility outlined in 1.1 above, the Company has requested MCF to provide consultancy services as the development of Part A- Thornhill Park proceeds. The parties have agreed that the Company will pay MCF an annual fee of 1% of the pre-tax profit from the development of Part A - Thornhill Park for such services and such arrangements will be reviewed annually and will continue until the development is completed.
The parties agree that if the funder arranged by MCF or its related company proceeds to provide an equity and debt facility for the development of Parts B & C - Thornhill Park and that the funder has agreed to pay to the Company an amount of 30% of the profits (which are not yet determined but will be agreed using acceptable practices in property development industry) resulting from the development of Parts B & C - Thornhill Park, will be spilt in the following proportions:
(a) 25% to the Company or a nominee; and
(b) 5% to MCF or its nominee.
Clause 3.1 is in the following terms:
Paramountcy of document
If this document conflicts with any other document, agreement or arrangement, this document prevails to the extent of the inconsistency.
Mr Welsh's signature was witnessed by Mr Christian. Mr Andrew-Smith's signature was witnessed by Ms Noula Louskos (Mr Andrew-Smith's partner). Mr Andrew-Smith accepts that neither witness signed the agreement at the time he and Mr Welsh signed it. Rather, according to him, they signed the agreement on 30 December 2014 when all of them were present at the WestWaters Hotel in Caroline Springs, Victoria.
Mr Welsh gave evidence that he does not recall signing the document. However, there is no suggestion that the signature on the document is not his. In my opinion, nothing turns on the fact that the witnesses did not actually sign the document at the same time as the signatories. The document was binding as an agreement whether or not it was witnessed. Moreover, the document was signed by the witnesses in the presence of the signatories and presumably at the signatories' request. By making that request, the signatories were affirming that the signatures were theirs.
On 31 December 2014, GRL entered into a loan agreement with OL Master (Singapore) Pte Limited for an amount of up to $104,000,000 (the OCP Agreement). Clause 5.3 of the agreement is in the following terms:
Other Fees
The Borrower shall pay to the Lender and the Asset Manager the fees in the amounts and at the times agreed in the Fee Letter between the Borrower, the Lender and the Asset Manager.
On the same day, OL Master (Singapore) Pte Limited (by its investment manager OCP Asia (Singapore) Pte Limited), Banner and GRL signed a fee letter (the Fee Letter). Paragraph 6 of the Fee Letter is in the following terms:
Fees
The Borrower shall pay the following fees to the Asset Manager:
(a) an establishment fee in an amount equal to 1.50% of the Commitment (less A$50,000 which has already been paid by the Borrower to the Asset Manager);
(b) an origination fee in an amount equal to 0.50% of the Commitment. Such fee will be payable by the Borrower to the Asset Manager and then on-paid by the Asset Manager to the introducing broker.
The fees payable under paragraphs (a) and (b) above will be paid as to A$854,000 on the first Drawdown Date with the balance to be paid after payment by the Borrower of all amounts due to the Lender under the Loan Agreement. The Borrower's obligation to pay the fees under paragraph 4 and sub-paragraphs (a) and (b) above of this paragraph 6 will not be affected by any termination of the Asset Management Agreement.
An initial drawdown on the facility of $17,000,000 was made on 20 January 2015 to pay out the PAG loan. The following day, MCF issued an invoice for $205,920 to Banner, which was 36 percent of the total originator fees owed to it by Banner. That invoice was paid on 3 February 2015.
On 17 April 2015, RAS lodged a caveat over the property owned by GRL.
On 12 February 2016, Mr Andrew-Smith sent an email to Mr Welsh attaching a copy of the MCF Agreement. The covering email relevantly said:
Please find attached Agreement as discussed.
The $745,000.00 due 1/1/15 has increased to $865,000.00 1/3/16 having applied 1% per month as per the Mandate.
I've spoken with Peter and arranged an appointment for 11.30am Wednesday 17th February at his offices, Level 7, 9, Hunter Street, Sydney NSW.
Happy to assist in removing the caveat from Thornhill Park onto your house.
Pease [sic] give some thought to making a lump sum payment from the increased facility amount from OCP, say $400K with the balance secured by caveat over the house. We can leave the agreed monthly payment of $25K in place to reduce/ payout the remaining balance.
On 17 February 2016, Mr Andrew-Smith and Mr Welsh met at Diamond Conway Lawyers' offices to discuss that email. Mr Andrew-Smith says that Mr Welsh said at the meeting he would investigate the matter and review the documents. According to Mr Welsh, he did not understand Mr Andrew-Smith's claim that he was owed money. According to him, GRL had been paying Mr Andrew-Smith consulting fees for arranging to refinance the OCP loan. I have already rejected the suggestion that the payments were made or were owing for that purpose.
From 28 June 2016, GRL commenced making monthly payments of $25,000 into Diamond Conway's trust account using the reference "Robert Bruce Capital On A/C settlement monies". There can be no doubt that those payments were made to discharge GRL's liability under the MCF Agreement. In all, GRL made 34 such payments, the last of which was made on 29 March 2019.
It appears that on 23 May 2017, Mr Andrew-Smith spoke to Mr Tom Watson at Banner about the payment of the balance of the fee payable under the Fee Letter. Following that conversation, there was an exchange of emails between them dealing with the question whether the payments of $25,000 per month were intended to discharge that liability as well as GRL's liability to Mr Andrew-Smith. It is not entirely clear how that matter was resolved between them. Mr Andrew-Smith raised the issue again in October 2017. In response to that query, Mr Watson sent the following email:
Hi Rob,
Good to talk last week.
I dug out the below email correspondence that we had when we considered the THP fee position earlier this year. I note that you have been considering the $25k/month payments as part payments of one of your 2 mandates with GRL. However, as discussed on the phone, in order for the $25k/month payments to be justified by the funder as a project cost they have been considered as part payments of the outstanding brokerage fee that you are owed.
To date, you have received as follows:
Total R Bruce Fee: $520,000 (0.5% of $104m) + GST = $572,000
Feb 2015: R Bruce Initial Payment made: 36% Upon Settlement (being $187,200 + $18,720 GST = $205,920)
The remaining amount owing is 64% of the fee being $332,800 (plus $33,280 GST) = $366,080
2017 RBC Invoices received and payments made:
March: $225k paid (being 9 months of $25k fees)
April: $25k
May: $25k
June: $25k
July: $25k
Aug: $25k
Sept: $16,080 (to be paid at end Oct)
So, the final amount of the Brokerage fee will be paid at the end of this month (Oct) as per the Tax Invoice (109) received by Goldfields for $16,080.
It seems that the invoicing above is also consistent with the understanding that the $25/month [sic] payments to date (with the balancing $16,080 payment in Sept) were part payments of the remaining 64% brokerage fee.
Of course, I am aware of the 2 other mandates and associated fees agreed between yourself and Goldfields as per our discussion. I think that is something that you are best placed to take up with Goldfields separately now that the initial $520k brokerage fee has been addressed and invoiced in full.
GRL continued to make payments of $25,000 each month or thereabouts. On occasions, Mr Andrew-Smith sent Mr Welsh an email seeking payment and stating the amount still said to be owing, which included interest. It is unclear how the amounts claimed by Mr Andrew-Smith were calculated. They are substantially more than the amount owing under the MCF Agreement, even with interest. On 28 May 2019, Mr Luke Heathcote, who worked for Mr Welsh, sent an email to Mr Andrew-Smith saying "Just finished with Graham and we have been over your notes and our documentation. We believe our initial reconciliation of monies owed from GRL to you/nominee are extinguished by the final payment of ~$12k for May'19 (being 36 x $25k)." After further correspondence between Mr Andrew-Smith and Mr Welsh, largely through emails and text messages, the plaintiffs commenced these proceedings. Where the figures referred to by Mr Heathcote came from is unclear.
For reasons which are not explained in the evidence, the Project was not successful and GRL sold the Land.
[3]
Alternative characterisation of events
I have already rejected the defendants' claim that the amounts paid to the plaintiffs were payments in advance for a loan that was never made. Nothing more needs to be said about this aspect of the case.
[4]
The claim based on alleged misleading and deceptive conduct
The claim based on misleading and deceptive conduct must fail. Unusually, the claim depends in part on evidence first given by the alleged representor - that is, Mr Andrew-Smith's evidence of his conversation with Mr Welsh in mid-June 2014 in which he (Mr Andrew-Smith) said that equity was probably the most expensive money and that he could probably get a better deal than the one Mr Welsh had suggested he could obtain in China. However, the claim depends largely on the statements Mr Andrew-Smith is alleged to have made to Mr Welsh shortly before Mr Welsh signed the Mandate in July 2014. I am not satisfied statements to that effect were made to Mr Welsh. It seems clear that Mr Welsh was attempting to raise financing in China, and I accept that it was likely that Mr Andrew-Smith told Mr Welsh that he thought he could arrange financing on better terms. However, I do not accept that Mr Andrew-Smith made the detailed statements Mr Welsh said he did. Those statements were alleged to have been made in July 2014. The first time that Mr Welsh referred to them was in an affidavit affirmed on 15 March 2022. As I have said, that was the second affidavit affirmed by Mr Welsh in these proceedings. The first, affirmed on 30 August 2021, made no mention of the conversation. Mr Andrew-Smith had been pressing Mr Welsh for payment over an extended period of time. If Mr Welsh had thought that he had been misled, it is not plausible that he would have said nothing about it over a period of almost eight years and even after the plaintiffs had commenced proceedings and Mr Andrew-Smith had served his first affidavit in support of the plaintiffs' claim. It is also not plausible if Mr Welsh had thought he had been misled that he would have signed the MCF Agreement and would have arranged some time later for GRL to pay $25,000 a month in respect of the fees claimed by the plaintiffs.
A number of the alleged representations are statements of opinion by Mr Andrew-Smith about the relative merits of the funding Mr Andrew-Smith thought that he could arrange (through Banner) compared with the funding Mr Andrew-Smith thought that Mr Welsh may be able to raise in China. Those representations would only be misleading if either Mr Andrew-Smith did not believe them to be true or, possibly, if he did not have reasonable grounds for making them: see Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [33] per French CJ; Ireland v WG Riverview Pty Ltd (2019) 101 NSWLR 658; [2019] NSWCA 307 at [34] per Bell ACJ; Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88 per curiam; cf Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; [2012] HCA 39 at [102]-[103] per Heydon J. No attempt is made by the defendants to explain why those statements were misleading or deceptive in that sense.
Some of the representations concern the terms on which a facility to replace the original project loan (to be arranged through Banner) could be arranged. I accept that those representations, if made, were representations concerning the future, with the result that the plaintiffs bore an evidential onus of establishing that they had reasonable grounds for making the representations: see ACL s 4; ASIC Act s 12BB. However, it seems self-evident that if the Land was rezoned residential and the Project was going well, as both parties anticipated, then it would have been easier to raise more favourable financing. That appears to be the effect of what Mr Andrew-Smith is alleged to have said.
The defendants allege that they relied on the representations by paying the plaintiffs $905,000 and not seeking to progress negotiations with the "Chinese Consortium". Neither contention can be accepted. GRL commenced making payments of $11,000 per month shortly after the representations were alleged to have been made. Those payments ceased in December 2014. It seems plain that those payments were made in respect of the original loan from PAG. It is very difficult to see how those payments could be said to have been made in reliance on the representations.
GRL did not start paying the balance of the $905,000 until June 2016, approximately two years after the representations were alleged to have been made and after the parties had entered into the MCF Agreement. It is difficult to see how those payments were made relying on the representations.
The defendants' (unpleaded) case seems to be that Mr Welsh would not have entered into the Mandate if the representations had not been made. But if that is the defendants' case, I do not accept it. There is no evidence that the defendants had a realistic prospect of reaching an agreement with what is described in the cross-claim as a "Chinese Consortium" on acceptable terms. There is no evidence concerning the consortium or what terms it would have offered that were superior to those arranged through Banner. It was important for the defendants to secure financing to pay out the PAG loan. In the absence of any evidence that entry into an agreement with a Chinese consortium was a realistic possibility, it is not plausible that Mr Welsh would have refused to sign the Mandate if the representations had not been made and risked the possibility that GRL would not secure financing in time to pay out the PAG loan.
For similar reasons, it is not plausible that the defendants lost the opportunity to enter into a better deal with a Chinese consortium. The evidence is inadequate to establish the existence of any such opportunity.
[5]
The agreements
Leaving aside the cross-claim based on the allegation that the plaintiffs gave financial product advice, the remaining issues between the parties concern the correct construction of the agreements under which fees were payable to the plaintiffs. The plaintiffs appear to rely on (1) an oral agreement said to have been made in March 2014 by which GRL agreed to pay RAS $137,000 plus GST in instalments of $11,000 each (the PAG Fee Agreement); (2) the Mandate and accompanying guarantee; (3) an oral agreement said to have been reached in about November 2014 by which the PAG Fee Agreement and Mandate were novated to MCF (although this agreement is not pleaded); (4) the MCF Agreement; and (5) the OCP Agreement and Fee Letter (although the plaintiffs are not a party to them).
In final oral submissions, Ms Daniels, who appeared for the plaintiffs, properly conceded that the starting point must be the MCF Agreement. That agreement was plainly designed to bring the various arrangements that had been reached in relation to the plaintiffs' fees together and to set out comprehensively what fees were owing and how they were to be paid. The agreement specifically states that "If this document conflicts with any other document, agreement or arrangement, this document prevails to the extent of the inconsistency".
Although the MCF Agreement proceeds on the assumption that the amount owed under the PAG Fee Agreement was payable to MCF (that is, Mr Andrew-Smith), the conversation between Mr Andrew-Smith and Mr Welsh in November 2014 cannot itself amount to a novation of the Mandate from RAS to MCF. The highest the evidence goes is that Mr Andrew-Smith told Mr Welsh about a restructure of his (Mr Andrew-Smith's) business and Mr Welsh replied that he did not care. The language is not the language of a formal variation of contract. The words used do no more than indicate that Mr Andrew-Smith told Mr Welsh that going forward he would be providing services directly rather than through RAS and that Mr Welsh replied that it did not matter to him. The Mandate itself provided that "All parties to the agreement must initial any amendments", which indicates that the parties expected any variation to be in writing. On the other hand, the parties must have intended that the MCF Agreement would replace the Mandate and that, as a result, the fees previously payable under the Mandate to RAS would become payable to Mr Andrew-Smith personally under the MCF Agreement.
The MCF Agreement says nothing about interest. The plaintiffs submit that interest was still payable under the Mandate. Alternatively, they submit that it was an implied term of the MCF Agreement that GRL would pay interest. Both arguments must be rejected.
The MCF Agreement specifically states that "The Company acknowledges the MCF has arranged a finance facility and once the finance facility is settled, the Company will be indebted to MCF in the sum of $650,000.00". It does not state that GRL will be indebted to MCF in the sum of $650,000 plus interest. Interest was not payable under the Mandate. Rather, the Mandate stated that RAS was "entitled to charge interest at the rate of 1% per month". The only reasonable conclusion that can be reached is that as part of the agreement embodied in the MCF Agreement, RAS gave up its entitlement to charge interest (as well as its right to receive any part of the fees payable under the Mandate) and instead MCF (that is, Mr Andrew-Smith personally) became entitled to receive the $95,000 and $650,000 payable in instalments of $25,000 per month. The obligation to make the payments of $25,000 a month was expressed to come to an end once the $95,000 and $650,000 were paid in full, not once those amounts and interest were paid in full. At the same time, MCF obtained a right to be paid substantial additional fees, which may well explain why RAS was willing to give up its entitlement to claim interest.
The defendants submit that the MCF Agreement contemplates that there would be 36 instalments of $25,000, which is more than the $95,000 and $650,000. They submit that the explanation for that is that the parties contemplated that GRL would also pay interest. I do not accept that submission. The MCF Agreement does not refer to 36 monthly instalments. Rather, it refers to instalments of $25,000 payable over "approximately 36 months", with the result that a precise number of instalments is not specified. On the other hand, the agreement specifically contemplates that GRL would cease paying monthly instalments once the $95,000 and $650,000 had been paid.
There is no basis for implying a term in the MCF Agreement that GRL would pay interest. Such an implied term plainly does not satisfy the requirements stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; [1977] UKPCHCA 1 at 283 per Lord Simon for the Board. It is not necessary to give business efficacy to the contract. Nor is it so obvious that it goes without saying. Nor is the term capable of clear expression, since it is unclear at what rate interest would be payable in accordance with the implied term.
The plaintiffs also submit that the Court in the exercise of its discretion should award interest under s 100 of the Civil Procedure Act 2005 (NSW), which gives the Court power to award pre-judgment interest from the date the cause of action accrued. However, in circumstances where the MCF Agreement does not provide for interest and the full amount of the principal payable in accordance with that agreement had been paid before proceedings were commenced, there is no reason to award interest in this case.
The plaintiffs contend that the defendants are liable to pay the balance of the amount due to the plaintiffs under the OCP Agreement and Fee Letter. Indeed, their primary submission is that the full amount due to them under those documents has been paid through the payment of the $25,000 per month, with the result that GRL has not paid the whole of the $650,000. How that could be so is not satisfactorily explained. The submission appears to rely on the draft term sheets, which contemplated that GRL would pay the 0.5 percent fee, and correspondence in which Mr Watson (from Banner) asserted that the balance of the amount payable under the Fee Letter had been paid through the payments of the $25,000 per month. However, the draft term sheets were superseded by the Fee Letter and Banner could not alter the character of the payments that GRL made to the plaintiffs. The MCF Agreement clearly stated that the payments of $25,000 per month were made to discharge GRL's outstanding liability to pay $95,000 and to pay its liability of $650,000. It says nothing about the payment of an additional 0.5 percent on the total amount of the loan. The parties understandably thought that that was governed by the OCP Agreement and Fee Letter.
The plaintiffs are not parties to the OCP Agreement and Fee Letter and there may be a question whether they are entitled to enforce the payment due under it themselves. However, two things are clear. First, there is no evidence that GRL ever agreed that it would discharge Banner's liability under the OCP Agreement and Fee Letter by making payments of $25,000 per month. Such an agreement is inconsistent with the terms of the MCF Agreement, which make it plain that the payments of $25,000 per month were made to discharge the two liabilities referred to in that agreement. Second, there is no evidence that GRL ever agreed to pay the amounts due under the Fee Letter to the plaintiffs directly. The fact that it was contemplated by the draft term sheets that GRL would pay the additional fee directly is irrelevant. The draft term sheets were superseded by the OCP Agreement and Fee Letter. The arrangements that were put in place appear to reflect the original idea that the additional 0.5 percent would come out of the project loan and not out of GRL's own pocket.
The plaintiffs submit that they were not told of the replacement of cl 7 of the draft term sheets, which provided that GRL would pay "the introducing broker" (that is, Mr Andrew-Smith) the 0.5 percent of the total facility amount, with cl 5.3 of the OCP Agreement and the Fee Letter, which provided that the actual payment was to be made by Banner. They submit that, as a result, GRL is estopped from asserting that it is not bound to make the payment. I do not accept that submission. It is apparent that Mr Andrew-Smith was aware of the change, since shortly after the OCP Agreement was signed he submitted an invoice to Banner for his share of that part of the fees that were then payable. Moreover, it is not plausible that Mr Andrew-Smith acted to his detriment as a consequence of any representation arising from cl 7 of the term sheet and the subsequent change. The plaintiffs submit that they would not have continued to arrange the financing if they had known the true position. However, that seems unlikely. It was always intended that the plaintiffs would be paid the additional 0.5 percent from the facility. It is not plausible that it would have made a difference to them to know that it was intended that the actual payment would be made by Banner. The fact that MCF submitted an invoice to Banner without complaint supports that view. It is unclear why the payment of the balance of the fee was overlooked. But the fact that it was does not alter the position that it was to be paid from the project loan and by Banner and all parties appeared to be content with that arrangement at the time it was made.
One other point should be made about the agreements on which the plaintiffs rely. The plaintiffs sue Mr Welsh personally relying on the guarantee and indemnity contained in the Mandate. It is the plaintiffs' case that at some stage the agreements on which it relies were novated to Mr Andrew-Smith personally. However, there is nothing in the guarantee and indemnity that suggests that it was given other than in respect of amounts payable to RAS: cf Nashco Pty Ltd v Yang [2022] NSWCA 137. Consequently, on any view Mr Welsh could have no liability for the amounts now claimed by the plaintiffs: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25 at 471-2 per Starke J and 479-80 per Dixon J; Orchiston v Schlaepfer [1924] NZLR 1170 at 1172-3 per Sim J; Nashco Pty Ltd v Yang [2022] NSWCA 137 at [3] per Brereton JA.
[6]
The defence based on financial product advice
Section 766A(1)(a) of the Corporations Act provides that a person provides a financial service if the person provides "financial product advice". "Financial product advice" is defined in s 766B(1) in the following terms:
(1) For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:
(a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
(b) could reasonably be regarded as being intended to have such an influence.
Section 924A(1) of the Corporations Act provides:
924A Agreements with certain unlicensed persons
(1) Subdivision B [which includes s 925A] applies to an agreement entered into by a person (in this section and Subdivision B called the non‑licensee) and another person (in this section and Subdivision B called the client) (not being a financial services licensee) that constitutes, or relates to, the provision of a financial service by the non‑licensee if:
(a) the agreement is entered into in the course of a financial services business carried on by the non‑licensee; and
(b) the non‑licensee does not hold an Australian financial services licence covering the provision of the financial service, and is not exempt from the requirement to hold such a licence.
Section 925A(1) provides that "the client may, whether before or after completion of the agreement, give to the non-licensee a written notice stating that the client wishes to rescind the agreement". The effect of the notice is to rescind the agreement: s 925B. There are various limitations on a right to give a notice under s 925A. It is common ground that Mr Andrew-Smith is not licensed.
The claim based on these provisions of the Corporations Act raises a number of issues. It is unnecessary to address each of them. It is clear that the claim cannot succeed unless Mr Andrew-Smith gave financial product advice to GRL. The defendants submit that the following statement by Mr Andrew-Smith was financial product advice:
Equity is probably the most expensive money. What if I said I can get $65 million at better terms than the Chinese? You might only have to give away 40% of the profit, not 50% of the profit?
In my opinion, that submission must be rejected. Although financial product advice need not be formal, it requires some encouragement or recommendation to invest or some opinion about the desirability of an investment. As Allsop CJ observed in Australian Securities and Investments Commission v Westpac Securities Administration Ltd (2019) 272 FCR 170; [2019] FCAFC 187 at [22]:
The question is whether, on its proper characterisation, the communication or exchange was a recommendation or statement of opinion given by someone to another for that other's consideration in connection with making the decision in s 766B(1). I would accept that in some circumstances what might otherwise be seen to be a recommendation might only meaningfully and rationally be described or characterised as part of mere puffery in an advertisement and could not meaningfully and rationally be described or characterised as advice. That conclusion is likely, however, to be reached by an examination of the applicability of the Chapter as a whole. The proper process is to examine the communication and exchange in its whole context to ascertain whether it is a recommendation or statement of opinion to the person.
Accepting that Mr Andrew-Smith said the words attributed to him, they are expressed at such a high level of generality about what is usually the case and what might be achieved that they could not be regarded as a recommendation that GRL engage in any particular course of action. They amount to no more than a statement that Mr Andrew-Smith thought that he could find a better deal for GRL than one in which GRL gave up half the profits for an investment of $65 million. What Mr Andrew-Smith said was not relevant to any actual decision that Mr Welsh was at the time considering taking. For those reasons, it could not amount to financial product advice and this aspect of the cross-claim must be rejected.
[7]
GRL's claim to money over-paid
By its cross-claim, GRL seeks to recover the full $905,000 on the basis that it was mistakenly paid. The relevant mistake is said to be the mistaken belief that the $905,000 was paid to obtain a loan to replace the OCP loan. I have already rejected the factual allegation that underpins that claim. Accordingly, nothing more needs to be said about it.
GRL does not advance a separate case that it should be entitled to recover part of the $905,000 on the basis that it has paid more than was due under the MCF Agreement. Such a claim would require investigation of the nature of the mistake and raise questions about whether the plaintiffs had any defence to such a claim. Consequently, nothing more needs to be said about a claim of that type.
[8]
Orders and costs
It is apparent from what I have said that the plaintiffs' claim must fail. They have been paid the full amount due to them under the MCF Agreement. They are not entitled to recover any amount due to them from the defendants under the Fee Letter. Accordingly, the summons must be dismissed.
It is also apparent from what I have said that the cross-claim must fail. Accordingly, that also must be dismissed.
The parties did not make submissions on costs. My initial view is that there should be no order for costs. It appears that there should be no order in the plaintiffs' favour since they were unsuccessful in their claim. It also appears that there should be no order in the defendants' favour. They were successful in resisting the plaintiffs' claim. However, they advanced a substantial cross-claim seeking to recover the money that they had paid. Substantial aspects of the cross-claim were unmeritorious. It also failed. Nonetheless, I should give the parties an opportunity to seek a different order for costs if they are minded to do so.
Accordingly, the orders of the Court are:
1. The summons be dismissed;
2. The cross-claim be dismissed;
3. Each party bear his or its own costs of the proceedings;
4. Liberty be granted to all parties to apply within 14 days of the date of this judgment to vary order (3).
[9]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 12 August 2022
Parties
Applicant/Plaintiff:
RAS Capital Investments Pty Ltd
Respondent/Defendant:
Goldfields Run Land Pty Ltd
Legislation Cited (5)
Australian Consumer Law Corporations Act 2001(Cth)