Ritchie v Woodward

The Ritchies and BP Woodward & Associates

1. Mrs Ritchie grew up and was educated in Sydney. After completing her Higher School Certificate, she attended a secretarial college and several other institutions to further her education. After working for a number of companies in the role of personal assistant or secretary, she commenced studying for the degree of Bachelor of Arts at the University of New South Wales while working for the Head of the School of Sociology in that university. She did not finish her degree. She subsequently took employment with Qantas Airways Limited (Qantas), where she flew as a flight attendant, trained other flight attendants and worked with management in writing training and protocol manuals for cabin crew and State Rail.
2. In her early working life, Mrs Ritchie's tax returns were attended to by her first husband. After her divorce, her parents' accountants, Coopers & Lybrand, provided her basic accounting needs, including the preparation and lodgement of tax returns. In 1986, a colleague of Mrs Ritchie at Qantas suggested that she use his accountant, Brian Woodward. Mrs Ritchie believed that Coopers & Lybrand were too large for her needs and wanted to work with a smaller firm with whom she could form a working relationship. She believed that she would be better off using a smaller firm, since she had only a small income and her financial affairs were not complicated. Accordingly, she retained Brian Woodward to provide accounting services to her. Subsequently, Tony Woodward became more involved in providing services to Mr and Mrs Ritchie, taking over from his father.
3. Mrs Ritchie met Mr Ritchie in 1989 and they were married in 1991. At the time, Mr Ritchie was employed as a member of the Water Police of the New South Wales Police Force. Mr Ritchie owned an apartment in Strathfield, although he lived with his parents. Mrs Ritchie resided in a house that she owned in Double Bay. She bought her house using her own funds, with assistance from her parents.
4. Mrs Ritchie's parents resided at Bellevue Hill, in what is now the site of Mrs Ritchie's current home. In 1993, Mrs Ritchie's mother died and Mrs Ritchie inherited from her a share portfolio and cash totalling some $2.6 million, together with ownership of the family home at Bellevue Hill, known as "Barona". Following her mother's death, BP Woodward & Associates continued to provide Mrs Ritchie with accounting services. Because of the size of the inheritance, the workload involved in Mrs Ritchie's accounting needs increased.
5. In 1995, Mrs Ritchie's father died. Under his will, Mrs Ritchie inherited a share portfolio having a value of approximately $9.5 million and cash deposits of approximately $2.5 million. Mrs Ritchie consulted Brian and Tony Woodward, who suggested that it would be better if the accountancy work of Mrs Ritchie's father's estate were transferred from Coopers & Lybrand to BP Woodward & Associates. That suggestion was adopted.
6. After Mrs Ritchie's father died, the paperwork involved in managing his share portfolio, as well as the shares that Mrs Ritchie had inherited from her mother, built up to such an extent that it was too difficult for both Mr Ritchie and Mrs Ritchie to manage the portfolio as well as to work and raise their children. Accordingly, in October 1996, Mr Ritchie resigned from the Police Force to concentrate on family, since Mrs Ritchie had returned to work. Mr Ritchie dealt with the paperwork and managed the share portfolio on their behalf. Mr Ritchie did much of that work with assistance from Brian Woodward and Tony Woodward and became the main point of contact between the Ritchies, on the one hand, and BP Woodward & Associates, on the other. Mr and Mrs Ritchie met regularly with Tony Woodward at his office to discuss their taxation requirements, business arrangements and family planning issues. Such meetings occurred several times during each year and invariably coincided with times when Mr or Mrs Ritchie had to sign documents in connection with tax or accounting matters.
7. After the affairs of Mrs Ritchie's parents had been transferred to BP Woodward & Associates, she and Mr Ritchie received numerous letters about accounting and corporate matters. The letters included recommendations that a planning review of their family business should take place and that a meeting should be organised in the offices of BP Woodward & Associates. Mr and Mrs Ritchie also began to receive letters and telephone calls from Tony Woodward about investing in projects in which he and his father had also invested.
8. At that time, Mr Ritchie was managing the day-to-day details and data entry for the share portfolio, as required by Tony and Brian Woodward, and he received most of the relevant communications from them. Mr Ritchie had the majority of conversations on behalf of Mrs Ritchie and himself and spoke with Mrs Ritchie separately about the decisions that he had made or which had to be made. Sometimes Mrs Ritchie was involved when she attended meetings at BP Woodward & Associates but usually Mr Ritchie made decisions on their behalf and communicated his decisions to BP Woodward & Associates.
9. In late 1995, each of Mr and Mrs Ritchie granted power of attorney in favour of Brian Woodward and Tony Woodward. Tony Woodward made all the arrangements for the preparation of execution of the relevant documents and their lodgement for registration.

The First Investments

1. As part of her flying schedule with Qantas, Mrs Ritchie often stopped in Cairns. A work colleague of Mrs Ritchie owned an investment apartment at Clifton Beach, north of Cairns, where she and Mr Ritchie stayed from time to time. In 1993, Mr and Mrs Ritchie had a meeting with Brian Woodward when they discussed buying an apartment like the one at Clifton Beach. Shortly after that discussion, Brian Woodward arranged for the incorporation of Barona, under the name Clifton Ventures Pty Limited. Brian Woodward advised that Barona could be used as the vehicle to manage their investments. Barona purchased an apartment at the Coral Sands Resort near Clifton Beach in October 1993. A year or two later, Barona purchased two more apartments at Clifton Beach.
2. Mr Ritchie gave evidence that Tony Woodward subsequently recommended that they invest in Microcatheters Pty Limited (Microcatheters), a medical device development company, and that Tony Woodward said that other clients of BP Woodward & Associates were undertaking similar investments. Mr Ritchie said that they followed Tony Woodward's recommendations and Tony Woodward made arrangements for the preparation, execution and stamping of the documents establishing the Microcatheters Unit Trust. A unit certificate was issued in June 1995 for the units that Barona acquired in the Microcatheters Unit Trust. Mr Ritchie was a trustee of the Microcatheters Unit Trust with Tony Woodward.
3. Mr Ritchie said that the trustees of the Microcatheters Unit Trust had occasional meetings and discussed things that were going on with the business. He said that, at that time, he was not familiar with which documents comprised financial reports and that, during the period of their involvement with Microcatheters, the trustees only discussed the day-to-day affairs of the business. Mr Ritchie does not remember Tony Woodward ever circulating reports as to the financial affairs of the Microcatheters Unit Trust. At the meetings there was only brief comment as to the progress of the development and how Tony Woodward was working with the doctor who invented the device being developed, in order to identify a major medical company that might be interested in manufacturing the device. Eventually, it became apparent that the investment was unsuccessful.
4. In August 1995, Brian Woodward showed Mr and Mrs Ritchie a cutting from The Financial Review newspaper of 11 August 1995, which was seeking expressions of interest in a joint venture project for the development of a group of townhouses in Burwood called the "Cheltenham Road Trust". Brian Woodward or Tony Woodward recommended that Mr and Mrs Ritchie invest in the joint venture project. The Ritchies followed the recommendation, partially because Brian Woodward and some of his clients were financially involved in the project. Brian Woodward or Tony Woodward made arrangements for the preparation, execution and stamping of the documents establishing the Cheltenham Road Trust. Neither Brian Woodward nor Tony Woodward advised Mr and Mrs Ritchie to seek independent legal or accounting advice in relation to the proposed investments. However, Mrs Ritchie gave evidence that the Ritchies "probably" paid lawyers, who were also investing in the project, to "do work in relation to, for example, the agreement in relation to under which [they] were going to invest" because the Ritchies wanted the lawyers' professional assistance in looking at the investment agreement. The Ritchies invested $400,000 in the project.
5. In 1997, Tony Woodward recommended that Mr and Mrs Ritchie form their own superannuation fund, and Tony Woodward made all the arrangements for the documents necessary to establish the Clifton Ventures Superannuation Fund for them. He did not recommend that they obtain independent legal or accounting advice. Once the superannuation fund had been established, Tony Woodward gave Mr Ritchie instructions on what to do and assisted him with the day to day workings of the superannuation fund. From about July 2002, Ms Bolton, then an employee of BP Woodward & Associates, attended to the work of the superannuation fund on behalf of Mr and Mrs Ritchie.
6. On occasions when Mr and Mrs Ritchie met Brian Woodward, he spoke to them about real estate. In 1997, they bought an investment apartment in Kirribilli as well as apartments in Point Piper and Woollahra. Brian Woodward bid at auction for the Woollahra apartment and arranged for all of the conveyancing for the purchase of the apartments.
7. Mrs Ritchie resigned from Qantas in February 1999 in order to raise their two children with Mr Ritchie. Thereafter, she assisted Mr Ritchie in the management of the share portfolio that she had inherited from her parents.

The Margin Loan Facility

1. According to the evidence of Mrs Ritchie, in 1999, at one of the regular meetings between Brian Woodward and Tony Woodward, on the one hand, and Mr and Mrs Ritchie, on the other, discussion took place concerning the establishment of a margin loan facility. Mr Ritchie's evidence was that they took out the margin lending facility at the suggestion of Tony Woodward, who said that the share portfolio had considerable value. He asserted that Mr Woodward told them that it would be an appropriate time to utilise the facility to borrow money to buy quality "blue chip" shares.
2. Mr Ritchie asserted that they were not provided with any information about the risks involved with margin loan facilities, such as what might happen if the share market dropped and the value of shares decreased or if a margin call was made. He said that he was unsure about the idea of a margin loan as he did not understand the concept. However, Mrs Ritchie accepted that Mr Jeff Travers, the stockbroker of the Ritchies, "may well have" explained what was involved in a margin loan but said that she did not understand what was being said to her. Nevertheless, Mrs Ritchie accepted that the margin loan was explained to her and that she understood it to a "certain extent" but said that she had to trust Tony Woodward, who was giving her the information.
3. Mr Ritchie said that, when Tony Woodward suggested a margin lending facility, he said that he would have to speak to Mr Travers. Mr and Mrs Ritchie subsequently attended a meeting with Mr Travers, and Tony Woodward, at Tony Woodward's office, at which the question of whether or not to establish a margin loan facility was discussed. Mr Ritchie accepted that Mr Travers spoke about the risks involved and what was associated with it. He said that, if the securities that the Ritchies held went down in value sufficiently to get them below the lending ratio, the bank would call for either more security or a reduction in the loan. Mr Ritchie understood that he had to watch what the value of the portfolio was compared to with the leveraging, or lending, ratio. He said that he looked to see what the call margin figure was. Mr Ritchie understood that when he bought securities using the margin loan account, those securities themselves formed part of the security and the value of the security.
4. After discussions and meetings with Tony Woodward about establishing such a facility, Mr and Mrs Ritchie decided to proceed with the idea. Tony Woodward negotiated a margin loan facility with Challenger Limited (Challenger) and took carriage of the work to establish the facility. He produced bundles of documents for Mr and Mrs Ritchie to sign but did not suggest that they get legal advice about the documents and did not explain what the documents were. The Challenger margin loan facility was for $10 million.
5. The Ritchies then put in place a margin loan that would allow restoration of $6 million worth of shares plus another $4 million worth of shares trading on the margin account. Mrs Ritchie knew that, once the margin loan was put in place, $10 million worth of shares would be bought to replace the $6 million of shares that were sold to provide money for the new house, with another $4 million on top. Mr and Mrs Ritchie and Mr Travers sat down and worked out what shares should be bought to constitute the enhanced portfolio. Mrs Ritchie accepted that it was serious business that she and Mr Ritchie and Mr Travers attended to over the next few months, to spend $10 million in acquiring shares.
6. When the facility was in place, Mr Ritchie recorded the investment transactions on their home computer, using the then-current version of a cashbook accounting program. Mr Ritchie had no training in that form of work and taught himself about the program. Mr Ritchie asked Tony Woodward and Brian Woodward to make sure that they were recording their investments properly as they were still picking up what was needed to be done for tax purposes.
7. Mr Ritchie formed a set of investment accounts under the name "Diana Original Share Account" and another under the name "Diana Margin Loan Share Account". He said that he set up the accounts in that way with guidance from Brian Woodward and Tony Woodward so that he was able to keep a watch on the original portfolio of shares that Mrs Ritchie inherited to make sure that there was appropriate growth. He was also able to watch the growth of the shares that were purchased using the margin loan facility to ensure that it was a worthwhile investment strategy and that it was not going to impact negatively on their existing investments. Each transaction was recorded under the account from which the funds came, so that Mr and Mrs Ritchie could see whether the investments in the margin loan facility were profitable. They wanted to be sure that the decision to take up the facility would work and not result in the loss of any of the inheritance that Mrs Ritchie received from her parents.
8. With the increase in work, Mr Ritchie needed to continue having someone to assist him. Many hours were involved in carrying out the data entry work generated by their share trading business. From early 1997 through to August 2009, Tony Woodward arranged a variety of people, through BP Woodward & Associates, to assist Mr Ritchie with the data entry activities in their business. All the information entered by Mr Ritchie was forwarded by the data entry staff to BP Woodward & Associates for the quarterly and end-of-year tax returns. Because Mr and Mrs Ritchie wanted to maintain their financial privacy, they did not seek help outside BP Woodward & Associates. They considered that the arrangements with BP Woodward & Associates made sense, as the staff who assisted Mr Ritchie had been recommended by Tony Woodward and were people whom he said he knew and trusted.
9. The margin loan facility with Challenger remained in place until 2003, when it was due to expire. Tony Woodward helped Mr Ritchie negotiate another margin loan facility for $10 million with the Commonwealth Bank of Australia (Commonwealth Bank), with a loan-to-security ratio of 34 per cent. Mr and Mrs Ritchie discussed the proposed new facility and, after consulting with other people, such as Jeff Travers, and using their own powers of observation, came "to an opinion" to enter into the facility. The new facility was arranged in the name of Clifton Ventures, with personal guarantees from Mr and Mrs Ritchie. In 2005, the new facility was transferred into Mrs Ritchie's name.
10. Towards the end of 2005, Tony Woodward arranged for the limit of the Commonwealth Bank Margin Loan Facility to be increased to $16 million, with a fixed interest rate of 6.8 per cent for 3 years. Following the increase, the margin loan facility comprised a variable rate loan account and a fixed rate loan account. The fixed rate loan account comprised three advances of $10 million, $3.5 million and $2.85 million.
11. Mr Ritchie asserted that Tony Woodward did not discuss any risks involved with the margin loan facility or its extension, such as the consequences if the share market dropped in value so that there was insufficient security for the loan. Mr Ritchie said that they trusted that Tony Woodward knew what he was doing and that he would not jeopardise their investments. He said that, if he had known the risks, including that if the shares lost enough value then the bank could enforce their security over them, they would not have agreed to extend the margin loan facility. For reasons outlined below, I do not accept that assertion.

The Bellevue Hill Home

1. From about 1997 to November 2002, Mr and Mrs Ritchie engaged in the building of a new home on the site of Mrs Ritchie's old family home in Bellevue Hill. In 1999, they were considering whether to borrow against their real estate holdings in order to fund the building of the new home, which was anticipated to cost about $5 or $6 million. One of the other possibilities was to sell shares from the share portfolio to fund the building of the house. They considered whether they should simply undertake a conventional borrowing against real estate, as a housing loan, or whether they should use commercial lending in respect of the acquisition of shares to replace shares sold out of the portfolio to fund the building of the house.
2. Mr Ritchie gave evidence that, when they were contemplating the building of the new home, they looked at the cash flows from Mrs Ritchie's share portfolio and worked out what was going to be manageable, having regard to the approximate costings given to them by their architect. The ultimate cost was in the order of $5.5 million. Mr Ritchie said that he never considered a home loan to fund the building of the house because they did not want to borrow and they had sufficient funds coming in. They decided to sell some shares, which they chose after speaking to Jeff Travers. They tried to choose shares for sale that had value but were not impacting on the return they were getting. They determined that shares could be sold out of the portfolio, choosing shares so as not to create substantial capital gains tax liability.
3. In November 2002, Mr and Mrs Ritchie moved into their new home. They ran their business from a new office space that they had incorporated into the design of the new home. They continued to have data entry assistance from staff of BP Woodward & Associates. As time went on, more and more of the day to day general tax and accountancy matters were handled by Ms Bolton.

The Vegas Hotel

1. According to the evidence of Mr Ritchie, Tony Woodward spoke to Mr Ritchie in 2003 about the possibility of investing in the Vegas Hotel in Kings Cross. On 8 September 2003, Mr and Mrs Ritchie met with Tony Woodward in Tony Woodward's office. During the course of the meeting, Tony Woodward gave a detailed presentation on a whiteboard about the Vegas Hotel, the financing of the investment, how it would be structured and the projected returns on the investment. He drew various boxes on the whiteboard and indicated that a syndicate would be established that would include himself.
2. Tony Woodward identified Mr Richard Wynne and a number of other investors as being interested in the Vegas Hotel. Mr and Mrs Ritchie did not receive written information about the identity of the other investors other than what they saw as suggested unit holdings on the whiteboard presentation. It appeared to them that the other investors were clients of Tony Woodward. That did not bother them, as they had worked with Brian Woodward and Tony Woodward for over ten years and trusted them. Tony Woodward's oral and whiteboard presentation was the only analysis of the investment given to them.
3. Tony Woodward did not suggest that they have a lawyer or an independent advisor look over the transaction for them. He did not provide any explanation as to how the structure of the investment was going to affect Mr and Mrs Ritchie, the nature or extent of his interest, what money he was investing in the venture, what security there was for the Ritchie's investment and the risk that it could be lost, how difficult it would be to liquidate the investment, and where their investment ranked in relation to other investors as well as current and future creditors.
4. Following a request from Tony Woodward, two days after the meeting on 8 September 2003, Mr Ritchie arranged for the transfer, from the margin loan facility with Challenger and Citibank Financial Investment Centre (Citibank), into the trust account of BP Woodward & Associates, of two amounts of $250,000, being a total of $500,000. It appears that Mr and Mrs Ritchie had banking arrangements with Citibank.
5. The Vegas Hotel was owned by the Vegas Hotel Pty Limited and Unikorn Pty Limited (Unikorn), as to 50 per cent each. Unikorn held its 50 per cent interest as trustee for the Vegas Property Unit Trust. Barona held one of the nine units in the Vegas Property Unit Trust (the Vegas Trust). The business of the Vegas Hotel was conducted by Jeyda Pty Limited, which was owned by the Vegas Hotel Pty Limited, and Lapoya Pty Limited (Lapoya) as to 50 per cent each. Lapoya held its 50 per cent interest as trustee for the Vegas Hotel Syndicate Unit Trust. Barona was the holder of one of nine units in the Vegas Hotel Syndicate Unit Trust.
6. Mr Ritchie said that, apart from some short letters from BP Woodward & Associates, they did not receive regular written reports in relation to their investment in the Vegas Hotel. However, he said, they initially received some reports called "quarterly reports" and some financial statements that they did not understand. Occasionally they had meetings with Tony Woodward and other investors, which were described as "syndicate meetings". Such meetings occurred infrequently. They did not seek any further information.
7. On 5 November 2004, Mr and Mrs Ritchie received a distribution of $40,000 from their investment in the Vegas Hotel. At the same time, BP Woodward & Associates sent them financial accounts and income tax returns for the period 17 October 2003 to 30 June 2004 for the Vegas Hotel Partnership, the Vegas Syndicate Unit Trust and the Vegas Property Unit Trust.
8. In February 2005, a cheque for the sum of $15,000, as a partial distribution of profits from the investment in the Vegas Hotel was banked into Barona's account. In May 2005, a cheque for the sum of $10,000, being a partial distribution of profits from the Vegas Hotel, was banked into Barona's account. In September 2005, a cheque in the sum of $20,000, being a partial distribution of profits from the Vegas Hotel, was also received by Barona.
9. At that time, tax returns and financial accounts for the year ended 30 June 2005 were received from BP Woodward & Associates. Also in September 2005, a cheque for the sum of $260,000 was received by way of return of capital invested in the Vegas Hotel. That return was the result of internal refinancing. The cheque was paid into Barona's account in October 2005. On 29 November 2005, a further cheque for the sum of $40,000 was received by Mr Ritchie by way of partial distribution of profits from the investment in the Vegas Hotel.

Ritchie Family Trust

1. Later in 2004, during a meeting with Mr Ritchie to discuss family planning issues, Tony Woodward suggested that a family trust be created. That led to the incorporation of Rujo on 21 February 2005, the establishment of the Ritchie Family Trust and the appointment of Rujo as trustee of the Ritchie Family Trust. Tony Woodward made the arrangements for the establishment of the Ritchie Family Trust, including preparation of the documents, payment of stamp duty and execution of documents. A bank account for Rujo was established with Citibank, with funds sourced from Barona. When Rujo made investments subsequently, funds came from a number of sources including loans from Mrs Ritchie's personal bank accounts and the margin loan facility. Tony Woodward told the Ritchies the accounts from which the funds were to come.

Sleeping Property Trust

1. In September 2005, Tony Woodward spoke to Mr and Mrs Ritchie about investing in the Sleeping Property Unit Trust (the Sleeping Property Trust). Tony or Brian Woodward made arrangements for the establishment of the Sleeping Property Trust. The Ritchies did not receive any documentation in relation to the Sleeping Property Trust but, in due course, Rujo invested $2 million in it. Mrs Ritchie explained that the Sleeping Property Trust was a venture involving short term accommodation for overseas students coming to Sydney to learn English. The investment has continued and appears to have been a successful one to date.
2. No specific evidence was given regarding the success of the other investment transactions that I have briefly described (other than the Microcatheters investment, which was unsuccessful). However, it is worth noting that the Ritchies' financial position at the end of 2007 had significantly improved after the initial inheritances were received by Mrs Ritchie in the mid-1990s. In particular, by the end of 2007, Mr and Mrs Ritchie together possessed a share portfolio worth somewhere between $50 million and $52 million, an art collection worth $4 million, "a few million dollars" in the superannuation fund, an portfolio of real property investments in New Zealand, Cairns and Sydney, and a house in Bellevue Hill that had involved $5.5 million in redevelopment. Given that Mrs Ritchie had inherited $2.6 million in 1993 and $12 million in 1995, I draw the inference that the investments and financial arrangements that I have briefly described above were, in fact, very profitable.

The Transactions in Question

1. There are various points at which it is alleged that Tony Woodward's conduct gave rise to liability on the part of himself and his partners. Each point involved one of the transactions that are the subject of the complaints in the three proceedings. I shall deal with each separately, although there is a great deal of interaction among the various transactions.

The Oxford Hotel

1. Mr Ritchie's evidence was that in late 2005 or early 2006, Tony Woodward told Mr Ritchie that an opportunity was coming up to purchase the freehold of the Oxford Hotel in Darlinghurst. He said that it was "a fantastic hotel" and would work "very well in line" with the Vegas Hotel. He said that Richard Wynne had the lease from the owner, and that Jason Gavin, his father, Roy Gavin, and he, Tony Woodward, would be involved in the running of the hotel. Mr Ritchie had not met Richard Wynne at that time but had met Jason and Roy Gavin. Jason Gavin was also an investor in the Vegas Hotel and ran the Vegas Hotel. Mr Ritchie had a couple of conversations with Tony Woodward concerning the Oxford Hotel proposal.
2. Mrs Ritchie's evidence was that in late 2005 or early 2006, Mr and Mrs Ritchie met Tony Woodward in his office and discussed the Oxford Hotel. Mrs Ritchie's account of the meeting was that Tony Woodward told them that the opportunity to invest in the Oxford Hotel had come up. He described it as "an iconic hotel" and said that he was going to invest in it, as were Roy and Jason Gavin and Richard Wynne. Mrs Ritchie had not met Richard Wynne before but understood that he was an investor in the Vegas Hotel. Tony Woodward told them that the Oxford Hotel was a major piece of real estate, with a big billboard on the top of it, and that the billboard itself brought in over half a million dollars of income a year. He said that he felt that, once the hotel had been brought back to its "former glory", which is what he wanted to do, it would attract not just the "gay community" but also "the suits", as Tony Woodward or Jason Gavin put it from time to time.
3. Mrs Ritchie said that Tony Woodward told them that the business of the Oxford Hotel was "going okay", that it could "obviously" be brought up to a higher standard and that the turnover could be increased. She said that he told them that he would be doing the accounting and that Jason Gavin would be managing the hotel. She said that Tony Woodward told them that the Oxford Hotel was "running well" and that there was not an issue with it. However, he did not provide to Mr and Mrs Ritchie any specific financial information about the business of the Oxford Hotel. He said that everything would be fine because he would keep an eye on everything: he would be "doing the books" and Jason Gavin was doing such a "good job" with the Vegas Hotel. By that time, Barona had already received income and distributions from the investment in the Vegas Hotel, as indicated above.
4. Mrs Ritchie said that Tony Woodward told her and Mr Ritchie that the proposed investment was going to be set up in a similar manner to the investment in the Vegas Hotel, and that the investors would invest in unit trusts. At the meeting, Tony Woodward did a presentation on a whiteboard. He drew diagrams of the unit trusts, such that there were lots of boxes and arrows with initials in them. He wrote figures on the whiteboard. Mrs Ritchie said that it was all a bit overwhelming for her but that it all made sense at the time.
5. Mrs Ritchie said that Tony Woodward suggested that Mr and Mrs Ritchie invest $3 million. He said that the $3 million investment should come from the margin lending facility. They discussed who was going to invest and be part of it and Tony Woodward said that he was going to invest and so was Jason Gavin and his father, together with some of the other investors in the Vegas Hotel. He said not all of the investors from the Vegas Hotel would be involved, but only some of them were going to invest in the Oxford Hotel. Nothing was said during the conversation about how much the others were going to invest. Tony Woodward said that the $3 million should be invested as soon as possible. Mrs Ritchie thought that he was trying to get the finances together as soon as possible to buy the Oxford Hotel.
6. Mrs Ritchie said that she could not remember whether Tony Woodward said anything about cash flow at the meeting in which he made the whiteboard presentation. She could not remember whether Tony Woodward said anything on the topic of what return there would be on an investment in the Oxford Hotel. She could not remember whether he said anything about how the return from the Oxford Hotel might compare with interest paid to borrow the funds necessary to make the investment. She could not remember whether anything was said about the value of the Oxford Hotel once its acquisition and refurbishment had been completed.
7. Mr Ritchie's account of the meeting was that Tony Woodward repeated what he had said to Mr Ritchie earlier, that he had the opportunity to purchase the freehold of the Oxford Hotel in Oxford Street, which was "an iconic hotel with a fantastic cash flow". He said that it was a very well-known hotel and had a sign on the rooftop that itself brings in over $500,000 worth of income. Mr Ritchie's evidence was that Tony Woodward said that he had done "the due diligence investigative work" concerning the business and that it had great potential but needed "some renovation". Tony Woodward told them that Richard Wynne had the lease over the property and that Jason Gavin, Roy Gavin and he would be involved in the running of the hotel. He said that he would be looking to set up a similar syndicate as he did with the Vegas Hotel and contacting clients to come into the syndicate. He said that he would not be offering the opportunity to all of those who are currently investors in the Vegas syndicate because he did not want to have any "conflict issues".
8. Mr Ritchie's evidence was that Tony Woodward said that the property needed renovations, that Jason Gavin was skilled to oversee those renovations and that, once the property was up and running and the renovations had been completed and it had been brought back "to its glory days", there would be even better returns on the cash flows in the business. Tony Woodward said it would be a wonderful opportunity for the Ritchies to get a very good return on an investment in the property. Tony Woodward said that the amount that they were being asked to invest was $3 million and Mr Ritchie responded "that's a lot of money". Mr Ritchie said that the amount took him by surprise.
9. Mr Ritchie asked Tony Woodward whether he was sure that Jason Gavin was up to managing the Oxford Hotel and whether he had "the skills". Tony Woodward replied that he "has absolutely got the skills". Mr Ritchie asked if Jason Gavin's time might be being spread too thinly between the Sleeping Property Trust, the Vegas Hotel and overseeing the Oxford Hotel. Tony Woodward said "no" and that he had seen him work and had seen him in action, and that he was "very skilled and very good". He said that he was "very confident with the figures" and that, once they "get the place up and running", it would be a very good investment and Mr and Mrs Ritchie would get "very, very good" returns on their investment.
10. Tony Woodward said that Jason Gavin's skills would "improve the business" but that, once the renovations were complete, that too would assist with the business. He also said that, with his "overseeing the books and managing the accounts", he would be able to make sure that Mr and Mrs Ritchie's investment was "looked after and cared for appropriately by him being in control". He said that the other investors knew that that was not a negotiable situation and that he "must be involved in looking after the books".
11. Mr Ritchie said that there was a whiteboard presentation similar to the presentation that had been done by Tony Woodward in connection with the Sleeping Property Trust and the Vegas Hotel investments. Mr Ritchie said that Tony Woodward set out diagrams on a whiteboard and seemed to be able to recall the figures involved "quite comfortably". He told them that a property trust and an operating trust would be set up, and that the $3 million investment would give Mr and Mrs Ritchie units in the trusts.
12. Mr Ritchie said that he told Tony Woodward that he was not sure how all of that worked. Tony Woodward told him not to worry, that it was fine and that he would look after it and make sure that the "appropriate funds were recorded appropriately in [their] different investments". Mr Ritchie asked how they would fund the investment and Tony Woodward replied that they could draw funds down from Mrs Ritchie's margin lending account, since Mr Ritchie had had the facility increased. He said that they would do the investment in the name of Rujo. When asked when the money was needed, Tony Woodward said that they needed the money as soon as possible because they needed to be able to secure the real estate.
13. Mr Ritchie said that he and Mrs Ritchie subsequently had a discussion about the proposal. He said that it was not an easy decision to make, that it was something that he considered in great depth and that it was a very big decision to make an investment of that size. He said he considered the importance of what the Ritchies had always had as their principle, namely, that of maintaining the opportunity that Mrs Ritchie's parents had given them but still "growing [their assets] in a conservative manner". Mrs Ritchie also said that they discussed all of that and came to the conclusion that it was a good investment.
14. Mr Ritchie said that, when he and Mrs Ritchie made their decision to invest in the Oxford Hotel, they had in mind that the Vegas Hotel had "gone well" and that they had received money back from that investment. Mr Ritchie said that Tony Woodward had told them that the Oxford Hotel was a "substantial piece of property" and "most people knew about it". He said that he and Mrs Ritchie believed what Tony Woodward said because Tony Woodward said that he had "always done the figures and that everything had gone well in the past". He said that Tony Woodward assured them that their share portfolio and the income that they were getting were such that they would be "able to handle" the investment.
15. Mr Ritchie said that the information that Tony Woodward had given him, and the trust that they had in him, led him to believe that Tony Woodward had done thorough research on the proposal. He said that he believed that Tony Woodward had done what needed to be done for them to invest in the Oxford Hotel. He had said the information on the cash flows were excellent, that the sign on the top was turning over $500,000 a year, that any renovations that were carried out were for the improvement of the property and that it was an "iconic hotel". That led him to the belief that this would be a sensible investment that gave them an opportunity for an extension of their commercial portfolio. He said that they had previously been told by both Brian Woodward and Tony Woodward that it was a sensible spreading of risk in their portfolio and a sensible management of their investments generally.
16. Mr Ritchie accepted that, in November 2005, Tony Woodward told him that he had received a copy of a valuation of the Oxford Hotel for $23.15 million. However, Mr Ritchie did not ask for copy of the valuation.
17. The valuation to which Tony Woodward referred was carried out by LandMark White (NSW) Pty Limited (LandMark White) as at 17 October 2005 (the 2005 Oxford Valuation). The 2005 Oxford Valuation assessed the market value of the fee simple for the licensed hotel and rooftop advertising signage as a going concern, subject to the existing tenancy, as $23,150,000. That was based on an assessed net operating profit of $2,013,644 and a capitalisation rate range from 10.5 per cent to 11 per cent, giving a valuation between $19,177,561 and $18,305,854. The 2005 Oxford Valuation adopted the sum of $19 million. That was apportioned as to $15,350,000 to the land and $3,650,000 to goodwill, plant and equipment. The signage component involved a net income of $500,000 per annum, with a capitalisation rate of 12 per cent, giving a figure of $4,166,677. The figure of $4,150,000 was adopted. The valuation of $23,150,000 was the aggregate of $19 million for the hotel and $4,150,000 for the signage. I shall describe the contents of the 2005 Oxford Valuation in more detail below.
18. Mr Ritchie was asked by senior counsel for the plaintiffs what his understanding was, at the time when he was making his decision to invest the $3 million, of what it was that the investment "would be in". Mr Ritchie's unresponsive answer was that he was told that the Oxford Hotel had very strong cash flows. There was no objection to that answer. He was then asked again, as he understood it, what the investment "would be in". His reply was that it would be in the purchase of the Oxford Hotel. He said that it was his understanding that that would include the business of the Oxford Hotel.
19. On 28 February 2006, a deed of trust establishing the Oxford Trust was executed by Brian Woodward as settlor. Tony Woodward and Jason Gavin executed the deed on behalf of Oxford Property. It appears to be common ground that units in the Oxford Trust representing 13 per cent of the total units were issued to Mr Ritchie or his nominee. On 1 March 2006, Tony Woodward sent an email to the Commonwealth Bank requesting the transfer of $3 million from Mrs Ritchie's margin lending account to the bank account of Oxford Property as trustee for the Oxford Trust and on 2 March 2006 the sum of $3 million was transferred to Oxford Property. The Oxford Hotel was subsequently purchased for $17,565,000.
20. The Oxford Hotel was owned by Oxford Property as trustee for the Oxford Trust. Units in the Oxford Trust were held as follows: * White Height Pty Limited - 5 per cent; * White Echo Par Pty Limited - 5 per cent; * Seven Suns Pty Limited - 32 per cent; * Wessin Pty Limited - 42 per cent; * Rujo - 16 per cent. The business of the Oxford Hotel was carried on by Indigo Mist Pty Limited (Indigo Mist). Rujo held 16 per cent of the total interests in Indigo Mist.
21. There was no evidence of any register of unit holders in the Oxford Trust. However, the proceedings have been conducted on the basis that Rujo became the owner of units representing 13 per cent, and subsequently, in circumstances unexplained, 16 per cent of the total number of units in the Oxford Trust. In the result, that discrepancy does not matter because, when the Oxford Trust was wound up, there was nothing remaining to distribute to unit holders after all proceeds of realisation of the assets of Oxford Trust had been applied in partial satisfaction of debts owed to creditors. In any event, the investment of $3,000,000 to acquire a 13 to 16 per cent interest in a property valued at $23,150,000 is not inappropriate.

Loans of $2 million made to Oxford Property

1. It is important to determine the precise arrangements that were put in place in relation to the loans and the capacity in which Tony Woodward was acting in relation to those arrangements. I shall deal with the June loan and the December loans separately.

The June Loan

1. Mr Ritchie's evidence regarding the June Loan was that, on 30 May 2006, Tony Woodward rang him and discussed the raising of a further $1 million in connection with the Oxford Hotel. Tony Woodward said that, with the ideas they had brought back from America and the desire to implement some of those ideas and to renovate the Oxford Hotel, "we are looking to borrow another million dollars to finish the work on the hotel and get the hotel up and running as soon as possible with the new ideas and quality finishes". Tony Woodward said that he wanted to offer Mr and Mrs Ritchie another opportunity to "make some very good money" by lending the extra $1 million. He said that they could go to the banks but that that might take time as the banks would want to do a review of the business, and the sooner they could get the funds, the sooner they could finish the work and get on with running the Oxford Hotel. Tony Woodward said that there was fire regulations work that needed to be addressed and that they had had cost overruns. He said that the Ritchies could ask for an interest rate above the rate being charged to them on the margin lending facility and they could keep the difference in the interest rates.
2. Mr Ritchie said that he told Tony Woodward that they would need some security and would need some protection for the loan. Tony Woodward said that he would make sure documents were in place to protect them. Mr Ritchie finished the telephone call by saying that he would have to speak to Mrs Ritchie about the matter.
3. Mr Ritchie said that he then spoke to Mrs Ritchie and told her that Tony Woodward had called him and wanted to borrow $1 million. He said that they could use some of the funds available in the margin lending facility and could ask for an interest rate above what they are currently paying under that facility. Mr Ritchie suggested that they charge 10 per cent and that that would give them a 3.2 per cent difference on the rate of 6.8 per cent being charged under the facility. Mr Ritchie told Mrs Ritchie that Tony Woodward said that he would have security documents drawn up "to protect us for this loan". Mrs Ritchie asked why Tony Woodward could not go to the banks to get the money and Mr Ritchie said that Tony Woodward wanted them to have the opportunity to make some money on the loan because they were not making money at that time with the funds tied up in the hotels. Mrs Ritchie said that she was not really keen about lending the money and wanted to go and have a look at the Oxford Hotel to see what work was going on.
4. Mr Ritchie said, that shortly thereafter, he and Mrs Ritchie had a meeting at the Oxford Hotel with Tony Woodward and Jason Gavin. Tony Woodward showed them around the Oxford Hotel and showed them the progress on the renovation work that was being carried out. Because it was a busy construction site and it was too noisy to talk, Mr and Mrs Ritchie and Tony Woodward went down the road to a small Mexican restaurant and had lunch there while they discussed what Tony Woodward had proposed.
5. Mr Ritchie said that, at lunch, Tony said as follows: "As you can see we need some extra money for the fire regulation work and there's been cost overruns with the renovations. We need an extra million dollars for that work. I want to offer you the opportunity to loan the money from your margin lending facility to borrow a million dollars at the rate of 10 per cent, interest would be paid quarterly." Mr Ritchie said that he asked for how long the money was wanted and Tony Woodward replied that it was wanted for 12 months. Mr Ritchie then said: "Will there be - we need security on this loan. We need to know that we are protected." Tony Woodward said: "Absolutely, I'll make sure that there's protection for you, there's security documents drawn up."
6. Mr Ritchie said that he thought Tony Woodward mentioned Angus Thorburn and that he said he would see Angus Thorburn about "getting that done". He said that, during the course of the discussion, Mrs Ritchie said "we need to make sure this loan is protected". Angus Thorburn is a solicitor who had previously done work for Mr and Mrs Ritchie on a number of transactions.
7. Mrs Ritchie's evidence regarding the June Loan was that she recalled having a meeting in June 2006 in Tony Woodward's office. However, she agreed with the plaintiffs' counsel, in her evidence in chief that, before the making of the June loan, she had attended the Oxford Hotel herself, when she looked about it to see the progress of the renovation. She said that they walked through and not much had been done. Tony Woodward explained what he wanted to do and how he wanted to make it "the place to go to, the place to be", and that he wanted "to bring back the old crowd".
8. Mrs Ritchie said that, before going to the Oxford Hotel, she had had a discussion with Mr Ritchie in which she had said that she was not happy with being asked for money so soon. She said that Mr Ritchie said that they had the opportunity to make some extra money, because, if they lent the money, they would actually get a higher percentage in return than if it was going through the banks.
9. Mrs Ritchie confirmed her recollection that, at the meeting at the Oxford Hotel, Jason Gavin was present as well as Mr Ritchie and Tony Woodward. She said that they walked through the hotel and Tony Woodward said he wanted to put in superior fittings and showed them plans for the renovations. He said that with the size of the Ritchies' share portfolio, it would not be a problem and they could make some money out of the 10 per cent interest on the $1 million loan. He said that the renovations would be finished and then the turnover would increase so that there would not be a problem in getting their money back. Mrs Ritchie said that there was a discussion about the interest rate and Tony Woodward said it would be at 10 per cent for 12 months. She said that Mr Ritchie asked how they were going to protect their money and Tony Woodward said that they were going to get some loan documents drawn up and that he would get Angus Thorburn to do that.
10. Mr and Mrs Ritchie had a discussion between themselves after the meeting at the Oxford Hotel. Mr Ritchie's account of that discussion was that they said that Tony Woodward said that the renovations are going to improve the property and going to increase "the already good cash flows" once they got it up and running". They noted that Tony Woodward had said that, by "spending this extra money and finishing off this work we would be able to bring the Hotel back into its glory days". He had said that it was an iconic hotel of the area and that they would bring it back as a "very popular great hotel", which it was purportedly known to be.
11. Mrs Ritchie's evidence was that, after the meeting with Tony Woodward, she had a discussion with Mr Ritchie and that neither of them was happy "doing it". She said that Mr Ritchie said to her that, even though they were frustrated, it gave them an opportunity to make a little bit of extra money because of the 10 per cent interest rate over the 12 month period and it meant that they would make a slight profit on the loan: if the syndicate had to go to the banks to get the money, it was going to be charged at a higher rate. Mrs Ritchie said that, after her conversation with Mr Ritchie, she decided to go ahead with the making of the $1 million loan.
12. Mrs Ritchie said her reasoning was that, because Tony Woodward had said that he "had done all of the figures, [that] he had done his homework… [that] the size of their share portfolio would allow them to be able to make the loan …[and that] he would take care of everything", the loan "was alright and it was going to be okay". She repeated that they had told Tony Woodward that they wanted the loan documents drawn up before they would give him the money and he said he would do that. Nevertheless, she proceeded to make the loan, in the absence of loan documentation, because Tony Woodward said that he had contacted Angus Thorburn and that he was getting the documents drawn up. She said that Tony Woodward went away on holiday at some point in time but told Mr Ritchie that the loan documents would be taken care of by the time he got back.
13. On 7 June 2006, Tony Woodward sent an email to Mr Ritchie giving details for the transfer of funds for the proposed $1 million loan. He asked Mr Ritchie to transfer the funds on 8 June 2016. The email said as follows: "Up to 12 months period - interest at 10 per cent payable quarterly. As discussed further details of documents and security documents to follow upon my return." On 8 June 2006, the sum of $1 million was transferred to Oxford Property from Mrs Ritchie's margin loan account. It is clear that that was done in the knowledge that the documentation for the loan had not been prepared.

The December Loans

1. In November or December 2006, Mr Ritchie had a conversation with Tony Woodward about the making of a second loan of $1 million in connection with the Oxford Hotel. Tony Woodward called him and said that they wanted to implement the ideas that had been brought back from a visit to America and upgrade the fittings and ensure that they were putting in quality fittings to produce a premier product being "a top grade product with the renovation work that they were doing". It is not entirely clear whether that was a reference to the same or a different visit to America. Tony Woodward said that he was asking for another loan of $1 million and "this time the Ritchies could make some real money on it".
2. Tony Woodward said that it would be "mezzanine finance" and that the Ritchies could ask a very high interest rate on it. Mr Ritchie gave evidence that he had no idea what "mezzanine finance" meant, and did not know the "exact meaning" of the term other than being a high rate of interest. He told Tony Woodward that he did not know what would be an appropriate level of interest to ask for. He asked whether Tony Woodward could go to the bank and was told that they could but that the bank would require a "review of the hotel documents" and that would take time. He said that the sooner they got the money, the better it would be for the syndicate, because they could get the renovation work completed and get the hotel up and running. Then, Tony Woodward said, they would be able to get the improvements, "upgrade the cash flows even better" and get the place up and running and operational.
3. Mr Ritchie gave evidence that he told Tony Woodward that the security documents had not been done for the first loan and that Tony Woodward replied that he had "to get onto that". Mr Ritchie said that he told Tony Woodward that they needed to know that "these loans are secured and protected". He said that the margin lending facility was to expire in June 2007 and asked Tony Woodward for how long he needed the money. Tony Woodward said that the loan would be for six months.
4. Mr Ritchie's evidence was that that made sense to him because it would tie in at the same expiry date as the first loan. He told Tony Woodward that they would need to make sure that they were going to have "security documentation in place for this" but that he would have to speak to Mrs Ritchie because he did not think that she would be very happy about it. Tony Woodward responded that he would have to get onto the security documents and would have to speak to Angus Thorburn. Mr Ritchie's evidence was that he was "pretty annoyed" that they had not been done at that stage but that he trusted that Tony Woodward was going to do what he said and would attend to it.
5. On 7 December 2006, amounts of $500,000 from Mrs Ritchie and $500,000 from Barona were transferred to an account of Oxford Property. On 7 December 2006, Mr Ritchie sent an email to Tony Woodward, saying that he had instructed Citibank to arrange for the transfer of $500,000 from Barona's account to the account of Oxford Property. He also said in the email that the Commonwealth Bank had received a similar instruction from him requesting transfer of $500,000 from the cash deposit account in the name of Mrs Ritchie to be transferred to the account of Oxford Property.
6. The email asked Mr Tony Woodward if there was any further information that he required and requested confirmation of receipt of all of the money when possible. On the following day, 8 December 2006, Tony Woodward responded saying as follows: "Loan and security documents have been drafted and I shall get Angus Thorburn to review on Barona's behalf (at costs to Oxford) should you be in agreeance - please advise." Again, it is clear that the advances were made in the knowledge that the documentation for the advances had not been prepared.
7. No security documents were ever executed, although drafts were brought into existence. I shall deal with those below.

The Mansions Hotel

1. Mr Ritchie gave evidence that, a few months earlier, in around August or September 2006, Tony Woodward telephoned him about a possible investment in the Mansions Hotel. When Tony Woodward spoke to Mr Ritchie about the Mansions Hotel at that time, he had available to him a valuation report in respect to the Mansions Hotel carried out by Valuations Services (NSW) Pty Limited, trading as "Knight Frank Valuations" (Knight Frank). The valuation report is dated 22 August 2006 and, by it, Knight Frank certified their opinion that the current market value of the unencumbered freehold interest in the Mansions Hotel on a going concern basis, excluding stock in trade, was $22 million (the 2006 Mansions Valuation). I shall describe the contents of the 2006 Mansions Valuation in more detail below.
2. Mr and Mrs Ritchie subsequently had a meeting at Tony Woodward's office, at which Roy and Jason Gavin were also present. Tony Woodward said that another "iconic" Kings Cross hotel had become available and that he would be looking for investors for a similar syndicate to the one set up for the Vegas Hotel and the Oxford Hotel. Tony Woodward did another presentation on a whiteboard and said that he would set up a syndicate in a similar fashion to the other syndicates, where there would be property trusts and operating trusts. Tony Woodward said that he, as well as Jason and Roy Gavin, would be "part of the running" of the Mansions Hotel.
3. Mr Ritchie gave evidence that Tony Woodward said that the Mansions Hotel had a "very good" cash flow and had some excellent returns from gaming machines. He also said that it had a very large potential for development of the upstairs floors, which were currently not being used and that Jason Gavin said that, with some minor improvements, he would "change and improve" the figures. He also said that the hotel had a bottle shop attached to it, so that he could get improvement in figures from the bars, the gaming machines and the bottle shop.
4. Tony Woodward also said that Richard Wynne had "introduced" the Mansions Hotel and that he, Tony Woodward, had "gone through the books" and had done all of the due diligence on the hotel. He said that he would be "looking after the accounting side" and that he was satisfied with the investigation that he made into the books of the hotel. He said that Jason Gavin would be running the management side of the business, in a "similar process" to the other hotels.
5. Mr Ritchie asked Tony Woodward whether Jason Gavin was spreading himself very thin if he was managing the Mansions Hotel as well as the Sleeping Property Trust, the renovations of the Oxford Hotel and the Vegas Hotel. Tony Woodward reassured him, saying that Jason Gavin was very capable and had the ability to look after it. Jason Gavin said that that was what he was trained for, and that that was what he did. He said that he had someone who could assist him so that he would oversee all the hotels as well as the renovation work at the Oxford Hotel. Mr Ritchie was unable to remember who the person was.
6. Mr Ritchie's evidence was that Tony Woodward said that he would be looking at investors putting in $875,000 per unit. He said that he, Jason Gavin and Roy Gavin would be investing in the Mansions Hotel, because they believed it was a "great property [and had] a lot of potential". Tony Woodward suggested that the Ritchies buy two units so that they had a "good holding" in the property. He said that he would be opening the opportunity up to other clients who had been involved in previous syndicates to see if they were interested and to give them the opportunity to invest in the syndicate. However, he said that he would not be offering the opportunity to all of the Vegas Hotel syndicate members because he did not want "some of the conflict issues". That is consistent with his evidence about his discussion with Tony Woodward about the Oxford Hotel.
7. Mr Ritchie gave evidence that he said that he and Mrs Ritchie would not have a clue how to be involved in the development potential, and that they just wanted to be part of the syndicate and could not be involved with the running of the hotel. He said that, when he asked Tony Woodward and Jason and Roy Gavin how the development was meant to take place, they responded that they had a number of contacts that they could speak to in relation to the development and that it would not be a problem. They said that it was a "very rare opportunity to have such a large site like this… to develop" and that there would be lots of developers who would be "very keen" on doing that work.
8. At some time after that meeting, another meeting took place at the Mansions Hotel. Mr and Mrs Ritchie, Tony Woodward and Roy and Jason Gavin, as well as one or two other people, including Mr Gary Bullivant, were present. They looked over the site of the Mansions Hotel. Conversation took place among those present while they were looking over the site.
9. Mr Ritchie said that Jason Gavin explained the different hotel areas and some ideas for minor renovations that they could address. Mr Ritchie asked about new smoking laws and Tony Woodward and Jason Gavin said that they had identified an area that was suitable for that. They said that it would not "cost a lot to set up" to take account of the smoking regulations. As they moved through the site, Mrs Ritchie identified a room at the back that looked like an unused area with a small stage. She suggested that it could be used for entertainment. Jason Gavin and Tony Woodward agreed that that would be another part of what they could do to improve the income for the Mansions Hotel.
10. Mrs Ritchie's evidence was that she had a recollection of a meeting at Tony Woodward's office and a subsequent meeting at the Mansions Hotel to discuss the proposal to invest in it, after Tony Woodward had spoken to Mr Ritchie. She said that Tony Woodward told them at the meeting that it would be a "good investment" and that the owners had approached Tony Woodward and Jason Gavin to offer them the hotel before it went to the market because they knew that they had the Vegas Hotel, which was around the corner. He also said that it would be a good investment because they already had an investment in the Sleeping Property Trust and the Mansions Hotel had the ability to have accommodation upstairs, where there were existing rooms that needed refurbishing. He said that it was an "iconic property and had "really good gaming income,…had a good turnover and had an excellent property development potential".
11. Mrs Ritchie said that, at the meeting at the Mansions Hotel, they went for a tour around the building and went upstairs to an area that had not been used in quite some time. It was apparent to Mrs Ritchie that a lot of work needed to be done but that there were rooms already there that could have been utilised. Both Mr and Mrs Ritchie said that they were not prepared to do the development and Tony Woodward said "somebody else would jump at the chance because it is such a well-known hotel".
12. Mrs Ritchie said that there was an area in the back bar that appeared to have a stage area and she said it would be good if that could be reopened and live bands could come and perform, and that would increase the turnover with people coming in. She said that Tony Woodward told them that the hotel was apparently "doing very well", such that the gaming income alone could allow the Mansions Hotel to run. Jason Gavin said that he had been there quite a few times and that he knew it. He said that he wanted to bring the "private school rugby boys" back and he felt he could do that. He said that he felt it would not take much work to increase the turnover significantly.
13. Mrs Ritchie gave evidence that Tony Woodward said that they would get two units in the trust for an investment of $1,750,000. She understood that two units would be a percentage of the business and the building, but could not remember what percentage the two units would represent. Mrs Ritchie said that she could not recall whether Tony Woodward ever told them what percentage of the hotel and business they would be getting for their investment.
14. Mrs Ritchie gave evidence that she and Mr Ritchie discussed the proposal after the meeting. They both thought that the accommodation upstairs would be a "good link" with the Sleeping Property Trust's business. It was close to shops and trains and was something that they thought would be a good thing, even though they were not going to be involved with the development. She said that, according to Tony Woodward, the Mansions Hotel itself was "running well and high income coming in". She said that they each felt that it would be similar to the other investments and that it was a good investment. Tony Woodward told them that he "had done his homework and that the returns were good", that a development application had been submitted and that he felt that the Ritchies would not have any problems getting finance from the bank. She said they were convinced by Tony Woodward, who said that he would be taking a percentage in the investment for himself, although Mrs Ritchie could not remember how much he said he would be investing.
15. Mrs Ritchie vaguely recalled that Tony Woodward mentioned the price being paid for the Mansions Hotel. Her recollection was that the price was either $20 million or $24 million. Her evidence was that Tony Woodward said that, apart from the people who were investing, there was going to be a loan from the bank. He said that the other investors would be himself, Roy and Jason Gavin and Richard Wynne. Mrs Ritchie did not ask how much the others would be putting into the venture.
16. Mr Ritchie gave evidence that his reasoning in concluding to invest in the Mansions Hotel was that Tony Woodward had said that their portfolio was a "very strong one" and their leveraging level was "still very conservative". Mr Ritchie said that, with that in mind and with the "knowledge" that Tony had put security documents in place for the recent June loan of $1 million, his expectation was that, down the track, they were going to be getting a return. He said that they were assured that it was going to be a manageable situation with the funds that they had available and Tony Woodward "knew their financial situation", since he was constantly being updated with their financial position at the time.
17. Mr Ritchie subsequently spoke to Tony Woodward and said that they had decided to go ahead "with [his] advice" and buy two units in the Mansions Hotel at $875,000 each. Mr Ritchie asked Tony Woodward where he wanted the money sent and was told that the information would be sent and the units would be issued.
18. On 23 August 2006, Mr Rigney, on behalf of Tony Woodward, sent to a number of people, including Mr Ritchie, a form of election to participate in the proposed Mansions Hotel syndicate. On 24 August 2006, Mr and Mrs Ritchie completed and signed the election form on behalf of Rujo and subscribed for two units at $875,000 each and returned the form to Mr Rigney.
19. On 24 August 2006, a deed of trust was executed establishing the Mansions Trust, with Brian Woodward as Settlor. The deed of trust was executed by Tony Woodward on behalf of Mansions Property Pty Limited, which was the trustee of The Mansions Property Unit Trust. The Mansions Hotel was owned by Hotel Holdings Pty Limited. Its directors were Richard Wynne, Jason Gavin, Ross Townhill and Tony Woodward. 50 per cent of the capital of Hotel Holdings was owned by Mansions Property Pty Limited, as trustee of the Mansions Property Unit Trust. Rujo held five units in that trust, Brett Merriman held three units and Gary Bullivant held one unit. Another seven units were held by Wessin Pty Limited. That Rujo owned 5 units in a trust owning 50 per cent of the capital is consistent with Rujo subscribing for 2 "units" in the total capital, at $875,000 each, and subsequently purchasing a half "unit" in the total capital at $440,000. The directors of Wessin Pty Limited were Tony Woodward, Jason Gavin and Roy Gavin. The business of the Mansions Hotel was carried on by Hotel Management Group Pty Limited. 49.5 per cent of the capital of Hotel Management Group Pty Limited was held by Mansions Operations Pty Limited, as trustee for the Mansions Operations Unit Trust. The unit holders in the Mansions Operations Unit Trust were the same as those in the Mansions Property Unit Trust.
20. On 7 September 2006, Mr Ritchie arranged for the transfer of $1,750,000 from Mrs Ritchie's Commonwealth Bank cash deposit account to the account nominated by Tony Woodward. On 19 September 2006, Ms Bolton confirmed receipt of the sum of $1,750,000 from Rujo on 7 September 2006.

The Distribution from the Vegas Trust

1. In early November 2006, Mr Ritchie received a letter from BP Woodward & Associates dated 9 November 2006. The letter was signed by Tony Woodward and enclosed income tax returns and financial accounts in relation to the Vegas Hotel, which recorded distributions in the sum of $6,928 and $33,234 from the Vegas Property Unit Trust and the Vegas Hotel Syndicate Unit Trust respectively.
2. The letter then went on to say as follows: "We note that $440,000.00 has been transferred to the Mansions Group representing part of your investment therein. For accounting and taxation purposes, this $440,000.00 is comprised of the following elements: Unpaid profits $ 20,000.00 Return of equity - non-taxable $240,000.00 Return of equity - taxable $180,000.00 Total $440,000.00 This payment represents return of the balance of capital the unitholders initially injected into the business together with a further return of capital resulting from internal gearing. As you are aware, we have refinanced our Suncorp borrowings with two Commonwealth Bank facilities totalling approximately $24m. Part of these funds were used to finance the renovation whilst the balance has allowed unitholders to benefit from the substantial group in the value of the business. Given the substantial growth in value the internal gearing levels of the group still give a conservative LVR of approximately 63 per cent. On a final note, business is traveling well post-renovation and continuing to grow."
3. Mr Ritchie's evidence was that he did not know what happened to the sum of $440,000 referred to in that letter. He said that he read the extract quoted above when he received the letter but was confused because he had not told Tony Woodward to do that. He asserted that he was not aware of the $440,000 because he was thinking that, for their interest in the syndicate for the Mansions Hotel, they were buying two units at $875,000 each. He said that he did not comprehend why the $440,000 was being transferred across from the Vegas Hotel. He said that he relied on Tony Woodward to look after their finances, since "he knew the financial structure of everything and all [their] personal finances". Mr Ritchie could not recall having a conversation with Tony Woodward after he received the letter. He said that he could not recall discussing the matter with Mrs Ritchie after he received the letter.
4. Mrs Ritchie had a recollection of a sum of $440,000 being returned from the Vegas Hotel. She said that she assumed that it was going into their account and that, as far as she was aware, it did. She said that Tony Woodward did not at any stage tell her, in their discussions about the Mansions Hotel, how the deposit for the purchase of the Mansions Hotel was going to be funded. He did not tell her that the Ritchies' investment would in fact be funding some of the deposit.
5. The net effect of the investment in the Mansions Hotel was that Rujo subscribed $1,750,000 plus $440,000, a total of $2,190,000, for five sixteenths of a one half interest in a property valued at $22,000,000. That would seem to be a not unreasonable proposal.

The Peakhurst Inn Hotel

1. In early 2007, Tony Woodward told Mr Ritchie that another hotel, the Peakhurst Inn Hotel, had become available and that he was going to put a syndicate together to buy it. Mr Ritchie replied that he and Mrs Ritchie were not going to put any more money into hotels. He said that they had too much tied up as it was and they were not getting a return and they still had not received any of the quarterly interest payments on the loans that Tony Woodward had promised. He said that they needed to make sure that the loans were secured and in place and that they were going to get their money back at the end of 2007, as they agreed.
2. Subsequently, Mr Ritchie received a letter from Tony Woodward, dated 16 February 2007, reporting on the results for the Vegas Hotel to 31 December 2006, and referring to disputes between certain investors in the Vegas Hotel. Mr Ritchie also received a letter from Tony Woodward dated 20 February 2007, reporting that the Mansions Hotel had continued a gradual upward improvement "under our ownership". The letter said that, as turnover went up, the wages as a percentage of turnover would come down and that the gross profits on the public bar were "strong" at 66 per cent and bottle shop a "typical" 22 per cent. The letter ended as follows: "The Hotel's main objective over the next six months is to grow the revenue numbers in all areas whilst we as a Board with the syndicate members identify and source significant funding ($15M) so that we may undertake a major international style and super high standard developments. The concept is being fined tuned and is to be presented to you over the next six months."
3. On 20 February 2007, Tony Woodward sent several letters concerning a proposed merger of the Vegas Hotel, Oxford Hotel and Mansions Hotel with the Peakhurst Inn Hotel. One letter was written to the investors in the Oxford Hotel, another to investors in the Vegas Hotel and the third to investors in the Mansions Hotel. Each of the letters was signed by Tony Woodward as a director of the relevant trustee company. Mr Ritchie received three letters, one in respect of each of the three hotels.
4. Each of the letters was entitled: "Re: Directors' recommendation To raise $30M - $50M Equity Refinance and Merge Hotels" Each letter then said as follows: "Your Directors strongly recommend a Yes vote on the raising of equity and debt funds and the merger of the Hotels, Vegas Hotel - Kings Cross, Oxford Hotel - Darlinghurst, Mansions Hotel - Kings Cross, Peakhurst Inn - Peakhurst. The proposal is to merge the four pubs to enable access to capital funds for further development and enhancement of the Hotels. Each entity, as it currently stands, has undergone an independent 3rd party valuation for this purpose and your holding will be determined according to the valuations including costs and net asset position of each Hotel. The purpose of the merger is to bring together four iconic hotels and allow funding for capital works and to spread your investment and industry risks across a multiple of hotels in different market segments. The particular industry risks we recommend to minimise are smoking, gaming changes, trading hours changes. The Hotel segments are: Vegas Hotel Gaming and 24 hour operations with 2 levels not utilised Oxford Hotel Lifestyle choice and 24 hour operations with exposure and relaunch of facilities Mansions Hotel Young adult entertainment precinct, 24 hour operations and accommodation opportunities Peakhurst Inn Suburban family hotel daytime and evening entertainment opportunities. The gross valuations include costs on each Hotel at: Vegas $ 47m Oxford $ 36m Mansions $ 25m Peakhurst $ 22m Total $130m The proposed application of funds raised include: Vegas Hotel $5m possible expansion and 2 levels redeveloped Oxford Hotel $5m refurbishment and debt reduction and additional pokie machines Mansions Hotel $15m redevelopment Peakhurst Inn $5m refurbishment and additional pokie machines $30m"
5. Each letter enclosed a voting slip. The voting slips were headed: "VOTING SLIP TO RAISE EQUITY DEBT AND MERGE HOTELS AS RECOMMENDED BY THE BOARD OF DIRECTORS FEBRUARY 2007" The slip had the name of the investor, the name of the hotel investment and a space for a vote as follows: Voting please tick Yes □ to Raise Equity Debt and Merge Hotels No □" Mr Ritchie ticked the "Yes" box on the voting slips for each of the Vegas Hotel, the Oxford Hotel and the Mansions Hotel, dated the voting slips "1 March 2007" and signed them. He then returned them to Tony Woodward.
6. Neither Mr Ritchie nor Mrs Ritchie was provided with a copy of the valuations referred to in the letters of 20 February 2007 concerning the proposed merger. They did not ask to see the valuations.
7. Mr Ritchie gave evidence that he discussed with Mrs Ritchie the proposal that the four hotels be merged. He said that the interpretation he gave to the letters just described was that the hotels were going to be bundled together for the purpose of sale. Mrs Ritchie gave evidence that she thought that it made sense to bundle the hotels together, "to put them together as a group for sale", and it sounded like it would be a good idea. Clearly, the letters make no mention of sale as the rationale for the "bundling". Rather, the language of the letters suggests long term holding by way of investment; the purpose of the merger being to minimise risks. As will become relevant later, the language of the letter also made it clear that the other purported reason for the merger was to "Raise Equity Debt".

The Refinancing

1. The proposed merger of the Vegas Hotel, the Oxford Hotel and the Mansions Hotel with the Peakhurst Inn Hotel involved the refinancing of the existing borrowings, which, at that stage, were secured separately on each of the three existing hotels, as well as the raising of additional funds for the purchase of the Peakhurst Inn. The intention was that all of the fresh borrowings would be secured by collateralised securities over all four hotels.
2. On 25 January 2007, Ashe Morgan Winthrop, a finance broker, wrote to Mr Wynne, attaching a schedule setting out a proposal for financing "your portfolio of hotel assets". The schedule stated that the applicant was Mr Wynne and associated officers of Crown Entertainment Group and that the borrower was to be advised. Crown Entertainment Group was the vehicle intended to be established to acquire interests in the four hotels.
3. The purpose of the proposed borrowing was stated as being to refinance and increase "the Borrower's" existing hotel debt portfolio and provide funds to assist with the acquisition of the Peakhurst Inn Hotel as well as to provide capital expenditure for that asset. The Oxford Hotel, the Vegas Hotel, the Mansions Hotel and the Peakhurst Inn Hotel were described as "the Properties".
4. A section of the schedule dealt with debt as follows: Existing debt Asset Value Debt Oxford Hotel $ 41 M $17,670,000 Vegas Hotel $ 47 M $24,116,000 The Mansions Hotel $ 25 M $14,000,000 Total $113 M $55,786,000

Costs to be incurred Purchase - Peakhurst $20 M Settlement costs $1,250,000 Equity return $12 M Capex - Peakhurst $5 M Sub total $38,250,000 Total facility required $94,036,000

The schedule then stated that the lender was to be provided with "as is going concern" valuation reports for the Properties, showing the following values. Oxford Hotel $41 M Vegas Hotel $47 M The Mansions Hotel $25 M Peakhurst Inn Hotel $20 M

The schedule stated that it was assumed that there would be an increase in value of the Peakhurst Inn Hotel coextensive with the capital expenditure works to be undertaken, which at that stage was anticipated to be $5 million.

1. The schedule stated that the facility amount was $94,036,000. It provided that security was to consist of first registered property mortgages over the Properties, first registered fixed and floating charge over the assets and undertakings of the borrower and any other security that may be reasonably required by the lender.
2. On 31 January 2007, the form of acceptance on the last page of the terms and conditions that were enclosed with the letter of 25 January 2007 was signed by Tony Woodward and his wife Clelia Woodward. They purported to execute on behalf of LandMark Leisure Group Pty Limited. The letter, the schedule and the accepted terms and conditions were sent by facsimile to Ashe Morgan Winthrop on 31 January 2007.
3. In those documents, handwritten amendments were made to show the applicant as "LandMark Leisure Group Pty Limited" in addition to Mr Wynne. In addition, opposite the phrase "equity return", the phrase "+ investor loan repayments" was inserted. Opposite "Capex Peakhurst", the phrase "+ Oxford" was inserted. In addition, a note was made in relation to security by adding the words "but not personal guarantees of directors or investors". Other changes were made that are not presently relevant.
4. On 5 March 2007, Bank of Western Australia Limited (BankWest) sent four financing proposals to Ashe Morgan Winthrop, one for each of the Vegas Hotel, the Oxford Hotel, the Mansions Hotel and the Peakhurst Inn Hotel. Each proposal specified the purpose of the facility, the facility limit, repayment terms and interest rates. The total amount of the facility limits was $93 million, being $35,250,000 for the Vegas Hotel, $26,250,000 for the Oxford Hotel, $16,500,000 for the Mansions Hotel and $15,000,000 for the Peakhurst Inn Hotel.
5. Each facility was to be for three years with interest only and the principal to be repaid at the end of the term. The interest rate for each was the same, being a margin of 1.1 per cent above a specified benchmark. The purpose for each of the facilities was stated as follows:

• Vegas Hotel: to assist with the refinance of the borrower's existing debts secured by hotel assets known as Vegas Hotel.
• Oxford Hotel: to assist with refinance of the borrowers existing debt secured by hotel assets known as Oxford Hotel and assist with their residual cost of the refurbishment of that property.
• Mansions Hotel: to assist with the refinance of the borrowers' existing debt secured by Hotel assets known as Mansions Hotel.
• Peakhurst Inn Hotel: to assist with the acquisition of the Peakhurst Inn Hotel. No mention was made of repayment of "investor loans" as contemplated by the handwritten amendments referred to above.

1. On 10 April 2007, the sum of $15 million was drawn down under the Peakhurst Inn Hotel facility and the purchase of the Peakhurst Inn Hotel was thereupon completed by LandMark Property Holdings Pty Ltd. The total purchase price was $20 million, a deposit of $2 million having been paid previously. Thus, $18 million was paid on completion.
2. On 10 April 2007, Oxford Property executed a mortgage over the Oxford Hotel in favour of Ashe Morgan Custodians Pty Limited. The mortgage secured all money that at any time and for any reason was payable by "Obligor", a term that does not appear to be defined. On the other hand, the mortgage defined the term "facility agreement" as the Syndicated Cash Advance Facility Agreement between LandMark Property Holdings Pty Limited and Ashe Morgan Capital Pty Ltd. On 10 April 2007, Hotel Holdings Pty Limited, the owner of Mansions Hotel, also executed a mortgage in the same form in favour of Ashe Morgan Custodians Pty Limited over the Mansions Hotel.
3. On 5 June 2007, BankWest wrote to Ashe Morgan Winthrop indicating that a loan proposal had been approved to assist with the refinance of the Oxford Hotel, the Mansions Hotel and the Vegas Hotel. A summary of the facility terms was attached. The summary stated that the borrowers were LandMark Property Holdings Pty Limited, Vegas Hotel Pty Limited, Oxford Property and Hotel Holdings. Those companies were the respective owners of the Peakhurst Inn Hotel, the Vegas Hotel, the Oxford Hotel and the Mansions Hotel.
4. Five commercial advance facilities were specified in the letter from BankWest, with limits and purposes as follows: A $15,000,000: to assist with the acquisition of the hotel known as the Peakhurst Inn Hotel, already drawn; B $35,250,000: to assist with the refinance of the borrower's existing debts secured by the hotel assets known as the Vegas Hotel; C $22,000,000: to assist with the refinance of the borrower's existing debt secured by the hotel assets known as the Oxford Hotel and assist with the residual cost of the refurbishment of the Oxford Hotel; D $5,000,000: to repay "Shareholder Equity" and restructure debt package; and E $18,000,000: to assist with the refinance of the borrower's existing debts secured by the hotel assets known as Mansions Hotel. The total of the proposed commercial advance facilities was $95,250,000. Commercial advance facility A was shown as fully drawn and commercial advance facilities B to E were shown as expiring on 9 April 2010, to terminate at the same time as commercial advance facility A.
5. The summary of terms and conditions included the following special condition: "All drawings under "commercial advance D" will be subject to: - the Hotel achieving no less than 90 per cent of the EBITDA forecast (as assessed in the latest valuation held by the Bank) based on 31 December 2007 WTD results; and - full compliance by the Group with all financial covenants as at 31 December 2007. " Thus, while commercial advance facility D for $5,000,000 was to enable the repayment of shareholder equity, it is clear that that advance could not be drawn until the special conditions were satisfied and, in any event, could not be drawn before 1 January 2008.

Default and Sales of the Hotels

1. On 20 May 2009, BankWest served, on the various entities operating the four hotels, notice of default under the fixed and floating charges given by those operators. The notice was based on the occurrence of an insolvency event, a material adverse change, a payment default and a change of licensee.
2. The insolvency event was filing of an application to wind up The Vegas Hotel Pty Ltd by the Chief Commissioner for State Revenue. The material adverse change was that the four hotels had experienced a significant reduction in operating performance over the previous four months. The payment default involved failure by each of LandMark Property Holdings Pty Ltd, The Vegas Hotel Pty Ltd, Oxford Property and Hotel Holdings Pty Ltd to make payments owing as at 30 April 2009 of sums of $42,657.53, $86,901.37, $70,158.90 and $12,756.17 respectively. The change of licensee related to the Oxford Hotel, the Peakhurst Inn Hotel and Mansions Hotel.
3. On 23 June 2009, BankWest appointed Peter Walker and Morgan Kelly (the Receivers) as receivers and managers of all of the corporate entities involved in the ownership of the four hotels and the management of the hotels. All four hotels were subsequently sold by the Receivers.
4. The sale of the Peakhurst Inn Hotel was completed on 19 July 2010. The Peakhurst Inn Hotel was sold for $7,750,000 and the business for $2,850,000, realising a total of $10,600,000. The total amount secured on the Peakhurst Inn Hotel and business was $20 million, giving rise to a shortfall of $9,400,000.
5. The sale of the Oxford Hotel was completed on 17 June 2010. The price for the Oxford Hotel was $9,600,000 and the price for the sale of the business was $1,750,000, realising a total of $11,350,000. The amount secured on the Oxford Hotel and business was $21,170,000, giving rise to a shortfall of $9,820,000.
6. The sale of the Vegas Hotel was completed on 6 April 2011 for $16,270,000. The business of the Vegas Hotel was sold separately on the same day for $1 million, realising a total of $17,270,000. The amount secured on the Vegas Hotel and its business was $35,350,000, giving rise to a shortfall of $18,080,000.
7. The sale of the Mansions Hotel was completed on 23 March 2012. The price for the Mansions Hotel was $16,539,899 and the price for the business was $100,101, without taking into account the sale of the stock surplus, realising a total of $16,640,000. The amount secured on the Mansions Hotel and its business was $14,000,000, giving rise to a surplus of $2,640,000.
8. The defendants contend that, in the light of the figures summarised above, the cross-collateralisation of the four hotels made little difference. Both the Vegas Hotel and the Oxford Hotel sold with significant deficits. The Mansions Hotel generated a surplus of $2,640,000. The interest of Rujo in that surplus, as they owned 5 out of 16 units in a trust only owning 50% of the capital, would have been less than 16%. Tony Woodward asserts that that sum is almost de minimis and that, in any case, the Ritchies consented to the cross-collateralisation.

The pleadings

1. Similar allegations are made in the statements of claim in each of the three proceedings. Each makes the same allegations of professional negligence on the part of Tony Woodward. I shall deal separately with several assertions made in the pleadings.

The Partnership

1. Each statement of claim begins with an allegation that, at all material times up to 1 July 2008, Brian Woodward, Mary-Ann Woodward and Tony Woodward carried on business in trade or commerce as chartered accountants in partnership under the name of BP Woodward & Associates, defined in the pleadings as "the Partnership". It is then alleged that, on or about 1 July 2008, Mr Rigney and Ms Bolton joined the Partnership as partners thereof and that the Partnership thereafter continued to carry on business as chartered accountants under the name "BP Woodward & Associates".
2. Those allegations incorrectly oversimplify the position concerning the practices that were carried on under the name of BP Woodward & Associates. As will become apparent, the evidence indicates that there was a plurality of partnerships with that name and not a single partnership.
3. Tony Woodward admits that, from 1 July 1994 to 1 July 2008, he carried on business as a chartered accountant in partnership with Brian Woodward under the name of BP Woodward & Associates, defined as "the first BPW Partnership". He says that the first BPW Partnership ceased carrying on business on 30 June 2008 and that, from 1 July 2008, he carried on business as a chartered accountant in partnership with Mr Rigney and Ms Bolton under the name of BP Woodward & Associates, defined as "the second BPW Partnership". He says expressly that neither Brian Woodward nor Mary-Ann Woodward was a partner in the second BPW Partnership.
4. Mr Rigney and Ms Bolton deny that on 1 July 2008 they joined "the Partnership" and denied that, from 1 July 2008, they "continued to carry on business" as alleged by the plaintiffs. They say that, prior to 1 July 2008, a chartered accounting partnership carried on business under the name of BP Woodward & Associates and that, on 20 June 2008, Tony Woodward, Mr Rigney and Ms Bolton entered into a partnership agreement whereby they agreed to commence carrying on business as a new chartered accounting partnership on 1 July 2008, under the name "BP Woodward & Associates". Mr Rigney and Ms Bolton refer to that partnership as "the new BPW". That is the partnership referred to in Tony Woodward's defences as "the second BPW Partnership".
5. Mr Rigney and Ms Bolton also say that, on 30 June 2008, Tony Woodward, Mr Rigney and Ms Bolton entered into an agreement with Brian Woodward for the sale of accountancy practice, whereby they purchased Brian Woodward's interest in the business that had been carried on up to that day under the name "BP Woodward & Associates". They say that Tony Woodward and they did not purchase an interest in the Partnership that had been carried on prior to 1 July 2008 and that the partnership business that began on 1 July 2008 did not continue the Partnership that had carried on business up to 30 June 2008.
6. I shall return below to the question of the constitution of any partnership that carried on practice under the name "BP Woodward & Associates". Those matters are of significant relevance in determining, for example, the circumstances in which Mr Rigney and Ms Bolton were parties to relevant retainers. In particular, there is no allegation that a new retainer was entered into with the effect from 1 July 2008 when Mr Rigney and Ms Bolton became members of a partnership with Tony Woodward, which carried on practice as chartered accountants from that time under the name "BP Woodward & Associates".

The Alleged Retainer Terms

1. Next, the plaintiffs allege breaches of contracts of retainer by the Partnership. The retainers are, not surprisingly, alleged to be in similar terms. There is a degree of artificiality in so far as separate retainers are alleged in relation to each of the plaintiffs. In fact, Mr and Mrs Ritchie were the guiding minds of each of Rujo and Barona. There was no suggestion that there was any formal retainer on behalf of either of those separate legal entities.
2. Mrs Ritchie's statement of claim alleges that, from about 1987 up to about July 2009, the Partnership was retained to provide services to her, including chartered accounting services, accounting advice, accounts preparation and bookkeeping, taxation advice, taxation compliance, financial reporting, financial planning, documentation and due diligence services in respect of possible investments. That retainer is defined as "the Ritchie Retainer". Rujo alleges that, from 21 October 2005 up to July 2009, the Partnership was retained to provide chartered accounting services to Rujo, including the same services as are alleged in relation to the Ritchie Retainer. The retainer by Rujo is defined as "the Rujo Retainer". Finally, Barona alleges that, at all material times from 1993 to July 2009, the Partnership was retained to provide services to Barona, including the same services as are described in the Ritchie Retainer and the Rujo Retainer. The retainer by Barona is defined as "the Barona Retainer".
3. Mrs Ritchie' statement of claim then alleges that, from 21 October 2005 up to July 2009, Rujo was another client of the Partnership for whom, to the knowledge of the Partnership, Mr and Mrs Ritchie had authority to act, give instructions and receive advice on its behalf. In addition, Rujo alleges that, from about 1987 to July 2009, Mrs Ritchie was another client of the Partnership, for whom, to the knowledge of the Partnership, at least 1995, Mr Ritchie had authority to act, give instructions and receive advice on her behalf. No similar allegation is made by Barona. Those allegations recognise the reality that Mr and Mrs Ritchie were the guiding minds of Rujo and Barona.
4. Each plaintiff alleges that the retainer of the Partnership by that plaintiff contained four implied terms, which are defined as the "Retainer Terms". The Retainer Terms were alleged to be as follows: 1. The Partnership would exercise the degree of care, diligence and skill that it was reasonable to expect of a chartered accountant in performing the retainer (Retainer Term (a)); 2. The Partnership would inform the relevant client of matters that came to the knowledge of the Partnership relevant to the financial affairs of the client (including matters that affected the appropriateness of earlier advice given by the Partnership for the client) (Retainer Term (b)); 3. The Partnership would advise the relevant client if matters arose that were outside the services that the Partnership was professionally qualified to provide, and how such services may be obtained and from whom they may be obtained (Retainer Term (c)); and 4. In the event that the Partnership, or any of the partners, found themselves in a position in which their own interests conflicted with that of the particular client, the Partnership would advise the client of that fact and that the client should consider seeking independent advice in relation to the matter in respect of which a conflict arose (Retainer Term (d)). Each plaintiff alleges that those terms were implied by law, or so as to give business efficacy to the relevant retainer.
5. Brian Woodward and Mary-Ann Woodward admit that the Partnership was retained to provide services, including chartered accounting services, accounting advice, accountant's preparation and bookkeeping, taxation advice, taxation compliance and financial reporting. Brian Woodward denies and Mary-Ann Woodward does not admit that the retainer by Mrs Ritchie went beyond those services. They adopt a similar stance in relation to the alleged Rujo Retainer and Barona Retainer. They admit that the relevant retainers contained the alleged implied terms to the extent that the retainer related to the services that they admit were the subject of the retainer.
6. In his defences, Tony Woodward admits that, between 1987 and July 2009, BPW was retained to provide and did provide services to the respective plaintiffs, including chartered accounting services, accounting advice, accounts preparation and bookkeeping, taxation advice, taxation compliance and financial reporting. His defences defined "BPW" as the persons carrying on business at the relevant time as chartered accountants in partnership under the name "BP Woodward & Associates" as indicated above, either under the first BPW Partnership or under the second BPW Partnership, as the case may be.
7. Tony Woodward also admits that BPW provided some documentation and due diligence services, after engagement to do so, in respect of some possible investments between 1987 and July 2009. However, he denied that BPW provided financial planning services or were engaged to do so and denied that any such services were provided in relation to the investments that are the subject of the allegations in the proceedings.
8. Tony Woodward also admits that, from some point during 1993 and continuing until July 2009, BPW was retained to provide and did, from time to time, provide information to Mrs Ritchie, Mr Ritchie and/or Barona and/or Rujo to identify potential business opportunities in respect of commercial business enterprises, including properties. He says that that retainer was limited to the provision of information concerning the "existence" of potential business opportunities and that BPW was not retained by Mrs Ritchie, Mr Ritchie, Barona or Rujo to provide any financial or other "advice" to any of them in respect of the suitability or viability of any of the potential business opportunities.
9. Tony Woodward admits that the terms of the respective retainers included Retainer Term (a) as alleged above, in so far as the retainer relates to the services that he admits were provided by BPW. However he denies that any retainer included Retainer Term (b), Retainer Term (c) or Retainer Term (d).
10. Mr Rigney and Ms Bolton admit that, between 1 July 2008 and July 2009, the New BPW was retained to provide and did provide services to the plaintiffs, including chartered accounting services, accounting advice, accounts preparation and bookkeeping, taxation advice, taxation compliance and financial reporting. They deny that the New BPW provided financial planning in respect of possible investments and do not admit that the New BPW provided documentation and due diligence services in respect of possible investments. They admit that the terms of the retainer of the New BPW included Retainer Term (a), to the extent of the retainer admitted by them. They deny that the terms of any retainer included Retainer Term Retainer Term (b), Retainer Term (c) or Retainer Term (d) above.

The Complaints

1. The pleadings make complaints in respect of the matters described above. As I have said, there is considerable overlap in relation to the matters and in many respects the complaints are interconnected. Multiple causes of action are relied on in relation to each of the matters of complaint. The causes of action relied on are: * Breach of the relevant contract of retainer; * Breach of a duty of care owed under the general law; and * Misleading or deceptive conduct in contravention of provisions of the Fair Trading Act. Almost, but not entirely, identical facts are relied upon to support each distinct cause of action. The distinction between the causes of action is of significance for several reasons. First, it may have a bearing on the measure of damages. Secondly, it is important because of the intervening bankruptcy and subsequent discharge from bankruptcy of Tony Woodward. Thirdly, it may have a bearing on the vicarious liability of Brian Woodward, Mary-Ann Woodward, Mr Rigney and Ms Bolton for the conduct of Tony Woodward, as their alleged partner.
2. Mrs Ritchie makes complaints not only about the making of the loan of $500,000 to Oxford Property in December 2006 but also about investment by Rujo in units of the Oxford Trust, the making of the $1 million loan by Rujo in June 2006, the investment by Rujo in the Mansions Trust and the making of the $500,000 loan by Barona in December 2006, as well as the provision of ongoing advice and services. She does so on the basis that she funded the investments by Rujo and Barona by drawings under the margin loan facility. She claims that she incurred losses by reason of those drawings. It was not suggested that Rujo and Barona would not be able to repay loans made to them by Mrs Ritchie. The complaints by Rujo and Barona mirror the complaints by Mrs Ritchie in relation to the areas where they are respectively directly concerned. I have summarised in the First Schedule to these reasons the allegations made in relation to each of the matters of complaint.

The Evidence

1. It is not entirely clear why separate proceedings were commenced by each of the plaintiffs. There is a great deal of overlap between the three proceedings and the transactions about which complaint is made by the plaintiffs. In any event, in the course of case management of the proceedings, orders were made that the three proceedings be heard together and that evidence in any one be evidence in the others.
2. The parties prepared a court book consisting of more than 13,000 pages contained in 16 ring-back folders printed on each side of the page. The first two folders consisted of the pleadings and affidavits. The other 14 folders consisted of copies of the exhibits to various affidavits. There were thousands of documents and there was considerable duplication. At the end of the day, the 14 volumes were reduced to 5 that were actually tendered. Because the documents were organised according to the exhibit identification in the affidavits, the documents were not in chronological order and there were no identifiable categories in any given exhibit. More inconveniently, no attempt had been made in copying to ensure that each document began with a new page. Rather, the first page of large numbers of documents was printed on the last page of the previous document.
3. Clearly, the production of court books in the fashion described is counterproductive to the efficient organisation of material in a case such as this. A greater level of court management could have made the conduct of the proceedings more efficient, not only for the Court but for counsel and solicitors acting for the parties.
4. The case was fixed for hearing over three weeks. In fact, the hearing lasted for four weeks, although there were two days when I had prior commitments in the morning and could not sit, and there were several days when the parties sought adjournments to enable further preparation to be conducted. The trial took place in May and early June 2016 and the great bulk of these reasons was completed within a reasonably short time after the end of the hearing. However, the matters just outlined, coupled with changes in my staff, have resulted in the proofing and finalisation of the reasons taking considerably longer that I would have hoped.

Evidence of Mr and Mrs Ritchie

1. Prior to the commencement of the hearing, affidavits had been filed on behalf of the plaintiffs and the defendants. Affidavits were sworn by Mr Ritchie and Mrs Ritchie in which they outlined in considerable detail their background and their relationship with BP Woodward & Associates and the various defendants. More particularly, in the affidavits, Mr and Mrs Ritchie deposed to conversations that they had with Tony Woodward in connection with the various investments that are the subject of these proceedings. They also deposed to their thought processes in connection with the investments descried above.
2. Affidavits were also sworn by Mary-Ann Woodward, Tony Woodward, Mr Rigney and Ms Bolton. The affidavits of Mr and Mrs Ritchie, on the one hand, and Tony Woodward, on the other, demonstrated significant differences as to the terms of the conversations alleged to have taken place. Having regard to prospective conflict in the evidence, I directed that any evidence as to conversations between Mr and Mrs Ritchie, on the one hand, and Tony Woodward, on the other, as well as evidence of thought processes and states of mind of the witnesses, to the extent relevant, should be given viva voce. Accordingly, the affidavits of Mr and Mrs Ritchie were read with the excision of paragraphs relating to conversations and thought processes and they gave that evidence viva voce.
3. However, when the cases of the plaintiffs closed, counsel for all defendants indicated that they did not propose to read any of their affidavits or call any viva voce evidence. In the event, therefore, there was no conflict of oral evidence. Nevertheless, contentions have been advanced on behalf of the defendants that the evidence of Mr and Mrs Ritchie should not be accepted at face value, having regard to the way in which their evidence was given and in the light of contemporaneous material.
4. Mrs Ritchie's evidence as to the location of some discussions was inconsistent with that of Mr Ritchie. For example, Mrs Ritchie said that a discussion concerning a loan took place in Tony Woodward's office and subsequently said that the discussion took place at the Oxford Hotel although Mr Ritchie, in answering a later question, referred to that discussion in a restaurant. While Mrs Ritchie's evidence was sometimes confused, I consider that the confusion may have resulted from the way in which she was asked questions about various meetings. For example, she was not taken through the various discussions in chronological order but was asked questions about different transactions at different times and out of chronological order. Mrs Ritchie gave the impression, when giving evidence about her reasoning and thought processes, that she was anxious to demonstrate her reliance on Tony Woodward. In particular, she was anxious to confirm that Tony Woodward had spoken of good cash flows from the Oxford Hotel, which, for reasons that will appear below, seems unlikely. Nevertheless, I consider that she made a fairly reasonable effort to give truthful evidence as to her recollections of the discussions that took place.
5. Mr Ritchie, on the other hand, created a different impression. He was very anxious to emphasise at any opportunity, whether in response to questions or not, his reliance upon Tony Woodward and the assurances that Tony Woodward had given him. In particular, some of his answers in relation to cash flow of the Oxford Hotel business were quite unconvincing. I therefore do not regard as reliable much of his evidence as to thought processes and reasoning that led to the making of the investments in question. I shall refer to those matters below.

Valuation Evidence

1. The defendants placed considerable store on the valuation reports that were available to Tony Woodward at the time when he invited investment by Rujo in the Oxford Hotel and the Mansions Hotel. It is therefore desirable to say something more about those valuation reports.

The 2005 Oxford Valuation

1. The 2005 Oxford Valuation described the Oxford Hotel as an older style, four level hotel comprising a cellar, ground level public bar and gaming room, first floor bar and wash up area and upper level bar and manager's office and roof top signage. An adjoining ground floor retail space was said to have been leased independently by the operator for use as a designated gaming room with associated bar. The 2005 Oxford Valuation also stated that a large advertising sign board, subject to lease, was located on the roof top of the Oxford Hotel, enjoying significant exposure to westbound and northbound traffic along Oxford and South Dowling Streets. After an executive summary, the valuation gave an overview of the licensed hotel market and an overview of outdoor signage.
2. In the hotel market overview, the 2005 Oxford Valuation stated that the Oxford Hotel was situated in a locality generally regarded as an entertainment precinct, which offered extended trading hours and featured a variety of retail outlets, restaurants, hotels, night clubs and various other entertainment venues and had attracted interest from small business operations occupying offices situated in buildings of lower rent as compared with the central business district. It stated that the Oxford Hotel is regarded a somewhat of an "icon establishment" and is heavily reliant on the "gay community" for its patronage.
3. The overview then went on to say that the licensed hotel market remained active throughout 2004 and into 2005 in a continuation of the activity demonstrated throughout the 2002 and 2003 calendar year and that that activity appeared to have been encouraged by a number of indicators including the continued low interest rate environment, strong underlying alternate use potential of many hotels and legislative changes in relation to gaming duty that had alleviated a degree of market uncertainty. The overview said that a recent government announcement to introduce legislation progressively banning smoking within all restaurants, clubs and hotels by 2007 had created apprehension amongst operators within the industry and that the general perception was that the introduction of that legislation would likely result in a negative effect on trading levels, particularly country hotels that were renown to comprise a higher percentage of smoking patrons.
4. The overview observed that there had been increasing evidence of hotels being sold both publicly and privately above $10 million in the Sydney market. Traditionally, when hotels of that level were offered to the market, they were generally sought after by high net worth existing industry participants or syndicate and corporate purchases. The overview said that the market was dominated by existing industry participants who were looking to utilise their management skills to increase returns and also achieve economies of scale through amalgamation of accounting and management functions and increased buying power.
5. The 2005 Oxford Valuation then contained a section titled "Income Analysis" in which it stated that hotel operations generally report trading and profit and loss information under the standard accounting convention where gross revenue less cost of goods sold equates to gross income and all expenses are deducted to show a net profit. Profit and loss statements in that format were prepared in respect of the Oxford Hotel for taxation purposes and included non-cash and owner specific expenses, such as depreciation, motor vehicle expenses and interest on borrowings. The valuation observed that such items, where applicable, needed to be added back to the profit to establish a net trading surplus. The author of the valuation was provided with trading results for the financial years ended 30 June 2003, 2004 and 2005 and copies of the financial statements were attached to the 2005 Oxford Valuation.
6. Reference was then made to the extension and renovation works undertaken to the ground floor of the Oxford Hotel that had resulted in an extended main bar area and a designated gaming room with associated bar and bistro seating area in addition to an outdoor seating area. The valuation observed that management had indicated the renovation works were undertaken over a six month period in September 2004 and that those works, coupled with substantial streetscape works undertaken by Sydney City Council had negatively affected the level of trade in the Oxford Hotel during that period.
7. The valuation then contained a commentary in relation to the income and expense levels of the Oxford Hotel, set out a table summarising the financial performance from the trading information referred to above and contained the author's assessment of revenues, expenses and net trading surplus. That resulted in an assessment of a net trading surplus, after adjustments and before interest and depreciation, lease hire purchase and taxation, of $2,013,644.
8. The valuation then stated that, in order to verify the financial information as provided to the author, the author had examined various aspects of the operations of the Oxford Hotel and, where possible, had reconciled the information provided with financial data obtained from independent sources. Reference was made to the most recent gaming duty statements for the Oxford Hotel.
9. The next section of the 2005 Oxford Valuation is entitled "Sales Evidence". In that section, the author referred to his examination of recent market activity, saying that he had had particular regard to evidence of recent sales of hotels in Redfern, Kings Cross, Woollahra, Woolloomooloo, Sussex Street and Leichhardt.
10. The author then outlined the rationale for the valuation basis adopted, saying that the most appropriate approach for the valuation of a licensed hotel as a going concern is to capitalise the net trading surplus, as determined in the valuation, at a yield determined from a comparison with the sale of similar interests. The author said that, in making his assessment of the appropriate approach, he had had regard to sales history, highest and best use of the Oxford Hotel as a licensed hotel with rooftop signage and the capitalisation method, whereby the net maintainable income generated by the property is capitalised at an appropriate market yield to establish the property's market value. The hotel operation income and signage income were assessed independently.
11. Having regard to the sales evidence and current market and economic conditions, the author of the 2005 Oxford Valuation concluded that a yield in the range of 10.5 per cent to 11 per cent was applicable to the Oxford Hotel. On the basis of the assessed net trading surplus of $2,013,644 and a capitalisation rate range of between 10.5 per cent and 11 per cent, the value of $19 million was adopted. The figure of $4,150,000 was adopted for the signage, giving a total value of $23,150,000.

The 2006 Mansions Valuation

1. The 2006 Mansions Valuation described the Mansions Hotel as consisting of two interconnected five-storey hotel buildings constructed around the 1930s and 1890s. The ground floor comprised a public bar, bistro, separate bottle shop and grand gaming room, with the upper floor levels providing some 70 accommodation rooms. The upper levels were stated to be vacant and in poor condition and state of repair at the time of valuation.
2. The 2006 Mansions Valuation stated that, in arriving at an opinion of market value, Knight Frank had valued the Mansion Hotel as an operational entity having regard to the trading potential, inclusive of the trade furniture, furnishing, plant and equipment. Knight Frank assumed that the Mansions Hotel would continue to have the benefit of all necessary licences, trade furniture, furnishing, plant and equipment to enable it to continue in full operation as a business entity. The valuation did not include stock in trade.
3. After dealing with property details, land and locality and improvements, the 2006 Mansions Valuation gave a "market overview". The market overview dealt with the following topics: * gaming history in hotels in New South Wales, * hotel gaming device duty changes in New South Wales, * banning of smoking in hotels and clubs from 2007, * increase in numbers of gaming machine licences, * hotel investment market, * sales activity.
4. The 2006 Mansions Valuation stated that the hotel sector of the market continued to enjoy unprecedented demand in the marketplace. It said that the low cost of funds and substantial weight of money available for investment across all sectors of the property market continued to drive property and business related yields to historically low levels. It observed that, while most market observers were wary of the yields being accepted for businesses, Knight Frank were cognisant of what appeared to be a fundamental shift in the marketplace, which was resulting in a re-rating of hotels as an investment class. The author observed that the previous 12 to 24 months had seen the emergence of a number of new corporate and private consortia buyers in the market, which, together with successful longer term hotel operators, were actively seeking hotel opportunities where they could utilise their management skills to increase revenues, achieve economies of scale to increase their buying power and reduce overhead costs through amalgamation of administrative functions. The opinion was expressed that competition by those larger groups to acquire additional stock had added to the downward pressure on yields for not only larger hotels but also lower to mid-priced hotels. The opinion was expressed that gaming remained a central focus to operators, due to its direct impact on profitability.
5. For the purposes of its valuation, Knight Frank had been provided with an unaudited weekly profit and loss trading and turnover reports in respect of the Mansions Hotel for the periods ending 30 June 2003, 2004 and 2005. Based on those financial statements and Knight Frank's experience of similar style and operated hotel facilities, a 52 week trading statement was prepared to derive an estimated net annual profit before interest, income tax, depreciation and amortisation, which Knight Frank used for valuation purposes.
6. In preparing the trading statement, Knight Frank acknowledged the location and nature of the Mansions Hotel, checked the revenue, where possible, and estimated expense items based on Knight Frank's understanding of the operation of the Mansions Hotel and their experience with similar facilities. Bearing in mind that the financial statements were not audited, Knight Frank assumed that the figures were a true representation of the trading history of the Mansions Hotel. The plaintiffs have not suggested that the figures provided to Knight Frank were in any way misleading or unreliable.
7. Based on the financial data provided, Knight Frank prepared a chart comparing historic average weekly bar and bottle sales, gaming revenue and other sales over the period from 1 July 2003 to 30 June 2006. Knight Frank checked the gaming revenue data with data from the Department of Gaming and Racing. That check revealed small differences in the gaming revenues provided with the financial statements but in general terms the Department of Gaming and Racing data supported the gaming revenues provided.
8. Based on industry benchmarks and Knight Frank's data base of comparable hotel operations, Knight Frank adopted a gross margin of 47.8 per cent. Since no operating expenses had been provided to Knight Frank, for valuation purposes, Knight Frank estimated operating expenses based on industry benchmarks and their experience of similar facilities. They assessed earnings before interest, income tax, depreciation and amortisation, based on the assumption of competent management. Based on their estimates, Knight Frank assessed the net operating profit as $1,876,736 per annum, reflecting 35 per cent of turnover. A trading history based on the financial information provided and Knight Frank's assessment of trading was set out in the valuation.
9. In dealing with "risk analysis" the 2006 Mansions Valuation restated that the Mansions Hotel is a substantial five-storey hotel, operating solely from the ground floor, the four upper levels being closed off, in poor state of repair and condition and vacant. The ground floor accommodation was considered to be in fair condition and state of repair, with the layout adequate, providing public bar with staff across to the adjoining bottle shop, a bistro, a lounge room and a grand gaming room with bar, at the rear. Knight Frank considered that, given the size of the upper level areas, there may be further redevelopment potential available to the property, subject to Council approval and determination of the economic viability of any refurbishment and redevelopment works. The valuation observed that Mr Gavin, as representative of the proposed purchaser, had advised that it was proposed to investigate refurbishment and redevelopment options for the upper levels but no details were available as at the date of valuation. Notwithstanding that Knight Frank were unable to determine the economic viability and added value, if any, of refurbishment and redevelopment of the upper levels, they considered that a prospective purchaser would acknowledge the underutilisation of the upper levels and the potential for refurbishment and redevelopment.
10. In dealing with sales activity, Knight Frank had regard to hotel sales in Manly, Penrith, Bondi Junction and Kings Cross for prices between $8,900,000 and $47,500,000, demonstrating estimated yields of from 7.4% to 10.5%. Knight Frank concluded that, in the light of their estimation of current maintainable earnings of $1,876,736 and a capitalisation rate of 8.50%, the current market value of the unencumbered freehold interest in the Mansions Hotel on a going concern basis, was $22,000,000.
11. It is highly significant that no criticism at all was addressed to the methodology or the assumptions adopted in either the 2005 Oxford Valuation or the 2006 Mansions Valuation. On their face they appear to be thorough and well-reasoned. Nothing was advanced to suggest that there was any error or want of diligence on the part of Tony Woodward in relying on the valuation.
12. Each of the 2005 Oxford Valuation and the 2006 Mansions Valuation demonstrates a highly detailed approach to the review of the hotel industry generally, the area in which the hotels are located and the internal layout and efficiency of operation of each of the particular hotel. In each case, the valuer then formed a view about maintainable earnings, comparing results with industry standards and making adjustments, if thought necessary, to arrive at a realistic and accurate picture. The details were checked against objective evidence, such as gaming returns and liquor licensing returns as well as industry standards, to validate the data being reviewed. In their reports, the valuers conducted an analysis of comparable sales of hotels and the yield on which they were sold in order to assess a market yield applicable to the hotel under consideration. That involved highly specialised knowledge that was essential to the assessment of the true worth of the relevant business.
13. On the basis of the evidence before me, there is no reason to conclude that reliance upon the 2005 Oxford Valuation and the 2006 Mansions Valuation for the purposes of considering possible investment in the Oxford Hotel and the Mansions Hotel was unreasonable. There is nothing to suggest that reliance on those valuations involved a want of diligence or lack of care as a basis for advising that the price to be paid for the Oxford Hotel and the Mansions Hotel represented a reasonable investment.

Professional Standards

1. The plaintiffs relied on evidence given by Mr Charles Cupit, a chartered accountant as to whether, during the period January 2006 to August 2009, any professional pronouncements existed that were mandatory and binding upon members of the Institute of Chartered Accountants and entities practicing as chartered accountants, prescribing standards of professional conduct and with which peer professional chartered accountants would have expected professional chartered accountants would have complied. Mr Cupit identified a number of pronouncements by the Australian Society of Certified Practising Accountants (the Society) and the Institute of Chartered Accountants in Australia (the Institute) as well as the Accounting Professional and Ethics Standards Board (the Board) relating to professional conduct and ethics of accountants. The plaintiffs attached some store to the pronouncements, although it is difficult to see that the material in question advances the matters in issue in these proceedings.
2. In May 2002, the Institute and the Society published a Code of Professional Conduct, which was subsequently revised and reissued (CPC). CPC was designed to provide members with authoritative guidance on minimum acceptable standards of professional conduct. The Board published a Code of Ethics with effect from July 2006 (APES 110). APES 110 states that compliance with it is mandatory for all members of a professional body that has adopted the code as applicable to their members. Both publications called for compliance with fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. The latter also calls for compliance with the fundamental principles of the public interest, independence, technical and professional standards, and ethical behaviour.
3. The plaintiffs contend that, in determining what would be widely accepted by peer professional chartered accountants as the actions a reasonably competent and skilled chartered accountant in performing accountancy services would have taken in advising clients and in determining whether such accountants failed to take all the appropriate actions, regard must be had to the framework established by CPC and APES 110, in combination with the circumstances of the particular client, such as the following: * The nature of the client, * The client's abilities, * The expected level of dependence of the client, and * The degree of trust the client has in the advisor.
4. Thus, they say, a client with limited financial experience with material wealth, and with no apparent financial expertise or experience and limited ability to understand complex financial transactions, would require a higher level of professional services. Further, there is a direct correlation between the level of professional services required and the level of dependence that a client has on his or its accountant and higher levels of dependence are regularly associated with higher levels of trust.
5. APES 110 provided that, before accepting a new client relationship, an accountant should consider whether acceptance would create any threats to compliance with the fundamental principles. Appropriate safeguards may include obtaining knowledge and understanding of the client, its owners, managers and those responsible for its governance and business activities or securing the client's commitment to improve corporate governance practice or internal controls.
6. The plaintiffs contend that it was incumbent upon an accountant in Tony Woodward's position to obtain an understanding of his client and the client's circumstances, needs and long term objectives since, without such knowledge, the accountant would be incapable of providing appropriate advice to the client. They contend that any limitations in the level of financial expertise of a client should be identified at the time of commencing an engagement and later, at material times during an ongoing engagement. They say that an accountant would be expected to structure the scope of services and advice provided accordingly.
7. Be all of that as it may, it is clear that Tony Woodward had a very good understanding of the circumstances of Mrs Ritchie, as well as Rujo and Barona. He was well aware of the extent of the financial expertise exhibited by Mr and Mrs Ritchie. He was sufficiently apprised of their needs and long term objectives. There was no failure on his part to comply with CPC or APES 110.

Mr Cupit's Opinion Evidence

1. The plaintiffs also relied on opinion evidence contained in reports by Mr Cupit concerning steps that would be regarded as necessary to be undertaken by a competent and skilled chartered accountant when giving advice, as a matter of reasonably competent practice, in relation to the specific transactions involved in these proceedings. Mr Cupit originally prepared a report of 20 February 2013. That report was ultimately not pressed, having regard to the form of the report and the state of the evidence. Ultimately, two reports by Mr Cupit were admitted over objection. The first is a report of 17 May 2016 and the second is a report of 19 May 2016. Both were admitted subject to excision of material that I considered was not admissible or should otherwise be rejected. Substantial parts of the report of 17 May 2016 were admitted only as submissions.
2. Mr Cupit's original instructions were to express an opinion as to what steps would be regarded as necessary to be undertaken by a competent and skilled chartered accountant when giving advice in relation to the specific transactions involved in these proceedings. He was provided with a detailed timeline of the relationship between Mrs Ritchie, on the one hand, and BP Woodward & Associates, on the other. He was given a detailed "profile" of Mr and Mrs Ritchie concerning their education and experience. In essence, Mr Cupit's original instructions required him to express an opinion as to the ultimate issues that arose for determination by the Court.
3. I had considerable reservations as to whether any of Mr Cupit's reports should be admitted. Having regard to the information provided to Mr Cupit, as part of his instructions to express an opinion as to the ultimate issues, I consider that little weight should be given to his opinions. Substantial parts of both reports were rejected on the basis that they would bear little weight and would have added considerably to the time and costs of the proceedings. Mr Cupit's responses in cross-examination tended to suggest that he regarded his role as being an advocate for the plaintiffs. He was reluctant to make concessions where concessions were clearly appropriate.
4. Specifically Mr Cupit was asked to provide his opinion on the following questions as follows: 1. What would have been widely accepted in Australia during the period January 2006 to August 2009 by peer professional chartered accountants as the actions that a reasonably competent and skilled chartered accountant should have taken in relation to the transactions involved in the proceedings as a matter of reasonably competent practice: 1. if the accountant was retained to provide chartered accounting services, accounting advice, accounts preparation and book keeping, taxation advice, taxation compliance, financial reporting, financial planning, documentation and due diligence services in respect of possible investments, and, alternatively, 2. if the accountant was retained to provide chartered accounting services, accounting advice, accounts preparation and book keeping, taxation advice, and taxation compliance. 1. What steps would peer professional opinion among professional chartered accountants in Australia in the period 2006 to August 2009 regard as necessary to be undertaken by a reasonably competent and skilled chartered accountant who was retained in those terms when the chartered accountant was giving advice to clients in relation to the transactions involved in the proceedings and was monitoring the performance of each investment and reporting to the clients in relation thereto. 2. Whether there was a usual practice among competent chartered accountants in or about 2006 when it came to advising their clients prior to entry into private equity investments and loan transactions of the type involved in these proceedings. 3. If so, what was the practice of competent chartered accountants when it came to advising clients prior to entry into such transactions, limited to the performance of due diligence.
5. Mr Cupit expressed his opinion concerning the requirements of competence and care in connection with potential investments by a client of a chartered accountant in the position of Tony Woodward. What follows is a summary of Mr Cupit's opinions, together with relevant responses given by him in cross examination.
6. Mr Cupit said that, before providing advice to a client regarding potential investments, a chartered accountant would need to be suitably qualified and have the requisite experience. Such an accountant would advise the client of the need to assess properly the financial information pertaining to the proposed investments and assist the client by conducting a thorough, objective analysis of key financial aspects of the type of investments such that the client is able to make evaluations of the relevant financial information and draw conclusions with confidence about the relative risks and merits of the investments. When considering an investment opportunity in a property or business presented to a client, a competent accountant would obtain a clear understanding of the financial and qualitative aspects of the business prior to providing advice in relation to the investment, so that the accountant would be in a position to advise on the appropriateness of that investment, taking into consideration the client's circumstances.
7. In particular, Mr Cupit said, such an accountant would make an analysis of: * the details of the equity structure, including a review of the history of the structure; * the mix of debt and equity to be employed and the risk to equity, including the cost of funding and periods of renovations when cash flow might be restricted or non-existent; * details of equity partners and their relative participation proportions; and * the timeframe of the investment and the overall exit strategy and points at which, and the means whereby, the investor might exit the investment. Such information should be communicated to the client to ensure that the client was fully informed prior to making the investment.
8. Mr Cupit also said that, when advising a client in relation to an investment in a business, a competent accountant would have "undertaken due diligence" to enable the accountant to obtain sufficient understanding of the business to enable him or her to advise the client of the likely success of the business and the risks involved if expected outcomes are not achieved, in order to determine whether there is a risk of the business not performing as expected. In order to determine whether there was a risk that the client was paying an excessive purchase price and to determine the ongoing viability of the investment and the likely return on investment, the accountant would, as a minimum: * review prior years' results to determine a pattern of trading; * review industry factors to determine whether there are unforeseen circumstances that might affect ongoing performance of the investment; * review balance sheets to determine the strengths and weaknesses of the business and any potential liabilities that could affect the assumptions underlying projections on the future viability of the business; * review past budgets and forecasts with actual results to obtain an assessment of past performance and compare with future forecasts and cash flow projections and consider any likely changes to prevailing trading conditions; * review business plans; and * consider trading opportunities and risks to the stability of ongoing performances. Mr Cupit said that such action is necessary for all private equity style investments because the equity risk cannot be spread sufficiently to minimise the risk to any particular investor.
9. Mr Cupit also expressed opinions concerning the particular investments involved in these proceedings. He was asked whether there was a usual practice amongst reasonably skilful and diligent chartered accountants in relation to proposed private equity investments and loan transactions of the type in question in these proceedings. He outlined the action that he said such a chartered accountant would take.
10. Thus, Mr Cupit expressed the opinion that, in connection with proposed participation in a syndicate to purchase a property such as the Oxford Hotel or the Mansions Hotel and entry into borrowing arrangements to finance such an arrangement, a chartered accountant would "undertake suitable due diligence" of the investment, including reviewing past performance, budgets, forecasts, cash flow projections and an assessment of the immediate economic environment, and would conduct some form of risk or sensitivity analysis pertaining to the hotel and location and would review the group structure for suitability. The accountant would perform a net present value analysis of the investment, including analysing timing of returns and would conduct an analysis of the variance of actual results from past budgets. The accountant would then explain the analysis and ensure that the client understood all aspects prior to proceeding with the investment.
11. Mr Cupit expressed the opinion that, where such a chartered accountant was advising a client in relation to a proposal such as that outlined in the letters from Tony Woodward of 20 February 2007 concerning the recommendation to raise equity, refinance and merge the hotels, such a chartered accountant would first obtain a clear understanding of the expected outcomes of the proposed merger and the benefits to the client and the risks involved. The accountant would then undertake suitable due diligence of the investment, including reviewing past performance, budgets, forecasts, cash flow projections and an assessment of the immediate economic environment and conduct some form of risk or sensitivity analysis pertaining to the hotels and the location.
12. Mr Cupit said that the accountant would understand the debt servicing and debt amortisation strategy and make an assessment of the capabilities of the merged group to fund the debt servicing. The accountant would understand potential investment strategies and would perform a net present value analysis on the investment, including analysis of timing of returns. The accountant would then consider and explain the impact of the proposal on any loans that the client may have made to any of the entities that were the subject of the merger proposal and would explain any variations to securities and the ranking of priorities, any variations in terms and the risk of non-payment.
13. Mr Cupit defined due diligence as the process of investigation undertaken prior to a proposed transaction in order to develop a better understanding of the transaction and reasonable assurance that the outcomes of the transaction would be as contemplated. He said that such investigation may vary anywhere between highly specialised, detailed investigative work and a simple analytical review.
14. Mr Cupit said in cross-examination that he would not expect to receive instructions to perform a due diligence. He explained that his references to "due diligence" were intended to refer the opinions outlined above concerning what would be involved in due diligence. He said that a client would often come along and say that he was buying a business and it was common practice to suggest to the client that a due diligence should be performed. Following that, the client may or may not give instructions to perform a due diligence. He accepted that if the client is already involved in the business or a like business, the client may have a very good understanding of the business that it was proposed to buy.
15. In that regard, it is significant that, in relation to the Vegas Hotel, Mrs Ritchie did not instruct Tony Woodward to undertake a due diligence of the business of the Vegas Hotel in order to permit her to consider whether she would acquire an interest. She said that Tony Woodward told her he had done it. She agreed that he said he had done work and that she understood that he had considered that he should invest. However, he did not tell Mrs Ritchie that he had done work on her behalf. She agreed that, if she had engaged him to produce a report or any other form of consideration of the merits of the transaction from her point of view and she had not received it, she probably would not have invested.
16. Mr Cupit gave evidence as to the reasonable cost of the relevant due diligence work; for the Oxford Hotel investment transaction being between $10,000 to $30,000, and for a transaction involving the Mansions Hotel being between around $10,000 to $20,000. Neither Mrs Ritchie nor Mrs Ritchie gave evidence that they would have been prepared to pay for a due diligence investigation in any particular sum.
17. In cross-examination, Mr Cupit was asked about the 2005 Oxford Valuation. He agreed that it considered the weekly income of the Oxford Hotel and the relationship between the weekly income and selling prices of various comparable hotels listed in the report. Mr Cupit accepted that the 2005 Oxford Valuation was saying that, on the face of it, in relation to its existing performance, the value of the Oxford Hotel was $23,150,000. Mr Cupit did not suggest that any material that he had seen suggested that LandMark White got their valuation wrong. As indicated above, Mr Cupit included "a simple analytical review" as the type of investigation that might be undertaken by way of due diligence. Nevertheless, in cross-examination, he resisted the proposition that the exercise conducted by LandMark White in the 2005 Oxford Valuation was due diligence because, he said, it was only an "analytical review". That attitude causes me to have significant reservations about accepting Mr Cupit's opinion evidence.
18. The first step of due diligence described by Mr Cupit was reviewing prior years' results to determine a pattern of trading. He explained in cross-examination that he was referring to the pattern of a business over time, on the basis that the client was buying, and was intending to continue to conduct an existing business. He treated that as a historical baseline that would be a useful starting point before analysing the assumptions upon which it was assumed that the pattern of trading would change.
19. When asked how he would determine if there were any unforeseen circumstances by reviewing industry factors, Mr Cupit said that he would use factors that might exist within the international economy or within a local area to determine whether there was something that had not yet been factored in and that he would then analyse that on the basis of the probabilities of something occurring. He agreed that it was possible that one of the things that he would want to consider was whether experts in the industry had foreseen circumstances that might affect ongoing performance, depending upon whether the experts had expertise in all areas. He agreed that reviewing industry factors involved asking questions of experts in the industry, people who had the opportunity to look at many facets of the industry and many operators in the industry. It is difficult to understand how an accountant would be able to ascertain "unforeseen circumstances" and by whom such circumstances had not been foreseen.
20. Mr Cupit agreed that his reference to determining the strengths and weaknesses of the business by reference to the balance sheet involved an assessment of assets and liabilities and the equity in the business. He agreed that the description of the assets in the balance sheet was next to useless but said that one needed to have consideration for what had been disclosed and what had not been disclosed in the balance sheet. Mr Cupit agreed that, where one was buying a business on a multiple of earnings, one does not pay separately for the assets, except to the extent that the assets are surplus to the requirements of running the business.
21. Mr Cupit agreed that one looks at past budgets and forecasts to decide whether or not the projections were realistic. He agreed that, to the extent that one could have expert guidance in relation to those forecasts, one should have regard to the views of the expert.
22. Mr Cupit agreed that he would be considering likely changes to prevailing trading conditions of the particular business in question. He had in mind anything that might affect trading and that he would review the material in order to determine likely changes to the prevailing trading conditions and make an estimate of future trading conditions. He asserted that an ordinary feature of an accountant's work is to form a view about the prevailing trading conditions for business in respect of which the accountant has been asked to conduct a due diligence. He said that, if he formed a dismal view on the prevailing trading conditions that would significantly diminish the value of the business although others may significantly disagree as to whether or not such a dismal forecast was correct. He agreed that one of the matters that might affect views is whether the people who are going to be responsible for the trading have demonstrated themselves to be capable of trading successfully.
23. Mr Cupit agreed in cross-examination that, when he expressed his opinion that a due diligence involved reviewing past budgets, he assumed that the vendor of the business had in fact been budgeting and forecasting and had available budgets and forecasts to be compared with actual results of the business. He agreed that such an assessment is an assessment of how good management was at budgeting or achieving a budget. Mr Cupit also agreed that, when looking at the budgeted and actual figures for a business, he would "normalise" the figures, in that he would seek to remove from the figures matters that were idiosyncratic to the entity then operating the business and to put into the figures estimates or clear figures in respect of matters that had been omitted from the existing operator's systems that he thought were necessary to conduct the business. As a result, he would arrive at a bottom line figure that, so far as possible, reflected a business being appropriately managed.
24. Mr Cupit also agreed in cross-examination that, when reviewing industry factors, and asking questions, he would consult experts in the industry, being persons who had the opportunity to look at many facets of the industry and many operators. He would accept that what the experts concluded would be the likely future for the industry and would be a reliable place to start in forming a view about the future of an individual enterprise within that industry. In particular, Mr Cupit agreed that he would have regard to the views of such experts in relation to forecasts, particularly if they involved some change in the configuration of the business being anticipated. With the assistance of the experts' views, he would arrive at a figure to determine whether or not an excessive price was being paid. In order to determine whether an excessive price was being paid, he would ordinarily look at or consider the maintainable earnings in relation to the business, with a market yield applied to them, since that would indicate what the business, if offered to the market generally, would probably realise, because the market yield applied to the income stream affects what people are actually paying for an equivalent asset.
25. Mr Cupit agreed that an expert valuer of a hotel compares the hotel in question with other hotels when considering what the appropriate market yield might be. Such an expert valuer considers what the weekly income of the hotel is, what the relationship between the weekly income and selling prices of comparative hotels is and derives a range of capitalisation rates to determine a capital value.
26. Mr Cupit said that the methodology used by LandMark White in the 2005 Oxford Valuation was an analytical review, which is "fairly top level" and that was not due diligence. However, he agreed that the valuer was doing "precisely" what he would do in a due diligence, namely, work out the existing income streams and expenses according to the accounts and form a view as to whether or not the figures were credible. If need be, he would consider external evidence to ensure that they were credible, removing any items that were peculiar to the existing owner, including anything that he considered the existing owner was not bringing to account as costs. Having derived maintainable earnings in that way, he would then work out what someone would pay for that income stream. Mr Cupit accepted that the LandMark White valuer had satisfied himself that the figures he was looking at, by the process just described, was sufficiently robust for him to form a valuation opinion on them. He also accepted that, in so far as they had been verified from external sources as to the gross income, such as statutory returns and the like, that would be a very strong form of assurance.
27. Mr Cupit said that he would not have confidence to give a valuation such as the 2005 Oxford Valuation to a client and tell the client that he or she could rely on the valuation to determine the valuation of the business. He said that he would want to verify the income and the expenses and would want to know what the expenses ought to have been and make adjustments accordingly and find out what the yield being required in the market was. However, Mr Cupit said, he could not tell how much of the work done by LandMark White was done by way of analytical analysis and how much of it was done by way of substantial testing.
28. Mr Cupit agreed that, if he was using actual figures based on the same level of work as the 2005 Oxford Valuation and had come up with the same figures, he would have come up with a valuation equivalent to that of the 2005 Oxford Valuation. Nevertheless, Mr Cupit maintained that the methodology of the 2005 Oxford Valuation was different from the methodology under a due diligence. Mr Cupit said that he would work out what had been done and work out what he had to do to satisfy himself that the valuation was correct. He said that he would probably look at income tax returns and business activity statements. Mr Cupit said that he could not say whether there was any material error in the 2005 Oxford Valuation because he did not do an analysis of the profit and loss accounts for the purpose of determining its value).
29. Mr Cupit was also asked questions about a further valuation of the Oxford Hotel carried out by LandMark White as at 20 June 2006 (the 2006 Oxford Valuation). By the 2006 Oxford Valuation, LandMark White valued the Oxford Hotel as a going concern and "as if complete" at $35 million. Mr Cupit's attention was drawn to a statement in the 2006 Oxford Valuation that the estimated expense level of the Oxford Hotel had been determined subsequent to review of estimates provided by management, utilisation of actual statutory amounts, and knowledge of industry expense parameters for a hotel operation of that type. Mr Cupit said that, before he accepted the 2006 Oxford Valuation, he would need to do work to determine the expertise and the quality of the work done by its author. He accepted that the 2006 Oxford Valuation could "pass muster" and may be valid but one might also do some ancillary work. He accepted that the 2006 Oxford Valuation might reduce substantially the amount of work that an accountant would do in his due diligence.
30. Mr Cupit agreed that in the 2006 Oxford Valuation, LandMark White considered a list of hotels that had changed hands at a price and that LandMark White were working out what the prices in actual transactions implied. Nevertheless, somewhat curiously, he was not prepared to accept that that constituted objective evidence because he did not know what work the valuer did, notwithstanding that the valuation sets out in some detail the work that the valuer had done. Mr Cupit insisted that there "is an element of testing that he may or may not have done". That is another example of the attitude exhibited by Mr Cupit that makes his opinion evidence less reliable.
31. Mr Cupit accepted that, in each of the valuation reports about which he was asked questions, the valuer described the same process of evaluation, verification and calculation that he himself described. Nevertheless, Mr Cupit would not accept that what LandMark White and other valuers had done relative to the hotels was the very process that he said that accountants would undertake to establish the market value of a hotel. That is an additional example of the attitude exhibited by Mr Cupit that makes his opinion evidence less reliable.
32. As I have said, the valuation reports in respect of the Oxford Hotel and the Mansions Hotel by LandMark White and Frank Knight, to which I have referred, demonstrate a highly detailed approach to the review of the hotel industry generally, the area in which the hotels are located and the internal layout and efficiency of operation of each of the particular hotel. In their reports, the valuers conducted an analysis of comparable sales of hotels and the yield on which they were sold in order to assess a market yield applicable to the hotel under consideration. That involved highly specialised knowledge that was essential to the assessment of the true worth of the relevant business.
33. Mr Cupit did not explain how that specialised knowledge would be within the reach of every accountant, except from reading a valuation by a competent valuer of the relevant hotel. Further, there was no evidence that all chartered accountants could be expected to bring that level of skill, knowledge and attention to the analysis and assessment of a particular hotel. It is therefore highly unlikely that a client, appraised of the assistance of such valuations from reputable valuers, would pay substantial fees to an accountant to replicate the exercise carried out by an experienced and competent valuer, such as LandMark White and Frank Knight in producing their respective valuation reports.

Mr Ferrier's Evidence

1. In addition to the affidavits of Mr and Mrs Ritchie, and the reports of Mr Cupit, the plaintiffs relied on reports of opinions tendered under s 79 of the Evidence Act 1995 (NSW) by Mr Rodney Ferrier, a forensic accountant. Mr Ferrier prepared reports quantifying the damages claimed in the three proceedings by Mrs Ritchie, Rujo and Barona. His reports of 21 February 2014 and 11 May 2016 were tendered and admitted without objection. I shall deal further with that evidence below.

The Issues in the Proceedings

1. The parties were unable to agree on a common statement of the issues raised in the three proceedings. I have set out in the Second Schedule to these reasons the statement of issues prepared by the plaintiffs. I do not propose to deal with the issues precisely as stated by the plaintiffs. However, their statement gives a fair indication of the complexity of the questions for determination and I have endeavoured to cover all of the issues mentioned in the statement.

Terms of the Retainer of Tony Woodward

1. It is common ground that Tony Woodward was under an obligation, in discharging any retainer by the plaintiffs, to exercise that degree of care, skill and diligence that it was reasonable to expect of a competent chartered accountant in performing such a retainer. There is, however, a significant question as to what the terms of any particular retainer were.
2. There is no business or commercial necessity for a professional person to inform a client of all matters that come to the knowledge of the professional person relevant to the financial affairs of the client. In the absence of an express term, the question of whether Retainer Term (b) would be implied would depend upon the nature of the relationship between the client and the accountant. Even if the relationship existed over a number of years, one would not ordinarily expect that a term would be implied that the accountant would inform the client of matters that came to the knowledge of the accountant relevant to the financial affairs of the client unless, over a period, the accountant had in fact acted to do so. On the other hand, if it were clear from the conduct of the accountant and client, over a period of time, that a practice has developed of the accountant informing the client of such matters, such that the accountant must be taken to have been aware that the client relied on the accountant for such information, such a term may arise by practice, but not by implication from the relationship alone.
3. In the present circumstances, there appears to have been a reasonably close personal relationship between Brian and Tony Woodward, on the one hand, and Mr and Mrs Ritchie, on the other. However, there was no evidence that Brian Woodward or Tony Woodward had adopted or engaged in a practice of informing Mrs Ritchie, Rujo or Barona of all matters that came to their knowledge relevant to the financial affairs of Mrs Ritchie, Rujo or Barona. There was no evidence of any reliance on such a practice. I do not consider that such a term was implied in any of the retainers.
4. Retainer Terms (c) and (d) are more concerned with the protection of the accountant. It would be in the interest of a chartered accountant to advise a client that matters had arisen that were outside the services that the accountant was professionally qualified to provide. If the accountant nevertheless undertook the provision of such services, the accountant would do so at his or her own risk, apart from the question of whether the accountant was providing services that he or she was not legally entitled to do so, for example, legal services. Further, in the absence of evidence as to what Mrs Ritchie would have done, whom she would have consulted, what advice she would have received if she had been advised by Tony Woodward that he was not qualified to give relevant advice, and how she would have acted with different advice, Retainer Term (c) leads nowhere.
5. Further, it is difficult to see where Retainer Term (d) would lead. There is no allegation of breach of a fiduciary duty on the part of Tony Woodward. There is no reason why commercial or business necessity would call for a contractual term such as Retainer term (d). If the relationship between client and accountant were a fiduciary one, which it probably is, [1] the law would impose consequences if the accountant put himself in a position where his personal interest was in conflict with his duty to the client. In the absence of an allegation in the present case of reliance on a fiduciary relationship, the alleged term appears to be irrelevant. In any event, it is clear that each of Mr Ritchie and Mrs Ritchie was aware of the interests that Tony Woodward had in the ventures in which they were to invest. Indeed, it was precisely because of his personal involvement that they were prepared to take the risk of investing.

Liability of Tony Woodward

1. Liability of the defendants depends upon whether Tony Woodward: * committed a breach of one of the contracts of retainer, * was guilty of a breach of a duty of care arising under the general law otherwise than under such a contract of retainer, or * committed a contravention of the Fair Trading Act.
2. I do not consider that the plaintiffs have established any breach of either an express term or an implied term of any of the retainers alleged. Further, I do not consider that they have established that Tony Woodward acted in breach of a common law duty to take care in his capacity as a chartered accountant in providing professional services in connection with the information he provided to them in relation to the various investments that are the subject of their complaints. Finally, I do not consider that Tony Woodward engaged in conduct that contravened the Fair Trading Act in the respects alleged by the plaintiffs. I shall now explain those conclusions.

The Obligation to Procure Security

1. The loans totalling $2 million made, by Rujo in June 2006 and Mrs Ritchie and Barona in December 2006, to Oxford Property, in its capacity as trustee of the Oxford Trust, took on far greater significance in the proceedings than was foreshadowed by the pleadings. In essence, the thrust of the complaint, as it appeared from submissions made on behalf of the plaintiffs, is that the failure to perfect security for the loans, and the omission by Tony Woodward to inform Mr and Mrs Ritchie of that failure, was causative of the loss not only of the amounts lent but also the investments in the Oxford Hotel and the Mansions Hotel. No complaint, of course, is made in relation to the investment in the Vegas Hotel.
2. The plaintiffs' case, as it emerged, is that there was a contractual obligation that Tony Woodward would arrange for the documentation of the loans and security for the loans to be drawn up executed and registered at the time when the loans were advanced, or within a reasonably short period of time thereafter. The security for the loans was to consist of charges or mortgages over the Oxford Hotel and the business of Indigo Mist. The plaintiffs accept that any such security would have ranked after the finance in excess of $16 million provided by the Commonwealth Bank for the purchase of the Oxford Hotel and after the proposed $5 million development facility for the renovation. According to the plaintiffs' argument, the security bargained for and obliged to be put in place would have been such as to empower the holder of it to be able to prevent the grant of security over the Oxford Hotel to Ashe Morgan Winthrop or to BankWest at the time of the $7 million borrowing in April 2007 or the $90 million borrowing in July 2007 respectively.

The Plaintiffs' Statements of Claim

1. The statements of claim are by no means clear in alleging that there was an express term of the retainers that Tony Woodward would arrange for the documentation of the loans and security for the loans to be drawn up executed and registered. Indeed, the argument said to support the pleading of such a term is somewhat convoluted.
2. As I have said, the statements of claim contain introductory averments alleging that "the Partnership" was retained to provide services, including, relevantly, "documentation … services in respect of possible investments". The introductory averments then allege that each of the retainers contained the four implied Retainer Terms. There is no express reference to any retainer in relation to loans or preparation of security for such loans. However, the statements of claim contain an allegation that, in the ordinary course of carrying on the Partnership business, Tony Woodward: 1. provided services in relation to the June loan and to the December loans, including advice as to the proposed use of the loan monies, the proposed interest rates on the loan and the proposed security arrangements (defined as "Jun 06 Oxford Hotel Proposed Loan Services" and "Dec 06 Oxford Hotel Proposed Loan Services"), and 2. "represented" in trade or commerce that Tony Woodward or the Partnership would arrange for the documentation of the loan and security for the June and December loans to be drawn up, executed and registered at the time that the loan was advanced, or a reasonably short period of time thereafter (respectively defined as "June 06 Oxford Hotel Proposed Loan Documentation Services" and "Dec 06 Oxford Hotel Proposed Loan Documentation Services").
3. Thus, while there is a clear allegation of a representation that Tony Woodward would arrange for "the Jun 06 Oxford Hotel Proposed Loan Documentation Services" and the "Dec 06 Oxford Hotel Proposed Loan Documentation Services", there is no allegation of a contractual promise that those services would be provided. In particular, there is no allegation of a promise to arrange for the documentation of the loan and for security for the loan to be drawn up.
4. Mrs Ritchie's statement of claim subsequently asserts as follows: 1. The Partnership owed Mrs Ritchie a duty of care with respect to the provision of services in relation to the loan proposed in June 2006, including the Jun 06 Oxford Hotel Proposed Loan Documentation Services, and 2. By reason of the allegations concerning the Ritchie Retainer and the Retainer Terms, the Partnership was obliged to comply with the Retainer Terms in respect of, and the Ritchie Retainer extended to, the provision of services in relation to the proposed loan in June 2006, including the Jun 06 Oxford Hotel Proposed Loan Documentation Services. The statement of claim then alleges that, in breach of that duty of care or, alternatively, in breach of the Ritchie Retainer, Tony Woodward, and the Partnership failed to perform the Jun 06 Oxford Hotel Proposed Loan Documentation Services. Rujo's and Barona's statements of claim make parallel allegations.
5. The representation that Tony Woodward would arrange for the June 06 Oxford Hotel proposed loan documentation services is defined as "the June 06 Oxford Hotel Proposed Loan Documentation Representations". Subsequently, the statement of claim alleges that Tony Woodward made further representations defined as "the June 06 Oxford Hotel Proposed Loan Requirement Representations". Next, the statement of claim alleges that each of the June 06 Oxford Hotel Proposed Loan Requirement Representations and the June 06 Oxford Hotel Proposed Loan documentation representations was false and that, in the premises, Tony Woodward engaged in conduct that contravened s 42 of the Fair Trading Act.
6. In circumstances where the statement of claim alleges a retainer to provide specified services that do not include arranging security documents and alleges a contravention of the Fair Trading Act by reason of making a representation that the loan documentation services would be arranged, I do not consider that the statement of claim fairly alleges that the failure to provide the loan documentation services constituted a breach of an express term of any of the retainers. Further, failure to perform those services would not be a breach of the alleged implied Retainer Terms. Whether there was a contravention of s 42 by Tony Woodward, acting in his capacity as a member of the partnership of BP Woodward & Associates, is another question, which I shall address below.

Evidence regarding whether Tony Woodward agreed to or represented that he would procure security for the loans

1. Whether or not the plaintiffs are entitled to rely on a term of the retainers that Tony Woodward would arrange for the documentation of the loans and security for the loans to be drawn up executed and registered, they clearly pleaded a representation that he would do so.
2. In support of the factual allegation that Tony Woodward agreed to arrange or represented that he would arrange for the documentation of the loan and security for the loan to be drawn up, the plaintiffs rely on the following: 1. The emails from Tony Woodward to Mr Ritchie of 7 June 2006 and 8 December 2006 (see paragraphs [87] and [93] above), which refer expressly to "security documents", 2. The conversations concerning security referred to above (see paragraphs [76]-[80], [90]-[91], and [93]), and 3. The preparation of two deeds of loan and the two fixed and floating charges, as described below. They say that the alleged express term was breached because, although draft documents were prepared in the name of Barona, no steps were taken to secure execution and registration of any such instruments. Tony Woodward provided no explanation for the failure to have the draft documents finalised, executed and registered. It must follow that, if the express term was in fact a term of the retainers, there was clearly a breach. Whether any loss or damage flowed from such breach, of course, is another matter. Further, while the representation was not made good, whether it was misleading or deceptive is also a different matter. That question is addressed below.
3. Four draft deeds produced on discovery by Tony Woodward were admitted without objection. Because none of the defendants gave evidence, the origin of the draft deeds was unexplained. The draft deeds were as follows: * Deed of loan between Barona and Oxford Property with a typed date "June 2006"; * Fixed and floating charge between Oxford Property and Barona with a typed date "June 2006"; * Deed of loan between Barona and Oxford Property with a typed dated "8 December 2006"; and * Fixed and floating charge between Oxford Property and Barona with a typed date "8 December 2006".
4. Each of the four deeds had the name of Barona ruled through in hand. There was also a handwritten note on each of the deeds of loan as follows: "JG: should be Rujo" The first deed of loan also had a handwritten note as follows: "$1 M at 10 per cent 12 months due 15/6/07 $1.1 M" The second deed of loan had a handwritten note as follows: "$1 M at 18 per cent. Six months due 8/6/07, $1.1 M"
5. Neither of the charges was expressed to be subject to any prior security. However, the first deed of charge had a handwritten note as follows: "JG: if bank agrees" In addition, the second deed of charge had a handwritten note as follows: "Bank?"
6. Mr Ritchie suggested that the handwriting was Tony Woodward's. In the absence of evidence from Tony Woodward, it is a matter of speculation as to who "JG" was. It may be that it was Mr John Garrett, a solicitor who was apparently subsequently consulted by Mr and Mrs Ritchie in August 2009.
7. On 10 August 2009, Mr Rigney, on behalf of BP Woodward & Associates, wrote to Mr Ritchie, saying as follows: "Attached herewith is the mortgage in support of the previously executed loan from Rujo to Oxford Property Investments. John Garrett has requested a copy of this. Would you please arrange for yourself and Diana to sign this mortgage where indicated at the bottom. Once it has been signed would you please return it to my office for filing with the company documents. I will forward a copy to Mr Garrett for his records. Should you have any queries in relation to this matter please do not hesitate to contact me." Attached to the letter was a form of mortgage of the Oxford Hotel by Oxford Property to Rujo. The form of mortgage was signed by Tony Woodward and Jason Gavin on behalf of Oxford Property. It was undated and was expressed to be subject to prior mortgages in favour of BankWest. The form of mortgage did not specify the indebtedness intended to be secured by it. While it stated that a registered memorandum filed in the Department of Lands was incorporated into the mortgage, no memorandum or any annexure referred to the mortgage was in evidence. There was no evidence to indicate the genesis of the letter.
8. Also attached to the letter of 10 August 2009 was a form of caveat on behalf of Rujo relating to the Oxford Hotel, whereby Rujo claimed an interest as mortgagee under an unregistered mortgage dated 13 October 2008. No such mortgage was in evidence, although the reference may well have been intended as a reference to the form of mortgage to which reference has just been made.
9. The documents described above are somewhat of a mystery. When the four deeds might have been brought into existence and by whom they might have been brought into existence are both matters of conjecture. The author of the handwritten notes on the four deeds and the drafter of the mortgage and caveat enclosed with the letter of 10 August 2009 appear to have believed that the loans made in June and December to Oxford Property were all made by Rujo. As indicated above, only the loan made in June was made by Rujo, the two loans made in December having been made by Mrs Ritchie and Barona.
10. The fact that each of the draft deeds names Barona as the lender suggests that they were brought into existence at some time after the making of the loans by someone who did not have a clear understanding of the arrangements. It seems more likely than not that no documents were brought into existence in June 2006 and that the documents were brought into existence on or shortly after 8 December 2006. All of that, however, is speculation.
11. In the course of cross-examination, it was suggested to Mr Ritchie that his evidence about a reference to security documents was an invention. In the affidavits that he swore, no mention was made of the discussions with Tony Woodward concerning "security", about which he gave oral evidence, although he had sworn that Tony Woodward discussed "loan documentation" and making sure the Ritchies were "protected". It was suggested to him, although he denied it, that he fabricated the evidence after hearing senior counsel for the plaintiffs refer to the matter in the course of the opening of the matter on the first day of the hearing, when Mr Ritchie was present in Court. Of course, as I have said, Tony Woodward chose not to give evidence and there was, therefore, no denial by him that the word "security" was used in conversation concerning the documentation of the loans.
12. Mr and Mrs Ritchie both gave evidence that they had never seen any of the draft deeds before the commencement of the proceedings. The impression that I formed of the evidence of both Mr Ritchie and Mrs Ritchie is that they had no firm recollection of any discussion about "security documents". On the other hand, the security documents were in fact brought into existence. That tends to corroborate that security was mentioned by Tony Woodward in his conversation with Mr Ritchie and Mrs Ritchie.
13. The existence of the draft deeds, together with the mortgage and caveat, is of significance, in that their existence certainly supports a finding that an arrangement was made between Oxford Property, as borrower, and some other person or persons, as lender or lenders, that the loans made in June 2006 and December 2006 were to be the subject of security in the form of the draft deeds of charge and the mortgage. That may lead to the conclusion that equitable mortgages came into existence in favour of Rujo, Mrs Ritchie and Barona by reason of enforceable agreements to give in the form of the draft deeds of charge being made. That, however, is not the question so far as the claims against the defendants are concerned. The complaint is that the security, whatever form it was intended to take, was not put in place and properly documented. Of course, if there were enforceable equitable mortgages in place, no steps were ever taken to enforce them. Further, if there were enforceable equitable mortgages, there may have been no breach of contract and the representation may have been made good.

Evidence regarding the capacity in which Tony Woodward agreed to procure security for the loans

1. An important aspect of the discussions concerning the proposed loan that took place in May and June 2006 is the capacity in which Tony Woodward was discussing the matter with Mr and Mrs Ritchie. The question that arises in relation to the loans is whether Tony Woodward was acting in his capacity as a partner in the firm practising as BP Woodward & Associates. The plaintiffs rely on an entry in Tony Woodard's diary and entries in the books of the firm as supporting their contention that Tony Woodward was acting as an accountant, and not as a director of Oxford Property, in discussing the proposed loans and the documentation and security for them with Mr and Mrs Ritchie.
2. The relevant book entries in relation to the June loan are dated 5 June 2006 and 7 June 2006. They appear to record work done by BP Woodward & Associates for Barona for which a charge would be made in due course. The relevant entries are as follows: "05/06/06 ANTHONY WOODWARD: ADVISING - BARONA GRP - DAVID RE: $1M LOAN TO OXFORD + CITIBANK 05/06/06 ANTHONY WOODWARD: ADVISING - BARONA GRP - $1M OXFORD 12 MONTHS LAON [sic] ARRANGEMENT … 07/06/06 ANTHONY WOODWARD: ADVISING - BARONA GRP - OXFORD FUNDING E-MAIL RE: $1M"
3. On 15 June 2006, BP Woodward & Associates sent a memorandum of fees and tax invoice to Barona for professional accountancy and taxation services rendered during the period 1 May 2006 to 31 May 2006. The memorandum described the work as including: "Meetings and discussions with Tony Woodward in relation to various business and taxation matters including financing, banking matters and taxation planning." On 18 July 2006, another memorandum of fees and tax invoice was sent to Barona for services rendered during the period 1 June 2006 to 30 June 2006. That memorandum also included the following: "Meetings and discussions with Tony Woodward in relation to various business and taxation matters including financing, banking matters and taxation planning." In neither case was any mention made in the memorandum to the loans to Oxford Property.
4. The relevant diary entry in relation to the December loans is dated 1 December 2006 as follows: "Barona Group - David re: $1 m Mezz finance $1 m 11% July 07 Barona Group 20% June 07 6 mths beginning/mid June 07. Charge over property + company. Registered + fixed + floating. 35m - 40 - 44m … 24m-35m"
5. The book entries in relation to the December loan are as follows: "01/12/06 ANTHONY WOODWARD: ADVISING - BARONA GRP - DAVID RE: $1M MEZZ FINANCE $1M 11% JULY 07, 20% 07/12/06 ANTHONY WOODWARD: ADVISING - BARONA GRP - VEGAS, OXFORD + SLEEPING, MANSIONS + ESTATE 13/12/06 ANTHONY WOODWARD: ADVISING - BARONA GRP INVOICING + SECURITY DOCS … 09/01/07 ANTHONY WOODWARD: ADVISING - RUJO / BARONA - LOAN DEED DOCS OXFORD 11/01/07 ANTHONY WOODWARD: ADVISING - BARONA GRP - AR LOAN DOCS + ABSOLUTE PROTECTION 23/01/07 ANTHONY WOODWARD: ADVISING - BARONA GROUP -PUB UPDATES 30/01/07 ANTHONY WOODWARD: ADVISING - BARONA GROUP - LOAN DEED + DOCS OXFORD LOAN" 10/01/07 Mr Andrew Wigney - ACCOUNTS - DAVID RITCHIE - BB2 RE: OXFORD & SLEEPING INVESTMENTS
6. On 19 December 2006, 17 January 2007 and 28 February 2007, BP Woodward & Associates sent a memorandum of fees and tax invoice to Barona for fees for professional accountancy and taxation services rendered during the periods 1 November 2006 to 30 November 2006, 1 December 2006 to 31 December 2006 and 1 January 2007 to 31 January 2007 respectively. In each there was an item in the following terms: "Meetings and discussions with Tony Woodward in relation to various business and taxation matters including financing, banking matters and taxation planning." In none of the memoranda was there any mention of the loans to Oxford Property. On 23 February 2007, a memorandum of fees and tax invoice was sent to Rujo for professional fees in relation to: "The ASIC Company Statement, Solvency Resolution, updating of Corporate key and associated matters as required by the Corporations Act based on the company's Review date." There was no evidence of any other memorandum of fees to Rujo or Mrs Ritchie in relation to loans to Oxford Property.
7. The plaintiffs contend that those entries show that work of advising in relation to the loans and the security was work done on behalf of the firm and was billed by the firm. One of the responses to that contention, on behalf of the defendants, is that the majority of the charge for the entry of 30 May 2006 was concerned with giving advice to Mr and Mrs Ritchie in connection with an event of 8 to 14 May 2006, when Mr and Mrs Ritchie travelled to Fiji and flew over several of their friends to celebrate Mrs Ritchie's 50th birthday. On 7 June 2006, Mr Ritchie sent a letter to Tony Woodward attaching copies of conference documents, saying that information had been entered in the Ritchies' files relating to the expenditure of other items in connection with that event.
8. An inference can be drawn that the "conference documents" were being provided for the purposes of BP Woodward & Associates treating the costs of the event as a tax deduction for Barona. Mr Ritchie said in evidence that the expenses were claimable as a deductible conference cost and that Tony Woodward had said that it was an allowable cost. Mrs Ritchie confirmed that the papers at the conference "weren't terribly important".
9. While there were several entries that appear to relate to the June loan, only three conversations are referred to. The evidence of Mr and Mrs Ritchie was that there were extensive discussions concerning the loan. If that were so, it would appear that no charge was made for them. In relation to the December loans, three of the entries do not appear to relate to it, because they do not refer to loans, security or finance.
10. Further, it is not clear whether the entries in question were in fact billed to Barona. It is not possible to reconcile the time in the work in progress records with the amount billed per month. For example, the ledger entries for June 2006 total $4,784 whereas the invoice for June 2006 is for $4,225 in fees. I consider that the work in progress ledger entries are equivocal as to whether or not Tony Woodward was acting as an accountant in his discussions with Mr and Mrs Ritchie concerning the loans and proposed documentation and security.

Findings on Tony Woodward's representations regarding procuring security for the loans

1. While I have some reservations about Mr Ritchie's evidence as to the conversations he had with Tony Woodward concerning security, I consider that it is more likely than not that mention was made of security in the discussions between Tony Woodward, on the one hand, and Mr and Mrs Ritchie, on the other. Tony Woodward's diary entries refer to security. In the emails of 7 June 2006 and 8 December 2006, express reference is made to "security documents". Further, the draft deeds of loan and draft charges were prepared in respect of the June loan and the December loans. While there is some doubt as to when those draft deeds were brought into existence, I consider that it is more likely than not that they were brought into existence on, or a short time after, 8 December 2006.
2. As I have said, the plaintiffs contend that there was in fact an agreement in place between Oxford Properties, on the one hand, and the lenders, on the other, to grant security taking priority after the security in favour of Commonwealth Bank. They say that that follows from the conversations and other evidence to which I have referred. If that is so, it would follow that Tony Woodward was acting in the capacity of director of Oxford Property in negotiating the loans with Mr and Mrs Ritchie. The question is whether, at the same time, he was acting as accountant for the Ritchies and their various entities.
3. I consider, on balance, that, in any discussions and communications with Mr and Mrs Ritchie concerning security for the loans made in 2006, in which Tony Woodward participated, he was doing so on behalf of Oxford Property and not in any capacity as an advisor to Mrs Ritchie, Rujo or Barona. Regardless of my findings below regarding the capacity in which Tony Woodward provided advice to the Ritchies regarding making the investments in the Oxford Hotel and Mansions Hotel, it is clear that, when he was asking Mr and Mrs Ritchie to agree to make the loans, he was doing so as a director of Oxford Property. Oxford Property needed the funding to enable the renovations to be completed because the Commonwealth Bank would not lend the extra funds. It is significant that Mr Ritchie's recollection is that, in the critical discussion with Tony Woodward, Tony Woodward used the plural pronoun "we". That is more consistent with Tony Woodward acting as a director of Oxford Property, the proposed borrower. Indeed, as I have said, the plaintiffs appear to accept that a binding agreement came into existence. That agreement could have arisen only from the discussions and communications to which I have referred.
4. It is clear that Mr Ritchie was aware that, at the time when the two loans of $500,000 were made in December 2006, security documentation was not in place in respect of $1,000,000 loan that had been made in June 2006. Thus, even if he believed that some security was to be put in place, he was prepared to make the advances before that actually occurred. The terms of the emails make it clear that, after the advances had been made, the security was not in place. No immediate complaint was made at that time about the absence of security.
5. The plaintiffs allege that the failure to inform Mrs Ritchie, Rujo or Barona, as the case may be, that the security documentation was not in place constituted a breach of the implied term that Tony Woodward would inform the plaintiffs of matters that came to his knowledge relevant to their financial affairs, including matters that affected the appropriateness of earlier advice given to them. They contend that Tony Woodward, and his partners, had an ongoing contractual obligation to inform them that the loan and security documentation for the three loans had not been put in place and that the loans remained unsecured.
6. Whilst I have found that that term was not implied in the Retainer, there can, in some circumstances, be a general law duty on accountants providing investment advice that extends to taking affirmative action to eliminate additional risks that their clients face, after the initial investment is made, where the accountant has assumed responsibility for giving specific investment advice and knows that the clients have relied on that advice. [2] Having regard to the conclusions that I reach below, it is unnecessary to come to a conclusion as to the extent of the duty, if any, on Tony Woodward to inform the plaintiffs of matters that came to his knowledge relevant to their financial affairs.
7. Apart from the emails to which I have referred, there was no evidence to suggest that either Mr Ritchie or Mrs Ritchie was informed by Tony Woodward or anyone else that the security documents referred to in the emails of 7 June 2006 and 8 December 2006 had not subsequently been put in place. It is more likely than not that neither Mr Ritchie nor Mrs Ritchie was thereafter informed that the security documents had not been put in place. Mr Thorburn was not called to give evidence. I would draw the inference that he was not in fact consulted by Tony Woodward either in June 2006 or December 2006.
8. As I have said, the references to "JG" on the documents that were prepared after the loans had been in December may have been a reference to Mr John Garrett, although there is no evidence that Mr Garrett was involved until the second half of 2009. Mr Garrett was not called to give evidence. Whether Tony Woodward simply overlooked having the documents executed or whether there was some difficulty with obtaining the consent of the Commonwealth Bank are matters of pure speculation. Clearly enough, however, no written security was actually put in place, although it may be that an enforceable equitable mortgage came into existence.
9. In conclusion, I find it more likely than not that, in his capacity as director for Oxford Trust, Tony Woodward represented to the Ritchies that he would procure security for the loans, that, despite that representation, the loans were not secured (subject to the existence of an enforceable equitable mortgage), and that the Ritchies were not informed about the absence of security.

Breach in Relation to the Want of Security for the Loans

1. However, that is not the end of the matter. The further question is just what security was intended to be given and, critically, whether any loss was caused by the failure to give security, assuming that a failure to provide security was in fact a compensable breach of the general law duty of care owed by an accountant, of a term of the Retainer, of an express contractual term of the loan contracts, or a contravention of the Fair Trading Act.

Did the Absence of Security Cause any Loss when the Properties were Sold?

1. In both June and December 2006, the assets of the Oxford Trust, consisting of the Oxford Hotel premises and the business being conducted at the Oxford Hotel by Indigo Mist, were the subject of securities in favour of the Commonwealth Bank. The plaintiffs accept that any security for the loans would have ranked for priority after the security in favour of the Commonwealth Bank, which secured approximately $16 million. The Commonwealth Bank advanced a further $5 million for the renovations which was also secured. The notations on the draft charges indicate an awareness on somebody's part, possibly Tony Woodward's, if the notations are in his handwriting, that the consent of the Commonwealth Bank needed to be obtained before any security could be given over the Oxford Hotel to secure the loans by the plaintiffs. The plaintiffs did not adduce any evidence to suggest that the Commonwealth Bank would have consented to the grant of a puisne security over the assets mortgaged and charged to it to secure its advances to Oxford Property. Clearly, any security in favour of the plaintiffs would have taken priority after indebtedness to the Commonwealth Bank of some $21 million.
2. The plaintiffs submitted that there is no reason to infer that the Commonwealth Bank would not have consented to a second ranking charge, if that were necessary to perfect the plaintiffs' security. Moreover, they asserted that a balance sheet for the Oxford Trust, as at December 2006, establishes that there was enough equity for security to have been granted. Given that, in communications between the Commonwealth Bank and Tony Woodward in 2006, the Commonwealth Bank indicated that it was unwilling to advance further loans for the Oxford Hotel renovations, it is unlikely that the Commonwealth Bank would have been willing to allow its security for previous loans to rank behind that of the Ritchies as a condition of the Ritchies advancing loans for the Oxford Hotel renovations.
3. In the events that occurred, the want of security for the loans made by the plaintiffs occasioned no loss. The amount secured on the Oxford Hotel and the business of Indigo Mist was $21,170,000, whereas the hotel and the business realised only a total of $11,350,000. Therefore, the absence of security became academic in circumstances where the sale price of the Oxford Hotel and the business carried on by Indigo Mist was less than the amount secured by the prior securities in favour of the Commonwealth Bank.

Could the Loans have been Repaid at an Earlier Stage?

1. However, whilst it is evident that the loans, secured or not, were unable to have been repaid at the stage that the hotels were sold, the plaintiffs contend that the loans could have been repaid earlier, before the hotels were sold. In particular, the plaintiffs contended that the reference to "Equity Return + Investor Loan repayments", in the exchange between Tony Woodward and Ashe Morgan Winthrop of 25 January 2007, supports an inference that the loans to Oxford Property by the plaintiffs could and would have been paid before subsequent events destroyed the equity in the hotels, had security for the loans been put in place. However, any possible repayment using that money would have been in breach of the terms of the Ashe Morgan Winthrop refinancing agreement, which limited the capability of Oxford Property to repay debts, as I indicated earlier at [140]-[141].
2. The plaintiffs also contended that there was some prospect of some repayment, on the basis that the trading figures for the Oxford Hotel business revealed a capacity to repay the loans from the turnover of the business. However, the figures relied on were that of Indigo Mist, the operator of the Oxford Hotel and not the borrower under the loan.
3. In their submissions in reply, the plaintiffs contended that it is not necessary for the Court to speculate on what would have been more likely, as between payment out of bank borrowings, payment by loans from other syndicate members and payment from a sale of assets, and that, so long as the hotel trusts were not insolvent, there was every reason to think that the plaintiffs could have obtained repayment of their loans by taking action. On the contrary, there is every likelihood that those speculated actions were either impossible (for example, the refinancing agreements specifically forbade repayment of debts), or would have seriously jeopardised the Ritchies' remaining investment in the Oxford Hotel. For example, it is unclear what assets of Oxford Property could have been sold that would not have detrimentally affected the operation of the Oxford Hotel. It is not sufficient simply to assert that the solvency of the hotel trusts in early 2007 means that there was sufficient equity to repay the loans without consequence had the plaintiffs sought repayment.
4. Furthermore, even if the finance obtained from Ashe Morgan Winthrop could have been used to repay the loans, or if the turnover from the Oxford Hotel business was capable of funding repayment of the loans, repayment would be contingent on the plaintiffs' making a demand for repayment. The loans were repayable in June 2007. However, there has been no suggestion that any of the plaintiffs made demand for repayment of any of the loans. There was no evidence that, as at June 2007, there was any suggestion that the investments in the hotels would not be successful. The loans bore interest at rates significantly above the cost to Mrs Ritchie under her margin loan facility. The inference to be drawn is that Mr and Mrs Ritchie were content for the loans to remain in place, so long as interest was accruing. There was no evidence to suggest that at any time during 2007 it was thought to be a possibility that the interest would not be paid or that the loans would not be repaid.
5. Accordingly, the inference that the plaintiffs seek to have drawn cannot be drawn. The evidence reveals, as indicated in greater detail below, that Mr and Mrs Ritchie would not have risked the investment in the hotels by seeking repayment of the loans, and therefore would not have made a demand for repayment. At no time prior to the appointment of the Receivers did Mrs Ritchie, Rujo or Barona take any steps to demand repayment of the loans made in June and December 2006 or to enforce any security that they believed had been given in respect of those loans. Further, it is impossible to see how, if security had been provided, the Ritchies would have avoided the financial loss they suffered, given the prior ranking of the Commonwealth Bank's security and the failure of the Ritchies to demand repayment.

Did the Failure to Inform the Ritchies about the Absence of Security Cause any Loss?

1. The thrust of the complaint by the plaintiffs is that Tony Woodward should have informed them of the state of affairs outlined above, such that they would have taken steps to demand repayment of the loans and to enforce the security that they understood had been given for the loans. They say that their position could have been protected up to 10 April 2007, when the advances were made in connection with the Peakhurst Inn Hotel, and, to a lesser extent, up to 23 June 2009, when the Receivers were appointed, had they known about the unsecured status of the loans and about the contemplated purchase of the Peakhurst Inn Hotel using borrowed money supported by securities over the Oxford Hotel. Moreover, as explained in further detail below, the plaintiffs contend that, had they been informed of the state of affairs, they could have prevented the merger and refinancing of the hotels and, accordingly, could have prevented not only the loss of the money that they had lent, but the loss of some or even all of the money invested in the Oxford Hotel and the Mansions Hotel.
2. The plaintiffs' real contention is not, as becomes clear, that the loans were not secured and that the absence of security occasioned financial loss, because as indicated earlier, if the loans had been secured as Tony Woodward promised he would do, exactly the same financial loss would have occurred. Rather, the plaintiffs' actual complaint appears to that, once the loans were not secured, the failure to be informed about the absence of security and the acquisition of the Peakhurst Inn Hotel caused not only the loss of the loans but the loss of the total investment in the Oxford Hotel and the Mansions Hotel. That is to say, the counterfactual advanced by the plaintiffs is not what would have occurred had Tony Woodward secured the loans (as everything would have happened the same way, including the total loss of the loans, irrespective of their secured status), but what would have occurred had Tony Woodward not secured the loans, and in fact, informed the plaintiffs about his failure to secure them. As I have indicated earlier, such an alleged duty to inform is based on alleged implied Retainer term (b), as well as on a possible general law duty.
3. The plaintiffs' case extends beyond focusing on Tony Woodward's purported failure to inform the Ritchies about the absence of security, and alleges a failure to inform the Ritchies properly about the acquisition of the Peakhurst Inn Hotel and the refinancing. The fundamental question was whether, had the Ritchies been properly informed about those matters, the financial loss could have been avoided. That requires answering two separate but related questions: 1. Had the Ritchies taken action, would their actions have been successful in preventing the financial loss? 2. Had the Ritchies been fully informed, would they have acted differently?
4. The plaintiffs' case, as advanced in final address, was that, had they been informed by Tony Woodward, shortly prior to 10 April 2007, that a mortgage and other securities were to be granted over the Oxford Hotel and the business of Indigo Mist, in order to support borrowings to enable the completion of the purchase of the Peakhurst Inn Hotel, the probability is that they would have taken the following steps: * They would have sought legal advice to ascertain what, if anything, could be done to protect their investment of $3 million in the Oxford Hotel; * The legal advisors would have obtained instructions that would have in turn revealed that the plaintiffs believed that they had secured loans of $2,000,000 to Oxford Property, as well as holdings of units in the Oxford Trust, the Mansions Trust and the Vegas Trust; * The legal advisors would have obtained instructions concerning the role of Tony Woodward as the plaintiffs' accountant, on the one hand, and as a director of the trustees of each of the unit trusts in which they had made investments, on the other hand; * The legal advisors would have conducted appropriate searches as a matter of urgency and would have ascertained from those searches that the loans of $2,000,000 had not been secured by either registered mortgages or registered charges and that Tony Woodward was a director of each of the trustees; * The legal advisors would then have briefed counsel to advise on what steps could be taken to prevent the equity of the plaintiffs in the Oxford Trust, the Mansions Trust and the Vegas Trust from being taken and used as security for the borrowings to enable the purchase of the Peakhurst Inn Hotel and how to recover their investments and their loans; * Counsel would have advised the plaintiffs to make an application for an injunction to restrain an apprehended breach of trust and breach of fiduciary duty by the trustees in granting mortgages over the Oxford Hotel to secure borrowings for the purposes of purchasing the Peakhurst Inn Hotel; * Counsel would have advised the plaintiffs to demand repayment of the loans upon terms that, if the loans were not repaid when due in June 2007, proceedings would be taken to wind up the borrowers; and * The plaintiffs would have acted in accordance with the advice so received.
5. The plaintiffs contend that the probability is overwhelming that, had the Ritchies been informed of the financial situation, Rujo would have taken steps to terminate its relationship with Tony Woodward and BP Woodward & Associates and to realise its investments in the Oxford Hotel and the Mansions Hotel. They also say that it is overwhelmingly probable that Rujo, Barona and Mrs Ritchie would, in that case, have demanded repayment of their loans. They contend that that conclusion follows because there would have been a breakdown of all trust and confidence between Tony Woodward, as accountant, and the plaintiffs, as clients, once they had become aware of the fact that Tony Woodward was preferring his own interests, in acquiring the Peakhurst Inn Hotel, over their interests in preserving and protecting their investments, including the loans, coupled with the failure to arrange documentation of the security for the loans.
6. The plaintiffs assert that it is more likely than not that they would have been paid out in full in respect of all of their investments or, failing that, that they would have pressed on for the winding up of the relevant corporate entities and the sale of the hotels.
7. Before I address the questions posed above, it is first important to have regard to the context in which the loans were made. That context indicates that it is unlikely that steps would have been taken to demand repayment of the loans.
8. Having invested $3 million in the Oxford Trust, from which they hoped to derive significant profits, Mr and Mrs Ritchie had a particular interest in the success of the venture involving the refurbishment of the Oxford Hotel. That is significant when considering the loans subsequently made to Oxford Property.
9. It is clear enough that, without the borrowing of $2 million, the refurbishment of the Oxford Hotel could not have been completed. That situation had come about despite a number of cost savings made in relation to the renovation. The Commonwealth Bank had indicated that it would not advance any further funds and it was impossible for Oxford Property to provide any security that could rank ahead of the security provided to the Commonwealth Bank for the very significant advances already made by it. The plaintiffs have adduced no evidence as to the specific advice or information that they contend that a reasonably competent accountant would reasonably have provided prior to the making of the loans in June and December 2006. However, whatever advice might have been provided to Mr and Mrs Ritchie, I do not consider that it would have prevented the plaintiffs from making the loans. Rather, advice and information as to the matters just referred to would have provided them with a powerful reason for making the loans in both June and December 2006.
10. As at June 2006, the renovation of the Oxford Hotel had commenced. It was not operating and was no more than a building site and the generation of income was dependent upon the completion of the renovations. Mr and Mrs Ritchie understood and expected that the renovations when complete would increase the previous turnover of the Oxford Hotel. Thus, it must have been obvious to them that the renovations needed to be finished properly and that, if the renovations were not completed, their investment in the Oxford Hotel would be in jeopardy and could be lost. Without the injection of further equity or unsecured loans, the renovations could not be completed and the venture could fail.
11. Mrs Ritchie conceded that, at that time, it was important to her that she 'did everything [she] could to preserve the ability to have [the Oxford Hotel and Mansions Hotel investments] repaid", with a view to having it returned in due course. On any reasonable view, the loans made in June and December 2006 were necessary in order to preserve the investment of $3 million that had been made earlier in the year. In those circumstances, it is highly likely that Mr and Mrs Ritchie would have decided to make the loans, even if they had been advised that the loans needed to be unsecured or at least rank after the security in favour of the Commonwealth Bank. Such information is likely to have increased whatever pressure they felt to make the loans in order to protect the investment of $3 million that they had already made. It is clear that Mr and Mrs Ritchie continued to trust the judgment of Tony Woodward, even at the time when the loans were made in December, since they had only shortly before relied on his judgment in making the not insignificant investment in the Mansions Hotel.
12. To answer the first question, as to whether the postulated actions that the Ritchies could have taken would have been effective in protecting their investments, it is necessary to consider the likely consequences of those actions. In circumstances where security had not yet been given in respect of the other hotels to support the proposed borrowing for the acquisition of the Peakhurst Inn Hotel, and all of the holders of units in the Vegas Trust, the Oxford Trust and the Mansions Trust had consented to the merger, it is highly unlikely that a court would have granted an injunction to restrain the merger, as the plaintiffs contend they would have sought, had they been better informed. Even if such an injunction had been granted, as I have already found, no basis has been established for concluding that the loans to Oxford Property would have been repaid without detrimentally affecting the operation of the Oxford Hotel. It is accordingly quite unclear how the investment in the Oxford Trust and the Mansions Trust would have been repaid.
13. The plaintiffs assert, in the alternative, that, if an injunction had been granted and the loans had not been repaid, they would have taken steps to wind up Oxford Property. However, at the time when the merger was proposed, the loans were not due for repayment. Assuming that the plaintiffs were able to maintain an injunction until the loans became repayable and thereafter take steps to wind up Oxford Property, it is highly likely that the Commonwealth Bank, as secured lender, would thereupon have appointed receivers to the Oxford Hotel or taken other steps to enforce its security. In any event, it is highly unlikely that that course would have resulted in any return to the plaintiffs either of the loans or the underlying investment in the Oxford Trust, for the reasons indicated above.
14. If an injunction had restrained the transactions that occurred in April 2007, one possibility would have been that BankWest and Ashe Morgan Winthrop would not have lent at all and the Peakhurst Inn Hotel would not have been acquired. Under the BankWest facility, Oxford Property was seeking funds to complete the renovation works of the Oxford Hotel. The Commonwealth Bank had not agreed to lend the money for the renovations.
15. If Mr and Mrs Ritchie had sought to enforce repayment of the loans as at June 2007 and sought to wind up the Oxford Trust or to enforce their assumed puisne security, Oxford Property would not have been able to repay the loans from its own resources because it had only just reopened for business and had no resources at that stage. On that basis, the Commonwealth Bank would have been the first ranking secured lender in respect of the sum of $16 million, and Oxford Property would not have had capital funds to repay the loans of $2 million or interest on the loans. It is highly likely, in those circumstances, that the Commonwealth Bank would then have sought to enforce its first ranking securities to require payment of $16 million, such as by appointing receivers to operate and sell the recently reopened Oxford Hotel.
16. Thus, the postulated action by Rujo, Mrs Ritchie and Barona would have caused havoc for the unit holders in the Oxford Trust which included their business partners in the Vegas Hotel, the Mansions Hotel and the Sleeping Property Trust. Jason Gavin would no longer be in control of the business and the Oxford Hotel that would be offered for sale by a receiver or liquidator would be a hotel with no income track record in its new form. There is no evidence as to when or for how much a hotel in the then state and condition of the Oxford Hotel could have been sold by liquidators or receivers at that time. On that scenario, there is no evidence that $2 million would have been repaid, let alone any other money. In particular, Rujo's $3 million equity in the Oxford Trust would not have been repaid unless the Oxford Hotel was sold for more than the total of the amounts owing to all creditors, including unsecured creditors such as trade creditors, staff and the like.
17. Another possibility is that BankWest would have offered to lend to Oxford Property the amount owing to the Commonwealth Bank and further funds to enable the renovations to be finished and the further gaming licences to be acquired, to establish the trading income anticipated in the valuations. While BankWest had in fact conditionally approved a lending of $5 million for investor loan repayment, it had deferred that advance for 12 months, as indicated above. Further, BankWest was prepared to advance the funds only on condition that the indebtedness to BankWest would be secured on the Oxford Hotel, the Mansions Hotel and Vegas Hotel, as well as the Peakhurst Inn Hotel. It would also have been necessary for BankWest to permit the funding of the Peakhurst Inn Hotel debt already owed to BankWest and repay Ashe Morgan Winthrop.
18. A core premise of the plaintiffs' case appears to be that the acquisition of the Peakhurst Inn Hotel and the refinancing caused the subsequent losses that brought down the Oxford Hotel and the Mansions Hotel, and therefore, had those actions been prevented, the loss could have been avoided. The plaintiffs' basis for establishing that premise is quite unclear. It is certainly possible, as the plaintiffs contend, that the loan to security ratio of all the hotels was significantly affected by purchase of the Peakhurst Inn Hotel with 100% debt and, therefore, that that had some impact on the ultimate decision to appoint the Receivers.
19. However, the plan of action postulated by the plaintiffs, as I have indicated, would likely have had the same effect of causing the appointment of receivers, but at an earlier time. Therefore, given that on the plaintiffs' case, regardless of the acquisition of the Peakhurst Inn Hotel, receivers were inevitably going to be appointed, it is uncertain what detrimental effect the acquisition of Peakhurst Inn Hotel ultimately caused. What is clear on the evidence is that, by the time the Receivers were appointed, the acquisition of the Peakhurst Inn Hotel and cross-collateralisation of securities over all of the hotels did not cause any loss of the equity in the existing hotels that was available to the investors, with one qualification discussed below.
20. The Peakhurst Inn Hotel was, and had always been, fully debt funded with its value equal to the debt incurred on purchase. That meant that the merged hotel group would have the Peakhurst Inn Hotel as an asset and such equity as it developed over time would be shared amongst the equity participants in the group, including the Ritchies. Their share in the merged hotel group was determined according to the relative value of their equity interest in the Vegas Hotel, the Oxford Hotel and the Mansions Hotel at the time the Peakhurst Inn Hotel was acquired. As the acquisition of the Peakhurst Inn Hotel was fully debt-funded, and there is no evidence that the Peakhurst Inn Hotel was the cause of the financial collapse, it is difficult to see how an injunction preventing the acquisition of the Peakhurst Inn Hotel (and the consequent refinancing) would have prevented any financial loss. I have already explained why, in any event, such an injunction was unlikely to have been granted or would have resulted in similar financial loss. It is consequently difficult to see how any of the plaintiffs' postulated actions could have realistically salvaged their investments and loans, with one qualification detailed below.
21. Ultimately, the plaintiffs bore the onus of establishing that appointment of the Receivers at an earlier time, being the probable outcome of the plaintiffs' postulated counterfactual, would have led to a different outcome. They have not discharged that onus. The evidence does not establish a time when some earlier sale might have been achieved and what the likely proceeds of such a sale would have been. The evidence does not indicate any basis upon which a conclusion could be reached that an earlier appointment of receivers by the secured lender would have produced any return to the plaintiffs.
22. The one qualification concerns the impact of the merger and cross-collateralisation on the sale of the Mansions Hotel. There is a compelling argument that, but for the cross-collateralisation of debts, the Mansions Hotel would have returned a surplus to its unit holders of $2.64 million (before operational, sale and other administrative costs are taken into account), including, at most, $412,500 to the Ritchies. That is because the Mansions Hotel, unlike the other hotels, was sold for a price greater than the debt secured over it, and therefore, in the unlikely event that an injunction was granted and consequently prevented the cross-collateralisation, even if the financial collapse still happened, the Ritchies may have recovered $412,500 from the sale of the Mansions Hotel. However, recovery of the $412,500 is contingent on the Ritchies, once informed, actually acting on the relevant information in the way detailed in the plaintiffs' case theory. That is the second question that I posed earlier, as to whether the plaintiffs would have acted differently, had they been fully informed.
23. The above consideration of the consequences of the plaintiffs' hypothetical scenario helps answer that second question. On the one hand, the plaintiffs could wait and realise a significant profit on the Oxford Hotel, following its increase in value as its income increased, enhanced by the new BankWest funds, plus the share of anticipated operating profits, plus the certainty of repayment of the loans within 12 months on the basis of the facts then known. The Oxford Hotel would be one of a group of hotels, including the Peakhurst Inn Hotel, that could be offered to the market for sale or for investment of equity.
24. On the other hand, the plaintiffs could bring down the Oxford Trust, by forcing the Commonwealth Bank to appoint receivers, with the almost certain loss of the $3 million equity and high probability of loss of the $2 million of loans. On that possibility, they would have had disputes with the other syndicate members in the Oxford Trust, they would have lost the group of hotels, and the businesses of the Vegas Hotel, the Mansions Hotel and the Sleeping Property Trust would be disrupted. That is to say, the management and value of all of the relevant businesses in which the plaintiffs had invested would be threatened if they moved against Oxford Trust precipitously.
25. When one considers why the loans were made in the first place, the likely consequences of the options available to the plaintiffs, and the evidence given by Mr and Mrs Ritchie, the answer to the second question, as to whether the Ritchies, if fully informed, would have acted differently, becomes clear. Mr Ritchie and Mrs Ritchie conceded that, by late 2008, having invested $4.75 million in the Oxford Hotel and the Mansions Hotel, plus $2 million in loans, they would not have done anything to jeopardise those investments. Both Mr Ritchie and Mrs Ritchie conceded that from 2008, the only avenue for repayment of the investments and loans was through the sale of the group of hotels. During that period, Mr Ritchie believed that the best course was to keep the hotels running well while the sale process was ongoing, and that that course of action would best protect their investments. Both of them accepted that pressing for repayment of the $2 million of loans would have jeopardised their $4.75 million investment. Therefore, even if they had been informed that the loans were unsecured and other relevant financial matters, Mr and Mrs Ritchie would not have jeopardised the entire investment by attempting to recover a fraction of the loan money from the income of the Oxford Hotel.
26. Tony Woodward contended that an almost insuperable impediment for the plaintiffs is the fact that, on 20 February 2007, Mr Ritchie voted in favour of the merger and the plan to raise equity. Mr Ritchie was subsequently informed, in a letter from Tony Woodward dated 16 March 2007, which was copied to him, of what the merger's effect would be on the interests in the group of merged hotels. The letter of 16 March 2007 expressly stated that "All unit holders will…be issued units in each of the Unit Trusts (being Vegas Hotel, Oxford Hotel, Mansions Hotel, Peakhurst Inn) according to their relevant interests." [Emphasis added.] Mr Ritchie made no complaint regarding the proposed impact of the merger.
27. The plaintiffs respond that those letters were insufficient to inform Mr and Mr Ritchie of what was being proposed by the merger and of the alteration of their interests in the hotels. The letters make no reference to the fact that the purpose of the refinancing was to purchase the Peakhurst Inn Hotel. Rather, the letter of 20 February 2007 refers only to the prospect of raising $5 million for the purpose of "refurbishment and additional pokie machines" for the Peakhurst Inn Hotel, with no mention of acquisition. Therefore it is difficult to say conclusively, purely on the basis of the fact that the Ritchies consented to the merger with such limited information, that had the Ritchies been aware that the refinancing was to purchase the Peakhurst Inn Hotel, rather than to improve the Peakhurst Inn Hotel, they would have still consented to the granting of mortgages over the Vegas Hotel, the Oxford Hotel and the Mansions Hotel and to the merger.
28. However, having regard to the obvious detrimental consequences for the investments if the merger and financing did not proceed, being the likely failure of the investments, it is still highly likely that, whatever further advice or information might reasonably have been provided to the plaintiffs, including being informed that the loans were unsecured and the purport of the refinancing, the merger and refinancing would have proceeded. In that context, the loss of the $412,500 from the surplus remaining after the sale of the Mansions Hotel due to the merger and cross-collateralisation was inevitable.
29. In summary, I am not persuaded, had the plaintiffs been informed of the total financial situation, that they would have taken different actions to recover their investments, that any hypothesised actions would have been effective in recovering those investments (beyond the $412,500 from the Mansions Hotel), or even that those hypothesised actions were even possible in the circumstances.

Conclusion on Liability of Tony Woodward for the Loans

1. Neither the failure to secure the loans nor the failure to inform the plaintiffs that that the loans were not secured (or indeed, to inform the plaintiffs about any other relevant matters) caused any loss to the plaintiffs. The plaintiffs' case based on misleading and deceptive conduct consisting of a representation that the loans would be secured must also fail. As I have said, the plaintiffs have failed to establish that there was a relevant causal connection between the alleged conduct and the loss claimed. Quite apart from the question of whether there were reasonable grounds for making the representations, even if the representations about security were misleading or deceptive, no loss was occasioned by the conduct.

Liability of Tony Woodward in respect of the Oxford Hotel and Mansions Hotel Investments

1. The claims made in the pleadings all depend upon the relationship between Tony Woodward and the partnership carrying on practice as "BP Woodward & Associates", on the one hand, and Mrs Ritchie, Barona and Rujo, on the other. It is desirable to make several observations about that relationship.

The Relationship between the Partnership and the Ritchies

1. There can be no doubt that, during a period that began well before 2006 and ended on 30 June 2008, the Partnership then practising under the name "BP Woodward & Associates" was retained by Mrs Ritchie, Barona and Rujo to perform various services. It is clear that, during that time, that Partnership, through Brian Woodward and Tony Woodward and their employees, provided professional services to Mrs Ritchie, Rujo and Barona, as well as other entities connected with the Ritchie family. These services could fairly be characterised as professional accounting services of various kinds.
2. Further, there can also be no doubt that, during the period that began on 1 July 2008 and ended when all retainers were withdrawn in 2009, the Partnership then practising under the name "BP Woodward & Associates" was retained by Mrs Ritchie, Barona and Rujo to perform various services. It is also clear that, during that time, that Partnership, through Tony Woodward, Mr Rigney, Ms Bolton and their employees, provided professional services to Mrs Ritchie, Rujo and Barona, as well as other entities connected with the Ritchie family. Those services could also fairly be characterised as professional accounting services of various kinds.
3. The services provided by Tony Woodward included specific advice from Tony Woodward about how best to invest in the Oxford Hotel and Mansions Hotel. That advice included an assessment by Tony Woodward of the size of the share portfolio that Mrs Ritchie had inherited from her parents and subsequently built on, such that he provided advice that the loan to Oxford Property in June 2006 "wouldn't be a problem", advice that the Mansions Hotel would be a good investment because of the existing investment in the Sleeping Trust, and advice that there would not be "any problems getting finance from the bank" for the Mansions Hotel investment.
4. Moreover, Tony Woodward had held himself forward as providing accounting services for the entities being established for the investment in the Oxford Hotel. Mrs Ritchie said that, during discussions concerning the Oxford Hotel investment, it was said that Tony Woodward "would be doing the accounting" and Tony Woodward said that "everything would be fine, because he would keep an eye on everything and he would be doing the books." [Emphasis added.] In response to the question in cross-examination: "You didn't assume, did you, or you didn't believe, that Mr Woodward as an accountant was a person who was involved in the aesthetic and operational decisions as to the redevelopment of the Oxford Hotel, did you?" [Emphasis added], Mrs Ritchie replied: "Yes, we all - he had equal conversation in this."
5. Mrs Ritchie's evidence regarding the Mansions Hotel was equivocal. Her evidence in chief was that Tony Woodward said that he "had done his homework" but conceded, in cross-examination, that he had not been specifically asked to due diligence work. Mr Ritchie, however, gave evidence that Tony Woodward said that "he had gone through the books" and that "he would be looking after the accounting side of [the Mansions Hotel]".
6. On the basis of that material, it is possible that Tony Woodward owed a general law duty of care to Rujo and Mrs Ritchie, as clients, for the advice and information that he provided to them regarding the proposed investment by Rujo in the Oxford Hotel and the Mansions Hotel, as distinct from his contract of retainer with them. That duty of care may have arisen either from his role as an accountant in providing information and advice in connection with proposed investment in the hotels, [3] or from his role as accountant for the proposed Oxford Hotel syndicate and the proposed Mansions Hotel syndicate, of which Rujo was to be member. [4] However, whilst Tony Woodward may have owed a duty of care to Mrs Ritchie and Rujo in relation to the information and advice he provided, irrespective of the capacity in which he provided it, and Rujo subsequently lost money from those investments, it does not necessarily follow that Tony Woodward breached the duty of care that he owed to Mrs Ritchie and Rujo or that the loss was caused by the breach.
7. Despite some suggestion in the evidence of Mr Ritchie, and to some extent Mrs Ritchie, that they were unsophisticated individuals, that suggestion is belied by the facts. While, until the death of her parents, Mrs Ritchie may have been of modest means and Mr Ritchie at all times appears to have been of modest means, Mrs Ritchie succeeded to a very substantial inheritance from her parents. She and Mr Ritchie husbanded that inheritance, taking advice, where they considered it necessary, from brokers, solicitors and others in connection with the management of a very significant share portfolio and subsequently acquiring a significant real property portfolio. The evidence indicates that Mr and Mrs Ritchie engaged in very sophisticated management of the share portfolio, using the margin loan facility to increase the portfolio very substantially over the period in question. I do not accept that either Mrs Ritchie or Mr Ritchie would have embarked on the margin loan facility without having a clear understanding of the risks that would be involved in borrowing under such a facility. In a sense, the risks were straightforward, and each of them understood the risk, namely, that Mrs Ritchie would be borrowing money on the security of her share portfolio.
8. Mrs Ritchie understood that it was necessary to maintain a margin between the total value of the share portfolio, on the one hand, and the amounts borrowed, on the other. If the value of shares fell, that margin could be restored by repaying part of the amount owing. The source of funds to repay the outstanding loans might be either proceeds of the sale of shares subject to the facility or funds available from any other source.

Liability for Breach of Duty of Care or Breach of the Contracts of Retainer

1. The plaintiffs allege that, in providing services, Tony Woodward acted in breach of the respective contracts of retainer and in breach of a duty of care owed under the general law. The claim is that he failed to exercise the appropriate degree of care, skill and diligence in providing the services. The particulars of the failure alleged in the statements of claim did not loom large in the conduct of the case or in the plaintiffs' final submissions.
2. The failure to exercise the appropriate degree of care, skill and diligence was particularised as follows: 1. Failure to inquire whether there existed and, if it did exist, to obtain a business plan in respect of the potential investment detailing various matters; 2. Failure to inquire whether there existed and, if it did exist, to obtain a copy of the constitution or deed of the vehicle proposed to hold the investment, details of the proposed directors of the vehicle and the latest set of signed statutory accounts for the vehicle in which the proposed investment would be made; 3. If the inquiries referred to above were carried out, failure to advise of the results and to provide the plaintiffs with copies of the documents recording information of the kind specified; 4. Failure to inform the client that insufficient detail was available in order for Tony Woodward to perform a due diligence process in respect of the proposed investment; and 5. Failure to inform the client as to the way in which the investment could be disposed of or realised, if the client wished to do so and to advise that, as the investment was held in an illiquid and unlisted structure, it may not be easy to dispose of or realise the investment.
3. Particulars (1) and (2) appear to have been abandoned. The abandonment was justified having regard to the evidence concerning the valuation reports in respect of the hotels to which I have referred above.
4. Whether or not there was a breach by reason of the failure by Tony Woodward to provide the particularised information and documents to Mr and Mrs Ritchie, no consequences flowed from it. It is quite clear that, if all of that information had been provided to Mr and Mrs Ritchie, they would have proceeded with the investments.

The Oxford Hotel

1. The thrust of the only specific complaint made regarding the Oxford Hotel, as it emerged, was the failure by Tony Woodward to provide to Mr and Mrs Ritchie a copy of a document described as "Directors Report July & August 2005 for Indigo Mist P/L directors only" (the Indigo Mist Directors Report). In September 2005, the Indigo Mist Directors Report was sent to Tony Woodward by Jason Gavin. The document was sent to Tony Woodward in his capacity as "the compliance accountant" for the Oxford Hotel and was stated to have been prepared by Jason Gavin. Indigo Mist was the operator of the business carried on at the Oxford Hotel. Nothing else has been suggested as material that ought to have been disclosed to Mr and Mrs Ritchie or to Rujo.
2. In the course of giving her evidence in chief, Mrs Ritchie was shown an extract from the Indigo Mist Directors Report. Mrs Ritchie was not asked to read the whole of the document when it was shown to her in the course of her evidence in chief. Mrs Ritchie's attention was drawn to a statement in it in the following terms: "The business will die a slow, painful death if money is not injected into the business immediately. To borrow more money and pay interest will only prolong the agony unless a serious cash injection is not made [sic; scilicet if a serious cash projection is not made]." Mrs Ritchie said that she had not seen the document before the commencement of the proceedings. However, she said that, if she had been told that Jason Gavin had reported in those terms, Rujo would not have invested in the Oxford Hotel.
3. The Indigo Mist Directors Report goes on to say as follows: "The net profit is not what I expected from such a high turnover hotel and can be improved considerably if the cash flow, staffing and procedures are improved. … We are not getting the best prices for our stock at present. Suppliers have us on COD and more often than not we can't pay til end of the week and never make our delivery date hence running out of stock occasionally. This is only part of the reflection of why the GP is so low at 56 per cent for July and August according to our stocktaker … the major issue is theft and poor management. It is evident that the procedures are not being adhered too [sic] and the managers are not monitoring and controlling staff… To fix the problem the managers need to supervise more diligently. The tills need more detail of the products sold as opposed to generic buttons … the security cameras are cheap and unable to see the tills correctly … But wages have come down slightly but can be reduced more. This is a key area we are working towards … The licensee is paid a large sum of money but does not take on the responsibilities that come with the job… the cellarman that recently left was also paid too much in my opinion … The staffing needs restructuring but it is hard to find quality managers in light of the cash flow problems. No quality manager will enjoy the position as they have no freedom to run the hotel as the cash flow inhibits productively [sic]. As a result my team is more active in setting up the procedures whilst we find the right general manager informing him upfront of the challenges and that there is blue sky ahead. More competent managers and that supervisors are needed and this is in the process. New staff have been hired and are being trained and existing identified as possible management. [sic] Staff appraisals will be completed this month along with the implementation of AWAs. AWAs will be completed by end of September … In summary the income has increased and expenditure, although hard to compare with months previous to July, have decreased slightly. To increase income better management and procedures are needed which will take time as long as there is cash flow issues. Expenditure will improve concentrating on wages (which we have already improved) and suppliers. Again cash flow will help this. The business at present is breaking even and has the potential to do $600,000.00 p.a. Serious consideration must be given to reducing consultancy fees. We have and will continue to decrease expenditure. Income will continue to increase. I can't stress enough what a stable cash flow will do for this business. This is the Key to success." [Emphasis added.]
4. The Indigo Mist Directors Report then goes onto deal with: * Budgets and forecasting, * Marketing and promotions, * Proposals, capital expenditure, recommendations and neighbourhood, * Staffing, contractors and industrial relations, and * Legal, complaints, police, incidents, insurance. It records that it is proposed that a development application be submitted for the renovation of the upper floors and that a valuation had been requested. It states that the money to carry out those items and activities would need cash injections or finance "as the business can't cash flow it".
5. Mr Ritchie was also shown the Indigo Mist Directors Report and said that he first saw it after the commencement of the proceedings. Counsel for the plaintiffs asked Mr Ritchie whether, if prior to making of the decision to invest in the Oxford trust, Tony Woodward had told him, in effect, that Mr Gavin had expressed the view that the business of the Oxford Hotel would die a slow and painful death if money was not injected into it immediately. Mr Ritchie replied "certainly not". He also said that Tony Woodward did not say anything to him about suppliers having the business on "cash on delivery" and said nothing about the business running out of stock.
6. Mr Ritchie then said that he had been told by Tony Woodward that the Oxford Hotel had "an exceptionally good cash flow" and that Tony Woodward also raised the point that, on top of that, there was the cash flow from the signage at the top of the Oxford Hotel, which he said was in excess of $500,000. He repeated that Tony Woodward told him that the business itself had "a fantastic cash flow". He said that, if he had received a copy of the Indigo Mist Directors Report or had been told of its contents, he would not have invested in the Oxford Hotel.
7. It is significant, as will become apparent, that at no time was the failure to inform Mr and Mrs Ritchie of the contents of the Indigo Mist Directors Report particularised as a breach of retainer, a breach of a general law duty of care or a contravention of s 42 of the Fair Trading Act. No application was made to make any amendment in that regard. In the course of the hearing, the Indigo Mist Directors Report took on a much greater significance in the plaintiffs' case than it had had before. It was not suggested, for example, that the document had only recently come to light. It had apparently been discovered and available for inspection for some considerable time prior to the hearing. Nevertheless, no complaint was made about it in the pleadings or particulars. As a consequence, I give virtually no weight to the evidence that I have just summarised. Indeed, it leads me to have considerable reservations about the reliability of the evidence given by Mr and Mrs Ritchie as to their respective states of mind in deciding to invest in the Oxford Hotel.
8. As I have said, Mrs Ritchie inherited $2,600,000 in shares from her mother in 1993 and a further $12 million in cash and shares from her father in 1995. By the end of 2007, partly through reliance on advice given by Tony Woodward, that inheritance, worth approximately $14.6 million, had been transformed into a share portfolio valued in excess of $50 million, millions of dollars in cash, a valuable art collection and a significant portfolio of real property.
9. Thus, when contemplating the possible investment in the Oxford Hotel in early 2006, Mrs Ritchie was enormously wealthy and the sums that were being proposed for investment in the Oxford Hotel and the Mansions Hotel, while very significant, were relatively modest in relation to the Mrs Ritchie's overall wealth. Further, the accumulation of that wealth was partly attributable to acceptance of advice provided by Tony Woodward in the preceding years. Mrs Ritchie trusted him implicitly in relation to matters of investing. Their trust was well placed since his advice up to 2006 had proved very profitable.
10. A very significant aspect of the previous reliance on Tony Woodward's recommendation was the then-successful investment in the Vegas Hotel. Against that background, particularly the success of the investment in the Vegas Hotel, Tony Woodward raised the prospect of investing $3 million in the Oxford Hotel. The latter investment was the same type of investment as the Vegas Hotel, the intention being that the investment would be run by the same successful team. Tony Woodward was himself investing in the Oxford Hotel and was to be involved in the running of the venture. By early 2006, the trust imposed in Tony Woodward by Mr and Mrs Ritchie must be regarded as reflecting a belief that his commercial judgment was sound and that he was an astute business person. His own participation in the venture provided a very significant endorsement of it, entirely unrelated to whatever information or advice might have been provided in relation to the proposed investment.
11. It is quite unclear what the plaintiffs contend is the advice or information that would reasonably have been provided or given to them that was not provided. It is reasonable to assume that a reasonably competent accountant giving or providing the advice or information in question would, as at early 2006, have had access to the 2005 Oxford Valuation. No suggestion has been advanced by the plaintiffs that the conclusions reached by LandMark White in relation to the various issues considered in that valuation were anything other than correct at the time.
12. A reasonably competent accountant would have understood that LandMark White was a highly reputable hotel valuer and there was therefore no need for such an accountant to embark on redoing all of the work carried out by LandMark White. Mr Cupit said that such an accountant may have sought to test the valuation by looking at the liquor and gambling returns made to the relevant statutory authorities and looking at income tax returns and business activity statements. There is nothing in the evidence to suggest that such a level of testing would have revealed any flaw in the detailed analysis undertaken by LandMark White. One can conclude, therefore, that a reasonably competent accountant would have advised the client that that was the case.
13. It is by no means clear whether the hypothetical reasonably competent accountant, in conducting the inquiries that might have been appropriate, would have come across the Indigo Mist Director's Report. There was no suggestion from Mr Cupit that, had that document been made available, it would have made any difference to the conclusions reached by LandMark White in relation to the value of the Oxford Hotel as an investment prospect. It is reasonable to conclude that, if retained to advise in relation to the prospective investment in the Oxford Hotel, such a reasonably competent accountant would have provided advice to that effect to Mr and Mrs Ritchie.
14. The Indigo Mist Directors Report expresses Mr Jason Gavin's views as to the current state of the business. It does so in the context of the steps that should be taken to re-establish the business of the Oxford Hotel on a sound basis. There is no suggestion that a proposal to renovate and relaunch the Oxford Hotel would not be successful. Rather, it suggests that the proposal is likely to be successful.
15. No doubt the provision of investment advice of such a kind would require some discussion of the risks and benefits associated with the proposed investment. Thus, advice may well have been provided as to the relative merits of investment in the Oxford Hotel as compared with other classes of investment available at the time. However, there was nothing in the evidence to suggest that a reasonably competent accountant would have advised Mr and Mrs Ritchie not to invest in the Oxford Hotel or would have advised them to seek further information beyond the information contained in the 2005 Oxford Valuation.
16. The circumstances in which the investment was made in the Oxford Trust are very similar to those in which the investment was made in the Vegas Trust and the Sleeping Property Trust. The Oxford Hotel was an existing business, the intention being to acquire a commercial property together with the hotel business being operated on it by Indigo Mist. The financial structure of the investment was exactly the same as for the Vegas Hotel, in that unit trusts were to be established and investors would acquire units in the unit trusts.
17. The proposal regarding the opportunity to invest was set out on the whiteboard by Tony Woodward. Mrs Ritchie accepted that it "made sense at the time". Neither she nor Mr Ritchie suggested that they told Tony Woodward that the proposals or the information did not make sense to them either when the whiteboard presentation was made or at any other times.
18. Mrs Ritchie accepted that the whole aim of the Oxford Hotel venture was to find an underperforming business with problematic cash flow, buy it cheaply and then improve that cash flow by improving the business. That is to say, the aim was to find a run down or badly run hotel and "to do it up". She accepted that the Oxford Hotel was a "very run down hotel" and that the point of the Oxford Hotel transaction venture was that the freehold could be bought relatively cheaply and, by a dint of spending "serious money" on it, much more substantial income could be earned in its refurbished state. She agreed that the expectation was that the existing business was going to suffer a dislocation while the proposed significant redevelopment was carried out, followed by a relaunch of a revitalised Oxford Hotel. She agreed that she would not have been surprised to hear that, before that task was undertaken, the business was not doing as well as it might. She agreed that, if the Oxford Hotel had been doing well, one would not expect to have been able to buy it at a lower price than it might ultimately be worth. Mrs Ritchie understood that Mr Gavin was offering to find hotels that were underperforming and were therefore undervalued. That is precisely the picture presented by the Indigo Mist Directors Report.
19. Mr Ritchie accepted that Tony Woodward was telling him that they could improve the Oxford Hotel significantly. He asserted that Tony Woodward said that they were already "making good money" but it could be "improved far better". He asserted that the significance of the current figures for the Oxford Hotel, in circumstances where it was going to be closed down and refurbished and reopened, was that any improvement would be measured against the figures. He also asserted that Tony Woodward put it that the current figures would improve, and with the improvement in the figures, there would be an improvement in the value of the Oxford Hotel and in that improvement the syndicate's profit would lie. However, he understood that what the syndicate was seeking to obtain from the Oxford Hotel was what had happened with the Vegas Hotel, namely, as the figures improved, profits were extracted and capital returns were made as the capital value of the Vegas Hotel increased.
20. The evidence of Mr Ritchie that Tony Woodward had told him that the cash flows of the Oxford Hotel were "exceptionally good" or "fantastic" is hardly consistent with the proposal as Mrs Ritchie understood it. If the cash flows were "fantastic", it is hardly likely that the Oxford Hotel could be bought cheaply and markedly improved. There would be no reason to close it down, gut it, renovate it and start again. Indeed, Mrs Ritchie could not recall Tony Woodward talking about cash flow at all or whether the return could compare to the interest paid to borrow the funds necessary to make the investment. The hyperbole employed by Mr Ritchie suggests that he was putting a gloss on the reality of the situation. It ignores what, in all probability, he was told as the real basis for the interest in the Oxford Hotel, as accepted by Mrs Ritchie.
21. The Indigo Mist Directors Report refers only to the first two months of operations of the Oxford Hotel by Jason Gavin as tenant/licensee. Rent of over $1 million per annum was being paid to the landlord. Jason Gavin presented a business plan to achieve $600,000 income for the business, with a capital injection for the business. The point of the proposal was for the investors to inject capital and acquire the freehold as well as the business, thereby eliminating rent and secure the additional income stream of the roof signage.
22. Taken as a whole, the Indigo Mist Directors Report proposes that, if the business was reformed and run with the freehold, it would have very substantial cash flows. That is what LandMark White confirmed in its valuation. The LandMark White valuation also explained some of the difficulty with the business of Indigo Mist as a standalone. Thus the 2005 Oxford Valuation indicated that Indigo Mist was paying an over-market rent. That explained the sum of the suppressed profits, which Mr Cupit acknowledged was attributable to the overpayment of rent. That problem would be removed once the freehold was owned by the operator of the business. The purchase price of the freehold of the Oxford Hotel, of $17.565 million, was well under the value of the building and business together, of $23.15 million. That is to say, the goodwill of the business appears to have had a value of about $6 million.
23. The Indigo Mist Directors Report was prepared some six months before the establishment of the Oxford Trust and the acquisition of units by Rujo. The plaintiffs now rely on extracts from the document. However, the document must be considered as a whole and in the context of the 2005 Oxford valuation prepared at about the same time. Mr Cupit agreed that the 2005 Oxford Valuation disclosed a profitable business, after eliminating the over market rent. The Indigo Mist Director's Report would be misleading if shown to a client in the way in which it was shown to Mr Ritchie and Mrs Ritchie in their examination in chief. The statement by Mr Ritchie and Mrs Ritchie that they would not have proceeded with the investment had they been shown the extract cannot be regarded as having any weight at all. That is particularly so in circumstances where the Indigo Mist Director's Report was never particularised as something that should have been disclosed to Mr and Mrs Ritchie on behalf of Rujo.
24. The Indigo Mist Directors Report was prepared by Jason Gavin, the key man with the apparent ability, as far as Mr and Mrs Ritchie were aware, to turn around the Oxford Hotel business, as happened with the Vegas Hotel. It was some nine months old at the time when the investment was made. The particular sentence seized upon by senior counsel for the plaintiffs in examination in chief, that "the business will die a slow and painful death if money is not injected into the business immediately", is followed by a statement by Jason Gavin that the net profit should be higher and could be "considerably improved if cash flow staffing and procedures are improved".
25. Mr Ritchie said that the Oxford Hotel proposal was first raised towards the end of 2005. He considered the matter in great depth and said it was a very big decision to make an investment that size. He said that Tony Woodward forwarded to him and Mrs Ritchie all the information that he received about the proposal and that he, Mr Ritchie, believed that it would be a sensible investment and would give them an opportunity to extend their commercial portfolio. Significantly, no evidence was given by Mr Ritchie or Mrs Ritchie as to just what the information received by Tony Woodward was that he forwarded to them.
26. I do not consider that, if the whole of the Indigo Mist Directors Report, together with the 2005 Oxford Valuation, had been provided to Mrs Ritchie and Mr Ritchie, they would have reached any different conclusion concerning the investment in the Oxford Hotel. The whole object was to acquire a rundown hotel, improve its running with the expertise of Jason Gavin and generate increased profit that would increase the value of the Oxford Hotel and its business over and above the price paid.
27. Accordingly, there was no breach by Tony Woodward of any general law or contractual duty of care that might have been owed by him to Rujo or Mrs Ritchie in relation to the investment in the Oxford Hotel.

The Mansions Hotel

1. In relation to the Mansions Hotel, the plaintiffs relied on no document as being information that ought to have been furnished to Rujo by Tony Woodward. The plaintiffs did not identify any advice or information that they assert would reasonably have been given or provided by the hypothetical reasonably competent accountant in connection with the investment in the Mansions Hotel. For the reasons indicated above, it is highly likely that the advice would have been consistent with the conclusions reached by Knight Frank in the 2006 Mansions Valuation, possibly qualified by advice concerning the risks of such an investment as compared with other classes of investment potentially available within the marketplace. However, it is highly unlikely that such advice would have stopped Mr and Mrs Ritchie from investing in the Mansions Trust.
2. As with the investments in the Vegas Hotel and the Oxford Hotel, Tony Woodward was in effect endorsing the investment in the Mansions Hotel through his own participation. The investment in the Vegas Hotel was still very successful and was being managed by the same group of people who were to manage the Mansions Hotel. At the time of the proposed investment in the Mansions Hotel, Barona received the distribution of capital from the Vegas Hotel investment in the sum of $440,000. Further, the Oxford Hotel was still viewed as a good prospect, although it had suffered from cost overruns in relation to the renovation. Overruns on renovations were familiar to Mr and Ritchie having regard to the experience with their home at Bellevue Hill. There is nothing to suggest that Mr and Mrs Ritchie would have concluded that the Oxford Hotel overruns were attributable to any mismanagement. Significantly, Mr and Mrs Ritchie perceived that there were synergies between the Mansions Hotel and their other successful investment, the Sleeping Trust, which was managed by the same team, including Tony Woodward and Jason Gavin. Having regard to the development potential of the upper floors of the Mansion Hotel, the potential synergies were real.
3. The plaintiffs allege that a particular aspect of Mr Woodward's plans for the Mansions Hotel was not revealed to Mr Ritchie, namely, his plan for at least some of the syndicate members to purchase the Peakhurst Inn Hotel, and that, had the Ritchies known that the Mansions Hotel was part of a more ambitious acquisition agenda that included Peakhurst Inn Hotel, they would not have invested. In making that submission the plaintiffs rely on the letter dated 25 January 2007 to Mr Wynne from Ashe Morgan Winthrop saying as follows: "[Ashe Morgan Winthrop] has structured a proposal to match your funding requirements without any need to sell down your existing equity position. [Ashe Morgan Winthrop] will arrange this facility on a non-recourse basis whilst allowing you to expand your portfolio to acquire the Peakhurst hotel without raising any additional equity."
4. The plaintiffs contend that the letter establishes that Tony Woodward, in proposing the purchase of the Mansions Hotel, was doing so as part of a plan to purchase the Peakhurst Inn Hotel, and that that fact needed to be disclosed to the Ritchies at the time of investment in the Mansions Hotel. However, the contention misplaces the investment in the Mansions Hotel in time. The letter is dated 25 January 2007 but the Mansions Hotel investment occurred in August 2006. There is no evidence that the purchase of the Peakhurst Inn Hotel, as part of a wider acquisition agenda, was in Tony Woodward's mind at the time of the Mansions Hotel investment in August 2006.
5. The basis of the claim for alleged misapplication of the sum of $440,000 is completely without substance. Mr Ritchie received the letter indicating what was to happen with the distribution. It beggars belief that, if he did not want that distribution to be invested in the Mansions Hotel, he would not have asked for the funds to be paid to Rujo.
6. The plaintiffs also submit when the proper value of the Mansions Hotel is considered in conjunction with the 5 out of 16 units that the Ritchies owned and the amount the Ritchies contributed, that there was a loss on day one of their investment in the Mansions Hotel. Irrespective of the truth of such a claim, given the absence of any equity left in the hotels after the collapse after the financial collapse, any diminishment in value of units in the Mansions Trust is purely academic.
7. There was no breach by Tony Woodward of any general law or contractual duty of care that might have been owed by him to Rujo or Mrs Ritchie in relation to the investment in the Mansions Hotel.

Alleged failure to advise Rujo and the Ritchies to seek independent advice

1. The plaintiffs also contend that Tony Woodward was in a position of conflict and breached Implied Retainer Term (d) by not advising the Ritchies that they should consider seeking independent advice from an independent accountant, solicitor, licensed financial advisor or other professional in relation to the investments. They say that such an advisor would likely have identified concerns with the investment, who would have advised them not to go forward with the proposed investments and therefore loss would have been avoided.
2. I have found that Retainer Term (d) was not in fact implied in any of the Retainers. On the other hand, it is arguably part of the common law duty of an accountant to his or her client to advise the client to seek independent accounting or legal advice if there is a conflict between the obligations owed to the client and obligations owed to other investors in the scheme on which the accountant is advising the client. [5] That general law duty of care was not clearly pleaded, but, in any case, any such contention must fail on the grounds outlined above. The plaintiffs have not established what advice would have been given or how any advice that might have been given would have prevented their loss.
3. The plaintiffs have not established that any advice to obtain independent counsel would have been followed, given the testimony from both Mr and Mrs Ritchie that they had sought independent advice for investments in the past, and were fully aware of their options for getting such advice when needed. Thus, their decision to not seek such advice was not caused by a failure by Tony Woodward to advise them to seek it, especially in the context where they were aware of Tony Woodward's "conflict of interest". Indeed, Tony Woodward's role as a fellow investor in the hotels with "skin in the game" informed the Ritchies' decision to invest. Further, the plaintiffs have not established that Mr and Mrs Ritchie would not have made the same investment decisions even with the benefit of independent legal and accounting advice.

Causation in Negligence

1. All questions of causation in relation to the plaintiffs' claims in negligence must be determined in accordance with Div 3 of Pt 1A of the Civil Liability Act 2002 (NSW). The plaintiffs claim that, but for the negligence of Tony Woodward, they would not have invested in units in the Oxford Trust or the Mansions Trust and would not have made loans to Oxford Property. Accordingly, s 5D(1) of the Civil Liability Act requires the Court to determine, first, what advice or information would have been given or provided, by a reasonably competent accountant prior to entering into each of the transactions about which complaint is made. Secondly, s 5D(1) requires the Court to determine, on the balance of probabilities, what the plaintiffs would have done had they been provided with such advice or information at the relevant time. Specifically, the Court must consider whether or not the plaintiffs would have entered into the transactions. [6]
2. Apart from reference to the Indigo Mist Directors Report and the alleged promise by Tony Woodward to procure some form of security, the plaintiffs have not identified with any particularity the advice or information that they allege would have been given or provided by a reasonably competent accountant. Without knowing what advice would reasonably have been given or provided, it is impossible for the Court to embark on an assessment of what the plaintiffs would have done had such advice or information been given or provided.
3. If it were possible to determine what advice or information would reasonably have been provided, s 5D(3) would require the Court to make a determination of what the plaintiffs would have done had the advice or information been provided, not what a reasonable person in their position might have done. Limited reliance, if any, can be placed on statements made by Mr Ritchie or Mrs Ritchie as to what he or she would have or would not have done had certain advice or information been provided. Such evidence is inadmissible in so far as the claim is based on a breach of a general law duty. Evidence of what an individual would have done had certain advice or information been provided, if the evidence is admitted, is fraught with difficulty. Such evidence is necessarily hypothetical and must inevitably be influenced by hindsight. Such evidence is of little probative value unless its reliability is confirmed by other objective material. It is open to the court to disbelieve evidence found to be tainted by hindsight, even in the absence of cross-examination. [7]
4. It is necessary to have regard to all relevant surrounding circumstances that may or may not have influenced Mr and Mrs Ritchie at the time when decisions were made to invest in the Oxford Hotel and the Mansions Hotel. In order to assess what Mr and Mrs Ritchie may have done, it is necessary to take into account that, long before Tony Woodward raised the possibility of investment in the Oxford Hotel and the Mansions Hotel, a pattern had developed whereby Mr and Mrs Ritchie were presented with investment opportunities by Brian Woodward or Tony Woodward, who then proffered advice in relation to the qualitative aspects of those investments. I have referred above to their investments in Microcatheters, properties in Cairns, the Cheltenham Road townhouses, the margin loan facility and increases in the share portfolio, the Sleeping Trust and the Vegas Hotel. Apart from the investment in Microcatheters, all of the earlier investments produced significant profits for Mrs Ritchie and those connected with her. There is no basis for finding that there was other information or advice that, if provided, would have influenced Mrs Ritchie and Rujo not to invest in the Oxford Hotel or the Mansions Hotel.
5. In the light of the above, the plaintiffs have not discharged the onus imposed upon them by s 5E of the Civil Liability Act. That is to say, they have not established that Tony Woodward's alleged negligence was a necessary condition of the loss that they suffered when the investments ultimately failed. They have not established that they would not have invested in the Oxford Hotel or the Mansions Hotel had they been provided with whatever advice or information a reasonably competent accountant would hypothetically have provided to them, had such an accountant been retained to do so. Accordingly, factual causation has not been established for the purpose of s 5D(1)(a) of the Civil Liability Act.

Liability for Misleading and Deceptive Conduct

1. The plaintiffs' case of alleged contravention of s 42 of the Fair Trading Act with respect to the Oxford Hotel and Mansions Hotel investments is largely coterminous with the allegations of breach of contract and negligence. With respect to the Oxford Hotel the pleaded representations are: 1. An investment in the Oxford Hotel would obtain a return greater than the interest paid to borrow the funds necessary to invest; and/or 2. the valuation figures and cash flows for the Oxford Hotel were good, and would improve once the refurbishment was complete.
2. With respect to the Mansions Hotel, the pleaded representation was: 1. That the returns from the hotel business and gaming machines at the Mansions Hotel could be improved with little expense.
3. Before addressing the specific representations, it is relevant to note that the representations largely concern future matters. The plaintiffs' analysis does not extend much beyond an assertion that, because the investments ultimately failed, representations about the likely success of the investments were misleading and deceptive. The evidence available at the time of the Oxford Hotel investment, as discussed above, especially the 2005 Oxford Valuation, provided fair and reasonable grounds for Tony Woodward to have made the first and second pleaded Oxford Hotel representations.
4. With respect to the second Oxford Hotel representation, I have already concluded at [365] that the evidence does not establish that the representation regarding the cash flow being "good" at the time of acquisition was made. With respect to the first Oxford Hotel representation and the balance of the second Oxford Hotel representation, the plaintiffs appear to submit that they were misleading and deceptive on the basis that the Oxford Hotel never produced any return at all during its lifetime.
5. The plaintiffs have also submitted that the representations were misleading and deceptive on the basis that the $3 million investment of Rujo entitled the plaintiffs to an equitable share of 50% in the Oxford Hotel rather than the 13-16% share they received, and therefore the plaintiffs' investment was immediately devalued upon entry into the transaction. That submission is misconceived for several reasons.
6. First, no allegation was pleaded that the Oxford Hotel investment gave rise to any inequity by reason of the share of Rujo in the investment. Secondly, the plaintiffs' analysis is strictly arithmetic in nature and ignores the contributions of the other syndicate members of the Oxford Trust, notably the fact that they gave personal guarantees for the loans from the Commonwealth Bank and assumed directors' duties and obligations. Thirdly, an allegedly unfair allocation of equity does not in itself mean that, at the time that a representation that revenue generated from return on the investment would exceed the interest paid to borrow the funds necessary to invest, was misleading and deceptive, given the aforementioned evidence as of the time of investment of the possibility of good returns. Finally, any lack of equity in the respective shares in the investment is largely academic given that none of the investors recovered any of their original capital, and therefore the relative size of the share Rujo received in the investment would not have made any impact on the failure of the investment.
7. With respect to the Mansions Hotel representation, other than a reliance on the allegation that the investment in the Mansions Hotel, unbeknownst to the Ritchies, was part of a wider plan to acquire the Peakhurst Inn Hotel, which I have already addressed (at [375]-[376]), there is no basis for concluding the representation is misleading. There was, on the evidence, a reasonable basis for making the pleaded representation, in the light of the valuations. The plaintiffs have not established that the pleaded representations, to the extent that they were made, were misleading and deceptive.
8. Insofar as the plaintiffs rely on a representation as to future conduct by Tony Woodward in relation to the giving of security, it is clear that Tony Woodward intended that security be given by Oxford Property for the three loans totalling $2 million. Clearly, there was never any representation that first ranking security would be given. The only representation made was that security for the loans, ranking after the first security in favour of the Commonwealth Bank, would be given and that loan documentation would be prepared. In fact documents were prepared, but for reasons not explained, were never executed. On the other hand the plaintiffs appear to accept that there may well have been an equitable mortgage.
9. I consider that the evidence leads to the conclusion that there were reasonable grounds for Tony Woodward to make the representations in question. There was no contractual arrangement between Tony Woodward, on behalf of BP Woodward & Associates, on the one hand, and the plaintiffs, on the other, that security would be procured. In any event, for the reasons indicated, there has been no loss occasioned by the want of security.

Conclusion as to Liability of the Tony Woodward

1. The defendants contended that the loss of the investments in the Oxford Hotel and the Mansions Hotel, including the loans made to Oxford Property, resulted from two factors over which none of the parties had any control. The first factor was the effect on the business of hotels in the Kings Cross and Darlinghurst area of the imposition of early closing hours by the State Government in the month of December 2008. The second was the effect of the global financial crisis in 2008 on the business of both hotels, resulting in downturns of commercial activity.
2. As the case was conducted, those factors have no significance. They may well be the reasons why the businesses of the hotels ultimately failed to achieve expectations, leading to the enforcement of securities by BankWest. The plaintiffs' case was that they would never have been in the position of having an investment in the Oxford Hotel and the Mansions Hotel but for the conduct of Tony Woodward in breach of one or other of the retainers or of a general law duty of care, or in contravention of s 42 of the Fair Trading Act. I have concluded that no breach or contravention led to Rujo investing in the Oxford Hotel or the Mansions Hotel or led to Mrs Ritchie, Rujo or Barona making loans to Oxford Property.
3. That is to say, at the time when the investments in the Oxford Hotel and the Mansions Hotel were made, Rujo received what it hoped for and expected. The valuations to which I have referred make it clear that, in 2006, both the Oxford Hotel and the Mansions Hotel were properties in which Mr and Mrs Ritchie were prepared to invest Mrs Ritchie's funds through Rujo. Rujo obtained an interest in each of the hotels and those interests were, at that time, worth the price paid for them.
4. It follows from the conclusions that I have reached above that the plaintiffs have not established any liability on the part of Tony Woodward for the losses they have suffered as a consequence of investing in units in the Oxford Trust and the Mansions Trust and in making loans to Oxford Property. It follows that no question of vicarious liability on the part of the other defendants arises. Nevertheless, it is desirable to deal with the specific questions raised on behalf of Mary-Ann Woodward, Tony Woodward and Mr Rigney and Ms Bolton.
5. It is also unnecessary to determine the quantum of any loss suffered by the plaintiffs. However, it is desirable to say something about the quantum of the loss claimed made by them and the basis upon which the defendants and AIG contended that any liability would be limited.
6. Rujo, in investing units in the Oxford Hotel and Mansions Hotel, Barona in lending money to Oxford Property and Mrs Ritchie, in lending money to Rujo, Barona and Oxford Property, may well have acted reasonably. On the other hand, they must be taken to have decided to invest in what were hoped and expected to be profitable ventures that carried an element of risk. In the circumstances, it is unnecessary to deal with the questions of contributory negligence and proportionate liability. Indeed, in the light of the conclusions I have reached, it would be undesirable to embark on what would necessarily be speculation.

Position of Mary-Ann Woodward

1. The plaintiffs contend that Mary-Ann Woodward remained a member of the Partnership carrying on practice under the name "BP Woodward & Associates" until 30 June 2008. Therefore, they say, by the operation of the Partnership Act 1892 (NSW) (the Partnership Act), she is vicariously liable for all of the alleged wrongful acts and omissions of Tony Woodward. Section 10 of the Partnership Act relevantly provides that, where, by any wrongful act or omission of any partner in a firm acting in the ordinary course of the business of the firm, or with the authority of the partner's co-partners, loss or injuries are caused to any person, not being a partner of the firm, the firm is liable to the same extent as the partners who were acting or omitting to act. Section 12 relevantly provides that every partner in a firm is liable jointly with the partner's co-partners, and also severally, for everything for which the firm while the partner is a partner therein becomes liable under s 10.
2. Brian Woodward and Tony Woodward were at all relevant times until 30 June 2008 members of the Partnership that practised under the name BP Woodward & Associates. Therefore, it would appear that, at least prima facie, the interests of the estate of the late Brian Woodward and the personal interests of Mary-Ann Woodward were in conflict. That is to say, it would be in the interest of the estate of Brian Woodward, if it has a liability to the plaintiffs, to establish that Mary-Ann Woodward was also liable, such that there might be contribution between them. For that reason, I raised with counsel who was appearing for Mary-Ann Woodward in her personal capacity, as well as in her capacity as legal personal representative of Brian Woodward, the possible conflict between his clients. I was assured, however, that the family arrangements that are in place are such that no conflict in fact exists.
3. Section 1(1) of the Partnership Act relevantly provides that partnership is the relation that exists between persons carrying on a business in common with a view of profit. The intention of the parties as to being in partnership is to be ascertained objectively from any written agreement as well as their words and conduct. [8] The question of whether a partnership exists is a mixed question of fact and law and turns on whether the substance of the relationship between the parties exhibits the indicia of partnership. The fact that parties refer to each other as partners is not any more decisive than a statement by them that they are not partners. [9]
4. While Mary-Ann Woodward claimed that she was no more than a salaried partner until she retired in January 2003, she accepts that, until that time, she was relevantly a partner of Brian and Tony Woodward for the purposes of the Partnership Act. While the term "salaried partner" is not a term of art, it is a convenient expression that is widely used to denote a person who is held out to the world of being a partner, with name on the notepaper of the firm and the like, but receives a salary by way of remuneration rather than a share of the profits of the business. So far as the relationship of such a person with those outside the partnership is concerned, it will not matter much whether the person is a full partner or a salaried partner. If the person is held out as a partner, the partners will be liable for his or her acts and he or she will be liable for the acts of the other partners. The relationship among the partners, inter se, of course, will be a different matter. [10]
5. Where all partners are solvent, it may not much matter what the terms of the relations among the partners inter se happen to be. For example, it may be that all members of a partnership, including "salaried" partners, are held liable to a third party a reason of the act or omission of one of them. The third party might enforce a claim against any one of the partners, notwithstanding that the partners, inter se, have an arrangement whereby some of the partners will indemnify salaried partners in respect of all partnership liabilities.
6. The issue in the present case is whether Mary-Ann Woodward ceased to be a partner in January 2003 as she claims. There are factors supporting both views as to that issue. The question is whether I should be satisfied, on the evidence before me, that it is more likely than not that she continued to be partner, albeit a salaried partner, after 3 January 2003.
7. On 13 January 2003 a form titled "Statement of Change in Persons" was filed under the Business Names Act 1962 (NSW) (the Business Names Act), which has since been repealed. Section 12(3) of the Business Names Act relevantly provided that, where a business name was registered under the Act in relation to a person or persons and any of those persons ceased to carry on business in New South Wales under that name, a statement in prescribed form was required to be lodged with the Commissioner within one month thereafter, notifying the Commissioner of the cessation and of the date thereof. The prescribed form was required to be signed by each person who was carrying on business under that name immediately before the cessation.
8. Section 12(4) of the Business Names Act relevantly provided as follows: "Where a business name is registered under this Act in relation to a person or persons and another person or other persons commences or commence to carry on business in the State under that name in place of or in association with the person or persons in relation to whom the name is already registered, there shall be lodged with the Director-General, within one month thereafter, a statement [of prescribed form 6] signed by the person or all of the persons carrying on business under the name immediately after that other person or those other persons so commenced carrying on business under that name, setting out the date on which that other person or those other persons so commenced to carry on the business…"
9. The Statement of Change in Persons form lodged on 13 January 2003 relevantly specified that, on 3 January 2003, Mary-Ann Woodward ceased to carry on business under the business name "BP Woodward & Associates". The form also specified that Mr Dominic Li, who was a partner but had recently died, had ceased to carry on business under the name. The form stated that Tony Woodard and Brian Woodward would continue to carry on business under the business name. The form was signed by Mary-Ann Woodward, Tony Woodward and Brian Woodward on 3 January 2003.
10. Searches of the register maintained by Australian Securities and Investments Commission (ASIC) show that a company called "Woodward's Corporate & Business Services Pty Limited" was registered on 6 January 2003. The register shows that that company was deregistered on 10 November 2010 under s 601AA of the Corporations Act 2001 (Cth). Under that provision, an application to deregister a company may be lodged with ASIC by the company, a director or member of the company, or a liquidator of the company in the circumstances specified in the provision. The search of the register also discloses that Mary-Ann Woodward was appointed as a director of that company on 26 July 2006 and ceased to be a director on 10 November 2010, when the company was deregistered.
11. Mary-Ann Woodward's tax returns for the years ended 30 June 2001 and 30 June 2002 and notices of assessment issued by the Australian Taxation Office to Mary-Ann Woodward for those years disclose income in the nature of salary or wages received from BP Woodward & Associates from which tax instalments were withheld by the Partnership as employer. The returns show taxable income from BP Woodward & Associates of sums in excess of $180,000.00 for the years ended 30 June 2001 and 30 June 2002.
12. Mary-Ann Woodward's tax return and notice of assessment in respect of the year ended 30 June 2003 disclosed total taxable income of less than $80,000.00 from BP Woodward & Associates, and taxable income form Woodwards Corporate & Business Services Pty Limited of almost $40,000.00. The taxable income also included income from Novastar Services Pty Limited. Those figures are consistent with ceasing to be the employee of BP Woodward & Associates in January 2003 and becoming an employee of Woodwards Corporate & Business Services Pty Limited. Mary-Ann Woodward's tax returns and notices of assessment for the years ended 30 June 2004, 2005, 2006, 2007, 2008, 2009 and 2010 do not disclose any income from BP Woodward & Associates but continue to disclose income received from Woodwards Corporate & Business Services Pty Limited as an employee.
13. Income tax returns for the Partnership BP Woodward & Associates with Australian Business Number (ABN) of 998 135 68217 for the period 3 January 2003 to 30 June 2003 disclosed that the only partners were Brian Woodward and Tony Woodward. The income tax returns for that Partnership for the years ended 30 June 2004 to 30 June 2009 disclose that the only partners were Brian Woodward and Tony Woodward.
14. On 20 June 2008, a deed of partnership was entered into by Tony Woodward, Ms Bolton and Mr Rigney, by which they agreed to become partners for a term to commence on the date of the deed and under which the partnership business was to be that of chartered accountants to be carried on under the name "BP Woodward & Associates". The interests of the partners were to be: "Tony Woodward 55 per cent Ms Bolton 22.5 per cent Mr Rigney 22.5 per cent"
15. On 30 June 2008, Brian Woodward, as vendor, and Tony Woodward, Ms Bolton and Mr Rigney, as purchaser, entered into an instrument titled "Agreement for Sale of Accountancy Practice" (the Sale Agreement). By cl 2.1 of the Sale Agreement, the vendor sold and the purchasers bought "the Accountancy Practice" on the terms set out in the Sale Agreement. The term "Accountancy Practice" was defined as the vendor's 50 per cent interest in the business carried on from the vendor's office in York Street Sydney under the business name "BP Woodward & Associates" in providing services as accountants and bookkeepers.
16. Clause 2.2 of the Sale Agreement provided that the vender was to do everything reasonably required by the purchasers to introduce to the purchasers the clients named in a client list set out in the schedule to the Sale Agreement and to have the purchasers appointed by those clients as the clients' accountants. Clause 2.3 provided that the purchase price, as defined, was to be paid by the purchasers to the vendor by bank cheque on the date of the Sale Agreement. Clause 2.4 provided that the respective purchasers were each purchasing the fixed percentage of the Accountancy Practice set out in a schedule to the agreement, which provided the following: Tony Woodward 10 per cent Ms Bolton 45 per cent Mr Rigney 45 per cent Since Tony Woodward already had a 50 per cent interest in BP Woodward & Associates, the net result was that he had 55 per cent of BP Woodward & Associates and Ms Bolton and Mr Rigney each had 22.5 per cent.
17. Completion of the Sale Agreement was to take place on 30 June 2008 when the vendor was required to deliver to the purchasers duly signed documents necessary to transfer to the purchasers the vendor's interest in the business name "BP Woodward & Associates".
18. By clause 8 of the Sale Agreement, the vendor warranted that, as at the date of the Sale Agreement, the income of the "Vendor Entities" in the tax years ended 30 June 2005, 2006 and 2007 was in accordance with the financial statements and income tax returns provided to the purchasers. The term "Vendor Entities" was defined as including: * BP Woodward & Associates * Bizcorp Management Pty Limited * Woodwards Corporate & Business Services Pty Limited
19. Partnership tax returns were lodged in respect of the years ended 30 June 2008 and 30 June 2009 for the partnership BP Woodward & Associates with ABN 99813568217. Those partnership returns showed the partners as Brian Woodward and Tony Woodward. A partnership tax return was also lodged in respect of the year ended 30 June 2009 for the partnership BP Woodward & Associates with ABN 60404704504. That return showed the partners as Tony Woodward, Mr Rigney and Ms Bolton.
20. Searches of the registers maintained by ASIC disclose that, as at 8 September 2014, the current holders of the business name "BP Woodward & Associates" were Ms Bolton, Mr Rigney and Tony Woodward, with effect from 1 July 2008. They are shown as the current partners, Mr Rigney and Ms Bolton having started on 1 July 2008 and Tony Woodward having started on 29 June 2011. Tony Woodward did not continue as a partner throughout the period beginning on 1 July 2008, because of his intervening bankruptcy, to which I shall refer further below.
21. The Director General of the Department of Fair Trading issued certificates on 13 January 2003, 25 February 2003 and 2 July 2003 showing that the business name "BP Woodward & Associates" would remain in force, unless cancelled, until 14 March 2003, 14 March 2006 and 14 March 2006 respectively. Each shows that the names of the proprietors are Brian Woodward and Tony Woodward. No mention is made of Mary-Ann Woodward. It is unclear why the certificates were issued on those days in 2003.
22. All of the material described above is consistent with Mary-Ann Woodward having been a salaried partner, but nevertheless a partner for the purposes of the Partnership Act, up to 3 January 2003 and having ceased to be a partner at that time. The material also supports the conclusion that the Partnership of Tony Woodward and Brian Woodward continued from 3 January 2003 to a time after 30 June 2009. It also supports the conclusion that a new partnership commenced, with effect from 1 July 2008, in which the partners were Tony Woodward, Mr Rigney and Ms Bolton.
23. Somewhat confusingly, the two partnerships carried on business under the same name. However, with effect from 1 July 2008, Brian Woodward was no longer engaged in the Accountancy Practice, having entered into the Sale Agreement in respect of his 50 per cent interest in the Accountancy Practice. Nevertheless, the old partnership continued in existence with Brian Woodward and Tony Woodward as the only partners. There is no evidence that the Partnership was wound up. One might draw the inference that the Partnership continued in existence for the purpose of collecting outstanding fees. However, nothing appears to turn on that question.
24. However, some considerable doubt is cast on some of those conclusions by the actions of the members of the old partnership after 3 January 2003. In that regard, it is important to bear in mind that no allegation is made by the plaintiffs that Mary-Ann Woodward was held out as a partner in the firm BP Woodward & Associates. Rather, they allege, simply, that she was in fact a member of the Partnership carrying on the practice under that name at all times after 3 January 2003.
25. Significantly, the registers maintained by ASIC contain entries for "former partners" in respect of the business name "BP Woodward & Associates". Mary-Ann Woodward is shown as having been a partner from 19 June 2000 to 3 January 2003. That is consistent with the position maintained by her in the proceedings. However, the search also discloses that she was a partner from 15 August 2003 to 1 July 2008. That discovery largely negates the evidential impact of the Statement of Change in Persons lodged on 13 January 2003 for the proposition that Mary-Ann Woodward was not a partner from 15 August 2003 onwards.
26. In the absence of any further evidence as to the relevant circumstances, I would draw the inference that, at some stage, a return was lodged, or returns were lodged, showing that Mary-Ann Woodward had commenced to carry on business under the name "BP Woodward & Associates" on 15 August 2003 and that a form had been lodged showing that she had ceased to carry on business under that name with effect from 1 July 2008.
27. There are multiple versions of the letterhead of the firm "BP Woodward & Associates", in which Mary-Ann Woodward is shown as a partner at times after 3 January 2003. Fee notes sent to Barona on behalf of "BP Woodward & Associates" prior to June 2000 do not show Mary-Ann Woodward as a partner. However, a fee note sent to Barona dated 30 June 2001 shows that the partners are Brian Woodward, Tony Woodward and Mary-Ann Woodward, as well as Mr Dominic Li. Fee notes sent prior to 3 December 2003 show those partners.
28. However, fee notes sent to Barona on numerous occasions after 3 January 2003 up to 30 June 2008 show the partners in the firm as being Brian Woodward, Tony Woodward and Mary-Ann Woodward. Changes were made to the letterhead during that period. For example, fee notes from September 2004 show Ms Bolton and Ms Sharon Feldmann as associates of the firm, as well as showing Brian Woodward, Tony Woodward and Mary-Ann Woodward as partners. That position continued until the end of 2006 when Mr Rigney's name appeared on fee notes as an associate, while Mary-Ann's name continued to be shown as a partner.
29. At some time during 2008, before 1 July 2008, a "partner's announcement" was released by BP Woodward & Associates. The announcement showed the partners as being Brian Woodward, Tony Woodward and Mary-Ann Woodward and the associates as Ms Bolton and Mr Rigney. The announcement contained the following: "The partners of BP Woodward & Associates announce that as from the 1 July 2008, there is a change of an era. Brian Woodward - founder and mentor is retiring from the practice but will continue in a Senior Consultant role. Mary-Ann Woodward is also becoming a Consultant to the firm. Our Associates Bernice Bolton and Andrew Rigney are becoming Partners. Brian, Mary-Ann, Tony, Bernice and Andrew will all be here to attend to your taxation and business needs, as we enter a new and exciting phase of the practice. After 32 years at the helm, 14 years in partnership with Tony and 8 years with Mary-Ann, Brian would like to extend his grateful thanks to all our clients for their support, some of whom have been with him and the firm for many if not all of those 32 years. Tony, Bernice and Andrew will continue the firm in its honoured tradition of striving for excellence in client advice and services and continue building on its solid foundation, a practice that you the clients, our team, Brian and ourselves will be proud of." [Emphasis added.]
30. In addition, a newsletter, apparently published in June or July 2008 by BP Woodward & Associates, under the name "Woodie's Round Up" contains an item as follows: "PARTNERSHIP AND STAFF NEWS The Partners and Staff would like to congratulate two very important staff on both becoming partners; Bernice Bolton and Andrew Rigney. Brian and Mary-Ann will be stepping into a senior consultant role."
31. The evidence of the register, the fee notes, and the announcement and newsletter with the tax returns that I have just described are inconsistent with a conclusion that Mary-Ann Woodward was not held out as a partner after 15 August 2003. That material unequivocally states that Mary-Ann Woodward was a partner in the firm for the relevant time period. Further, there is no evidence of any dissolution of any partnership or any other event upon which a partnership in which Mary-Ann Woodward was a member may have come to an end.
32. Tony Woodward or Mary-Ann Woodward may have been able to give evidence to explain the material, for example, by saying that it was the result of some oversight. However, they chose not to give evidence. The arguments for a conclusion that Mary-Ann Woodward was a partner after 3 January 2003 are strengthened by her silence. [11]
33. However, the absence of evidence of dissolution of any partnership or any other event upon which a partnership in which Mary-Ann Woodward was a member may have come to an end is not the end of the matter. The evidence is clear enough that, so far as the rights and obligations of Brian Woodward, Tony Woodward and Mary-Ann Woodward inter se were concerned, Mary-Ann Woodward was an employee of Brian Woodward and Tony Woodward. She was not a partner, so far as the three of them were concerned. That conclusion flows from the aforementioned tax returns, which critically disclose no direct income to Mary-Ann Woodward from BP Woodward & Associates from 2003 onwards. On the other hand, it is clear enough that, as regards third parties outside the Partnership, she was a partner in the firm up to 3 January 2003. The essential question is whether she continued, as a matter of fact and law, to be a partner, as regards to third parties, at any time after 3 July 2003.
34. At one point in their argument, the plaintiffs contended that, although the tax returns disclose that Mary-Ann Woodward received no income from the Partnership, she was nevertheless remunerated for her continued membership of the Partnership by reference to the income she received from Woodwards Corporate & Business Services Pty Limited, which was purportedly contracted to provide services to the Partnership, and in the aforementioned Agreement for Sale of Accountancy Practice dated 30 June 2008, was referred to as a "Vendor's Entity", the Vendor being Brian Woodward. The plaintiffs contend that, while direct profit sharing might be the paradigm remuneration arrangement for members of a partnership, partners are also entitled to work out their remuneration arrangements, without threatening the status of the Partnership.
35. I do not consider that that contention can succeed. It is clear that Woodwards Corporate & Business Services Pty Limited was a separate legal entity and that Mary-Ann Woodward was employed by that entity after she ceased to be employed by her father and brother, who were carrying on the business in partnership. Simply because that company may have had a contract for remuneration with from BP Woodward & Associates does not make either the company, or the company's employees and directors, of whom Mary-Anne Woodward was from 2003 to 2008, members of the Partnership. [12]
36. The plaintiffs also contend that the fact that the figures have been redacted from the tax returns has the consequence that the Court cannot determine that there was any partnership income to directly distribute in the years in question or that it was distributed. That contention has no substance and is largely speculative in nature.
37. There is considerable cogency in the other arguments advanced on behalf of the plaintiffs, based on the presence of Mary-Ann Woodward's name on the letterhead, the evidence of the register and the announcement and newsletter of 2008. Nevertheless, given the absence of any financial remuneration paid directly to Mary-Anne Woodward from the Partnership as evidenced by the tax returns, and instead her role as employee, and subsequently director, of a related but legally distinct entity that supplied services to the Partnership, I am not persuaded that it is more likely than not that Mary-Ann Woodward continued to be a member of the Partnership or became a partner in the firm after 3 January 2003. It follows that, whether or not Tony Woodward and Brian Woodward have any liability to the plaintiffs in respect of the conduct and actions of Tony Woodward in 2006 and thereafter, no liability attaches to Mary-Ann Woodward.

Position of Tony Woodward following his Bankruptcy

1. In his defence in each of the proceedings, Tony Woodward relies on the provisions of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) as barring all of the relief claimed against him. He asserts that, having become bankrupt on 1 July 2010 and his bankruptcy having been annulled under s 74 of the Bankruptcy Act, any obligations that he might have had to the plaintiffs were released. Having regard to the conclusions on liability I have reached above, it is not necessary to decide that question. Indeed, for the reasons briefly set out below, it is not strictly possible to determine the question, since it depends upon the precise nature of the obligation that is in question. However, since the parties addressed the matter fully, I shall make some observations about it.

Compromise under the Bankruptcy Act

1. Under s 55 of the Bankruptcy Act, a debtor may, subject to that section, present to the Official Receiver a petition against himself. The official receiver must reject a debtor's petition in certain circumstances specified in s 55 and may reject a debtor's petition in other circumstances. None of those circumstances is presently relevant. Under s 55(4) the Official Receiver must accept a debtor's petition unless it is rejected under s 55 or the Official Receiver is directed by the Bankruptcy Court to reject it. Under s 55(4A), where the Official Receiver accepts a petition, the petition is to be endorsed accordingly. Upon the Official Receiver endorsing the petition, the debtor who presented the petition becomes a bankrupt by force of s 55 and by virtue of presentation of the petition. Under s 57A, where a person becomes a bankrupt by virtue of the presentation of a debtor's petition, the person is, for the purposes of the Bankruptcy Act, deemed to become a bankrupt at the first instant of the day on the which the petition is accepted by the Official Receiver.
2. Section 82(1) of the Bankruptcy Act, which is in Division 1 of Part VI dealing with "proof of debts", relevantly provides that, subject to that Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are "provable in the bankruptcy". Under s 82(4), the trustee in bankruptcy is required to make an estimate of the value of the debt or liability provable in the bankruptcy that, by reason of its being subject to a contingency, or for any other reason, does not bear a certain value. A person aggrieved by an estimate so made may appeal to the Court of Bankruptcy. If that court finds that the value of the debt or liability cannot be fairly estimated, the debt or liability is deemed not to be provable in the bankruptcy. However, if the Court of Bankruptcy finds that the value of the debt or liability can be fairly estimated, it is required to assess the value in such manner as it thinks proper.
3. Under s 73 of the Bankruptcy Act, where a bankrupt decides to make a proposal to his or her creditors for a composition in satisfaction of his debts, the bankrupt may lodge with the trustee in bankruptcy a proposal in writing setting out the terms of the proposed composition. The trustee must give a copy of the proposal to the Official Receiver within two working days. Under s 73(2), the trustee must then call a meeting of creditors and must send to each creditor, before the meeting, a copy of the proposal, accompanied by a report on it. The report is to indicate whether the proposal would benefit the bankrupt's creditors generally. Under s 73(4), the creditors may, by special resolution, accept the proposal.
4. Under s 74(5) upon the passing of a special resolution at the meeting of creditors of a bankrupt under s 73(4), the bankruptcy is annulled, by force of s 74(5), on the date in which the special resolution is passed. The trustee must, before the end of the period of 2 days beginning on that date, give the Official Receiver a written notice setting out the name and the bankruptcy number of the former bankrupt and the date of annulment.
5. Under s 75, a composition accepted in accordance with Division 6, which consists of ss 73 to 76B, is binding on all the creditors of the bankrupt so far as relates to provable debts due to the creditors from the bankrupt. However, under s 75(2), the acceptance of the compensation does not, except with the consent of the creditor to whom the debt is due, release the bankrupt from a provable debt that would not be released by the bankrupt's discharge from bankruptcy or release any other person from any liability from which he or she would not be released by the discharge of the bankrupt. The provisions of a composition that has been accepted in accordance with the Division 6 of Part IV may be enforced by a Court of Bankruptcy.
6. On 1 July 2010, Tony Woodward presented a petition against himself, which was accepted by the Official Receiver on that day. He thereupon became a bankrupt. Mr Andrew Wily became his trustee in bankruptcy.
7. On 7 June 2011, Tony Woodward made a proposal to the creditors of his bankrupt estate for a composition in accordance with s 73 of the Bankruptcy Act. The proposal was that, upon acceptance, an amount of $130,000 would be payable immediately, to be applied by the composition trustee in payment of the costs, remuneration, expenses, provable debts and other amounts payable in the administration of Tony Woodward's bankruptcy in the manner prescribed by ss 108 to 114 of the Bankruptcy Act, excluding s 109(10), as if the composition trustee were the trustee of Tony Woodward's bankrupt estate. Mr Wily was to be the composition trustee. Subject to the operation of s 75(2), the composition was to be binding upon all creditors in respect of "the debts provable in" Tony Woodward's bankruptcy and was to operate as a release by his creditors of such debts.
8. At a meeting of the creditors summoned by Mr Wily and held on 23 June 2011, a resolution accepting the proposal was passed. The effect of that resolution is that all debts provable by a creditor in Tony Woodward's bankruptcy were released. The question is whether the claims made by the plaintiffs against Tony Woodward in these proceedings are claims in respect of "debts provable in" Tony Woodward's bankruptcy, the phrase used in the proposal for the composition that was made by Tony Woodward to his creditors. The parties have conducted the proceedings on the basis that the phrase "debts provable in the bankruptcy" in the composition proposal should be understood as meaning "debts provable in the bankruptcy" under the Bankruptcy Act.
9. Tony Woodward contends that the effect of s 75 in conjunction with s 82(1) was to release all of the claims now made against him in the proceedings. However, ss 82(2), (3), (3AA), (3AB), (3A) and (3B) each provide that certain debts are not provable in bankruptcy. The plaintiffs rely on s 82(2) to preserve certain of their claims against Tony Woodward. Section 82(2) relevantly provides that demands in the nature of liquidated damages arising otherwise than "by reason of a contract, promise or breach of trust" are not provable in bankruptcy.
10. The plaintiffs rely on s 82(2) to preserve such of their claims against Tony Woodward as are based on breach of a general law of duty of care or contravention of the Fair Trading Act, as distinct from their claims that are based on breach of contract. That is to say, the plaintiffs accept that, in so far as their claims against Tony Woodward rely on breach of contract, they were debts provable in his bankruptcy and the composition operated as a release of those claims. However, they maintain that the effect of s 82(2) is that their claims based on breach of a general law duty or contravention of the Fair Trading Act fall within s 82(2) of the Bankruptcy Act and were not released by the acceptance of the composition.

Jurisdiction of the Supreme Court to address the Issue

1. A preliminary question arises, in this context, as to the jurisdiction of the Supreme Court to deal with the question of the effect of the composition as a release of debts. While the plaintiffs and the third defendant have both made submissions to the effect that the Court has jurisdiction, agreement of the parties in itself does not vest jurisdiction in the Court. Section 27(1) of the Bankruptcy Act relevantly provides that the Federal Court and the Federal Magistrates' Court have concurrent jurisdiction in bankruptcy and that that jurisdiction is exclusive of the jurisdiction of all courts other than the jurisdiction of the High Court under s 75 of the Constitution.
2. However, s 4(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) (the Cross-Vesting Act) relevantly provides that, where the Federal Court of Australia has jurisdiction with respect to a civil matter and the Supreme Court of New South Wales would not, apart from s 4, have jurisdiction with respect to that matter, then the Supreme Court is vested with federal jurisdiction with respect to that matter. On the other hand, s 6(1) relevantly provides that, if a matter for determination in a proceeding that is pending in the Supreme Court is a "special federal matter" and the Supreme Court does not make an order under s 6(3) in respect of the matter, the Supreme Court must transfer the proceeding in accordance with s 6 to the Federal Court of Australia.
3. Under s 6(3), the Supreme Court may order that the proceeding be determined by that Court if it is satisfied that there are special reasons for doing so in the particular circumstances of the proceeding, other than reasons relevant to the convenience of the parties. Under s 6(4), when making an order under s 6(3), the Supreme Court must be satisfied that a written notice specifying the nature of the special federal matter has been given to the Attorney-General of the Commonwealth and the Attorney-General of the State of New South Wales and a reasonable time has elapsed since the giving of the notice for the Attorney General to consider whether submissions should be made to the Court in relation to the proceeding. The Supreme Court may adjourn the proceedings for such time as the Court thinks necessary and may direct a party to the proceeding to give a notice in accordance with s 6(4). In considering whether there are special reasons for the purposes of s 6(3), the Supreme Court must have regard to the general rule that special federal matters should be heard, relevantly, by the Federal Court of Australia and must take into account any submission made in relation to the proceedings by an Attorney General. No steps such as are contemplated by s 6(4) have been taken in relation to the present proceedings.
4. Under s 3 of the Cross-Vesting Act, a matter that is within the original jurisdiction of the Federal Court of Australia by virtue of s 39B of the Judiciary Act 1903 (Cth) (Judiciary Act) is a "special federal matter". Under s 39B(1)(c), the original jurisdiction of the Federal Court includes jurisdiction in any matter arising under the Bankruptcy Act, being a law made by the Commonwealth Parliament. Thus, the question is whether the effect of Tony Woodward's composition is a special federal matter within the meaning of s 3 of the Cross-Vesting Act. That is to say, s 27 of the Bankruptcy Act, which provides that the Federal Court and the Federal Circuit Court have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts, must be read in the light of s 4 of the Cross-Vesting Act. Thus, prima facie, this Court has jurisdiction to determine the question of effect of the composition but, if that question is a special federal matter, it should take the steps contemplated by s 6(4) before exercising that jurisdiction under s 6(3).
5. A distinction can be drawn between exercising jurisdiction by simply recognising the effect of the Bankruptcy Act on the property of a bankrupt, on the one hand, and exercising jurisdiction in any matter arising under the Bankruptcy Act, on the other. Central to the jurisdiction in a matter arising under the Bankruptcy Act is the authority to decide what property is, and what property is not, vested in the trustee in bankruptcy. The making of an order that would have a necessary adverse effect on the title of a trustee in bankruptcy is a matter arising under the Bankruptcy Act. [13] Equally central to the jurisdiction in bankruptcy would be the authority to decide whether a particular claim is a debt provable in the bankruptcy for the purposes of Division 1 of Part VII of the Bankruptcy Act.
6. In the present proceedings, there is no lis, or justiciable issue, as between the plaintiffs, on the one hand, and Mr Wiley, Tony Woodward's trustee in bankruptcy, on the other. Tony Woodward's bankruptcy has been annulled by operation of law, consequent upon the creditors' accepting his composition in accordance with Division 6 of Part IV of the Bankruptcy Act. It is clear that the composition accepted in accordance with Division 6 is binding on all of the creditors of Tony Woodward in relation to provable debts due to them from Tony Woodward. However, the composition operated as a release by Tony Woodward's creditors only in relation to provable debts due to those creditors.
7. The phase "the debts provable in my bankruptcy" in the proposal for the composition must be construed as a reference to debts that are provable in bankruptcy under Division 1 of Part VI. It may be arguable, from first principles, that there is no true distinction between exercising jurisdiction by simply recognising the effect of the Bankruptcy Act and exercising jurisdiction in a matter arising under the Bankruptcy Act. However, the distinction has clearly been recognised, especially in the context of the effect of the Bankruptcy Act on otherwise unrelated proceedings in State courts.
8. The status of a proceeding commenced by a person who subsequently becomes bankrupt is a matter that must necessarily be addressed by the court in which the proceeding has been commenced. Nothing in s 27, or elsewhere in the Bankruptcy Act, discloses an intention to deprive a State court of the power to determine the status of a proceeding before it. Although the Bankruptcy Act requires every court seized of an action commenced by a person who subsequently becomes a bankrupt to determine that question, the determination of the question does not involve the exercise of jurisdiction "under or by virtue of [the Bankruptcy] Act". It relevantly involves mere recognition of the binding legal effect of the Bankruptcy Act. Further, every court has the implied or inherent jurisdiction to determine the extent of its jurisdiction and whether there is an impediment in the way of its hearing and determining a proceeding before it. [14]
9. The question presently before me is the effect of s 75(1) of the Bankruptcy Act, in providing that the composition made by Tony Woodward is binding on all of his creditors in so far as it operates as a release in respect of "the debts provable" in his bankruptcy. It is necessary to construe that phrase as it is used in the composition and in Division 1 of Part VI, and in s 82 in particular. [15] That question necessarily impacts on the status of the proceedings before this Court. I consider that the Court has jurisdiction to answer the question.

The effect of the Composition

1. It is necessary to distinguish between the claims in professional negligence and the claims under the Fair Trading Act. Different considerations are applicable.

The Claim of Professional Negligence

1. The overlap between a contractual duty to exercise an appropriate degree of care, diligence and skill, on the one hand, and a duty under the general law to exercise an appropriate degree of care, diligence and skill has been recognised for 2000 years. While there may be some question as to where a quasi-contractual claim sits in the scheme of such distinctions, [16] the analogy between tort and contract, on the one hand, and delictum and contractus, on the other, is compelling. The plaintiffs' claims in these proceedings involve an allegation of imperitia, or professional negligence, on the part of Tony Woodward. A contract for the performance of work carries with it an obligation to perform the work competently without culpa. On the other hand, statutory liability arose under the Lex Aquilia for damage caused iniuria, or wrongfully and without justification. [17]
2. In a contract to provide professional services, a term will be implied that the professional service provider will take reasonable care in the provision of the services. The term is implied as in incident of a contract of that class, as part of the consideration that the professional service provider gives in return for the express or implied promise of the client to pay for the services. It is a term out of which the parties may contract. [18]
3. The question arises as to why, if such a contractual term is implied as an incident of the contract, there should be a duty of care imposed under the general law on the parties to such a contract for the provision of professional services. The contract between the parties defines their relationship. The existence of a duty arising under the general law, independently of the terms of the contract between a professional service provider and client may be thought to be inconsistent with the historical evolution of professional duties of care which, until relevantly recently, could be the subject of action only in contract. [19]
4. The theoretical foundation for an action in tort is different from the theoretical foundation for an action in contract. The two causes of action have different elements, different limitation periods, different tests for the measure of damage and different apportionment rules. [20] The evolution of the law of negligence has broadened the responsibility of professional service providers, to the extent that they will be required to take reasonable care and exercise reasonable skill even in situations where there is no contractual relationship. [21] That, however, suggests that a distinction might be drawn between the source of a duty owed to a client under a contractual arrangement and the duty owed to a person who is not a client. It may well be that the general law will impose a duty to exercise an appropriate degree of care, skill and diligence in circumstances where there is no contractual obligation to do so. However, it is difficult to see why the general law should impose such a duty where the parties have agreed, albeit impliedly, that services will be provided with an appropriate degree of care, skill and diligence.
5. Against that background, it is necessary to consider whether the claims presently made against Tony Woodward in these proceedings fall within s 82(2) of the Bankruptcy Act. That is to say, the question is whether they can be fairly characterised as demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust. Clearly enough, they are demands in the nature of unliquidated damages. The question is whether they arise by reason of a contract or promise. There is no suggestion that they arise by reason of a breach of trust.
6. Framing a claim as a claim in tort does not conclude that the question whether the demand arises by reason of a contract or promise. Further, it is incorrect to say that a claim arises by reason of contract or promise only if a contract or promise is an element or essential element of the cause of action. Such a test does not satisfactorily reflect the meaning to be given to s 82(2). That test does not give any weight to the need to read s 82(2) in the light provided by the set-off provisions of s 86 and does not distinguish between "bilateral and tripartite" cases. Such a test treats, as the critical question, whether the claimant must plead the existence of a contract and treats as irrelevant whether the bankrupt was a party to the contract. Further, too heavy emphasis should not be placed upon the way in which a particular claim is or could be pleaded. Formulation of the test by reference to whether a contract was an element, or essential element, of the claim shifts attention away from the statutory test. [22]
7. Section 82(2) and its legislative predecessors stop short of providing that the bankrupt is to be freed from contracts, liabilities, engagements, and contingencies of every kind. Consideration of the application of the set-off provision requires the inclusion, within the class of debts provable in bankruptcy, of those claims for unliquidated damages for fraudulent misrepresentation which induced the making of a contract between the bankrupt and the claimant. Nevertheless, the words of the section are not to be stretched to encompass every other kind of claim that a person may have against the bankrupt. [23]
8. In the case of a statutory claim, the relevant question is whether the claim is a demand arising "otherwise than by reason of a contract or promise". Claims for liquidated damages for misleading or deceptive conduct that induce the party misled to make a contract with a party other than the bankrupt are claims arising otherwise than by reason of contract. They are claims of a kind that, under s 82(2), are not provable. However, claims for unliquidated damages from misleading or deceptive conduct inducing the making of a contract with the bankrupt are claims arising by reason of a contract and are provable, notwithstanding s 82(2). While the result may be anomalous, the anomaly is the result of adopting the language used in English legislation from 1869 without making later accommodation, not only for the provision of statutory causes of action such as those arising under s 42 of the Fair Trading Act, but also for other differential outcomes arising from questions of set-off. [24]
9. While too close attention to the formulation of a claim in pleadings is not calculated to resolve the question of whether the claim falls within s 82(2), it must nevertheless be appropriate to have regard to the way in which a claim is pleaded in order to ascertain what claim is actually being pressed against a bankrupt or former bankrupt. The mere absence of reference to a contract in the pleaded formulation of the claim will not necessarily lead to the conclusion that the claim does not arise out of a contract or promise. On the other hand, the fact that the pleaded formulation of a claim itself entailed reference to a contract or promise may be material to the question of whether or not the claim being pressed can be characterising by reason of a contract or promise.
10. While it is necessary to direct attention to the question raised by the language of s 82(2), namely whether the claim arises by reason of a contract or promise, it is necessary to determine just what claim is being made. The claim being made is that formulated in the pleadings. The fact that the pleadings do not mention a contract or promise will not be decisive if, as a matter of substance, the claim, on proper analysis, does in fact arise only by reason of a contract or promise, s 82(2) will have no application. On the other hand, if the claim is formulated in the pleadings is shown to arise by reason of a contract or promise, that must be sufficient to exclude the operation of s 82(2).
11. I have set out in the First Schedule the claims made in the pleadings. However, it is desirable to set out again the claims made of the existence of a duty of care with respect to the provision of services by Tony Woodward.
12. Mrs Ritchie's statement of claim makes the following allegations: 1. The Partnership was retained to provide certain services to Mrs Ritchie being the Ritchie Retainer. 2. The Ritchie Retainer contained terms including a term that the Partnership would exercise an appropriate degree of care, diligence and skill. 3. The Partnership professed expertise in the provision of due diligence services in relation to prospective investments and a particular expertise in relation to chartered accounting services in relation to the hotel industry. 4. Tony Woodward, in the ordinary course of carrying out the business of the Partnership, provided services to Mrs Ritchie in relation to the potential for Mrs Ritchie or Rujo to participate in a syndicate to purchase the freehold of the Oxford Hotel, refurbish it and then operate it. 5. The Partnership knew or ought reasonably to have known that Mrs Ritchie would rely on the Partnership exercising care, diligence and skill in providing services, Mrs Ritchie would rely upon the Partnership to inform her of matters known to the Partnership, Mrs Ritchie would rely upon the Partnership to advise her if matters arose that were outside the services that the Partnership was professionally qualified to provide and Mrs Ritchie would rely on the Partnership to inform her in the event of a conflict between the Partnership's own interests and those of Mrs Ritchie. 6. It was reasonably foreseeable that Mrs Ritchie might suffer loss or damage if the matters upon which Mrs Ritchie relied did not come to pass. 7. "In the premises", the Partnership owed Mrs Ritchie a duty of care with respect to the provision of services in relation to the potential for her or Rujo to participate in a syndicate to purchase the freehold of the Oxford Hotel. 8. Alternatively, by reason of the matters alleged as to the Ritchie Retainer and Retainer Terms, the Partnership was obliged to comply with the terms of the Ritchie Retainer in respect of the provision of services in relation to the potential for Mrs Ritchie or Rujo to participate in a syndicate to purchase the freehold of the Oxford Hotel. Similar allegations were made regarding the investment in the Mansions Hotel.
13. Allegation (d) must entail the allegation of providing services in the course of the Ritchie Retainer. It could hardly be construed as an allegation that Tony Woodward provided services to Mrs Ritchie gratuitously in the ordinary course of carrying out the business of the Partnership. The ordinary course of carrying out the business of the Partnership would not involve the provision of services gratuitously. Further, allegation (g) makes clear that the alleged duty of care arises from "the premises", including the allegations made in relation to the Ritchie Retainer and the Retainer Terms. Allegation (h) is expressly based on the Ritchie Retainer and the Retainer Terms.
14. The allegation that the Partnership owed Mrs Ritchie a duty of care with respect to the provision of services depends upon Tony Woodward providing services to Mrs Ritchie in the ordinary course of carrying out the business of the Partnership, in circumstances where the Partnership knew that Mrs Ritchie would rely on the Partnership's exercise of care diligence and skill in providing services.
15. An analysis of the substance of the claim as pleaded indicates inevitably that the claim for unliquidated damages arises by reason of a contract, whether or not it is the contract consisting of the "Ritchie Retainer". However, it is clear that the duty is said to arise in relation to the provision of services because Tony Woodward provided those services in the ordinary course of carrying out the business of the Partnership, in circumstances where the Partnership professed expertise in the provision of certain services. On that basis, the plaintiffs do not allege that a duty of care was owed by the Partnership to Mrs Ritchie that arose otherwise than by reason of the contractual relationship between them. It may be, therefore, that the claims based on breach of the duty of care alleged in Mrs Ritchie's statement of claim were released by the compromise. However, I do not have to decide the question.

The Statutory Claim of Misleading and Deceptive Conduct

1. In relation to the claims under s 42 of the Fair Trading Act, the plaintiffs allege that Tony Woodward and the Partnership made representations about investment in the Oxford Hotel and the valuation figures and cash flows for the Oxford Hotel, which were representations as to future matters made without any reasonable grounds. The position in relation to those claims must be distinguished from the claims based on negligence.
2. That is to say, if the claims based on the statute, as formulated in the pleadings, do not, as a matter of substance, depend upon the existence of a contract or promise, s 82(2) will be enlivened. Where contravening conduct leads to loss by reason of a contract made with the bankrupt, which constitutes the loss suffered by the contravention, it is apparent that s 82(2) will not be enlivened. On the other hand, where the claim against the bankrupt under s 42 of the Fair Trading Act does not, on proper analysis, depend in any way upon a contract with or promise by the bankrupt, s 82(2) will be enlivened. The mere fact that the loss or damage occasioned by the contravening conduct may be the entry into a contract by the victim of the conduct or the making of a promise by the victim of the contravening conduct, is not sufficient to exclude s 82(2). The present case falls somewhere between those two cases.
3. The statement of claim alleges that, "in the premises", Tony Woodward and the Partnership engaged in conduct that was misleading or deceptive in contravention of s 42 of the Fair Trading Act. The "premises" must include the allegations that the Partnership professed expertise in the provision of certain services and that Tony Woodward, in the ordinary course of carrying out the business of the Partnership, provided services to Mrs Ritchie.
4. The allegation that the representations were misleading or deceptive because they were made in the provision of services to Mr and Mrs Ritchie in the ordinary course of carrying out the business of the Partnership suggests that any liability is dependent upon the existence of a contractual relationship. That is understandable, because the alleged representations were made in circumstances of the existence of the contractual relationship between the Partnership, on the one hand, and Mrs Ritchie, on the other. In those circumstances, where there was a contract between the Ritchies and the Partnership, and where there was sufficient mutuality between the parties, it may follow that, so far as the claim under the Fair Trading Act is a demand in the nature of unliquidated damages, it arises by reason of the contract made between the Partnership and Mrs Ritchie and, accordingly s 82(2) is not enlivened. However, I do not have to decide the question.

Position of Mr Rigney and Ms Bolton

1. The plaintiffs' claims against Mr Rigney and Ms Bolton are limited to the claims in respect of ongoing advice and services from 1 July 2008. No liability is suggested in connection with the making of investments in the Oxford Trust or the Mansions Trust or the making of the loans in June and December 2006. The case against them is that, on and from 1 July 2008, there was still an opportunity for the plaintiffs to take action to avoid or at least contain the prospective loss. Thus, they say, demands for repayment of the loans could have been made at that time, before significant value was lost to the Oxford Hotel. The case against them is that there was still an opportunity, had the truth been told about the absence of security for the loans made to Oxford Property, to call up the loans and take steps to recover the amounts owning.
2. Thus, Mr Rigney and Ms Bolton have conducted the case on the basis that the claim against them is limited to the loans of $2 million made to Oxford Property in June and December 2006. In the light of the opening by senior counsel for the plaintiffs, they conducted the case, and in particular, their cross-examination of Mr Ritchie and Mrs Ritchie, on the basis that the case was so limited. They contend that, whether the claim in relation to the loans are based on an alleged breach of the contract of retainer or a general law duty of care or whether it is based on alleged misleading or deceptive conduct in failing to disclose that the loan documentation and security documentation had not been drawn up, the claim must fail.
3. The plaintiffs have made no attempt to articulate how an alleged duty arose on the part of the partnership that commenced business on 1 July 2008 to advise them that the loans had not been documented and were not secured. The plaintiffs have not articulated how the conduct of that partnership was misleading or deceptive. More importantly, the plaintiffs have not established any basis on which the alleged breach of duty or the misleading or deceptive conduct after 30 June 2008 gave rise to any loss claimed by the plaintiffs.
4. The plaintiffs do not make any allegation that there was a retainer with the new partnership, which began practice on 1 July 2008. While it is common ground that the new partnership provided services to the plaintiffs, the question is whether the new partnership was retained to monitor and provide the advice alleged.
5. The new partnership was established by the partnership agreement of 20 June 2008 and was brought into existence in advance of the purchase of the interest of Brian Woodward in the Accountancy Practice. By the Sale Agreement, Brian Woodward promised to give Tony Woodward, Mr Rigney and Ms Bolton, who were to be the partners in the new partnership, the opportunity to become appointed as the accountant for the clients of the Accountancy Practice. As I have indicated above, the new partnership commenced business on 1 July 2008, had a new Tax File Number and a new ABN. Brian Woodward and Tony Woodward continued as partners in the old partnership, which was the Partnership that is alleged to have been retained by the plaintiffs in and before 2006.
6. Tony Woodward continued to be a partner in the two partnerships after 30 June 2008. That is clear from the tax returns filed in relation to both partnerships. The business name "BP Woodward & Associates" was transferred to the new partners under the Sale Agreement. In the light of the evidence of the agreements and the tax returns, the continuation of the registration of the business name is not evidence that there was a continuous partnership operating under the name "BP Woodward & Associates" from before 2006 and continuing.
7. The assumption that appears to be made in each of the statements of claim is that Mr Rigney and Ms Bolton joined an existing partnership and that the existing retainers simply continued. However, as the plaintiffs now accept, the creation of a new partnership bought to an end any retainer entered into by the old partnership. In their submissions, although there is no hint in the pleading, the plaintiffs now suggest that the existing retainers were novated by the new partnership or that new contracts of retainer were entered into. While it is clear enough that the new partnership provided services to the plaintiffs, and that retainer agreements must have been entered into after 30 June 2008, that says nothing about retainers in the terms alleged in the pleadings, whereby the defendants were said to be under an obligation to inform the plaintiffs of the alleged deficiencies in relation to the documentation of and grant of security in respect of the loans made to Oxford Trust in 2006.
8. The work that was actually performed by the new partnership from 1 July 2008 to August 2009 was limited to completion of tax returns for Mr and Mrs Ritchie, completion of tax returns for entities controlled by them, including Barona, the Barona Superannuation Fund, the Ritchie Family Trust and another unrelated unit trust, completion of financial statements for those entities and preparing business activity statements for Barona and the Barona Superannuation Fund. The only invoices issued by the new partnership to Barona or any related entity of Mrs Ritchie or Mr Ritchie during the period 1 July 2008 to August 2009 were concerned only with the provision of such services.
9. There is no evidence that any of the plaintiffs requested the new partnership to provide services of the nature now alleged in the pleadings. The only evidence of any retainer relates to conversations that occurred many years before the commencement of the new partnership business on 1 July 2008.
10. As at 1 July 2008 and thereafter, there is no reason why the plaintiffs would be looking to the new partnership to monitor, in the way now alleged, the investments made several years before. For some time prior to 1 July 2008 and thereafter, the focus of the plaintiffs was on the sale of the hotels and the realisation of their investments. As at 1 July 2008, in communications regarding the hotels, Tony Woodward was writing to Mr and Mrs Ritchie on behalf of LandMark Leisure Group Pty Limited rather than in his capacity as a partner of BP Woodward & Associates. Matters relating to third party loans were being dealt with by Tony Woodward as a director of entities concerned with the Vegas Hotel. In those circumstances, it is not possible to conclude that the new partnership was retained to provide ongoing monitoring services and, therefore, to advise Mrs Ritchie, Barona and Rujo in relation to deficiencies in the documentation of and security for their loans to Oxford Property. In the absence of a contractual relationship relating to those matters, there is also no basis for concluding that there was a general law duty on the partners of the new partnership, as members of that partnership, to advise the plaintiffs.
11. Mr Rigney and Ms Bolton contend that, in any event, if there was a duty arising under a contract of retainer or under the general law, the most that could have been required was for the plaintiffs to be referred to solicitors for advice. They say that that would not have assisted the plaintiffs because, after August 2007, no security was permitted by reason of the arrangements with BankWest and the other securities then in place.
12. Thus, the fixed and floating charge granted by Oxford Property on 16 August 2007 prevented the mortgagor from granting further security interests without consent. The loan of $15 million from BankWest accepted on 10 April 2007 prohibited the creation of security interests and repayment of subordinated debt. The BankWest facility of $80.25 million, which was accepted on 14 June 2007, also prohibited the creation of security interests and repayment of subordinated debt. Finally, the fixed and floating charge granted on 16 August 2007 prevented the mortgagor from granting further security interests without consent.
13. In any event, if there was a breach of a duty owed by the new partnership to the plaintiffs, no loss was occasioned by the breach, since, as I have indicated above, the plaintiffs would not have demanded repayment of the loans after 30 June 2008. The only way in which the investments could have been recouped from the middle of 2007 onwards was from the sale of the hotels. That would have been jeopardised had the plaintiffs demanded repayment of the loans.
14. At the time of making the loans, the plaintiffs understood that there were two avenues for payment of interest and the payment of principal, first from the postulated increased turnover of the Oxford Hotel and, secondly, as an ultimate fall-back, from the sale of the Oxford Hotel. By the time of the making of the loans in December, some $4,750,000 had been invested in the Oxford Hotel and the Mansions Hotel. The plaintiffs would not have done anything to jeopardise that investment. The plaintiffs understood that, if they pressed for repayment of the loans, their investments would be put in a very difficult position and, by the middle of 2007, they felt locked into the investment.
15. The plaintiffs were aware that, by mid to late 2007, negotiations for the sale of the hotels were underway and that the only avenue for repayment of their investment of $4.75 million in the Mansions Hotel and the Oxford Hotel and the $2 million in loans, was through the sale of the hotels. Indeed, the plaintiffs admitted that they were relatively enthusiastic about expanding the search for potential buyers of the hotels internationally. They were aware that a glossy information memorandum had been prepared in February 2008 to promote the sale of the hotels.
16. Throughout 2008 and until the appointment of the Receivers in 2009, the plaintiffs felt trapped but also felt that they had no choice but to continue with the sale process. During that time, Mr Ritchie believed that the best course was to keep the hotels running well, while the sale process was ongoing and that that course of action would best protect their investment.
17. Further, it is impossible to conclude that failure to warn constituted misleading and deceptive conduct in circumstances where there was no contractual duty to warn or a general law duty to warn. In any event, no loss was occasioned by any failure to warn, for the reasons outlined above. The plaintiffs have not proved any loss as flowing from the failure to warn.
18. The plaintiffs contend that, if they had been informed after 1 July 2008 that the $2 million in loans had not been secured, and they moved to demand repayment of the loans, Oxford Property was in a position to repay the loans, if not in whole, at least in part. The cash flow to the Oxford Trust was by way of rent generated by the cash flow to Indigo Mist by way of sales at the Oxford Hotel. They point to the fact that the trading profit and loss figures for Indigo Mist for the months of July and August 2008 show total income of in excess of $1,015,000 and an operating profit of in excess of $97,000, with a net profit of more than $79,000. The contention ignores the prohibition in the BankWest securities on repayment to related entities. The plaintiffs contend that the value of the opportunity to recover the loans should be assessed by considering all possibilities and probabilities. They say that the financial records support a finding that it would have been possible for the Oxford Trust to repay the loans of $2 million if it had been called upon to do so, since, at the relevant time, it had net assets sufficient to pay, albeit not in cash. They say that the probability is that the loans would have been repaid, because the Oxford Trust would have called on Indigo Mist to repay its borrowing from the Trust of $2,600,000.
19. However, it is quite clear that Indigo Mist could not have repaid the moneys owing to the Oxford Trust. More fundamentally, the BankWest securities prohibited the repayment to a related entity and there is no evidence that BankWest would have consented to the repayment in the circumstances. Whatever opportunity was lost was worthless.
20. I am not persuaded that there was any real prospect that, had the plaintiffs demanded repayment of the loans at some time on or after 1 July 2008, they would have recovered any part of the loans. It follows that the claims against Mr Rigney and Ms Bolton, that they are vicariously liable as partners of Tony Woodward after 30 June 2008, must fail.

Claims against AIG

1. AIG is the cross-defendant named in nine cross-claims, three filed in each of the three proceedings. As indicated above, in each of the proceedings, a first cross-claim was filed by Mr Rigney and Ms Bolton, a second cross-claim was filed by Tony Woodward and a third cross-claim was filed by Mary-Ann Woodward, in her capacity as legal personal representative of Brian Woodward, and in her own personal capacity. The success of the cross-claims, for reasons that will become apparent, is relevant to the determination of quantum of loss for the primary claims by the plaintiffs, assuming that the defendants/cross-claimants were found to be liable to the plaintiffs.
2. In each of the cross-claims, the cross-claimants assert an entitlement to indemnity under the Policy. They claim indemnity for any damages or costs ordered in favour of the plaintiffs, together with their "Defence Costs" as defined in the Policy. A number of terms are defined in the Policy. It is convenient to use those terms in these reasons. I shall indicate, where appropriate, when defined terms are employed. In particular, I shall employ initial capitals when using terms defined in the policy.

Terms of the Policy

1. The Policy was issued following the submission on behalf of "BP Woodward & Associates" of a proposal form dated 24 January 2011 (the Proposal). The Proposal, which was signed by Mr Rigney, required completion of details of a firm name and an ABN number. The firm name inserted in the Proposal was "BP Woodward & Associates" and the ABN was 60404704504. The current partners were stated in the Proposal to be Mr Rigney and Ms Bolton. The Proposal stated that each of Mr Rigney and Ms Bolton had been a partner in the practice of BP Woodward & Associates for two and a half years and that Ms Bolton had been a partner for five years in a previous practice.
2. After requiring a statement of the total amount of gross income or fees of the Partnership for the previous financial year and for the then current financial year, together with estimates for the coming financial year, the Proposal required a statement of the percentage of gross income or fees for each of the activities set out below: 1. Accounts preparation & bookkeeping; 2. Audit; 3. Business valuations; 4. Company secretarial / registrar; 5. Executorships and trusteeships; 6. Forensic accounting; 7. IT consultancy (accounting software only); 8. Insolvencies / liquidations / receiverships; 9. Management consultancy; 10. Corporate advisory services; 11. Migration services; 12. Superannuation funds administration; 13. Taxation; 14. Financial planning / investment advice; 15. Other.
3. Percentage figures were stated in the Proposal opposite items (a), (b), (d), (i) and (m) aggregating in total 100 per cent for both the past 12 months and estimated for the next 12 months. The figure "15 per cent" was specified in the space opposite "accounts preparation and bookkeeping". No figure was inserted in the space opposite "financial planning/investment advice". That has a bearing on the construction to be given to the term "Professional Services" when used in the Policy, as will appear below.
4. Under the heading "Claims Information", the Proposal disclosed that there had been, or was then pending, a claim against the Firm, its predecessors in business, or its current or former partners or employees for a breach of professional duty. That claim has nothing to do with these proceedings. In response to the question as to whether the Firm was aware of any circumstances or incident that might give rise to a claim against the Firm or its partners, principals, directors or employees, the answer given was "no".
5. Under the heading "Covers", the Policy relevantly provided as follows: "All cover under this policy is afforded solely with respect to Claims first made against and Insured during the Policy Period and reported to the Insurer as required by this policy. Civil liability The Insurer will pay on behalf of any Insured all Damages resulting from any Claim for any civil liability of the Insured Misleading or deceptive conduct The Insurer will pay on behalf of any Insured all Damages resulting from any Claim for any Misleading or Deceptive Conduct of the Insured …. Defence The Insurer has the right to defend any Claim which the policy may respond to under its Covers or Extensions. The Insurer shall pay Defence Costs incurred defending such Claim.

The Insurer is under no obligation to pay Loss, unless the Wrongful Act: (i) first takes place on or after the Retroactive Date; and (ii) is committed solely in the performance of or failure to perform Professional Services."

1. The Policy contained a section headed "Definitions". Relevantly, the following definitions appeared: Defence Costs means reasonable fees, costs and expenses incurred by or on behalf of the Insured in the investigation, defence, adjustment, settlement or appeal of any Claim. "Defence Costs" shall not mean any internal or overhead expenses of any Insured or the costs of any Insured's time. (i) the Policyholder or any Subsidiary; (ii) any natural person, who is or has been a principal, partner or director of the Policyholder or any Subsidiary; Insured (iii) any Employee; and (iv) any temporary contract labour, self-employed persons, labour-only subcontractors, solely under contract with, and under the direction and direct supervision of the Policyholder or any Subsidiary; but only when providing Professional Services in the foregoing capacities. "Insured" also includes any estate or legal representatives of any Insured described in (ii) and (iii) of the definition with respect to the Insured's provision of Professional Services in any such capacity. means Damages and Defence Costs. "Loss" shall not mean and this policy shall not cover any: (i) taxes payable by the Insured; (ii) non-compensatory damages, including punitive, multiple, exemplary or liquidated damages; Loss (iii) restitutionary relief; (iv) fines or penalties; (v) the costs and expenses of complying with any order for, grant of or agreement to provide injunctive or other non-monetary relief; (vi) employment related compensation or benefits, overhead, charges or expenses of any Insured; or (vii) any matters which may be deemed uninsurable under the law governing this policy or the jurisdiction in which a Claim is brought. Misleading or Deceptive Conduct means any actual or alleged misleading or deceptive conduct at law or under the Corporations Act 2001 (Cth), Australian Securities and Investments Commission Act 2001 (Cth), Trade Practices Act 1974 (Cth) or any similar provisions in the States' Fair Trading Acts. Policy Period means the period of time specified in the Schedule unless the policy is cancelled in which event the Policy Period will end on the effective date of the cancellation. means the professional services of the Policyholder and any Subsidiary in the following areas of practice: (i) accounting & bookkeeping; (ii) audit; (iii) business valuations; (iv) company secretarial work; (v) executorships and trusteeships; Professional Services (vi) forensic accounting; (vii) insolvency/liquidation/receivership; (viii) management consultancy; (ix) superannuation fund administration; (x) taxation; (xi) migration services; (xii) IT consultancy (accounting software only); and other, as advised to, and agreed in writing by, the Insurer. Wrongful Act means (a) any breach of duty, act, error, misstatement, breach of confidentiality or omission; (b) any Misleading or Deceptive Conduct of the Insured; (c) any Infringement; (d) libel or slander committed by an Insured; (e) any destruction, damage to, loss, erasure or mislaying of Documents by an Insured; or (f) Fraud/Dishonesty

1. Under the heading "Exclusions", the Policy contained the following: This policy shall not cover Loss in connection with any Claim: Investment Advice arising out of, based upon or attributable to the provision of investment advice. Prior Claims / Circumstances … (ii) arising out of, based upon or attributable to any circumstance that, as of the inception of this policy, may reasonably have been expected by any Insured to give rise to a Claim.

1. The Policy also contained a section under the heading "Claims" in which the following appears: If notice of a Claim against an Insured is given to the Insurer pursuant to the terms and conditions of this policy, then: (i) any subsequent Claim alleging, arising out of, based upon or attributable to the facts alleged in that previously notified Clam; and (ii) any subsequent Claim alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged in that previously notified Claim, shall be considered made against the Insured and reported to the Insurer at the time notice was first given. Related claims Any Claim or Claims arising out of, based upon or attributable to: (i) the same cause; or (ii) a single Wrongful Act; or (iii) a series of continuous, repeated or related Wrongful Acts; shall be considered a single Claim for the purposes of this policy. In the absence of fraudulent non-disclosure, where a Claim that would otherwise be covered by this policy is excluded by the "Prior Claims/Circumstances" Exclusion part (ii), then cover is provided under this policy for that Claim, provided always that: Continuity (i) the Insured first became aware of the facts that might give rise to the Claim after the Continuity Date; and (ii) the cover shall be in accordance with the provisions of the policy in force when the Insured first became so aware.

1. Finally, relevantly for present purposes, the Policy contained, under the heading "Limit and Retention", the following: Limit of Liability The total amount payable by the Insurer for a single Claim (as specified in the "Related Claims" Condition), including Defence Costs, shall not exceed the Limit of Liability (Any one Claim). The total amount payable by the Insurer under this policy for all Claims or Losses shall not exceed the Limit of Liability (Aggregate). Sublimits of Liability and Extensions are part of that amount and are not payable in addition to the Limit of Liability (Aggregate). The Limit of Liability (Any one Claim) and the Limit of Liability (Aggregate) for the period provided in the "Extended Reporting Period" Extension are part of, and not in addition to, the Limit of Liability (Any one Claim) and the Limit of Liability (Aggregate) for the Policy Period. The inclusion of more than one Insured under this policy does not operate to increase the total amount payable by the Insurer under this policy. Retention The Insurer shall only pay for the amount of any Loss or Direct Financial Loss which is in excess of the Retention. For the avoidance of doubt, the Retention also applies to Defence Costs. The Retention is to be borne by the Insured and shall remain uninsured. A single Retention shall apply to Loss arising from all Claims alleging the same Wrongful Act or Direct Financial Loss arising from the same Dishonest Acts.

1. The Policy also contained an endorsement that formed part of the Policy. The endorsement provided that the definition of "Subsidiary" was to include: * BP Woodward & Associates ABN 99813568217 and * Woodwards Corporate & Business Services. The ABN is the ABN of the Partnership that ceased practice on 30 June 2008.

The Insurance Questions

1. Each cross-claim adopts a similar form and AIG responds to each with the same three defences. AIG contends that, on the proper construction of the Policy, including the exclusions, it is not liable to indemnify the cross-claimants in respect of any liability to the plaintiffs that they may be found to have. Further, AIG contends that, if the allegations made against the cross-claimants by the plaintiffs are held to fall within the scope of indemnity available under the Policy and do not fall within exclusions, the allegations arise out of, are based upon, or attributable to "a series of continuous, repeated or related Wrongful Acts" and are, therefore, to be treated as a single Claim for the purpose of the Policy. The consequence of acceptance of that latter contention is that the maximum amount payable to the cross-claimants in relation to that single Claim, including Defence Costs, would be $3 million, less the Retention of $10,000.
2. The first basis upon which AIG contends that the cross-claimants are not entitled to be indemnified is that the Claims made by the plaintiffs do not engage the cover provided by the Policy. It is a matter for the cross-claimants to establish that the alleged Wrongful Acts do in fact engage the cover provided by the Policy. The second and third bases upon which AIG denies liability under the Policy involve the application of exclusions in the Policy. AIG accepts that it must establish that the exclusions apply.
3. The Policy covers liability for Claims arising out of Wrongful Acts, being the performance of, or failure to perform, Professional Services. AIG says that the alleged Wrongful Acts about which the plaintiffs complain, which essentially amounted to investment advice, if established, were not committed solely in the performance of or failure to perform Professional Services, so as to engage the cover provided by the Policy.
4. The first exclusion, provides that any Loss that arises out of, is based upon or attributable to the provision of investment advice is excluded from the scope of the indemnity provided by the Policy. The second exclusion provides that any Loss that arises out of, is based upon or is attributable to circumstances that may reasonably have been expected by the relevant cross-claimant to give rise to a Claim is excluded from the scope of the indemnity available under the Policy. However, AIG does not allege that that second exclusion applies to Mary-Ann Woodward if the cover is otherwise available to her.
5. The principles applicable to the construction and application of insurance policies and exclusion clauses are not in dispute. A policy of insurance is a commercial contract and must be given a businesslike interpretation. Interpreting such a document requires that attention be given to the language used by the parties, the commercial circumstances that are addressed by the document and the objects that the document is intended to secure. [25] If the words used are ambiguous, effect must be given to the words, notwithstanding that the result might appear capricious or unreasonable and notwithstanding that it might be suspected that the parties intended something different. The Court has no power to remake or amend a contract for the purpose of avoiding a result that might be considered inconvenient or unjust. [26]
6. While evidence of surrounding circumstances may be admissible to assist in the interpretation of a contract if the language is ambiguous or susceptible of more than one meaning, it is not admissible to contradict the language of the contract where that language has a plain meaning. [27] In determining the meaning of the terms of a commercial contract, the Court must consider what a reasonable business person would have understood those terms to mean by reference to the text, context and purpose of the contract. That consideration extends to the language used in the contract by the parties, the circumstances addressed by the contract and the commercial purpose or objects intended to be secured by the contract. [28]
7. An exclusion clause is to be construed according to its natural and ordinary meaning, read in light of the contract as a whole and giving due weight to the context in which the cause appears, including the nature and object of the contract. Where appropriate in the case of ambiguity, a clause might be construed contra proferentem. [29] It is appropriate to apply that maxim only when ambiguity remains after applying accepted principles of contractual interpretation. [30] The history of the use of the maxim "verba chartarum fortius accipiuntur contra proferentem" from the sixteenth century onwards reflects the ambiguities that can arise from the use of the verb "profero, proferre" in the maxim. [31]
8. One approach that has been applied in connection with insurance contracts assumes that one party has the responsibility for putting forth the entire document. Hence, the document will be construed against that party, even if the other party has had some involvement in its drafting. In other cases, the identity of the party who introduced particular words into the contract has been considered relevant. Thus, words added to the printed form of an insurance contract have been assumed to have been inserted by the insured, rather than the insurer. Sometimes, the inquiry into who proposed particular words is answered by analysing the document to determine who ought to be taken to have put the words forward. That leads to the approach that a provision in a contract is to be interpreted against the person for whose benefit it is inserted. Such an approach resulted in the rule that a deed is construed against the grantor, on the basis that the principle of self-interest will ensure that a party will not prejudice itself by using words that are more extensive than is necessary. [32]
9. Whether a particular claim falls within an exclusion clause depends on the facts giving rise to it and not its formulation in pleadings. Thus, the language of a pleading making a claim against an insured will not be decisive of the rights and liabilities of the parties to a policy of insurance. The claim is to be characterised by its underlying facts and not the form in which it might be pleaded. [33]

The Insuring Clause and Investment Advice Exclusion

1. Tony Woodward contends that the Claims made against him in the proceedings are Claims that, on a businesslike interpretation of the Policy, relate to the provision of Professional Services, as that term is defined in the Policy. He says that the commercial purpose of the Policy was to afford him, and the other cross-claimants, indemnity from professional negligence and misleading or deceptive conduct claims brought against them by clients of their accounting practice, being Claims that concerned "accounting" matters involving both acts and omissions. He contends that the Claims made by the plaintiffs are precisely the sort of risk against which the cross-claimants sought to insure and that AIG is seeking to confine cover to a definition of Professional Services that is not made clear in the Policy. Therefore, he says, the interpretation contended for by AIG should be rejected.
2. Tony Woodward says that the services that are the subject of the Claims by the plaintiffs involve due diligence, financial reporting and analysis, which, he says, are in the nature of "account", "audit" and "business valuations", within the terms of the Policy. He contends that the approach adopted by AIG involves giving the benefit of any doubt to the plaintiffs rather than to the cross-claimants, as the parties insured the Policy. He says that the plaintiffs' Claims relate to conduct or omissions that are squarely at the heart of an accounting practice such as that of BP Woodward & Associates and other such practices. An allegation that investment advice was given, in circumstances where an insured provided no services other than accounting and bookkeeping services, would leave a hiatus in the cover. He contends that AIG is not entitled to deny indemnity simply because of the assertions made by the plaintiffs in their pleadings.
3. Tony Woodward also asserted that AIG has contravened s 13 of the Insurance Contracts Act 1984 (Cth), in failing to act in good faith towards the cross-claimants and has failed to give the cross-claimants the benefits of the indemnity as to Defence Costs intended to be afforded by the Policy. In that regard, it appears that AIG conducted the defence on behalf of the defendants from 11 January 2003 to 2 July 2013 but then notified them that it would not indemnify them. However, a breach of s 13 of the Insurance Contracts Act for failing to act with utmost good faith was not pleaded, not mentioned in oral hearing, and barely pressed in Tony Woodward's written submissions. That culminated in counsel for AIG stating, without contradiction at any stage by counsel for Tony Woodward, that "[t]here is no utmost good faith case put against [AIG]".
4. In relation to the investment advice exclusion, Tony Woodward repeats his contention that allegations made by a claimant are not decisive. He says that the exclusion does not apply to deny cover on the basis of the facts alleged in the pleadings in these proceedings. In particular, he says that a court should be slow to draw fine distinctions between accounting advice, on the one hand, and investment advice, on the other, in the context of contracts of insurance, in circumstances where the practical reality is that, in the ordinary course of the practice of accounting, accountants often provide advice, or omit to provide it, in relation to what a client may consider an "investment". He suggests that the conducting of a "due diligence" examination is an obvious example. [34]
5. Ms Bolton and Mr Rigney contend that, absent the operation of any of the exclusion clauses, the Policy responds where the relevant Wrongful Act is committed solely in the performance of or failure to perform Professional Services. They contend that the conduct on their part that is said to give rise to the plaintiffs' loss falls squarely within the concept of the provision of Professional Services in the practice of accounting.
6. Thus, Mrs Ritchie alleges in her statement of claim that, in the ordinary course of carrying out the business of the Partnership, Tony Woodward provided ongoing advice and services to her in relation to the Oxford Hotel investment in the nature of ongoing monitoring of the performance of investment and reporting to her in relation thereto. She alleges that her loss flowed from the performance of, or failure to perform, those services, which, they say, are clearly professional services in the practice of accounting. Mr Rigney and Ms Bolton say that, if the Claims against them were to succeed, those allegations would have been established. The hypothetical successful Claim, therefore, would have fallen within the insuring clause and, therefore, they are entitled to be indemnified in respect of their costs of successfully defending the Claims by the plaintiffs.
7. The allegations made against Mr Rigney and Ms Bolton relate to the ongoing monitoring of the performance of the investments and reporting to Mrs Ritchie in relation to the investments. They contend that the process of monitoring and reporting an investment is not "investment advice" within the meaning of the Policy, which, they say, necessarily requires that there be a recommendation or inducement to make an investment. That element, they say, is absent from the allegations made against them in the statements of Claim.
8. In their written submissions, the plaintiffs focus on the phrase "areas of practice" in the definition of "Professional Services" in the Policy, and contend that AIG's construction treats the definition as though it were a list of services, rather than a list of "areas of practice". Therefore, it becomes necessary to consider what professional services come within the area of practice described as "accounting and bookkeeping" and what does not. The usual and ordinary meaning of the words "accounting and bookkeeping" is, according to the plaintiffs, irrelevant and what needs to be ascertained is what professional services are typically provided in the area called "accounting and bookkeeping". In that regard, the plaintiffs' relied on the evidence of Mr Cupit, who purportedly described the usual practice of accountants, such as the conduct of due diligence, when giving advice to a client in relation to a proposed acquisition.
9. The plaintiffs assert that one of the causes of action that sounds in damages in their favour is the failure of Tony Woodward and the Partnership to inform the plaintiffs of the fact known to them that, in or about April 2007, the Vegas Hotel, the Oxford Hotel and the Mansions Hotel were intended to be mortgaged in order to finance the acquisition of the Peakhurst Inn Hotel. They say that, had Tony Woodward and the Partnership not omitted to disclose that information, they could and would have moved to stop the transaction and recover their investments and loans. The plaintiffs contend that the liability of Brian Woodward, Mary-Anne Woodward and Tony Woodward in that regard is covered by the Civil Liability and Misleading and Deceptive Conduct Cover provided by the Policy. The plaintiffs contend that it is not excluded by the investment advice exclusion, because it does not arise out of and is not based upon or attributable to the provision of investment advice. Rather, they say, it arose subsequently to and entirely independently of any investment advice, when later events put the earlier transactions at risk.
10. The plaintiffs make the same submissions in relation to the alleged ongoing failure of the defendants to inform them that the loans had not been documented or secured. In each instance, they say, the failure occurred after the event of giving any investment advice and before the failure of the LandMark Leisure Group in 2009.
11. In relation to the Investment Advice exclusion, the cross-claimants seek to draw a distinction between the activities of an investment advisor who is engaged in the business of providing information, an opinion and recommendation regarding an investment or proposed investment, on the one hand, and an accountant who provides professional services for the purpose of carrying out due diligence and advising a client in that regard, when the client is considering the proposed acquisition, on the other. In particular, consistent with their case theory, the cross-claimants allege that the loss of the money in the loans was not caused by provision of investment advice but by the failure to secure the loans or inform Mr and Mrs Ritchie about that failure. Similarly, they say, the loss of the money invested in the Oxford Hotel and the Mansions Hotel was "entirely the result of [Tony Woodward's failure] to inform the plaintiffs of the intention to mortgage [the Oxford Hotel and the Mansions Hotel] to fund the acquisition of [the Peakhurst Inn Hotel] and the happening of the event", and therefore did not arise from the provision of investment advice.
12. The Policy does not respond unless the Wrongful Act alleged is committed solely in the performance of, or a failure to perform, Professional Services. AIG contends that, at none of the five key points in time were the services being performed by Tony Woodward Professional Services within meaning of Policy. The five key points of time identified by AIG are: * Late 2005 and early 2006 before Rujo invested $3 million in the Oxford Trust; * Late May or early June 2006 before Rujo lent $1 million to Oxford Property; * August and September 2006, before Rujo invested $1,750,000.00 in the Mansions Trust and before Barona elected to invest a distribution of $445,000.00 from the Vegas Hotel in the Mansions Trust; * November or December 2006, before Mrs Ritchie and Barona made further loans totalling $1 million to Oxford Property. * Late 2006 or early 2007, before the cross-collateralisation of the hotel assets to raise further funds for the purchase of the Peakhurst Inn Hotel. A sixth relevant time, so far as Mr Rigney and Ms Bolton are concerned, is the period after 30 June 2008 and prior to the appointment of the Receivers in August 2009.
13. AIG contends that it is not sufficient to say that Tony Woodward had, for many years, been the plaintiffs' accountant. It says that it is necessary to look to the particular Wrongful Acts that are said to engage the Policy. It says that the evidence does not support a finding that, at all relevant times, Tony Woodward was solely performing Professional Services or that he was asked to provide Professional Services and failed to perform them.
14. There was no written retainer between BP Woodward & Associates, on the one hand, and the plaintiffs, on the other. The plaintiffs rely on ledger entries for work in progress of BP Woodward & Associates as evidence of work being charged for in relation to the investments. However, it is by no means clear from the evidence that the plaintiffs were charged by BP Woodward & Associates for any of the things done by Tony Woodward in relation to the hotel investments. For example, the entries for June 2006 total $4,846.00 whereas the invoice issued for June 2006 was for only $4,225.00. On that basis, it is doubtful whether Tony Woodward was acting as the plaintiffs' accountant in his dealings with them in relation to the proposed investments, let alone providing Professional Services.
15. Whether or not Tony Woodward was, at relevant times, doing work of a kind routinely done by accountants, it does not follow that he was providing Professional Services. That question must be resolved by reference to the definition of that term in the Policy.
16. In its ordinary and usual meaning, the phrase "Accounting & Bookkeeping" designates the preparation of accounts and the collation of the raw data necessary to enable accounts to be prepared. Therefore, the expression "professional services … in the following areas of practice: (i) accounting & bookkeeping" refers to the professional services utilised in the preparation of accounts and the collation of the raw data necessary to enable accounts to be prepared. Introducing a client to a potential investment, and subsequent monitoring of and reporting on that investment, whether or not qualitative advice is proffered in relation to the investment, would not form any part of services in the practice area of "Accounting & Bookkeeping" as that phrase would ordinarily be understood. Introducing a client to a potential investment would not fall within any of the other categories within the definition of Professional Services in the Policy. Had it been intended by the parties that such activities were to attract cover under the Policy, it would have been possible, as contemplated by the form of the Proposal, for the additional category to be specified. It was not.
17. That construction is supported by the noscitur a sociis rule of construction. The fact that the phrase "Accounting & Bookkeeping" is part of list of specific and discrete practice areas, such as "audit", "business valuations", "company secretarial work", "forensic accounting", and "superannuation fund administration" services, tends against the adoption of the broad definitions of "accounting" services contended for by Tony Woodward, the Ritchies, and Mr Rigney and Ms Bolton, as being, respectively, what professional accountants do when acting as professional accountants, the typical practice of accountants, or the provision of certain advice and services in the ordinary course of carrying on business as chartered accountants.
18. It is not sufficient simply to establish that accountants regularly provide "due diligence" services. Mr Cupit defined the term as a process of investigation undertaken prior to a proposed transaction that may vary anywhere between highly specialised detailed investigative work and a simple analytical review. In any event, due diligence is not one of the categories of services listed in the definition of Professional Services in the Policy. The work being done, or not being done, by Tony Woodward at the key points in time did not fall within any of the categories listed in the definition in the Policy.
19. That would include the plaintiffs' allegation, in the Claim against the fourth and fifth defendants, that Tony Woodward failed to provide ongoing advice and services in relation to the ongoing monitoring of the investments, which similarly does not fall within any of the categories listed in the definition in the Policy. Moreover, even if the wider definition of accounting services were to be adopted, it was not established that reporting on the security status of investments was part of the ordinary practice of professional accountants.
20. A further difficulty is that, if Tony Woodward was acting as the plaintiffs' accountant at the key points in time, he was clearly providing them with financial planning and investment advice. Such work cannot fairly be characterised as the provision of "Accounting & Bookkeeping" services. While an accountant can act as both an accountant and investment advisor for a client, [35] it does not follow that all of the services that such an individual might provide can be regarded as "Accounting & Bookkeeping" services. Investment advice is expressly treated by the Policy as falling outside the Professional Services for which cover is provided. The presence of the investment advice exclusion makes that clear, as does the form of the Proposal signed by Mr Rigney, which provides textual context for the conclusion that "Accounting & Bookkeeping" does not include the provision of financial planning and investment advice.
21. Accordingly, the cross-claimants have not satisfied the onus of establishing that the Claims are covered by the Policy.
22. In any event, the Policy does not cover loss in connection with any Claim arising out of, based upon or attributable to the provision of investment advice. While AIG accepts that the burden of proving the facts necessary to attract an exclusion rests on the insurer, it contends that, in the circumstances, the present proceedings do not turn on onus. It says that the usual and ordinary meaning of the term "investment advice" is the provision of information, opinion or recommendation regarding an investment or proposed investment. The term extends to statements or opinions addressing qualitative aspects of any potential or existing investment aimed at providing guidance, either expressly or implicitly, regarding participation in a particular investment or advising as to the relevant virtues of such an investment.
23. Clearly enough, the purpose of the investment advice exclusion, objectively determined, is to exclude from the scope of cover under the Policy any Claim made by a client of BP Woodward & Associates who has lost money in an investment, including by way of loan, where BP Woodward & Associates advised or recommended that the client participate in that investment. Claims of such a character fall within an entirely different class of risk as compared with the classes of risk intended to be covered by the Policy. There is an obvious commercial reason for an insurer in the position of AIG to exclude such Claims from the scope of cover. According to the form of the Proposal, as completed by Mr Rigney, the practice of BP Woodward & Associates did not include providing financial planning services or investment advice. Viewed objectively, the inference might be drawn that BP Woodward & Associates did not wish to pay an increased premium such as might have been required if cover was being sought for risks of the class of investment advice.
24. The term "investment advice" is apt to describe any encouragement that might have been given by Tony Woodward to the plaintiffs to acquire units in a trust that was to purchase hotel assets or to lend money or Oxford Property, as the entity responsible for operating the Oxford Hotel, in circumstances where the return was to be by way of an interest rate higher than that being paid by Mrs Ritchie to the Commonwealth Bank under her margin loan facility. That conduct lies at the heart of the Claims made by the plaintiffs in the proceedings.
25. Thus, the overall relationship between Tony Woodward, on the one hand, and the plaintiffs, on the other, was that Tony Woodward was concerning himself with investment matters. He raised the investment opportunities with them and discussed the potential investments with them, including the potential benefits associated with each separate opportunity.
26. Clearly enough, the investment in the Oxford Trust and the Mansions Trust and the merger of the businesses and refinancing of the Vegas, Oxford and Mansions projects entailed "investment" as that word is ordinarily understood. The loans made to Oxford Property must also fairly be understood as instances of "investment"; while the loans were of a different kind of investment, when compared with the investment in the hotels, they can fairly be considered to be investments, especially given that the loans were made to support the investment in the Oxford Hotel by funding the renovations.
27. The expression "investment advice" is of wide import. For example, it is sufficiently wide to cover advice given to a client to purchase a promissory note as a means of securing a return where the return is by way of interest plus a capital profit. [36] There is no real distinction between purchasing a promissory note and making a loan. A promissory note is no more than an instrument in writing containing a promise to pay a stated sum at a specified date on demand. On that basis, in the circumstances of the present proceedings, the term "investment advice" includes advice given in relation to the making of the loans, where the object was to produce a return on the monies lent over and above the interest being paid under the margin loan facility on the monies borrowed.
28. It is clear enough from the evidence given by Mr Ritchie and Mrs Ritchie that, before investing in the Oxford Trust or the Mansions Trust or making the loans, Tony Woodward discussed the qualitative aspects of the proposals with them, whilst seeking to induce investment. Those conversations, together with the letters of 20 February 2007 recommending the merger, were the genesis of the Claims made in the proceedings. The conduct of Tony Woodward, in that regard, can fairly be characterised as constituting "investment advice" within the meaning of the Policy.
29. The exclusion is attracted, however, only if the Claims made by the plaintiffs arise out of, are based upon or are attributable to the provision of investment advice. AIG does not contend that the Claims are based upon the provision of investment advice.
30. The phase "arising from" requires a causal connection between the Claim and the specified matter. However, a less proximate relationship is required than is required by the phase "caused by". The requirement that a Claim "arising from" a matter will be satisfied if the Claim originates in, springs from or has its foundation in that matter. [37]
31. A Claim made by the plaintiffs is that, if it was not for the advice given to Mr Ritchie and Mrs Ritchie by Tony Woodward, the plaintiffs would not have entered into the investments involving the Oxford Hotel and the Mansions Hotel and would not have made the loans in June and December 2006 to Oxford Property and would not have voted in favour of the merger resulting in the refinancing of the Oxford Trust and the Mansions Trust. Thus, AIG says, the Claim made against the cross-claimants by the plaintiffs has its foundation in the investment advice provided by Tony Woodward to Mrs Ritchie and Mr Ritchie.
32. In the circumstances, and for the reasons outlined above, I consider that the Claims made by the plaintiffs against the cross-claimants do not fall within the Cover clause of the Policy. If they do, I consider that they fall within the exclusion relating to investment advice. It follows that none of Brian Woodward, Mary-Anne Woodward or Tony Woodward is entitled to indemnity under the Policy either in respect of any liability that they might be found to have to the plaintiffs or in respect of Defence Costs incurred in the defending of the proceedings.

The Application of the "Investment Advice" Exclusion Clause to Mr Rigney and Ms Bolton

1. However, the position of Mr Rigney and Ms Bolton may be slightly different from that of the other cross-claimants. The only claim that is made against them relates to the provision of ongoing monitoring and advice in relation to the investments. I have concluded that they are not liable to the plaintiffs. Relevantly, however, they claim to be entitled to indemnity by AIG in respect of Defence Costs. I have already found that the plaintiffs' Claims against them do not fall within that cover, because the provision of ongoing monitoring and advice in relation to the investments does not fall within the definition of Professional Services for the purposes of the Policy. For that reason, they are not entitled to indemnity. However, since the matter was argued, I shall make some observations on the separate question of whether the different nature of the Claim against them would result in a different conclusion as to whether the "investment advice" exclusion applies.
2. The indemnity in respect of Defence Costs relates only to the defence of a Claim that would fall within the cover provided by the Policy if the Claim were established. The cover for Defence Costs would not extend to costs incurred in defending a Claim made against an insured unless the Claim falls within the cover afforded by the Policy.
3. Exclusions relied upon by an insurer require the liability imposed (actually or notionally) to be caused by or arise out of specified factual circumstances. Before examining those circumstances, however, it is necessary to characterise the claim and to examine that claim and its underlying context. Having regard to the fact that the claim ultimately failed in the present case, that process of characterisation must be undertaken on the hypothetical basis that it succeeded. [38]
4. It is necessary to avoid giving too much weight to the way in which a claim is articulated by the claimant. Claims may initially be inarticulately expressed as a general assertion of the insured's responsibility for a disadvantageous position of the claimant, whereas by the time the claim comes to court, it may be the subject of sophisticated alternative or cumulative foundation and expression in pleadings drafted by learned and skilled lawyers. [39] Pleaded claims, even by learned and skilled lawyers, are often pitched far more widely in pleadings than they are in a final address to a court adjudicating upon such claims. It is the case that is eventually put and adjudicated upon that falls for consideration in relation to the costs extension. [40]
5. In the present case, the statements of claim particularise the nature of the purported liability of Mr Rigney and Ms Bolton in significantly wider and more complex terms than the case that was ultimately put against them. The pleadings alleged that Mr Rigney and Ms Bolton failed in their duty to inform the Ritchies of a great many matters including providing updated budgets, the impact of cost increases upon the cash-flow projections for the hotels and the anticipated returns on the investments, updated information in relation to the amount of debt borrowed by the hotels or secured over the assets of the hotels, revised or fresh statutory accounts for the investment vehicles, full details of the acquisition of the Peakhurst Inn Hotel, full details of the refinance of the liabilities secured over the Mansions Hotel in 2007, and informing the Ritchies that they could seek to terminate or dispose of the investments and, thereby, enable repayment of all or part of the loans and that it should considered whether that ought to be done.
6. However, in the plaintiffs' final submissions, the case against Mr Rigney and Ms Bolton had substantially narrowed. As I have already said, the case against Mr Rigney and Ms Bolton is that, between 1 July 2008 and the date when the Receivers were appointed, it was still open for Mr and Mrs Ritchie, if they had been informed that the loans had not been secured, to call up the loans or sell their units in the relevant trusts and recover at least some repayment of the loans. The value of that is the measure of damages said to be recoverable from Mr Rigney and Ms Bolton. The critical action is therefore the purported failure of Mr Rigney and Ms Bolton to inform the Ritchies about the unsecured status of the loans.
7. Mr Rigney and Ms Bolton contend that the process of monitoring and reporting on an investment is not "investment advice", which, they say, necessarily requires that there be recommendation or inducement to make an investment, being an element that is absent from the allegations made against them. That is an unduly narrow definition of "investment advice", which assumes that "investment advice" can only be given in relation of potential investments that are yet to be made. Rather, "investment advice" would normally extend to statements or opinions addressing qualitative aspects of any potential or existing investment that are used by a client in making a decision relating to that investment: it would be anomalous to regard "investment advice" as pertaining to statements or opinions as to whether a client should enter into a potential investment, but not as pertaining to statements or opinions as to whether a client should remain in or leave a particular investment.
8. By contrast, AIG contends that "investment advice" concerns the provision of information, an opinion or recommendation regarding an investment or proposed investment, and includes statements or opinions addressing qualitative aspects of any potential or existing investment. Including the mere "provision of information", as distinct from an opinion or recommendation, in "investment advice", conversely, goes too far. Mere communication of information, or a summary of the factual information concerning what had been observed, as distinct from conveying an opinion or evaluation, does not constitute the giving of advice for present purposes. [41]
9. In this case, the plaintiffs' case against Mr Rigney and Ms Bolton is confined to a purported failure to inform the Ritchies about the unsecured status of the loans, rather than convey any opinion or evaluation about the loans or the Ritchies' other investments. Therefore, the plaintiffs' Claim against Mr Rigney and Ms Bolton does not arise out of the provision of "investment advice". Instead it arises only out of a failure to provide mere information about their investments. Accordingly, the "investment advice" exclusion would not apply to Mr Rigney and Ms Bolton. However, as I have already found that the plaintiff's Claims do not fall within that cover to begin with, it follows that Mr Rigney and Ms Bolton are not entitled to indemnity in respect of the costs incurred in defending the Claims made by the plaintiffs in the proceedings.

Nondisclosure

1. The Policy relevantly provides that it does not cover loss in connection with any Claim arising out of, based upon, or attributable to any circumstance that, as of the inception of the Policy, may reasonably have been expected by any Insured to give rise to a Claim. The Policy also provides that, where a "Claim that would otherwise be covered by the Policy" is excluded by that provision, then cover is provided under the Policy for the Claim, provided always that the Insured first became aware of the facts that might give rise to the Claim after 17 February 2011. Accordingly, for a cross-claimant to fall within the exclusion, AIG must establish that, as at 17 February 2011, the cross-claimant in respect of which the exclusion is relied on had knowledge of circumstances and those circumstances may reasonably have been expected by the cross-claimant to give rise to a Claim.
2. AIG relies on the fact that, as at 17 February 2011, Tony Woodward had knowledge of the following circumstances, which, it says, may reasonably have been expected by him to give rise to a Claim: 1. Tony Woodward advised the plaintiffs in relation to or introduced them to the possible investment in the Oxford Trust and the Mansions Trust. 2. He requested that the plaintiffs, or informed them of the opportunity, to make loans to Oxford Property. 3. He recommended that the plaintiffs vote in favour of the merger and refinancing of the Vegas, Oxford and Mansions investments. 4. He was a director of most, if not all, of the entities associated with the Vegas, Oxford, Mansions and Peakhurst Inn Hotels. 5. Receivers were appointed to the entities involved with the hotels on 23 June 2009. 6. There was no prospect of a return to the plaintiffs of their $3 million investment in Oxford Trust, their $2.19 million investment in the Mansions Trust and the loans of $2 million made to Oxford Property. 7. The investors in the hotels, including the plaintiffs, had lost a substantial amount of capital through their investments and were deeply unhappy about the loss. 8. In July 2007, Mr Ritchie told him that he was "very annoyed" that the loans made to Oxford Property had not been paid back with interest and asked how Tony Woodward could have put them in that position. 9. In 2008, Mr Ritchie had further conversations with Tony Woodward in which he said words to the effect to the following: * "We are feeling sick to our stomachs with the position you've put us in." * "I am really very annoyed about this because the way you've set this up, we are locked into these investments and can't liquidate them at all." * We've only received one interest payment. What about the rest? We had an agreement, Tony." * "We feel like we are being held to ransom over this." * "This whole situation is just disgusting." * "I'm not sure what we're going to do." 1. On 29 April 2009, at a meeting at the offices of Ferrier Hodgson, Mr Onno Honstra of BankWest, asked Tony Woodward why they should believe what he was saying, said that he had a debt of $94 million that he could not repay and said that it did not appear that he had "looked after" his investors. Shortly after that meeting, Mr Ritchie told Tony Woodward that he was furious about the fact that he had broken his trust and caused him and Mrs Ritchie to lose a substantial amount of money. 2. A short time after the Receivers were appointed to the entities associated with the hotel investments, the plaintiffs ceased using Tony Woodward and BP Woodward & Associates as their accountants, and transferred their file to Tolley & Co. 3. On or about 14 September 2009, Richard Wynne and Simon Paterson, in front of Mr Ritchie and Mrs Ritchie, criticised Tony Woodward and left him in no doubt that they held him responsible for the losses they had suffered as a result of the failed hotel investments. 4. On 17 May 2010, BankWest obtained judgment against Tony Woodward in the sum of $99,700,023.47 under the personal guarantees provided by Tony Woodward in respect of the debts owed by each of the entities involved in the hotel investments. 5. On 11 June 2010, BankWest served a bankruptcy notice on Tony Woodward. 6. On 1 July 2010, Tony Woodward became bankrupt on his own petition. 7. Tony Woodward was still bankrupt as at 24 January 2011, when the Proposal for the Policy was lodged on behalf of BP Woodward & Associates.
3. AIG also contends that an inference should be drawn from Tony Woodward's file notes that he was expressly aware of the possibility that a Claim might be made against him by an investor in the hotels, such as the Ritchies. A file note of Tony Woodward's discussions with Mr Ritchie on 21 August 2009 states as follows: "No legal action against me. no intention What's happened needs to be looked at Director Rujo duty to have questioned … … won't let rip off by anyone again … Well-meaning people bailing crappy [management] out. Unjust whole thing…"
4. By 17 February 2011, AIG contends, Mr Rigney had knowledge of the following circumstances that, so AIG says, may reasonably have been expected to give rise to a Claim: 1. The plaintiffs were clients of BP Woodward & Associates. 2. Tony Woodward had been instrumental in bringing together a syndicate of investors, including the Ritchies, to purchase the Mansions Hotel. 3. Tony Woodward had been involved in facilitating the loans made by the plaintiffs to Oxford Property. 4. Tony Woodward had himself invested in the hotels and was closely involved in the operation of the entities concerned with the investments. 5. The Hotel investments had failed in 2009 and companies associated with the management of the Oxford Hotel and the Mansions Hotel had been placed into liquidation. 6. The investors, including the plaintiffs, had suffered financial losses as a result of the failure of the hotel investments. 7. Tony Woodward became bankrupt on 1 July 2010.
5. As at 17 February 2011, Ms Bolton had knowledge of the following circumstances that AIG contends may reasonably have been expected by her to give rise to a Claim: 1. The plaintiffs were longstanding clients of BP Woodward & Associates. 2. The plaintiffs had invested in a syndicate to purchase the Oxford Hotel and lent money to Oxford Property. 3. Rujo had invested in a syndicate to purchase the Mansions Hotel. 4. Tony Woodward was a director of the entities that operated and held those investments. 5. The Hotel investments had failed and receivers and managers had been appointed in mid-2009. 6. The plaintiffs had suffered financial losses as a result of the failure of the hotel investments. 7. The plaintiffs had terminated their retainer of BP Woodward & Associates and transferred their accountancy work to Tolley & Co in August 2009. 8. The entities associated with the management of the Oxford Hotel and the Mansions Hotel had been placed in liquidation. 9. Tony Woodward became a bankrupt on 1 July 2010.
6. By 17 February 2011, AIG contends, Brian Woodward had knowledge of the following circumstances that may reasonably have been expected by him to give rise to a Claim: 1. The Ritchies were longstanding clients of BP Woodward & Associates. 2. Tony Woodward had established syndicates of investors to purchase units in trusts as investment vehicles for the acquisition of the Vegas, Oxford and Mansion Hotels. 3. The plaintiffs had interests in the merged hotel group that raised funds against the Vegas Hotel, the Mansions Hotel and the Oxford Hotel to purchase the Peakhurst Inn Hotel. 4. The hotel Investments had failed in 2009 and the investors, including the plaintiffs, had suffered financial loss as a result of the failure. 5. Tony Woodward was made bankrupt on 1 July 2010 by reason of a debt of in excess of $99,000,000 that he owed to BankWest.
7. In considering an exclusion in a contract of insurance, such as that presently in question, there must be an appropriate connection between the known circumstances and the Claim. That is to say, the circumstances may give rise to a Claim if they would immediately suggest to a reasonable person in the proposed insured's position, who reflected upon those known circumstances, that the bringing of a Claim against the insurer in respect of those circumstances was a definite risk, or was a real possibility or was on the cards. [42] It is necessary to inquire about the possibility, not the certainty, of a Claim being made. That does not call for any judgment or draw any conclusion about the prospects of success of a possible Claim or the strength of possible defences to it. [43] The question of whether circumstances fall within the meaning of the words of the exclusion is ultimately one of fact. [44]
8. The necessary inquiry has two stages. First, it is necessary to determine what the insured knew. Secondly, it is necessary to make an objective inquiry as to whether the circumstances known to the insured may reasonably be expected to give rise to a Claim. Mr Rigney and Ms Bolton contend that, assuming each of the matters alleged was known to them, in neither case are the circumstances such that they might reasonably be expected to give rise to a Claim. At their highest, they say, the circumstances establish no more than that the plaintiffs had invested substantial sums along with, and on the advice of, Tony Woodward and that they had all lost a lot of money in those investments, which resulted in Tony Woodward becoming bankrupt because he had guaranteed the borrowings from BankWest. They say that, when considered light of other known facts such as the intervention of the Global Financial Crisis and the lock-out laws, the known circumstances by themselves do not suggest the existence of a legal liability, let alone that any Claim was in contemplation.
9. Mr Rigney and Ms Bolton contend that there were no circumstances alleged that might reasonably have been expected them to give rise to a Claim. Thus, no letter of demand had been sent as at 11 February 2011 and no suggestion has been made that the plaintiffs had retained lawyers to advise them as to whether they had a Claim or that they were known to be considering making a Claim against any of the cross-claimants.
10. Tony Woodward also contends that the circumstances alleged to have been known by him do not either independently or together provide a basis for concluding that a Claim would or might be made against BP Woodward & Associates or any of the cross-claimants by the plaintiffs. The central circumstance relied on is the failure of the hotel investments. That, he says, does not lead to a conclusion that a Claim would or might be made and the other circumstances relied on do not take the matter any further. It is not possible, simply by considering the circumstances alleged and giving rise to the exclusion, to identify the nature of any Claim that might be made by the plaintiffs.
11. The plaintiffs accept that their investments were irretrievably lost when the Receivers were appointed on 23 June 2009. Over 18 months had elapsed from that time until 11 August 2011, during which no Claim had been foreshadowed by any of the plaintiffs. The mere fact that the plaintiffs were disenchanted with Tony Woodward, who had put forward the proposals that led to their losses, does not of itself give rise to the possibility of a Claim against Mr Rigney and Ms Bolton in respect of failure to monitor investments after 30 June 2008.
12. So far as Tony Woodward is concerned, dissatisfaction with him on the part of the plaintiffs by reason of his conduct in introducing them to the investments that turned sour, does not hint at a Claim against Tony Woodward in his professional capacity as an accountant. It may be that the possibility of a Claim being made against Tony Woodward in some other capacity than as a professional accountant might have been on the cards. However, what must be a definite risk or a real possibility or on the cards is a Claim within the meaning of the Policy.

Interaction between the Exclusions

1. The context provided by the previous dealings between Brian Woodward and Tony Woodward, on the one hand, and Mr and Mrs Ritchie and their entities, on the other, is relevant to the three issues raised by AIG by way of defence, namely, whether the Claim is within the Cover, whether the investment advice exclusion applies and whether the non-disclosure exclusion applies. Long before Tony Woodward first raised the potential investment in the Oxford Hotel and the Mansions Hotel in 2006, a pattern had developed whereby Tony Woodward or Brian Woodward presented Mr and Mrs Ritchie with investment opportunities. They then proffered advice in relation to the qualitative aspects of those investments and Mr and Mrs Ritchie claimed to have relied on that advice in making decisions to invest. I have referred above to investments that they made in Microcatheters, the apartments in Cairns, the Cheltenham Road Townhouses, the Sleeping Property Trust and the Vegas Hotel, as well as the margin loan facility in its various guises and the consequent increase in Mrs Ritchie's share portfolio.
2. Mr Ritchie said that, before investing in the Vegas Hotel, Tony Woodward told him that an opportunity had come up to purchase a half share in the Vegas Hotel and that he wanted to put a syndicate together to purchase the half that was up for sale. He told Mr Ritchie that it was a "very good property" and had "very good returns". He said that it was a "very good business", was "running well", had "good cash flows" and a lot of money came in from the gaming machines and it would give Mr and Mrs Ritchie the "opportunity to get into commercial real estate".
3. Against that background, Tony Woodward raised the possibility of investing in the Oxford Hotel and the Mansions Hotel, once again telling him that he was investing in them himself. He told them that the Oxford Hotel was a "valuable piece of real estate". He described the Oxford Hotel to Mr Ritchie as a "very good investment" and told him that they would get "very, very good returns".
4. As I have indicated above, before the loan was made to Oxford Property in June 2006, Tony Woodward told Mr and Mrs Ritchie that an interest rate of 10 per cent could be charged, which would be better than the rate the Bank was charging Mrs Ritchie under the margins at loan facility and that she could pocket the difference. Tony Woodward told Mr Ritchie that if they lent $1 million at 10 per cent and their present rate was around 6.8 per cent, they would make 3.2 per cent over 12 months.
5. Tony Woodward told Mr and Mrs Ritchie that the Mansions Hotel would be a good investment generally because they owners had offered it to Tony Woodward and Jason Gavin before it went to market. He said that it would be a good investment for them because of synergies with the investment in the Sleeping Property Trust. He said that it had "really good gaming income, … a good turnover and … an excellent property development potential". He also said that if anything went wrong, the Oxford Hotel could be sold and that he was also going to invest in it because he believed it was a "great property".
6. Before the loans were made in December 2006, Tony Woodward told Mr Ritchie that he was asking for another loan of $1 million and that they could make some real money on it because it would be "Mezzanine Finance" and they could ask a very high interest rate of between 18 and 20 per cent.
7. Prior to the merger of the hotels, Tony Woodward told Mr and Mrs Ritchie that it was proposed so that they could be sold as a group and they could get their money back. Mr Ritchie said that Tony Woodward told him that it was an advantage to have the hotels merged as a group and that the purpose of the merger was to spread their investments and the risks across multiple hotels. Tony Woodward sent three letters to Mr Ritchie on 20 February 2007 recommending a vote in favour of the merger and the refinancing. Those letters were written by Tony Woodward in his capacity as a director of the companies associated with the hotels and not as a partner of BP Woodward & Associates.
8. On the basis of the above material, there can be little doubt that the proposed investment in the Oxford Hotel and the Mansions Hotel, the loans to Oxford Property, the merger of the hotels and the purchase of the Peakhurst Inn Hotel were first raised by Tony Woodward. In advising on the quality of aspects of each of the proposed transactions and, in relation to the merger and refinancing, he was unequivocally providing investment advice.
9. In a sense, the conclusion that Tony Woodward was providing investment advice leads to the conclusion that the exclusion as to prior circumstances is inapplicable. That is to say, having regard to the nature of the relationship and the nature of the services that were provided that were the subject of the proceedings, there was no reason to think that a Claim might be made on the basis of professional negligence, as distinct from the losses resulting from merely poor investment advice.

Single Claim

1. AIG contends that the allegations made by the plaintiffs in the three proceedings give rise to a single Claim for the purposes of the Policy. As I have indicated, a Claim is any written demand or civil or administrative proceedings that seeks Damages as a result of Wrongful Acts. Damages means any amount that an Insured is legally liable to pay a Third Party in respect of judgments rendered against an Insured. Wrongful Act includes any act or omission, including, relevantly, breach of duty and Misleading and Deceptive Conduct,
2. The Policy provides that any Claim or Claims arising out of, based upon or attributable to, the same cause, a single Wrongful Act or a series of continuous, repeated or related Wrongful Acts, is to be considered a single Claim for the purpose of the Policy. The total amount payable by AIG for a single Claim, including Defence Costs, is not to exceed the Limit of Liability (any one Claim). Under the Policy, the limit of liability (any one Claim) is $3 million. AIG contends that the allegations made in the three proceedings constitute a series of continuous, repeated or related Wrongful Acts so as to constitute a single aggregated Claim for which AIG's maximum liability, including Defence Costs, is $3 million.
3. The general principles concerning the question of whether particular events give rise to a single or multiple claims for the purposes of an insurance policy are not in dispute. Where the term "claim" is defined, it is the underlying facts that are determinative of the question of whether there is more than one claim [45] and it does not follow that there is a separate claim for each separate cause of action. [46] While the way in which a demand is initially made may be a useful starting point, it does not determine the number of claims. [47] Finally, the meaning of the word "claim" in any particular instance will depend on the context and form of the policy in question. [48] In particular, as indicated above, the formulation of a claim by the party making it is not decisive of the rights and liabilities of the insured. [49] The character of a claim is not changed by the proceedings that embrace it.
4. The purpose of an aggregation clause is to enable two or more separate losses covered by a policy to be treated as a single loss for certain purposes, so long as they are linked by a unifying factor of some kind. [50] In order to determine at what level the unifying factor is to be determined, it is necessary to consider the words used in the particular clause. The unifying factor identified in the Policy is that the Wrongful Acts be continuous, repeated or related, as part of a series.
5. The use of the word "series" in such a provision suggests a number of events of a sufficiently similar kind following each other in temporal succession. Any number of distinct events will, unless, by coincidence, they occur simultaneously, must necessarily occur in a temporal sequence. Accordingly, before the concept of "series" is to be satisfied, the events must, to a sufficient degree, be similar in nature. That is to say, the events must be one of a kind or have some characteristic in common. There must be some integral relationship between the events. [51]
6. AIG asserts that each of the three proceedings is based on the same factual matrix and allege Wrongful Acts by the same person, namely, Tony Woodward, at the five relevant points in time, all of which occurred within a relatively short period of 12 months, from early 2006 to early 2007. The five relevant times are: * before the investment in the Oxford Hotel, * before the June loan, * before the investment in the Mansions Hotel, * before the December loans, and * before voting in favour of the merger of the hotels and refinancing to raise funds. AIG contends that each of those investments and loans is related to the others.
7. In particular, AIG contends, all of the loans made to Oxford Property are related to the initial investment in the Oxford Hotel. The initial investment was to fund the purchase of the Oxford Hotel and the loans were for renovations to be made to the Oxford Hotel. The plaintiffs would never have made any of the loans if Rujo had not already invested in units in the Oxford Trust and the loans to Oxford Property were made to protect that initial investment. Clearly enough, therefore, the loans relate to the investment in the Oxford Hotel. Therefore, AIG contends, the investment in units in the Oxford Trust and the investment and the making of the three loans constitute a single Claim under the Policy.
8. AIG also contends that the investment in the Mansions Trust and the investment in the Oxford Trust are related. Each involved a similar unit trust structure for ownership and management of the relevant hotel. The reasons for making the investment were similar, following the success of investment in the Vegas Hotel, which was also introduced to Mr and Mrs Ritchie by Tony Woodward. The investment opportunities for the Oxford Trust and the Mansions Trust were presented within six months of each other and Tony Woodward was one of three directors of the entities associated with all three hotels, together with Richard Wynne and Jason Gavin. Both the Oxford Hotel and the Mansions Hotel were to be managed by Jason Gavin as a means of increasing the turnover and consequently increasing their value.
9. Clearly enough, AIG contends, there is a connection between the investments in the Oxford Hotel and the Mansions Hotel and the proposal for the merger and refinancing. The proposed merger involved the Oxford Hotel and the Mansions Hotel, as well as the Vegas Hotel, in which Barona had previously invested. The mortgages over those three hotels were to be refinanced and, in fact, were refinanced by the BankWest facility in June 2007. BankWest was given a first registered mortgage over the Oxford Hotel, the Mansions Hotel and the Peakhurst Inn Hotel, as well as the Vegas Hotel, and the refinancing resulted in the cross-collateralisation of the Oxford Hotel and the Mansions Hotel and the raising of further funds against them to provide part of the purchase price for the Peakhurst Inn Hotel. The result of the merger and refinance was that, if one of the four hotels failed, they would all fail. Thus, AIG contends, the investment in the Oxford Trust and the investment in the Mansions Trust became part of one investment and the subject of the same finance facility.
10. Finally, AIG says, the plaintiffs allege in each of the three proceedings that Tony Woodward and the Partnership failed to provide proper ongoing services and advice in relation to the investments in the Oxford Hotel and the Mansions Hotel and the loans made in connection with the Oxford Hotel. They allege omission on the part of Tony Woodward and the Partnership to advise them to change their continuing state of affairs in relation to the Oxford Hotel and the Mansions Hotel as well as the loans to Oxford Property. AIG contends that, by their very nature, the Claims of failure to provide proper ongoing services and advice all relate to the investment in the Oxford Hotel, including the loans, and the Mansions Hotel.
11. The Claims made against the defendants other than Tony Woodward are made on the basis that the other defendants are vicariously liable for Tony Woodward's conduct as his partners at various times in the accounting practice conducted under the name "BP Woodward & Associates". All Wrongful Acts alleged in each of the three proceedings are related, in that they rely on conduct on the part of Tony Woodward as the accountant for the plaintiffs, acting as a partner of BP Woodward & Associates.
12. Thus, the acts or omissions relied on by the plaintiffs as constituting breaches, negligent acts or representations causing loss and damage to Mrs Ritchie, Rujo and Barona are all acts or omissions of Tony Woodward. Those acts and omissions were all in relation to money derived from the same source, being Mrs Ritchie's inheritance from her parents, of which Tony Woodward was aware. Her moneys were lent to Oxford Property, or were lent to Rujo or to Barona to enable them to make investments in the Oxford Hotel and the Mansions Hotel and to make loans to Oxford Property. Therefore, AIG says, they were all related in having unifying factors as follows: * They are of a sufficiently similar kind, following one another in temporal succession. * They have at least some characteristics in common. * There is an integral relationship between the transactions.
13. On the other hand, Tony Woodward points out, the plaintiffs sued on separate transactions involving different businesses, properties and risk profiles. Those transactions were undertaken at different times in relation to different businesses and through different entities. They say that the only clear unifying factor is "the mutuality of the parties" and that that simple mutuality is insufficient to fuse the Claims by the plaintiffs into one amorphous Claim with such disparate variables in relation to each transaction. They assert that there are, in effect, six separate Claims, each of which stands alone. The Claims, they say, relate to the following: * The acquisition of units in the Oxford Trust in March 2006. * The loan to Oxford Property in June 2006. * The acquisition of units in the Mansions Trust in September 2006. * The application of the distribution from the investment in the Vegas Hotel in November 2006. * The loans to Oxford Property in December 2006. * The merger in connection with the acquisition of the Peakhurst Inn Hotel.
14. While it is not necessary to decide the question, the better view appears to be that there are two Claims, one in relation to the Oxford Hotel (including both loans) and one in relation to the Mansions Hotel.

Conclusion as to Liability of AIG

1. Since none of the defendants has any liability to the plaintiffs, AIG has no liability to indemnify them in respect of any Claim. Further, for the reasons I have given, AIG has no liability to the defendants for Defence Costs. The cross-claims against AIG must be dismissed.

Quantum of Loss

1. Whilst I have found that none of the defendants has any liability to the plaintiffs, it is desirable to say something about the quantification of the plaintiffs' alleged loss on the assumption that the defendants are in fact liable for that loss.
2. Clearly enough, Rujo lost the sums invested in acquiring units in the Oxford Trust and the Mansions Trust as well as the loan made in June 2006. It addition, Mrs Ritchie and Barona lost the sums of $500,000 that each of them lent to Oxford Property in December 2006. Mrs Ritchie does not suggest that she would not be able to recover from Rujo and Barona the moneys she advanced to them to enable them to acquire units and to make loans. However, Mrs Ritchie claims damages on the basis of two alternative scenarios over and above the losses just identified relying on the evidence of Mr Ferrier.
3. The first scenario is that, properly advised, Mrs Ritchie would not have entered into any additional borrowings, would not have caused Rujo and Barona to make investments in the Mansions Trust or the Oxford Trust, would not have made loans to Barona or Rujo and would not have made a loan to Oxford Property. On that scenario, it was alleged that Barona would have invested its moneys in a balanced portfolio of shares in publicly listed companies and dividends from those investments would have similarly invested. Alternatively, Barona would have kept its moneys in a cash management account similar to Mrs Ritchie's cash deposit account.
4. The second possible scenario relied upon is that, properly advised, Mrs Ritchie would have entered into additional borrowings and made loans to Rujo but Rujo would not have invested in the Oxford Hotel and the Mansions Hotel but, rather, would have invested either in a balanced portfolio of listed shares or in an investment that derived a return equal to the prejudgment interest rate prescribed by the Uniform Civil Procedure Rules 2005. The claim under scenario 2 is also based on two alternative hypothetical positions. Either Barona would have invested its moneys in a balanced portfolio of shares in publicly listed companies, the dividends from which would be similarly invested. Alternatively, Barona would have kept its moneys in a cash management account similar to Mrs Ritchie's cash deposit account.
5. On the basis of the first alternative in scenario one, the damage claimed is $10,908,233. Alternatively, the damage claimed if Barona had invested in a cash management account is $10,769,456. On the basis of the first alternative in scenario two, the damage claimed is $11,196,417. Alternatively, on the basis that Mrs Ritchie made loans to Rujo but the funds were invested in a cash management account, the damage claimed is $12,006,118. Finally, on the basis of taking into account interest that has accrued on all capital losses at the rates provided pursuant to s 101 of the Civil Procedure Act 2005 the damage claimed, is $12,658,354. The way in which those amounts are calculated, as at 5 May 2016, is set out in the Third Schedule to these reasons. The calculations are not disputed.
6. However, there is nothing to link the loss shown by the calculations with any conduct on the part of Tony Woodward, assuming that it were established that there was a breach of the retainer contracts, breach of a general duty of care or a contravention of the Fair Trading Act. The calculations made by Mr Ferrier may well establish that, had other action been taken by the plaintiffs in relation to investment of the funds available to them, the calculated losses had no relationship to any alleged breach or contravention.
7. In this respect, a few observations should be made about the margin loan facility. Mrs Ritchie said that shares were sold from her portfolio so that the margin loan could be reduced. The shares that were sold included shares in BHP and Woodside Petroleum. Mrs Ritchie said that the stock market was in a rapid decline so they could sell only the most liquid of stocks.
8. Mr Ritchie said that he discussed with Mrs Ritchie how close they were to receiving a margin call on the margin loan. Mr Ritchie said that he was a bit confused with dates but that it was either towards the end of 2007 or at the beginning of 2008. He said that remembered the time distinctly because he was very concerned. Mr Ritchie said that in order to address the concern that he had he telephoned his stockbroker, Mr Jeff Travers and said that he was very worried about receiving a margin call. He told Mr Travers that they were getting very close to the margin call position. Mr Travers said that he did not understand why and that they should not be. Mr Ritchie said that they increased the margin loan from $10 million to $16 million and they had not been paid back funds that he had been relying upon to reduce the level of debt. He said they were going to have to sell shares to prevent receipt of a margin call.
9. In cross-examination, Mr Ritchie agreed that the portfolio that had been used as the basis for the security for the margin loan had quickly diminished significantly in value because of the effect of the Global Financial Crisis. He said that the margin with the bank was about 33 or 34 per cent of the value that could be borrowed. He said that they had a $10 million loan and the shares were being used as security such that the amount of the borrowing was about 33 or 34 per cent of the value of the shares and that that was considered to be a very safe and reasonable level, when they first took out the margin loan.
10. Mr Ritchie agreed that the value of the portfolio had grown first by the expenditure of the $10 million that was borrowed under the margin loan facility and secondly by the increase of the value of the security, such that the same lending ratio was maintained with the $16 million facility. He agreed that, having borrowed $16 million on the margin loan facility, the margin loan was then taken out to $20 million. He agreed that he had no complaint from the bank that having a margin loan draw of $20 million exceeded the limit on the facility. He understood that the bank was holding as security the original portfolio that had been brought up in 1999, subject to such changes as had occurred in the meantime. He agreed that the bank had a parcel of shares that had been acquired between 1999 and 2007 and that shares had also been sold during that period.
11. Mr Ritchie confirmed that the shares were the subject of two separate accounts or record keepings in his books, being the original shares acquired from Mrs Ritchie's inheritance and the shares acquired under the margin facility. He said that he kept them that way so that he could keep a watch on what was going on and that he did so that he could maintain a level of vigilance about whether the margin loan was working effectively and profitably and not putting at risk the inheritance shares. He agreed that that was his job on a full time basis from 1999 onwards and had been done profitably without putting the inheritance shares at risk.
12. Mr Ritchie agreed that he was dealing with Mr McEwan and, then later, with Mr Travers as brokers and Mr Travers had plenty of time to become familiar with the portfolio and how it was managed. He agreed that Mr Travers was giving advice in relation to the composition of the portfolio and what adjustments might be made to it from time to time. Mr Ritchie agreed that he delegated to Mr Travers the job of keeping an eye on the portfolio and advising from time to time what should be done by way of adjustment. He agreed that he watched it and Mr Travers watched it and they would talk.
13. Mr Ritchie said that Mr Travers knew that he did not want to do any short term buying and selling and that his and Mrs Ritchie's object was to build and balance the holdings in the portfolio in different types of shares as time went on. Mr Travers assisted in choosing between what were described as "first line" and "second line" shares.
14. Mr Ritchie confirmed that he was the person responsible for all transactions involving deposit of money to the margin lending account withdrawing from the margin lending account as well as buying and selling the deposited shares. However, he always conversed with Mr Travers about what shares should be bought and sold. There were occasions where Mr Travers suggested that shares were at a high price and should be sold and that those funds be used to buy other shares to help balance the portfolio.
15. Mr Ritchie agreed that he was tracking whether or not the portfolio was increasing in value and was tracking what yield they got from the securities that he bought from the $10 million. He would look at the dividend return and whether that was going to cover the interest rate. He confirmed that interest was paid in advance on the margin lending facility and he always had funds available and would make sure that the payment was made from the funds into the margin lending account.
16. Mr Ritchie was aware that if the margin loan was cancelled early, there would be a penalty. He paid out the margin loan facility early and had to pay a penalty. He said that he did so because he did not want to get a margin call. He understood that a margin call would arise if the amount of debt was not adequately covered by the value of the securities.
17. Thus, it is apparent that no margin call was ever made on Mrs Ritchie's account. Rather, Mr Ritchie chose to terminate the margin lending account and incur a penalty. In those circumstances, I do not consider that the margin loan facility is of any consequence in determining the quantum of loss.
18. In her statement of claim, Mrs Ritchie claimed damage consisting of losses sustained by reason of the increased gearing requiring the sale of shares in the margin lending facility between July and November 2008 to avoid a margin call. She claimed the loss of dividends on the shares sold, capital gains tax on the shares sold and unrealised capital gains that would have been achieved if the shares had not been sold. That appears to be the item consisting of "interest and consequential loss" in the calculations in the Third Schedule derived from Mr Ferrier's report. Mr Ferrier assumed that shares were sold between 28 July 2008 and 17 October 2008 from Mrs Ritchie's investment portfolio in order to reduce her total borrowings to an acceptable limit and avoid a margin call. He calculated the capital gain that Mrs Ritchie would have derived on the shares sold during that period, the dividends she would have received on the shares had they been held and the capital loss. He expressed the view that, on the assumptions he was asked to adopt, had Mrs Ritchie been properly advised, she would not have entered into any additional borrowings and would not have made any loans to Rujo. He expressed the opinion that the losses suffered by Mrs Ritchie in those circumstances consisted of a capital loss equal to the amount of investment made by her by way of loan to the Oxford Property and consequential losses arising from the payment of interest on additional borrowings.
19. The plaintiffs' closing submission narrowed the question of quantum to two alternatives: If the Court finds that Mr and Mrs Ritchie would not have gone ahead and made any investment or loan and would instead have invested in an ASX 200 portfolio, the total loss to 5 May 2016 would be $10,908,233, as calculated and split between Mrs Ritchie, Rujo and Barona in Dr Ferrier's report dated 11 May 2016. Alternately, if the Court applied Supreme Court interest rates instead, the total loss as calculated and allocated amongst those plaintiffs, in accordance with that report, would be $12,685,343.
20. The third defendant contends for the former, lower figure, on the basis that investment in an ASX 200 portfolio by the Ritchies is appropriate because the use of the investment funds in that way is consistent with mitigation of loss. However, the plaintiffs' case involves a variety of different possible counterfactuals involving the Ritchies recovering different amounts of money at different times depending on different combinations of factual findings. For example, in one possible counterfactual, the Ritchies never would have invested any of their money in the first place; in another counterfactual they may have recovered the loans in early 2007 and the investment funds not long after; and in yet another counterfactual, they may have used their secured loans to prevent the cross-collateralisation and acquisition of the Peakhurst Inn Hotel and avoided the financial collapse entirely. Given the variety of possible counterfactuals, it is simplest and most appropriate to apply the Supreme Court interest rates in the manner in which Dr Ferrier does in the latter calculation.
21. Accordingly, in the absence of an attack on any element of Dr Ferrier's calculations, if I had to determine liability, I would have found that the quantum of damages at 5 May 2016 was $12,658,354.

Limitation of Liability

1. However, there is a final issue concerning whether the liability for damages is limited by statute. AIG contends that, if the defendants were found to be liable to pay any damages or costs to the plaintiffs, the liability would be limited to $850,000, under schemes enacted pursuant to the Professional Standards Act 1994 (NSW) (the Standards Act). Each of the defendants supports AIG's contention so far as limitation of liability is concerned. However, that limitation is disputed by the plaintiffs. Reliance is placed on two schemes, one, the Accountants Scheme, in force from 8 October 2001 to 8 October 2007, [52] and the second, the Institute of Chartered Accountants in Australia (NSW) Scheme, in force from 8 October 2007 to 8 October 2012 (the Schemes). [53]
2. Section 28(1) of the Standards Act relevantly provides that the "occupational liability" of any person to whom a scheme applied at the time when the act or omission occurred is limited for a cause of action founded on an act or omission that occurs when a scheme is in force. Under s 4, "occupational liability" means civil liability, in tort, contract or otherwise, for anything done or omitted to be done by a member of an occupational association (Member) acting in the performance of his or her occupation and "scheme" means a scheme for limiting the occupational liability of Members. Under s 29(1), the liability limit is on the amount of damages that may be awarded for a single claim and is not a limitation of the amount of damages that may be awarded for all claims arising out of a single event.
3. AIG contends that, on the underlying facts in these proceedings, there is only one claim, for the reasons indicated above. It says that that interpretation of the facts is supported by s 29(2) of the Standards Act, which provides that claims made by a number of plaintiffs for the same cause of action should be treated as a single claim.
4. Each of the Schemes identified above contains provisions to the effect that, for damages over $500,000, where the act or omission giving rise to a cause of action occurred on or before 30 June 2008, the liability is limited by the scheme to between $500,000 and $20 million. [54] The Schemes also provide that liability is limited to ten times the "reasonable charge" for the services to which the cause of action relates, being services provided, or failed to be provided, by the Member. The term "reasonable charge" is the amount that would ordinarily be charged in accordance with a scale accepted by the Institute of Chartered Accountants in Australia (the Institute) or, where there is no such scale, the amount that a competent person of the same qualifications and experience as the Member would be likely to charge in the same circumstances. [55]
5. Each of the cross-claimants was at relevant times a member of the Institute. While there is no scale of charges in evidence, Mr Cupit, who is a competent person of the same qualifications and experience as each of the defendants, gave evidence of his estimate of reasonable charges as follows: * For due diligence in relation to the Oxford Hotel in circumstances where LandMark White, a valuer with experience in the hotel industry, had provided a recent valuation of the Oxford Hotel: $10,000 to $30,000. * For due diligence in relation to the Mansions Hotel, where the accountant was already familiar with the books and records of the Mansions Hotel: $10,000 to $20,000. * For due diligence in relation to the Peakhurst Inn Hotel, where the accountant had access to an expert valuer's report: the higher end of $10,000 to $20,000. * For due diligence in relation to the loans made to Oxford Property as a top up to the due diligence referred to above in relation to the Oxford Hotel: $10,000 to $15,000.
6. AIG contends that the total reasonable charges on the basis of those estimates would be between $50,000 and $85,000. When that range is multiplied by 10, the liability would not exceed $850,000. The Schemes do not affect damages below the sum of $500,000. However, where liability in respect of a cause of action is an amount greater than $500,000, the schemes operate to limit the liability of a person who brings himself or herself within the scheme to a limited amount with respect to that liability.
7. Clause 3.1 of both of the Schemes provides that liability is limited for damages in respect of a cause of action in relation to occupational liability in excess of $500,000, for the benefit of persons who participate as Members of the scheme or who are otherwise entitled to the benefit of the scheme. The plaintiffs contend that the words "cause of action" have the effect that liability for damages in respect of a cause of action means liability for damages by reason of a cause of action at law. Where damage is the gist of an action and there are two or more persons who are liable for the same loss, be they vicariously liable or concurrent wrongdoers who are liable for the same loss, whether under the general law or by statute, there is but one cause of action in respect of any one loss.
8. The plaintiffs contend that there are, on analysis of the pleadings, seven heads of loss and damage pleaded. Rujo purportedly claims the following: (i) $3 million investment in the Oxford Hotel in March 2006 and ongoing to the date of the appointment of the Receivers and the sale of the Oxford Hotel, plus interest; (ii) $1 million loan to Oxford Property from June 2006 and ongoing to the date of the appointment of the Receivers and the sale of the Oxford Hotel, plus interest; (iii) $1,750,000 invested in the Mansions Trust from August 2006 and ongoing to the date of the appointment of the Receivers and sale of the Mansions Hotel. Barona claims the following: (iv) $440,000 in distribution from Vegas reinvested in the Mansions Trust from August 2006 and ongoing to the date of the appointment of the Receivers and sale of the Mansions Hotel; (v) $500,000 lent to Oxford Property from December 2006 and ongoing to the date of the appointment of the Receivers and sale of the Oxford Hotel, plus interest. Mrs Ritchie claims the following: (vi) $500,000 lent to Oxford Property from December 2006 and ongoing to the date of the appointment of the Receivers and the sale of the Oxford Hotel, plus interest; (vii) $3,340,000 costs incurred under the margin loan facility, plus interest.
9. Thus, the plaintiffs contend, assuming that each of the above gives rise to an occupational liability covered by the Schemes rather than a liability that does not arise out of the practice of BP Wood & Associates, there are at least seven causes of action in respect to which the question of limitation of liability arises.
10. The Schemes provide that a participating Member to whom the scheme applies is not liable in damages in relation to a cause of action above the monetary ceiling of $20 million or the limitation amounts provided for, where the participating member is able to satisfy the relevant court that the participating Member has the benefit of an insurance policy insuring the participating Member against the occupational liability and the amount payable under the insurance policy in respect of the occupational liability for that cause of action is not less than the monetary ceiling or limitation amount specified in the Schemes. [56]
11. The plaintiffs contend that each of the defendants has the benefit of an insurance policy insuring that defendant against the relevant occupational liability if and only if the Policy provides cover in respect of a cause of action and the amount of that cover is not less than the monetary ceiling or limitation amount specified in the scheme at the time at which the act or omission giving rise to the cause of action occurred. If the Policy does not provide cover, for any of the reasons relied on by AIG, the defendants cannot be said to have the benefit of an insurance policy, much less a policy insuring them against any occupational liability that they may be found to have in relation to that cause of action. In their submissions, the plaintiffs accept that the requirement to satisfy the court that the participating member has the benefit of an insurance policy, since the Policy provides cover for the defendants for the reasons advanced by the plaintiffs against AIG.
12. However, the plaintiffs assert that the defendants have not led any evidence that would enable a determination of a reasonable amount for each of the services Tony Woodward is alleged to have omitted to provide. Mr Cupit was asked what his firm would have charged for the conduct of due diligence in respect of the proposed investment in the Oxford Trust but, in the plaintiffs' contention, made it clear that the client would be looking at a range of possible charges, depending on the scope of work that was agreed to be carried out. They say that that is not a substitute for the defendants tendering evidence of the amount that would ordinarily be charged in accordance with a scale of charges, if there was, with the amount that a competent person of the same qualifications and experience as Tony Woodward would charge. Further, they say, it says nothing about the reasonable charges for services not provided in relation to other acts and omissions which are alleged to give rise to the loss.
13. The plaintiffs assert that, absent proof of the limitation amount provided for in the Schemes, the monetary ceiling of $20 million stipulated applies. Having regard to the conclusion that I have reached above, it is not necessary to express any view as to the application of the limitation of liability. However, having concluded that the plaintiffs' claims are not covered by the Policy, if I needed to express a view, I would be disposed to conclude that the defendants cannot be said to have the benefit of an insurance policy, and, as that relevant condition of the Schemes is not satisfied, the liability of the defendants is not limited.

Costs

1. Having regard to the complexity and multiplicity of the issues raised in the three proceedings, the parties asked that the question of the costs of the proceedings be deferred until after the result was known. Accordingly, I will invite the parties to make further submissions as to the appropriate orders for costs in the light of the conclusions that I have reached.

Orders

1. In the light of my conclusions, it would appear to follow that each of the three proceedings should be dismissed and that each of the nine cross-claims should be dismissed. Costs would normally follow the event. However, until the question of costs has been argued, I will make no orders. I propose to direct that the defendants bring in short minutes of orders giving effect to my conclusions and, if there is any dispute as to costs, providing a timetable for submissions on all outstanding questions of costs.

Investment in the Oxford Trust

1. The allegations made in relation to investment of units in the Oxford Trust may be summarised as follows: (1) In or about late February 2006, Mrs Ritchie became aware of the potential to participate in the purchase of the freehold of the Oxford Hotel in Darlinghurst, refurbish it and then operate it (referred to as the Oxford Hotel Potential Investment). (2) At all material times, the Partnership professed expertise in the provision of due diligence services in relation to particular investments and possessed particular expertise in relation to chartered accounting services in relation to the hotel industry, including valuation of hotels. (3) In or about late February 2006, Tony Woodward, in the ordinary course of carrying out the business of the Partnership, provided services to Mrs Ritchie in relation to the Oxford Hotel Potential Investment, including advice as to the financial structure of the potential investment, the way in which the refurbishment would be organised and financed, and the valuation of the possible investment (referred to as the Oxford Hotel Potential Investment Services). (4) The Partnership knew or reasonably ought to have known that Mrs Ritchie would rely upon the Partnership to exercise care, diligence and skill, to inform Mrs Ritchie of matters known to the Partnership relevant to the decision whether to make the Oxford Hotel Potential Investment, to advise her if matters arose that were outside the services that the Partnership was professionally qualified to provide and to inform her in the event that members of the Partnership found themselves in a position of conflict. (5) It was reasonably foreseeable that, if the Partnership did not inform Mrs Ritchie as alleged in the previous paragraph, Mrs Ritchie might suffer loss or damage if Rujo proceeded with the Oxford Hotel Potential Investment, if Mrs Ritchie lent Rujo the monies required for it to make the Oxford Hotel Potential Investment and if Mrs Ritchie borrowed monies for that purpose. (6) In the circumstances outlined above, the Partnership owed Mrs Ritchie a duty of care with respect to the provision of services in relation to the Oxford Hotel Potential Investment, including due diligence services and the Oxford Hotel Potential Investment Services (referred to as the Oxford Hotel Potential Investment Duty of Care). (7) Alternatively, the Partnership was obliged to comply with the terms of the Ritchie Retainer and the Ritchie Retainer extended to the provision of services in relation to the Oxford Hotel Potential Investment, including due diligence services and the Oxford Hotel Potential Investment Services. (8) In breach of the Oxford Hotel Potential Investment Duty of Care and, or alternatively, in breach of the Ritchie Retainer, Tony Woodward: (a) failed to exercise the degree of care, skill and diligence that it was reasonable to expect of a chartered accountant; (b) failed to advise Mrs Ritchie of matters known to the Partnership relevant to the decision of Mrs Ritchie whether to enter into the Oxford Hotel Potential Investment herself, whether she should lend Rujo the monies required for it to make the Oxford Hotel Potential Investment and whether to borrow monies for that purpose; (c) failed to advise Mrs Ritchie of matters that arose that were outside the services that the Partnership was professionally qualified to provide and did not advise Mrs Ritchie to obtain such services from a solicitor; and (d) failed to advise Mrs Ritchie to consider seeking advice from an independent accountant, solicitor, licensed financial advisor or other professional in relation to the Oxford Hotel Potential Investment, in circumstances where Tony Woodward had or proposed to obtain a financial interest in the Oxford Hotel Potential Investment. (9) On or about 2 March 2006, to the knowledge of Tony Woodward in the course of carrying out the business of the Partnership, Mrs Ritchie borrowed $3 million from the Commonwealth Bank and lent that sum to Rujo to enable it to subscribe for units in the Oxford Trust and Rujo applied that sum in subscribing for units in the Oxford Trust. (10) In late February 2006, Tony Woodward represented in trade or commerce to Mrs Ritchie and Mr Ritchie that an investment in the Oxford Hotel would obtain a return greater than the interest paid to borrow the funds necessary to invest, and that the valuation figures and cash flows for the Oxford Hotel were good and would improve once the refurbishment was complete. (11) Each of those representations was made in contravention of s 42 of the Fair Trading Act. (12) Mrs Ritchie borrowed the sum of $3 million from the Commonwealth Bank in reliance on those representations. (13) By reason of the breaches of duty, the breaches of the Ritchie Retainer and the contravention of the Fair Trading Act, Mrs Ritchie has suffered loss and damage consisting of interest paid to the Commonwealth Bank on the loan of $3 million and losses sustained by reason of the increased gearing requiring the sale of shares under her margin loan facility between July and November 2008 to avoid a margin call.
2. Mrs Ritchie's Statement of Claim contains particulars of the failure to exercise the degree of care, skill and diligence that it was reasonable to expect of a chartered accountant. However, a considerable part of the particulars appears to have been abandoned in the conduct of the proceedings.
3. It was not suggested that Rujo would not be able to repay the loan made by Mrs Ritchie to it. However, Mrs Ritchie claims damages for consequential losses incurred by reason of borrowing $3 million from the Commonwealth Bank under the margin loan facility.
4. Rujo makes the same allegations in relation to the investment in the Oxford Trust, except that it alleges that it suffered loss and damage consisting of the investment of $3 million in units in the Oxford Trust together with interest on that sum or, alternatively, a return on funds that it would have derived if the amount of $3 million had been invested in an alternative investment.

Loan to Oxford Property by Rujo in June 2006 5. The allegations made in relation to the loan made by Rujo to Oxford Property in June 2006 may be summarised as follows: (1) On or about 30 May 2006, Mrs Ritchie became aware that Oxford Property was seeking to raise additional funds of $1 million by way of loan to complete the refurbishment of the Oxford Hotel. (2) At all material times the Partnership professed expertise in the provision of due diligence services in relation to prospective investments and professed particular expertise in relation to chartered accounting services in relation to the hotel industry, including valuations of hotels. (3) Tony Woodward, in the ordinary course of carrying out the business of the Partnership: (a) provided services to Mrs Ritchie in relation to the proposed loan to Oxford Property, including advice as to the proposed use of the loan monies, the proposed interest rates on the loan and the proposed security arrangements; (b) represented in trade or commerce that he or the Partnership would arrange for the documentation of the loan and security for the loan to be drawn up, executed and registered at the time that the loan was advanced or a reasonably short period of time thereafter; (4) The Partnership knew or reasonably ought to have known that Mrs Ritchie would rely on the Partnership: (a) to exercise care, diligence and skill in providing services in relation to the proposed loan, including due diligence services and documentation services as represented, (b) to inform her of matters known to the Partnership relevant to the decision whether to make the loan herself or lend to another entity the monies required for it to make the loan, (c) to advise her if matters arose in relation to the proposed loan that were outside the services that the Partnership was professionally qualified to provide and how such services might be obtained, (d) to inform her in the event that the Partnership found itself in a position of conflict, and (e) to arrange for the documentation of the loan and security for the loan to be drawn up, executed and registered as represented. (5) It was reasonably foreseeable that, if the Partnership did not perform as referred to above, Mrs Ritchie might suffer loss or damage if Rujo proceeded with the loan, if Mrs Ritchie lent Rujo the monies required for it to make the loan, and if Mrs Ritchie borrowed monies for that purpose. (6) In the premises, the Partnership owed Mrs Ritchie a duty of care with respect to the provision of services in relation to the proposed loan, including due diligence services, advice as to the proposed use of the monies and the proposed security arrangements and arranging for the documentation of the loan and security for the loan to be drawn up, executed and registered. (7) Alternatively, the Partnership was obliged to comply with the terms of the Ritchie Retainer in respect of the provision of services in relation to the proposed loan and the Ritchie Retainer extended to the provision of such services, including due diligence services, advice as to the proposed use of the monies, and the proposed security arrangements and arranging for the documentation of the loan and security for the loan to be drawn up, executed and registered. (8) In breach of the duty of care alleged above and in breach of the Ritchie Retainer, Tony Woodward: (a) failed to exercise the degree of care, skill and diligence that it was reasonable to expect of a chartered accountant; (b) failed to inform Mrs Ritchie of matters known to the Partnership relevant to the decision whether to make the loan herself, whether to lend Rujo the monies required for it to make the loan and whether to borrow monies for that purpose; (c) failed to advise Mrs Ritchie that the proposed loan documentation services were outside the services that the Partnership was professionally qualified to provide and did not advise her that she and Rujo should obtain such services from a solicitor; (d) failed to advise Mrs Ritchie to consider seeking advice from an independent accountant, solicitor, licensed financial advisor or other professional in relation to the proposed loan, in circumstances where Tony Woodward had a financial interest in the Oxford Hotel; and (e) failed to perform proposed loan documentation services in that no loan agreement was executed as between Rujo and Oxford Property until around 13 October 2008, no mortgage of the Oxford Hotel in favour of Rujo was prepared until around 13 October 2008 and no such mortgage was ever registered or caveat lodged to record the interest of Rujo and the Partnership did not arrange for any of those things to occur within a reasonable time after the advance of $1 million on 8 June 2006. (9) On or about 8 June 2006, to the knowledge of Tony Woodward in the course of carrying out the business of the Partnership, Mrs Ritchie borrowed $1 million from the Commonwealth Bank and lent that sum to Rujo to enable Rujo to lend the money to Oxford Property and Rujo advanced the sum of $1 million to Oxford Property for 12 months, with interest at a rate of 10 per cent per annum payable quarterly to be secured by mortgage over the Oxford Hotel. (10) Mrs Ritchie obtained the loan from the Commonwealth Bank and lent the sum of $1 million to Rujo in reliance upon the advice provided on 30 May 2006 and on the representations made by Tony Woodward that he would arrange for the documentation of the loan and security to be drawn up, executed and registered. (11) On or about 30 May 2006, or shortly thereafter, Tony Woodward represented to Mrs Ritchie in trade or commerce that completion of the renovations of the Oxford Hotel could be achieved if a further $1 million was available, that finance from bank lenders could be obtained if Oxford Property requested it and that Oxford Property would have no difficulty making the required payments and paying back the loan after 12 months because turnover would have improved by the time the renovation works were complete. (12) Each of those representations and the representations referred to earlier was false and/or a misrepresentation as to future matters made without any reasonable grounds. (13) In the premises, Tony Woodward and the Partnership engaged misleading or deceptive in contravention of s 42 of the Fair Trading Act. (14) By reason of the breaches of the duty of care, the breaches of the Ritchie Retainer, and the contravention of the Fair Trading Act, Mrs Ritchie has suffered loss or damage consisting of interest paid to the Commonwealth Bank on the loan of $1 million and losses sustained by reason of the increased gearing requiring the sale of shares under the margin lending facility between July and November 2008. 6. The allegations made by Rujo mirror those made by Mrs Ritchie. Rujo alleges that it suffered loss or damage consisting of the loan of $1 million, interest on that loan from 15 August 2007 or, alternatively, the loss of return on the funds if the amount of $1 million had been invested in an alternative investment.

Investment in the Mansions Trust 7. The allegations made by Mrs Ritchie in relation to the investment by Rujo in units of the Mansions Trust parallel the allegations made in relation to the investment in units of the Oxford Trust. The claims are based on breach of the Ritchie Retainer, breach of a duty of care owed under the general law and contravention of the Fair Trading Act. 8. The allegations that are specific to the investment in the Mansions Trust may be summarised as follows: (1) In or about early August 2006, Mrs Ritchie became aware of the potential to participate in a syndicate to purchase the freehold of the Mansions Hotel at Kings Cross, refurbish it and then operate it (referred to as the Mansions Hotel Potential Investment). (2) On or about 11 August 2006, Tony Woodward, in the ordinary course of carrying out the business of the Partnership, provided services in the form of advice to Mrs Ritchie in relation to the Mansions Hotel Potential Investment, including the financial structure of the potential investment, the way in which the refurbishment would be organised and financed, the valuation of the possible investment and the revenues derived therefrom. (3) On or about 7 September 2006, to the knowledge of Tony Woodward, in the course of carrying out the business of the Partnership, Mrs Ritchie borrowed $1,750,000 from the Commonwealth Bank by increasing her margin loan facility, transferred the sum of $1,750,000 to the trustee of the Mansions Trust to enable Rujo to subscribe for units in the Mansions Trust and the funds were advanced by way of subscription by Rujo for units in the Mansions Trust. (4) On or about 11 August 2006, Tony Woodward represented in trade or commerce that the returns from the hotel business and gaming machines at the Mansions Hotel could be improved with little expense. (5) Those representations were false and misleading in contravention of the Fair Trading Act. (6) From 7 September 2006 to 5 November 2008, Mrs Ritchie paid interest on the loan from the Commonwealth Bank and on 5 November 2008 Mrs Ritchie repaid the loan of $1,750,000. (7) By reason of the breaches of the Ritchie Retainer, breaches of a general law duty of care and contravention of the Fair Trading Act, Mrs Ritchie suffered loss or damage consisting of the interest paid to the Commonwealth Bank and losses sustained by reason of the increased gearing requiring the sale of shares in the margin lending facility between July and November 2008 to avoid a margin call. 9. Barona also complains about an alleged appropriation for investment on behalf of Rujo in units in the Mansions Trust, of a return of capital that it received in respect of an investment made by it in units in the Vegas Trust. The allegations made by Barona in relation to the alleged appropriation may be summarised as follows: (1) On or about 10 or 11 September 2003, Barona subscribed the sum of $250,000 for units in the Vegas Hotel Property Trust and $250,000 for units in the Vegas Trust, (2) On or about 9 November 2006, Tony Woodward, in the ordinary course of carrying out the business of the Partnership, advised Mr Ritchie that a distribution, representing a return of capital or income from the Vegas Hotel Property Trust or the Vegas Hotel Syndicate Unit Trust in the sum of $440,000, had been made and that the amount of that distribution had been transferred to the trustee of the Mansions Trust, representing part of an investment in the Mansions Trust. (3) The Partnership knew or reasonably ought to have known that Barona would rely on the Partnership: (a) to exercise of care, skill and diligence in providing services in relation to its investment in the Vegas Trust, (b) to inform it of matters known to the Partnership relevant to the decision of Barona with respect to the Vegas Trust, (c) to advise Barona if matters arose in relation to the Vegas Trust that were outside the services which the Partnership was professionally qualified to provide, and (d) to inform Barona in the event that the Partnership found themselves in the position of conflict in relation to the Vegas Trust. (4) It was reasonably foreseeable that Barona might suffer loss or damage if the distribution from the investment in the Vegas Hotel were invested in units in the Mansions Trust. (5) In the premises, the Partnership owed Barona a duty of care with respect to the provision of services in relation to the distribution from the investment in the Vegas Hotel and was obliged to comply with the Barona Retainer in respect of, and the Barona Retainer applied to, the provision of services in relation to the distribution from the investment in the Vegas Hotel. (6) In breach of the duty of care and in breach of the Barona Retainer, Tony Woodward and the Partnership: (a) failed to exercise the degree of care, skill and diligence that it was reasonable to expect of a chartered accountant; (b) failed to advise Barona of matters known to the Partnership relevant to the decision of Barona whether to invest in the Mansions Trust; (c) failed to advise Barona of matters arising that were outside the services which the Partnership was professionally qualified to provide; and (d) failed to advise Barona to consider seeking advice from an independent accountant, solicitor, licensed financial advisor or other professional in relation to the distribution from the investment in the Vegas Trust, in circumstances where Tony Woodward had a financial interest in the Mansions Trust. (7) By reason of the breaches alleged above, Rujo has suffered loss or damage in that it lost the sum of $440,000 together with interest or, alternatively, lost a return on funds it would have received if the amount of the distribution had been invested in an alternative investment. 10. No allegation in relation to the distribution from the Vegas Trust is made by Mrs Ritchie or Rujo.

Loans to Oxford Property in December 2006 by Mrs Ritchie and Barona 11. Virtually identical claims are made by Mrs Ritchie and Barona in relation to the loans of $500,000 made by each of them to Oxford Property in December 2006. The allegations made by them parallel those made by Mrs Ritchie and Rujo in relation to the loan made by Rujo in June 2006.

Provision of Ongoing Advice and Services 12. Each of Mrs Ritchie, Rujo and Barona complains about services provided by Tony Woodward in relation to ongoing monitoring of the performance of the investments described above and reporting in relation to those investments. Mrs Ritchie's complaints are made under the following heads: (a) Claims in tort and contract in relation to ongoing advice and services in respect of: (i) the investment in units in the Oxford Trust, (ii) the loan made to Oxford Property in June 2006, (iii) the investment in units in the Mansions Trust, and (iv) the loans made to Oxford Property in December 2006. (b) Claims under the Fair Trading Act in relation to: (i) the documentation of the loan made to Oxford Property in June 2006, and (ii) the documentation of the loans made to Oxford Property in December 2006. 13. The complaints made by Rujo mirror those made by Mrs Ritchie under the following heads: (a) Claims in tort and contract in relation to ongoing advice and services in respect of: (i) the investment in the Oxford Trust, (ii) the investment in the Mansions Trust, and (iii) the loan made in June 2006. (b) Claims under the Fair Trading Act in relation to the documentation of the loan made in June 2006. 14. The complaints made by Barona mirror those made by Mrs Ritchie in relation to the following: * Claims in tort and contract in relation to ongoing advice and services in respect of the loan made to Oxford Property in December 2006. * Claim under the Fair Trading Act in relation to the documentation of the loan made in December 2006. 15. The structure of the complaints concerning ongoing advice and services is similar to the structure of the complaints made in relation to the particular investments described above. 16. In relation to the investment in the Oxford Trust, the following allegations are made: (1) At all material times between 28 February 2006 and June 2009, Tony Woodward, in the ordinary course of carrying out the business of the Partnership, provided ongoing advice and services to Mrs Ritchie in relation to the investment in the Oxford Trust, in relation to ongoing monitoring of the performance of that investment and in relation to reporting to Mrs Ritchie concerning the investment. (2) The Partnership knew, or reasonably ought to have known, that Mrs Ritchie would rely on the matters described above and that it was reasonably foreseeable that Mrs Ritchie might suffer loss or damage in circumstances where those matters were not performed by the Partnership. (3) In the premises, the Partnership owed a duty of care with respect to the provision of ongoing advice and services in relation to the investment in the Oxford Trust and was obliged to comply with the terms of the Ritchie Retainer in relation to the provision of, and the Ritchie Retainer extended to, the ongoing advice and services in relation to the Oxford Trust investment. (4) In breach of that duty of care and in breach of the Ritchie Retainer, Tony Woodward: (a) failed to exercise the degree of care and skill and diligence that it was reasonable to expect of a chartered accountant, (b) failed to advise Mrs Ritchie of matters known to the Partnership relevant to her decision whether to cause Rujo to retain the investment in the Oxford Trust, (c) failed to advise Mrs Ritchie of matters arising that were outside the services that the Partnership was professionally qualified to provide, and (d) in circumstances where Tony Woodward had a financial interest in the development of the Oxford Hotel, failed to advise Mrs Ritchie to consider seeking advice from an independent accountant, solicitor, licensed financial advisor or other professional in relation to whether to retain the investment in the Oxford Trust or to terminate or dispose of it. (5) By reason of the breaches referred to above, Mrs Ritchie has suffered loss or damage in that: * she did not take steps to cause Rujo to dispose of its investment in the Oxford Trust at any time prior to the appointment of the Receivers in May to June 2009, * she concurred in Rujo making the loan to Oxford Property in June 2006, * she concurred in Rujo making the investment in Mansions Trust, * she made the loan to Oxford Property in December 2006, * she did not take steps to cause Rujo to call in or enforce the loan made in June 2006, * she did not take steps to cause Rujo to call in or enforce its investment in the Mansions Trust prior to the appointment of the Receivers, and * she did not take steps to call in or enforce, at any time prior to the appointment of the Receivers in May to June 2009, the loan made to Oxford Property in December 2006. 17. In relation to ongoing advice and services in respect of the June 2006 loan, Mrs Ritchie's allegations may be summarised as follows: (1) In breach of the duty of care owed under the general law and in breach of the Ritchie Retainer, Tony Woodward failed to exercise the degree of care, skill and diligence that it was reasonable to expect of a chartered accountant in that he failed: (a) to provide reports to Mrs Ritchie periodically in relation to updated budgets for the renovations being undertaken, and the impact of cost increases upon the cash flow projections for the project and the anticipated returns on the investment, updated information in relation to the amount of debt borrowed by Oxford Property or secured over the assets of the Oxford Trust, and revised or fresh statutory accounts for the investment vehicle, (b) to inform Mrs Ritchie that Rujo could seek to call in or enforce the June 2006 loan and thereby enable repayment of all of the monies borrowed from the Commonwealth Bank, that it should be considered whether that ought to be done, and instead informed Mrs Ritchie that Rujo should not seek to call in or enforce the June 2006 loan as that would threaten the investment in the Oxford Trust, (c) to disclose to Mrs Ritchie full details of the acquisition of the Peakhurst Inn Hotel in April 2007, including the fact that an entity had acquired the asset, the finance for the acquisition, the cost of such finance, the security for such finance, including security over the Oxford Hotel, what liabilities were secured over the Oxford Hotel following the acquisition and refinance and the effect that the finance had on the ability to obtain or enforce repayment of the loan made in December 2006, and (d) failed to disclose to Mrs Ritchie full details of the refinance of the liabilities secured over the Oxford Hotel in August 2007, including the cost of such refinance, the security for such refinance, including security over the Oxford Hotel, what liabilities were secured over the Oxford Hotel following the refinance and the effect that the refinance had on the ability to obtain or enforce repayment of the loan made in June 2006. (2) On or about 10 April 2007, with the concurrence and to the knowledge of Tony Woodward and the Partnership, Oxford Property executed a mortgage over the Oxford Hotel as collateral security for an amount of $7,700,000 and executed a fixed and floating charge to secure prospective liability of $30 million. (3) On or about 17 August 2007, with the concurrence and to the knowledge of Tony Woodward, the liabilities of Oxford Property to the Commonwealth Bank were refinanced when a mortgage by Oxford Property of the Oxford Hotel to Bank of Western Australia Limited was registered on the title to the Oxford Hotel, a mortgage by Indigo Mist of its lease of the Oxford Hotel to Bank of Western Australia Limited was recorded on the title to the Oxford Hotel and a fixed and floating charge by Oxford Property of all of its assets in favour of Bank of Western Australia Limited was given securing a maximum prospective liability of $300 million. (4) On or about 21 August 2007 a mortgage to Ashe Morgan Winthrop of the Oxford Hotel was registered. (5) Tony Woodward failed to inform Mrs Ritchie: (a) of opportunities to cause Rujo to seek repayment of the June 2006 loan on settlement of the acquisition of the Peakhurst Inn Hotel in April 2007 and on settlement of the refinance of the liabilities of Oxford Property in August 2007, (b) of matters known to him relevant to her decision whether to cause Rujo to call in or enforce the June 2006 loan and thereby enable repayment of all or part of the June 2006 loan in that he failed to advise Mrs Ritchie of the extent of finance secured over the Oxford Hotel and failed to inform her that finance secured over the Oxford Hotel had been obtained to purchase the Peakhurst Inn Hotel, (c) that no mortgage over the Oxford Hotel in favour of Rujo had been prepared until 13 October 2008 and that no such mortgage was ever registered and no caveat had been lodged to protect Rujo's interest under any such mortgage, (d) of matters arising that were outside the services that the Partnership was professionally qualified to provide in that he failed to inform her at the time when Rujo made the June 2006 loan or at any time thereafter that she should obtain advice in relation to her rights and rights of Rujo as a creditor before and after refinancing of debt in respect of the Oxford Hotel, and (e) to consider seeking advice from an independent accountant, solicitor, licensed financial advisor or other professional in relation to whether to call in or enforce the June loan made by Rujo and to thereby enable repayment of all or part of the loans she had made to Rujo and the borrowing she had effected from the Commonwealth Bank. (6) By reason of the breaches referred to above, Mrs Ritchie suffered loss and damage in that: (a) she did not take steps to cause Rujo to call in or enforce the June 2006 loan at any time prior to the appointment of the Receivers, (b) she failed to take steps to terminate her relationship with Tony Woodward and the Partnership and to cause Rujo to realise the investment in the Oxford Trust and the June 2006 loan and the investment in the Mansions Trust and to realise the December 2006 loan, (c) she did not take steps to cause Rujo to dispose of the investment in the Oxford Trust prior to the appointment of the Receivers, thereby enabling repayment of all or part of her borrowings from the Commonwealth Bank, (d) she concurred in Rujo making the investment in the Mansions Trust and borrowed funds from the Commonwealth Bank and lent the funds to Rujo, (e) she made the December 2006 loan to Oxford Property, (f) she did not take steps to cause Rujo to dispose of the investment in the Mansions Trust prior to the appointment of the Receivers, and (g) she did not take steps to call in or enforce the December 2006 loan at any time prior to the appointment of the Receivers.

Security for the loans 18. The Statement of Claim makes allegations in relation to the security for the loans that may be summarised as follows: (1) Between 7 June 2006 and August 2009 Tony Woodward and the Partnership failed to disclose to Mrs Ritchie that loan documentation and security documentation had not been drawn up, executed or registered at the time that the June 2006 loan was made or within a reasonably short time thereafter but rather impliedly represented, in trade or commerce, that such documentation was completed and registered and was held in safe custody by Tony Woodward and the Partnership. (2) That representation was false and misleading and thereby constituted conduct that contravened s 42 of the Fair Trading Act. (3) By that contravention, Mrs Ritchie suffered the loss and damage referred to above. 19. Mrs Ritchie's Statement of Claim then makes allegations in relation to ongoing advice and services in respect of the investment in the Mansions Trust and the December 2006 loan. The allegations in relation to the Mansions Trust mirror the allegations made in relation to the investment in the Oxford Trust. The allegations concerning the December 2006 loan mirror the allegations made in relation to the June 2006 loan, being claims in tort and contract and under the Fair Trading Act. 20. Rujo's claims in relation to ongoing advice and services mirror the allegations made by Mrs Ritchie in so far as they concern Rujo. Barona's claim in relation to ongoing advice and services mirror the allegations made by Mrs Ritchie in relation to the December 2006 loan.

Statement of issues

1. Whether the second defendant was a partner of BPW.
2. Whether the services for which BPW was engaged by any of the plaintiffs included documentation and due diligence services relating to loans and investments that are the subject of the claims.
3. Whether the services provided by BPW to any of the plaintiffs included documentation and due diligence services relating to loans and investments that are the subject of the claims.
4. The terms on which BPW was retained by each of the plaintiffs, and the terms on which New BPW was retained by each of the plaintiffs, and in particular whether the following implied terms applied (in addition to the implied term of care, diligence and skill, which is not in dispute): (a) that BPW / New BPW would inform Mrs Ritchie, Rujo or Barona of matters which came to its knowledge relevant to the financial affairs of Mrs Ritchie (including matters which affected the appropriateness of earlier advice given by BPW); (b) that BPW / New BPW would advise Mrs Ritchie, Rujo or Barona if matters arose that were outside the services they were professionally qualified to provide, and how such services may be obtained and from whom they may be obtained; and (c) in the event that BPW / New BPW (or any of its partners) found themselves in a position in which their own interests conflicted with that of Mrs Ritchie, Barona or Rujo, they would advise Mrs Ritchie, Rujo or Barona of that fact and that they should consider seeking independent advice in relation to that matter.
5. Whether BPW or New BPW professed expertise in relation to: (a) the provision of due diligence services in relation to prospective investments; and (b) chartered accounting services in relation to the hotel industry, including valuations of hotels.
6. In connection with the Rujo Oxford Hotel Investment (and the associated loan from Mrs Ritchie to Rujo): (a) the scope of BPW's engagement by Mrs Ritchie and/or Rujo; (b) what information (including advice) was provided by BPW, or by the third defendant, in connection with this investment (it being agreed that some information was provided by the third defendant on behalf of BPW); (c) whether Mrs Ritchie or Rujo relied on BPW's advice in deciding whether to make the investment (and to borrow the funds to do so); (d) whether BPW owed a duty of care to Mrs Ritchie or Rujo; (e) whether BPW (and hence, any of the first, second and third defendants) breached their duty of care or their retainer with Mrs Ritchie or Rujo; (f) whether the third defendant, and through him BPW, represented to Mrs Ritchie and to Mr Ritchie, in February 2006, that: i. an investment in the Oxford Hotel would obtain a return greater than the interest paid to borrow the funds necessary to invest; and/or ii. the valuation figures and cash flows for the Oxford Hotel were good, and would improve once the refurbishment was complete; (g) whether the said representations were false and/or were made without reasonable grounds; (h) whether, by making the said representations, the third defendant, and through him BPW, engaged in misleading or deceptive conduct. (i) whether Mrs Ritchie and/or Rujo relied on the alleged representations in deciding to make the loan; (j) whether the losses suffered by Mrs Ritchie and Rujo in consequence of the Rujo Oxford Hotel Investment were caused by the alleged breach of retainer, negligence and/or misleading or deceptive conduct of the third defendant / BPW.
7. In connection with the Rujo Oxford Hotel Loan (and the associated loan from Mrs Ritchie to Rujo): (a) whether BPW's contractual relationship with Mrs Ritchie and/or Rujo extended to the provision of any services relating to the Rujo Oxford Hotel Loan; (b) what information was provided by BPW, through the third defendant, to Mrs Ritchie and/or Rujo in connection with this loan (it being agreed that some information was provided by the third defendant); (c) whether BPW, by the third defendant, provided services in the form of advice to Rujo and/or Mrs Ritchie in connection with this loan; (d) whether the third defendant represented to Mrs Ritchie and Mr Ritchie that he, or BPW, would arrange for the documentation of the loan and security for the loan to be drawn up, executed and registered at the time that the loan was advanced, or a reasonably short period of time thereafter; (e) whether Mrs Ritchie or Rujo relied on BPW's advice in deciding whether to make the loan (and to borrow the funds to do so); (f) whether BPW owed a duty of care to Mrs Ritchie or Rujo; (g) whether BPW (and hence, any of the first, second and third defendants) breached their duty of care or their retainer with Mrs Ritchie or Rujo; (h) whether the third defendant, and through him BPW, represented to Mrs Ritchie and to Mr Ritchie, in about May or June 2006, that: i. completion of the renovations at the Oxford Hotel could be achieved if a further $1,000,000 was made available; ii. finance from the bank lenders to the Oxford Hotel would be obtained in the event the Oxford Hotel requested it; and iii. the Oxford Hotel would have no difficulty making the required payments and paying back the loan after 12 months because turnover would have improved by the time the renovation works were complete; (i) whether the representations at (d) and (h), if made, were false and/or made without reasonable grounds; (j) whether, by making the said representations, the third defendant, and through him BPW, engaged in misleading or deceptive conduct; (k) whether Mrs Ritchie and/or Rujo relied on the alleged representations in deciding to make the loan; (l) whether the losses suffered by Mrs Ritchie and Rujo in consequence of the Rujo Oxford Hotel Loan were caused by the alleged breach of retainer, negligence and/or misleading or deceptive conduct of the third defendant / BPW.
8. In connection with the Rujo Mansions Hotel Investment (and the associated loan from Mrs Ritchie to Rujo): (a) whether BPW's contractual relationship with Mrs Ritchie and/or Rujo extended to the provision of any services relating to the Rujo Mansions Hotel Investment; (b) what information was provided by BPW, through the third defendant, to Mrs Ritchie and/or Rujo, in connection with this investment (it being agreed that some information was provided by the third defendant); (c) whether BPW, by the third defendant, provided services in the form of advice to Rujo and/or Mrs Ritchie in connection with this investment; (d) whether Mrs Ritchie or Rujo relied on BPW's advice in deciding whether to make the investment (and to borrow the funds to do so); (e) whether BPW owed a duty of care to Mrs Ritchie or Rujo; (f) whether BPW (and hence, any of the first, second and third defendants) breached their duty of care or their retainer with Mrs Ritchie or Rujo; (g) whether the third defendant, and through him BPW, represented to Mrs Ritchie and to Mr Ritchie, on or about 11 August 2006, that the returns from the hotel business and the gaming machines at the Mansions Hotel could be improved with little expense; (h) whether the said representation, if made, was false and/or made without reasonable grounds; (i) whether, by making the said representation, the third defendant, and through him BPW, engaged in misleading or deceptive conduct; (j) whether Mrs Ritchie and/or Rujo relied on the alleged representations in deciding to make the investment; and (k) whether the losses suffered by Mrs Ritchie and Rujo in consequence of the Rujo Mansions Hotel Investment were caused by the alleged breach of retainer, negligence and/or misleading or deceptive conduct of the third defendant / BPW.
9. In connection with the Ritchie Oxford Hotel Loan: (a) whether the loan was made by Mrs Ritchie or by Rujo; (b) whether BPW's contractual relationship with Mrs Ritchie extended to the provision of any services relating to the Ritchie Oxford Hotel Loan; (c) what information was provided by BPW, through the third defendant, to Mrs Ritchie, in connection with this loan (it being agreed that some information was provided by the third defendant); (d) whether BPW, by the third defendant, provided services in the form of advice to Mrs Ritchie in connection with this loan; (e) whether Mrs Ritchie relied on BPW's advice in deciding whether to make the investment (and to borrow the funds to do so); (f) whether BPW owed a duty of care to Mrs Ritchie or Rujo; (g) whether BPW (and hence, any of the first, second and third defendants) breached their duty of care or their retainer with Mrs Ritchie; (h) whether the third defendant, and through him BPW, represented to Mr Ritchie, with the intent that he would discuss the matter with Mrs Ritchie, in or about 2006 or shortly thereafter, that i. there had been cost overruns associated with the refurbishment of the Oxford Hotel and completion of the renovations at the Oxford Hotel could be achieved if a further $1,000,000 was available, which money would improve the quality of the product when it was finished; ii. finance from bank lenders to the Oxford Hotel would likely be obtained but the banks would charge a high premium; iii. if the loan was made, the refurbishment would be completed on time, and the Oxford Hotel would be able to repay the loan. (i) whether the said representations, if made, were false and/or made without reasonable grounds; (j) whether, by making the said representations, the third defendant, and through him BPW, engaged in misleading or deceptive conduct. (k) whether Mrs Ritchie relied on the alleged representations in deciding to make the loan; and (l) whether the losses suffered by Mrs Ritchie in consequence of the Ritchie Oxford Hotel Investment were caused by the alleged breach of retainer, negligence and/or misleading or deceptive conduct of the third defendant / BPW.
10. In connection with the Vegas Hotel Investment Distribution / Barona Mansions Hotel Investment: (a) whether BPW at all material times professed expertise in the provision of bookkeeping and monitoring services in relation to distributions from investments; (b) whether BPW's contractual relationship with Barona extended to the provision of any services relating to the Vegas Hotel Investment Distribution; (c) whether BPW owed a duty of care to Barona; (d) whether BPW (and hence, any of the first, second and third defendants) breached their duty of care or their retainer with Barona; (e) whether the losses suffered by Barona in consequence of the Vegas Hotel Investment Distribution being invested in the Mansions Hotel were caused by the alleged breach of retainer or negligence of the third defendant / BPW.
11. In connection with the Barona Oxford Hotel Loan: (a) whether BPW's contractual relationship with Barona extended to the provision of any services relating to the Barona Oxford Hotel Loan; (b) what information was provided by BPW, through the third defendant, to Mrs Ritchie and/or Mr Ritchie (and by them, Barona), in connection with this loan (it being agreed that some information was provided by the third defendant); (c) whether BPW, by the third defendant, provided services in the form of advice to Barona in connection with this loan; (d) whether Barona relied on BPW's advice in deciding whether to make the loan; (e) whether BPW owed a duty of care to Barona; (f) whether BPW (and hence, any of the first, second and third defendants) breached their duty of care or their retainer with Barona; (g) whether the third defendant, and through him BPW, represented to Mrs Ritchie and/or to Mr Ritchie (and through them, to Barona), in or about mid to late November 2006, that he or BPW would arrange for the documentation of the loan and security for the loan to be drawn up and executed and registered at the time that the loan was advanced or shortly thereafter. (h) whether the third defendant, and through him BPW, represented to Mrs Ritchie and/or to Mr Ritchie (and through them, to Barona), in or about November 2006 or shortly thereafter, that i. there had been cost overruns associated with the refurbishment of the Oxford Hotel and completion of the renovations at the Oxford Hotel could be achieved if a further $1,000,000 was available, which money would improve the quality of the product when it was finished; ii. finance from bank lenders to the Oxford Hotel would likely be obtained but the banks would charge a high premium; and iii. if the loan was made, the refurbishment would be completed on time, and the Oxford Hotel would be able to repay the loan. (i) whether the said representations, if made, were false and/or made without reasonable grounds; (j) whether, by making the said representation, the third defendant, and through him BPW, engaged in misleading or deceptive conduct; (k) whether Barona relied on the alleged representations in deciding to make the loan; (l) whether the losses suffered by Barona in consequence of the Barona Oxford Hotel Loan were caused by the alleged breach of retainer, negligence and/or misleading or deceptive conduct of the third defendant / BPW; and (m) whether the lender was Barona or Rujo.
12. As regards BPW and each of the said investments and loans: (a) whether the third defendant, in the course of carrying on the business of BPW, provided ongoing advice and services to Mrs Ritchie and/or to Rujo, and/or to Barona, following the making of each of the said investments and loans, in relation to the monitoring of the performance of the investments and loans and reporting to Mrs Ritchie / Rujo / Barona in relation thereto; (b) whether BPW's contractual relationship with Mrs Ritchie and/or with Rujo and/or with Barona extended to the provision of such ongoing advice and services; (c) whether BPW owed a duty of care to Mrs Ritchie and/or Rujo and/or Barona in relation to the provision of such ongoing advice and services; (d) whether BPW (and hence, any of the first, second and third defendants) breached their duty of care or their retainer with Mrs Ritchie and/or Rujo and/or Barona in relation to ongoing advice and services; and (e) whether Mrs Ritchie and/or Rujo and/or suffered loss and damage as a consequence of the alleged breaches in relation to ongoing advice and services.
13. As regards New BPW and each of the said investments and loans, there is a similar range of issues to those in the above paragraph, namely: (a) whether the third defendant, in the course of carrying on the business of New BPW, provided ongoing advice and services to Mrs Ritchie and/or to Rujo, and/or to Barona, from 1 July 2008, in relation to the monitoring of the performance of the investments and loans and reporting to Mrs Ritchie / Rujo / Barona in relation thereto; (b) whether New BPW's contractual relationship with Mrs Ritchie and/or with Rujo and/or with Barona extended to the provision of such ongoing advice and services; (c) whether New BPW owed a duty of care to Mrs Ritchie and/or Rujo and/or Barona in relation to the provision of such ongoing advice and services; (d) whether New BPW (and hence, any of the third, fourth and fifth defendants) breached their duty of care or their retainer with Mrs Ritchie and/or Rujo and/or Barona in relation to ongoing advice and services; and (e) whether Mrs Ritchie and/or Rujo and/or Barona suffered loss and damage as a consequence of the alleged breaches in relation to ongoing advice and services.
14. As regards BPW and each of the loans, namely the Rujo Oxford Hotel Loan, the Ritchie Oxford Hotel Loan and the Barona Oxford Hotel Loan: (a) whether, from the time of each such loan until August 2009, the third defendant, and BPW, failed to disclose to Rujo, Mrs Ritchie and Barona (as relevant) that loan and security documentation had not been drawn up, executed or registered; (b) whether the third defendant (and by him, BPW) instead represented that such documentation was completed and was held in safe custody by the third defendant and BPW; (c) whether in each instance the third defendant, and by him, BPW, engaged in misleading or deceptive conduct; and (d) whether Rujo, Mrs Ritchie and Barona have suffered loss and damage as a consequence of the said conduct.
15. As regards New BPW and each of the loans, namely the Rujo Oxford Hotel Loan, the Ritchie Oxford Hotel Loan and the Barona Oxford Hotel Loan, there is a similar range of issues to those in the above paragraph, namely: (a) whether, from 1 July 2008 until August 2009, the third defendant, and New BPW, failed to disclose to Rujo, Mrs Ritchie and Barona (as relevant) that loan and security documentation had not been drawn up, executed or registered; (b) whether the third defendant (and by him, New BPW) instead represented that such documentation was completed and was held in safe custody by the third defendant and New BPW; (c) whether in each instance the third defendant, and by him, New BPW, engaged in misleading or deceptive conduct; and (d) whether Rujo, Mrs Ritchie and Barona have suffered loss and damage as a consequence of the said conduct.
16. As regards the claims against the first, second and third defendants: (a) whether any or all of the loss and damage suffered by the plaintiffs was the caused or contributed to by their own negligence, as pleaded by the first, second and third defendants; b) whether any or all of the loss and damage suffered by the plaintiffs was the caused by introduction of the "lockout" provisions in the Liquor Act 2007; (c) whether this was an unforeseen supervening event; and (d) whether, and to what extent, the liability of the defendants or any of them is limited by reason of the Accountants Scheme said to be approved under the Professional Standards Act 1994 (NSW).
17. As regards the claims against the fourth and fifth defendants: (a) whether they are entitled to rely on a defence of proportionate liability; (b) if so, whether the third defendant, Jason Gavin, Richard Wynne and Ross Townhill are concurrent wrongdoers; and (c) whether, and if so, to what extent, the fourth and fifth defendants' liability for damages should be reduced on this ground.
18. As regards the claims against the third defendant, whether the plaintiffs are barred from claiming any relief against him by reason of his bankruptcy in 2010 and/or the resolution of his creditors passed on 7 June 2011.

Calculation of Loss The calculations of loss made by Mr Ferrier in his report dated 11 May 2016 are as follows, expressed as at 5 May 2016: Barona at Scenario 1 Losses - Ritchie no investment and Barona invested in ASX200 portfolio Ritchie Rujo ASX200 Total Loss Investment return $ $ $ $ Ritchie loan to Rujo - Oxford Hotel Investment 3,000,000 3,000,000 Ritchie loan to Rujo - Oxford Hotel Loan 1,000,000 1,000,000 Ritchie loan to Rujo - Mansions Hotel Investment 1,750,000 1,750,000 Ritchie - Oxford Hotel loan 500,000 500,000 Barona - Mansions Hotel 440,000 440,000 Barona - Oxford Hotel 500,000 500,000 Interest and consequential loss 3,354,362 363,871 3,718,233 Total loss at 5 May 2016 3,854,362 5,750,000 1,303,871 10,908,233

Scenario 1 Losses - Ritchie no investment and Barona invested at Cash Management Account Interest Rate Ritchie Rujo Barona at Cash Management interest rate Total Loss $ $ $ $ Ritchie loan to Rujo - Oxford Hotel Investment 3,000,000 3,000,000 Ritchie loan to Rujo - Oxford Hotel Loan 1,000,000 1,000,000 Ritchie loan to Rujo - Mansions Hotel Investment 1,750,000 1,750,000 Ritchie - Oxford Hotel loan 500,000 500,000 Barona - Mansions Hotel 440,000 440,000 Barona - Oxford Hotel 500,000 500,000 Interest and consequential loss 3,354,362 225,094 3,579,456 Total loss at 5 May 2016 3,854,362 5,750,000 1,165,094 10,769,456

Rujo at ASX200 Barona at Scenario 2 Losses - Ritchie loans to Rujo recoverable and Rujo and Barona invested in ASX200 portfolio Ritchie investment ASX200 Total Loss return investment return $ $ $ $ Ritchie - Oxford Hotel loan 500,000 500,000 Rujo - Oxford Hotel 3,000,000 3,000,000 Rujo - Oxford Hotel loan 1,000,000 1,000,000 Rujo - Mansions Hotel 1,750,000 1,750,000 Barona - Mansions Hotel 440,000 440,000 Barona - Oxford Hotel 500,000 500,000 Interest and consequential loss 65,590 3,576,956 363,871 4,006,417 Total loss at 5 May 2016 565,590 9,326,956 1,303,871 11,196,417

Barona at Cash Scenario 2 Losses - Ritchie loans to Rujo recoverable, Rujo invested at Court Pre-judgment Interest Rate and Barona invested at Cash Management Account Interest Rate Ritchie Rujo at Court interest rate Management Total Loss interest rate $ $ $ $ Ritchie - Oxford Hotel loan 500,000 500,000 Rujo - Oxford Hotel 3,000,000 3,000,000 Rujo - Oxford Hotel loan 1,000,000 1,000,000 Rujo - Mansions Hotel 1,750,000 1,750,000 Barona - Mansions Hotel 440,000 440,000 Barona - Oxford Hotel 500,000 500,000 Interest and consequential loss 65,590 4,525,434 225,094 4,816,118 Total loss at 5 May 2016 565,590 10,275,434 1,165,094 12,006,118

Scenario 3 Losses - All funds invested at Court Pre-judgment Interest Rate Ritchie at Court interest rate Rujo at Court interest rate Barona at Court interest rate Total Loss $ $ $ $ Ritchie - Oxford Hotel loan 500,000 500,000 Rujo - Oxford Hotel 3,000,000 3,000,000 Rujo - Oxford Hotel loan 1,000,000 1,000,000 Rujo - Mansions Hotel 1,750,000 1,750,000 Barona - Mansions Hotel 440,000 440,000 Barona - Oxford Hotel 500,000 500,000 Interest and consequential loss 302,170 4,525,434 640,750 5,468,354 Total loss at 5 May 2016 802,170 10,275,434 1,580,750 12,658,354

Endnotes

1. See Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64; [1999] SASC 97 at [732]-[736] as applied in circumstances similar to the current case in Burns v Grevler [2010] NSWSC 1219 at [83]-[90].
2. Swan & Baker Pty Limited v Marando [2013] NSWCA 233 at [75] (Sackville AJA, McColl and Leeming JJA agreeing).
3. See eg Swan & Baker Pty Limited v Marando [2013] NSWCA 233.
4. See eg Semrani v Manoun; Williams v Manoun [2001] NSWCA 337; Burns v Grevler [2010] NSWSC 1219.
5. Burns v Grevler [2010] NSWSC 1219 at [91] (Rein J).
6. See Wallace v Kam (2013) 250 CLR 375; [2013] HCA 19 at [14]-[16] and [22]-[26].
7. Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 581, 587-588.
8. See Tomasetti v Brailey [2011] NSWSC 1446 at [585].
9. See Brooker v Friend & Brooker Pty Ltd [2006] NSWCA 385 at [141].
10. See Stekel v Ellice [1973] 1 All ER 465 at 472.
11. Insurance Commissioner v Joyce (1948) 77 CLR 39; [1948] HCA 17 at 49.
12. See Beckingham v Port Jackson & Manly Steamship Co (1957) 57 SR (NSW) 403.
13. See Scott v Bagshaw (2000) 99 FCR 573; [2000] FCA 816 at [20].
14. Meriton Apartments Pty Ltd & Anor v Industrial Court of New South Wales (2008) 171 FCR 380; [2008] FCAFC 172 at [8] and [117].
15. The effect of those provisions of the Bankruptcy Act was in issue in Aliferis v Kyriacou (2000) 1 VR 447; [2000] VSCA 123. That decision was partially overruled by the High Court in Coventry v Charter Pacific Corp Ltd (2005) 227 CLR 234; [2005] HCA 67 but neither the Victorian Court of Appeal nor the High Court questioned that the Victorian Supreme Court had jurisdiction to hear that matter. The operation of s 82(1) of the Bankruptcy Act was also examined in MacDonald v Raupach [2011] NSWCA 320, without any adverse comment being made as to a lack of jurisdiction in determining the effect of the section.
16. See Sinclair v Brougham [1914] AC 398 at 415.
17. See WW Buckland, A Text-Book of Roman Law, (3rd ed 1963, Cambridge University Press) at 586-587.
18. See Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 at [47].
19. See Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 at [47].
20. See Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 at [47].
21. See Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 at [48].
22. See Coventry v Charter Pacific Corp Ltd (2005) 227 CLR 234; [2005] HCA 67 at [66]-[69].
23. Coventry v Charter Pacific Corp Ltd (2005) 227 CLR 234; [2005] HCA 67 at [70].
24. Coventry v Charter Pacific Corp Ltd (2005) 227 CLR 234; [2005] HCA 67 at [71]-[72].
25. CGU Insurance Limited v Porthouse (2008) 235 CLR 103; [2008] HCA 30 at 116 ("CGU v Porthouse").
26. Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99; [1973] HCA 36 at 109.
27. Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24 at 352.
28. Mount Bruce Mining Pty Limited v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[47].
29. Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; [1986] HCA 82 at 510.
30. Oz Minerals Holdings Pty Limited v AIG Limited [2015] VSCA 346; (2015) 19 ANZ Insurance Cases 62-089 at [52].
31. See Electric Life Pty Ltd v Unison Finance Group Pty Ltd [2015] NSWCA 394 at [37].
32. See North v Marina [2003] NSWSC 64; (2003) 11 BPR 21,359 at [57]-[71] and Electric Life Pty Limited v Unison Finance Group Pty Limited [2015] NSWCA 394 at [38].
33. Government Insurance Office (NSW) v Council of the City of Penrith [1999) 102 LGERA 102 at [59] and Quintano v BW Rose Pty Limited [2008] NSWSC 793; (2008) 15 ANZ Insurance Cases 61-805 at [9].
34. See Drayton v Martin (1996) 67 FCR 1 at 34 and Amadio Pty Limited v Henderson (1998) 81 FCR 149 at 168.
35. See HIH Casualty & General Insurance Ltd v FAI General Insurance Co Ltd (1997) 9 ANZ ¶ 61-376.
36. Financial Industry Complaints Services Limited v Deakin Financial Services Pty Limited (2006) 157 FCR 229; [2006] FCA 1805 at [50].
37. See Quintano v BW Rose Pty Limited [2008] NSWSC 793; (2008) 15 ANZ Insurance Cases 61-805 at [7] and [8].
38. Major Engineering Pty Ltd v CGU Insurance Ltd (2011) 35 VR 458; [2011] VSCA 226 at [28].
39. McCarthy v St Paul International Insurance Co Ltd (2007) 157 FCR 402; [2007] FCAFC 28 at [76] (Allsop J, Kiefel and Stone JJ agreeing).
40. Major Engineering Pty Ltd v CGU Insurance Ltd (2011) 35 VR 458; [2011] VSCA 226 at [30].
41. Transfield Services (Australia) v Hall; Hall v QBE Insurance (Australia) (2008) 75 NSWLR 12; [2008] NSWCA 294 at [198]-[199].
42. FAI General Insurance Co Ltd v McSweeney (1998) 10 ANZ Insurance Cases 61-443 at [75033]-[75034].
43. CGU v Porthouse (2008) 235 CLR 103; [2008] HCA 30 at [22].
44. Fishwives Pty Limited v FAI General Insurance Co Limited [2001] NSWCA 193, (2001) 12 ANZ Insurance Cases 61-515 at [38].
45. See eg American Home Assurance Company v Kirby [2003] NSWCA 395; (2004) 13 ANZ Insurance Cases 61-600 at [43].
46. See West Wake Price & Co v Ching [1957] 1 WLR 45 at 54-55, 57..
47. See Citibank NA v Excess Insurance Co Ltd (t/a ITT London and Edinburgh) [1999] Lloyd's Rep IR 122 at 128.
48. See McCarthy v St Paul International Insurance Co Ltd (2007) 157 FCR 402; [2007] FCAFC 28 at 426.
49. See Murphy v Swinbank [1999] NSWSC 934 at [492].
50. See Lloyds TSB General Insurance Holdings v Lloyds Bank Group Insurance Co Ltd [2003] All ER 43 at [14]-[17].
51. See Distillers Co Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1; [1974] HCA 3 at 21.
52. The Accountants Scheme, New South Wales, Government Gazette, No 150, 5 October 2001, at 8472 ("2001 Scheme").
53. Institute of Chartered Accountants in Australia (NSW) Scheme, New South Wales, Government Gazette, No 139, 5 October 2007, at 7691 ("2007 Scheme").
54. 2001 Scheme, cll 3.1 and 3.3; 2007 Scheme, cll 3.1 and 3.8.
55. 2001 Scheme, cl 3.4; 2007 Scheme, cll 3.9 and 4.1.
56. 2001 Scheme, cl 3.2; 2007 Scheme, cl 3.2. 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: 13 December 2016