Fair Trading Act 1999 (as applicable in 2003) sections 107 and 108 [equivalent sections in the Australian Consumer Law and Fair Trading Act 2012: ss182 and 184] .

Thomas v Panourakis & Ors (Civil Claims) [2013] VCAT 1014

Mr. T. Bourke of Counsel (for the adjournment application); then in person

1. This proceeding was commenced on 31 October 2011, against three Respondents.

1. Initially the First Respondent conducted the defence on behalf of all Respondents, but from 15 February 2012 they had solicitors on the record. Those solicitors acted in a Compulsory Conference on August 2012, and in the Respondents' application contesting the Tribunal's jurisdiction in November 2012.

1. On 8 January 2013, the Tribunal issued its Notice of Hearing, by which it notified the parties that the case would be heard over a period of 5 days commencing on 17 June 2013.

1. The Second Respondent became bankrupt during 2012 and the Third Respondent was deregistered on 29 March 2013.

1. On 7 June 2013 the First Respondent applied for an adjournment. That application was refused by Order made 11 June 2013.

1. On 12 June 2013 the First Respondent again applied for an adjournment. That application was refused by Order made 13 June 2013.

1. On 13 June 2013 the First Respondent again applied for an adjournment, this time on the basis that he sought to join Lloyds of London as a respondent, to compel it to indemnify him under an insurance policy. That application was received so late that the Tribunal could not consider it before the hearing.

1. On 17 June 2013 Counsel appeared for the First Respondent, to apply for an adjournment. The grounds were different. This time the First Respondent, who had been saying that he would represent himself, submitted that the adjournment was needed to give his new lawyers time to prepare; that the new lawyers wanted to speak to two potential witnesses; that the First Respondent's wife is seriously ill; and that the new lawyers could consider whether to join Lloyds of London.

1. The Applicants opposed the adjournment application. They demonstrated by producing correspondence from the First Respondent's previous solicitors that since June 2012 the First Respondent had known that the insurer had denied indemnity. They submitted that the First Respondent had taken no action to join the insurer during the many months that had been available, and that the First Respondent had not explained the reasons for the delay. They produced an open letter from the First Respondent, which contained a small offer to be paid in instalments, coupled with the threat that the First Respondent would voluntarily enter bankruptcy if the offer was not accepted.

1. Having considered the submissions I denied the adjournment application. I concluded that the First Respondent had not shown sufficient grounds to justify an adjournment; that bringing in new lawyers at a very late stage and then submitting that they needed time to prepare was a transparent ploy to engineer an adjournment; and that the open offer showed that any costs order that might be made if an adjournment were granted could prove to be hollow. I considered that there could be irreparable prejudice to the Applicants if the adjournment were granted, particularly given the First Respondent's threat to declare bankruptcy and the lack of a satisfactory explanation by the First Respondent for his extraordinary delay in interviewing the two "potential" witnesses or bringing his alleged claim against his insurer.

1. Counsel for the First Respondent then withdrew. The hearing proceeded after a short intermission. The First Respondent demonstrated that he was familiar with the issues in the case and he competently represented himself throughout the hearing.

1. The Applicants claimed $800,000.00 plus interest and costs in the proceeding. The basic picture that they sought to establish was that they were naïve in financial matters, and that they had been persuaded by the First Respondent, who was their accountant, into entering into an investment which was poorly structured and ultimately resulted in them losing their money. Essentially the First Respondent argued that he was not acting as an accountant, but that the parties were merely co-investors.

1. Various entities were involved in the investment, which I will refer to in due course. Suffice to say at this stage that the investment asset was a petrol station; that the purchaser was Keylock Enterprises Pty Ltd as Trustee of the Keylock Unit Trust; that 100 Units were issued in that Trust, 26 to the Applicants and 74 to Manvic Developments Nominees Pty Ltd. The First Respondent was a shareholder in, and the controlling mind of, both companies.

1. The investment was made in 2003[1], and the money was finally lost in June 2011 when a bank took possession of the petrol station.
2. The Applicants were very keen to have the hearing conclude in one day. Presumably, given the First Respondent's threat to declare bankruptcy, they were motivated by the desire not to throw good money after bad. They called only one witness, Kathleen Thomas the Third Applicant. As she hardly rates a mention in the Points of Claim, one would have expected that the other Applicants would have been called first. In the event they did not give evidence at all.

1. The Applicants' case was complex. Their Points of Claim articulated causes of action based on the following:

(a) representations as to future matters within the meaning of section 4 of the Fair Trading Act 1999;

(b) the provision of advice, and the omissions in that advice;

(c) representations that the Applicants would receive "guaranteed" returns;

(d) the Applicants investing money in an investment, having been induced by that advice;

(e) the failures of the First Respondent to manage the investment;

(f) the provisions of a Unit Trust Deed and a Unitholders Agreement, the latter containing an indemnity in favour of the Applicants;

(g) unconscionable conduct within the meaning of sections 8 and 8A of the Fair Trading Act 1999;

(h) breaches by the Respondents of sections 10, 11, 12 and 20 of the Fair Trading Act 1999, coupled with the entitlement of a person who suffers loss because of a contravention of that Act to obtain damages from a person - the First Respondent - involved in the contravention, under section 159;

(j) breach of fiduciary duty, in particular the duties to act in good faith, and not to act in a conflict of interests;

1. The Respondents had challenged the jurisdiction of the Tribunal to hear and determine some of these causes of action, but on 22 November 2012 they consented to Orders which had the effect of withdrawing those challenges. They subsequently filed and served Amended Points of Defence which focussed on factual allegations and reduced the number of issues in respect of which they denied the Tribunal had jurisdiction.

1. It goes without saying though that the Tribunal does not have inherent jurisdiction and cannot give itself jurisdiction.

1. It is important to identify any allegations of fact which were admitted by the First Respondent in his Points of Defence[2]. The First Respondent:

(a) denied that he was the proprietor of the relevant accountancy practice "E Panourakis & Co" between 12 August 1997 and 12 August 2003. He alleged that in that period the practice was owned by Manvic Insurances Nominees Pty Ltd ACN 006 909 539; he did not admit that he was the proprietor between 12 August 2003 and 10 November 2009; and he alleged that from 10 November 2009 the practice was owned by Manvic Solutions Pty Ltd ACN 140 393 335;

(b) admitted being one of two shareholders in, and the sole director and secretary of, Manvic Developments Nominees Pty Ltd;

(c) admitted being one of two shareholders in, and the sole director and secretary of, Keylock Enterprises Pty Ltd;

(d) admitted being retained as the accountant for the First Applicant ("Gordon") between 1983 and 30 June 2010;

(e) admitted that in 2003 Gordon inherited $600,000.00 and that the Second & Third Applicants ("Douglas" & "Kathleen") inherited $600,000.00;

(f) denied that he represented to Gordon that he (the First Respondent) was ready willing and able to offer expert advice in accounting, business structuring and advice [which in the Points of Claim are called "the Panourakis representations"];

(g) also denied that the Panourakis representations were representations as to future matters within the meaning of section 4 of the Fair Trading Act 1999;

(h) denied that he advised the Applicants that they should invest $800,000.00 between them in an investment property, through a corporate unit trust structure which he had or would establish and which he would manage [which in the Points of Claim are called "the Panourakis advice"]. The First Respondent alleged that Gordon and Douglas offered to him to each contribute $400,000.00 to the purchase of the petrol station, "such purchase to be acquired through a corporate unit trust structure which he would put in place"; and that he "advised Gordon and Douglas (to) consult their own solicitor and that Douglas should go to his own accountant for advice in relation to the use of a unit trust as the purchaser";

(i) alleged that solicitors "were engaged to complete the purchase ... and to prepare the "Unitholders Agreement" and that when the First Respondent "received a draft copy of the Unitholders Agreement he forwarded it to Douglas for his comments. The Applicants and (the First Respondent had) a conference telephone call with (the solicitor and) their questions were answered and some clauses amended" before the final version was executed on 9 August 2003;

(j) denied that he acted in a conflict of interests, or that he omitted to advise the Applicants that he was doing so, and he repeated in this context the allegation that he advised Gordon and Douglas to consult their own solicitor and Douglas to consult his own accountant for advice in relation to the use of a unit trust as the purchaser;

(k) alleged that because the Applicants held 26% of the Units, they held some control over the Trustee in that a resolution on some matters had to be passed by a vote of 75% of the Unitholders;

(l) alleged that the 26 Units were directly proportional to the amounts invested, in that the total sum spent to acquire the petrol station was at least $3,060,195.00; 26% of which is $795,650.70, which is approximately $800,000.00;

(m) admitted that "as a director of Keylock" Enterprises Pty Ltd he was "involved in its management" from 12 August 2003 until 22 October 2010, but he denied that he was "involved in the day to day management" of the Trust;

(n) denied the allegation that in his capacity as a person involved in the day to day management of the Trust, he allowed the petrol station to be used as security for borrowings by the Respondents, and for those borrowings to fall into arrears;

(o) denied the allegation that "the Respondents' financiers" took possession of the petrol station which caused the Applicants' capital investment to be lost;

(p) alleged that "apart from providing professional advice to Gordon, Douglas and Kathleen in relation to their tax returns (the First Respondent has) not provided the expert advice" in accounting, business structuring and advice;

(q) denied the allegations that "the Respondents' conduct was in connection with the supply or possible supply of services to the Applicants, namely the accounting and business services referred to in the Panourakis representations";

(r) denied the allegations that the First Respondent had acted unconscionably within the meaning of sections 8 and 8A of the Fair Trading Act 1999;

(s) denied the allegations that the First Respondent had breached sections 10, 11, 12 and 20 of the Fair Trading Act 1999;

(t) denied that the First Respondent was liable under section 159 of the Fair Trading Act 1999;

(u) alleged that the Applicant's claim was statute barred; and

(v) denied that the Tribunal had jurisdiction in some respects, such as in the claim of negligence.

1. Clearly, where a Respondent denies or does not admit an allegation, the Applicants have the burden of proving the alleged fact, on the balance of probabilities. The Applicants are put on notice as to what they must prove. Given that Kathleen Thomas was the only witness for the Applicants, it is significant that the First Respondent put in issue these matters:

(a) In the context of the Keylock Unit Trust having been established before 9 August 2003, and the Unitholders Agreement being executed on that day, the issue of what entity owned the accountancy practice;

(b) Whether he was retained by Douglas and Kathleen as an accountant at any time;

(c) Whether he made "the Panourakis representations";

(e) Whether the Applicants had the opportunity to obtain independent advice before investing their respective sums of $400,000.00; and

(f) Whether he acted in the supply or possible supply of services to the Applicants.

1. In their opening the Applicants emphasised the operation of section 159 of the Fair Trading Act 1999. They noted that the First Respondent was not a party to the Unitholders Agreement, but that he was mentioned in:

(a) clause 4.1(b), which stated that he would be made the sole director of the Trustee,

(b) clause 7.1, which stated that until unanimous agreement to the contrary, he would be the sole member of the Board of the Trustee, and

(c) clause 9.3, which stated that if the First Respondent was unable to manage the petrol station on behalf of Manvic Developments Nominees Pty Ltd (which by clause 9.1 had the obligation to manage it), the Unitholders would appoint an estate agent to do so.

1. The Applicants also noted that whilst they invested their $800,000.00 in cash and received 26 Units in the Trust, Manvic Developments Nominees Pty Ltd received the other 74 Units without contributing cash. It was entitled by clause 15.1 of the Unitholders Agreement to use the petrol station as security for a loan of up to $2.1 million, which Manvic Developments Nominees Pty Ltd would make available to the Trustee to purchase the petrol station. In return, clause 15.3 required Manvic Developments Nominees Pty Ltd to indemnify the Applicants in respect of any loss or damage sustained by the Trustee or by the Applicants as a result of any default by Manvic Developments Nominees Pty Ltd in relation to the loan set out in clause 15.1. The absurdity of taking comfort from an indemnity given by a company which by definition would have defaulted under a mortgage is obvious.
2. Assuming that Manvic Developments Nominees Pty Ltd defaulted under its loan, (which was not admitted) Manvic Developments Nominees Pty Ltd would be liable under the indemnity.

1. In their opening the Applicant's asserted that:

(a) It was misleading of the First Respondent to procure the Applicants to contribute $800,000.00 in cash for 26% of the Units, when the other unitholder obtained 74% of the Units but contributed funds borrowed against the security of the Trust's asset.

(b) The Applicants only had to succeed on one of the several provisions of the Fair Trading Act 1999, and they would succeed against the First Respondent under section 159 of that Act.

(c) The First Respondent continued to act in a misleading and deceptive manner after the bank took possession of the petrol station, because he told the Applicants that he had also had to sell real estate to satisfy the bank but he had not done so.

(d) Under clause 15.3 of the Unitholders Agreement and section 159 of the Fair Trading Act 1999, the First Respondent had to indemnify the Applicants for their loss of $800,000.00, plus interest under the Penalty Interests Rate Act from 17 June 2011, being the date on which settlement of the sale of the service station took place.

1. At the conclusion of their opening, the Applicants called on the First Respondent to state his defences and the First Respondent expressly confirmed his formal Defence. He did not concede any issues.

1. The Applicants then called their only witness, Kathleen Thomas.

(a) She first met the First Respondent in 2003, having been introduced by Gordon. She and Douglas had been discussing making an investment of $400,000.00, after receiving an inheritance, and Gordon had told Douglas that the First Respondent had an idea.

(b) She recalled meeting the First Respondent, but said that it had been 10 years ago and she did not remember anything much of the meeting. The First Respondent talked about an investment that would generate an income, and a return of capital at the end.

(c) She understood that the First Respondent "would invest in it with us".

(d) She thought the First Respondent said it would be like superannuation, in the sense of a long term investment.

(e) She understood at the time that the Trust would be divided up into Units to show the proportions between the investors, and that the First Respondent's Family Trust[3] would borrow money and be the major share holder in the service station. The $800,000.00 was a deposit, and the First Respondent would borrow the rest of the necessary money.

(f) She did not understand there to be any risk of losing money.

(g) She saw from the Profit and Loss Statements over the years that the First Respondent received management fees, from 7% to 10%.

(h) Only in 2011 when the bank was foreclosing did the Applicants realise that the First Respondent's loan was mixed up with the service station.

(a) She and Gordon had discussed an investment, before Gordon introduced her to the First Respondent.

(b) She thought she remembered that Gordon had looked into buying a petrol station with the First Respondent, and when they did not buy the one they had been considering, Gordon asked Douglas and Kathleen whether they would be interested in joining in.

(c) She had received financial advice, informally, from other people.

(d) The First Respondent had said that, at the end the petrol station would be sold and the investors would get their money back. That was the way in which the First Respondent indicated that the investment was secure.

(e) She remembered a meeting with an estate agent, Rudy, who acted for the vendor of the petrol station. She remembered it being asked of Rudy whether it was likely that the tenant would exercise its option to renew the lease in the future, and that she got the impression from Rudy that it probably would.

(f) She understood the Unit Trust was a way of recognising the division of the parties' investments. When asked who had suggested the use of a Trust, she answered "Not me. I presume you".

(g) When asked how the accounting firm was an adviser to her, she answered that it received fees. However she did not respond to the proposition that the fees were paid by the Trustee for accounting services.

(h) The accounting firm did the tax returns for herself and Douglas in 2004. They did not get any financial advice from the accounting firm.

1. In re-examination Kathleen Thomas identified the fax in which the accounting firm had sent her the draft Unitholders Agreement [4]. That fax is on the letterhead "Manvic Accountants" - not "E Panourakis & Co" - and identifies the proprietor as "Manvic Accountants Pty Ltd ABN 96 006 909 539".

1. The fax was dated 8 July 2003, about a month before the final version of the Unitholders Agreement was executed. It was signed by the First Respondent and said -

Please read the Agreement and fax back any questions. As soon as I have full signed the Contract of Sale I will sent to you in the mail

1. As the First Respondent had made it clear that it put in issue the six issues that I identified in paragraph 20 above, the following is apparent from Kathleen Thomas's evidence:

(a) There is no evidence that the First Respondent owned the accountancy practice before 9 August 2003;

(b) Douglas and Kathleen did not engage the First Respondent, or any entity associated with the First Respondent, as an accountant until 2004, after the investment had been made;

(c) There is no evidence that the First Respondent or any entity associated with the First Respondent, made "the Panourakis representations";

(d) There is no evidence that the First Respondent even gave "the Panourakis advice", the most Kathleen Thomas having said being, "Not me. I presume you" ;

(e) Kathleen Thomas and Douglas Thomas did have the opportunity to obtain independent advice before paying their respective sums of $400,000.00. They received the draft Unitholders Agreement a month before executing the final copy, and had been asked to "fax back any questions". There is no evidence that they did so; and

(f) There is no evidence that the First Respondent acted in the supply or possible supply of services to Kathleen Thomas. The accounting firm was not retained until 2004, and then only to do tax returns. The events in 2003 preceded that retainer.

1. Further, Kathleen Thomas did not even make a sweeping statement to the effect that she verified that the Points of Claim were correct. Such a statement would have been of little value, but in the absence of such a statement, and in the absence of any evidence from Gordon and Douglas, there is simply no basis on which it could be said that the Applicants proved their case.

1. I must reject the Applicants' submission that if they established any breach of the Fair Trading Act 1999, that they must succeed under section 159 of the Fair Trading Act 1999. With respect, the jurisdiction of the Tribunal under the Fair Trading Act 1999 arises from sections 107 and 108. The latter says:

"(1) The Tribunal may hear and determine a consumer and trader dispute"

"a dispute or claim arising between a purchaser or possible purchaser of goods or services and a supplier or possible supplier of goods or services in relation to a supply or possible supply of goods or services".

1. The dispute must be "between" the purchaser and the supplier. That limitation is why, for example, a case such as Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [5] cannot be litigated in the Tribunal.

1. A dispute between investors, or joint venturers, or shareholders or company directors is not within the Tribunal's jurisdiction even if it is proven that one of them acted in a misleading and deceptive manner, because such people do not supply services to other such people in trade or commerce.

1. On the evidence presented in this case, the First Respondent has not been proven to have supplied services to the Applicants.

1. If the Applicants contended that it was unconscionable for Manvic Developments Nominees Pty Ltd to be allowed to borrow, using a Trust asset as security, and overcame the point that permission to do so was set out unambiguously in clause 15.1 of the Unitholders Agreement, which Kathleen and Douglas Thomas at least had for about a month before executing it, they would have to take that matter before a Court. Manvic Developments Nominees Pty Ltd is not a Respondent, and on the evidence did not supply services to the Applicants. Even if the First Respondent was "involved in" the conduct of Manvic Developments Nominees Pty Ltd, on the evidence presented, there is no conduct by that company which contravenes the Fair Trading Act 1999 and arises from the supply or possible supply of goods or services.

[1] The Unitholders Agreement tendered in evidence was undated, however in his Defence the First Respondent alleged that it was executed on 9 August 2003, suggesting that the purchase took place after that date

[2] That is, the final statement of the Defence of the First and Third Respondents contained in the document "Amended Substituted Points of Defence" dated 29 November 2012. By the date this document was filed, the Second Respondent was bankrupt

[3] The Unitholders Agreement identifies Manvic Developments Nominees Pty Ltd as being Trustee of the E Panourakis Family Trust

[5] [1978] HCA 11; (1978) 140 CLR 216