Touch for Health Pty Ltd as Trustee for Knight Superannuation Fund v Property Mentors Australia Pty Ltd

Touch for Health Pty Ltd as Trustee for Knight Superannuation Fund v Property Mentors Australia Pty Ltd - [2024] FCA 1381 - FCA 2024 case summary — Zoe

[13]

THE COURT ORDERS THAT:

By 4:00pm on 9 December 2024, the parties are to submit orders to give effect to these reasons and a timetable for submissions in relation to interest and costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT Background [7] TPM [7] Secret Harbour Development [10] Information Memorandum [16] The Secret Harbour Development ultimately failed [23] The Applicants' investment in the shut [30] Touch for Health [30] Scoob Pty Ltd [42] Mr & Mrs Segui as trustees for the Segui Family Trust [49] DW Super Fund Pty Ltd and DW Assets Pty Ltd [56] Misleading and deceptive conduct claim [64] The alleged representations [64] Relevant provisions [66] Relevant principles [73] Expected Timeframe Representation [77] Consideration [84] Expected Profit Representation [101] Consideration [107] Plans and Permits Representation [123] Consideration [127] Funding Representation [131] Consideration [135] Amount required to purchase the land and undertake the initial phase of the development [139] The interest component of the estimated finance costs [145] Conclusion [148] Reliance [149] Conclusion on contravening conduct [154] Loss or damage [155] Reduction on account of applicants' alleged failure to take reasonable care [163] Apportionment of liability [168] Principal liability of Mr Bateman and Mr Harris [171] Relevant principles [176] Consideration [179] Conclusion [181] Accessorial Liability [182] Relevant principles [183] Consideration [185] Conclusion [192] Negligence claim [195] Relevant principles [198] Consideration [201] Money back guarantee claim [204] Conclusion [213]

[14]

NESKOVCIN J:

The applicants are unitholders in the Secret Harbour Unit Trust (SHUT), which was established by the respondents as a vehicle for investors to participate in a residential development in Secret Harbour, Western Australia (Secret Harbour Development).
The first respondent, The Property Mentors Australia Pty Ltd (TPM), provided property education and mentoring services and access to property-based investment opportunities to paid up members. The second respondent (Mr Matthew Bateman) and the third respondent (Mr Luke Harris) were directors of TPM at the relevant time, although Mr Harris is now the sole director of TPM.
The fourth respondent is Davlyn Property Pty Ltd, in its capacity as trustee of the SHUT. It was deregistered on 21 August 2022 and has had no involvement in the proceeding.
The applicants allege that the Information Memorandum for the Secret Harbour Development contained misleading representations in relation to, among other things, the expected timeframe and return on investment in the SHUT. The applicants seek relief against TPM, Mr Bateman and Mr Harris for misleading or deceptive conduct in contravention of s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). Alternatively, the applicants seek damages for negligence and a refund of their membership fees under a 'money back guarantee' provided by TPM.
Mr Bateman was largely self-represented during the course of the proceeding, including at the trial. However, he had legal representation in the early stage of the proceeding and at the time he filed a 34 page affidavit, which he tendered and relied upon at the trial. Mr Bateman is an articulate individual who, despite being self-represented, did an able job of representing himself at the trial and otherwise relied upon the submissions that were made on behalf of TPM and Mr Harris.
For the reasons set out below, the Information Memorandum contained misleading representations in relation to the expected timeframe and return on investment in the SHUT and TPM contravened s 12DA(1) of the ASIC Act. Furthermore, Mr Bateman and Mr Harris were knowingly involved in TPM's contravention in relation to the representation regarding the expected timeframe of the investment. TPM's representations in relation to the expected timeframe and return on investment were also negligent. The applicants suffered loss when they acquired units in the SHUT and the respondents are liable to pay the applicants the moneys invested. However, the applicants failed to establish that they were entitled to a refund of their membership fees under TPM's 'money back guarantee'.

[17]

Information Memorandum

On 11 June 2015, TPM issued an Information Memorandum seeking expressions of interest for members to invest in units in a newly created unlisted Development Trust (the SHUT) to develop the Secret Harbour property. Expressions of interest closed at 3:00pm (EST) on 17 June 2015.
The Introduction to the Information Memorandum stated: As a part of its ongoing service to members, The Property Mentors Australia Pty Ltd is pleased to announce the latest, members only, offering to invest in units in a newly created unlisted Development Trust, (Secret Harbour Unit Trust) to develop the vacant site at Lot 380 Cottesloe Crescent, Secret Harbour 6173 Western Australia. The Trust has been set up to provide the opportunity for a select group of investors to participate in both an attractive short to medium term investment and the development of one of Perth's most beautiful residential regions. The Trust will be raising up to $1.25 million for the primary purpose of acquisition & development of the Project Land. PM Asset Holdings Pty Ltd (A.C.N 605 514 814) currently owns 200 units in the Trust and will co-invest, via a unit transfer, with paid members of The Property Mentors Australia Pty Ltd, which will collectively control a maximum of 118 units. The development will be Project co-managed by Davlyn Property Pty Ltd & The Property Mentors Australia Pty Ltd, allowing for a hands-off vehicle for investors with expected return on investment of greater than 30% over the life of the project which is expected to be 12-15 months in duration. The Trustee company Davlyn Property Pty Ltd ATF Secret Harbour Unit Trust has entered into an unconditional contract of sale with A & R Investments Pty Ltd (99/200) + Danzone Pty Ltd (99/200) + Antonino Marchese (2/200) as Tenants in Common, all of 44 Stock Rd, Attadale WA, for the purchase of the Project Land for $870,000. The contract is a normal, commercial, arms-length transaction and is now ready for settlement. Following acquisition the Trust's sole purpose will be to develop the Project Land into 14 x 2BR units & 4 x 3BR units, for which plans and permits have already been submitted & approved by council, and sell them to realize a commercial gain. [Emphasis in original]
According to the Information Memorandum, the SHUT was seeking to raise equity of up to $1.25 million through the transfer of units valued at $12,500 each, which would be used mainly towards the acquisition of the Secret Harbour property. The SHUT comprised 200 fully paid units held by PMA Asset Holdings, which would co-invest, via a unit transfer, with paid members of TPM and hold a maximum of 118 units in the SHUT. There were to be three classes of units in the SHUT, depending on the amount invested. Investments in Class A and B units required a minimum investment of $250,000 and $150,000 respectively, with bonus units to be issued at no additional cost.
In addition, the Secret Harbour Development was to be "Project co-managed" by Davlyn Property and TPM. According to the Information Memorandum, the project management fees were estimated at $55,000, which was approximately 10% of the estimated "Gross Realised Value" of the project. The "key management team" comprised Mr Polak, Mr Bateman, Mr Harris and an external accountant.
The Information Memorandum contained five Appendices: Appendix 8.1 contained the contract of sale for the Secret Harbour property; Appendix 8.2 contained design drawings and plans for the Secret Harbour Development, although it was entitled "Approved planning permit"; Appendix 8.3 also contained design drawings and plans for the development; Appendix 8.4 contained a Builder's Profile regarding Mr Polak's companies; and, Appendix 8.5 was entitled "Fixed Price Build Contract Schedule" and contained a Schedule of Particulars for a Lump Sum Building Contract.
The Information Memorandum also stated that a fixed price building contract with Davlyn Homes "ha[d] been entered into (see Appendix 8.6 [sic])" and the SHUT had appointed Davlyn Homes as the builder under a fixed price building contract.
The SHUT raised $1.012 million in equity, of which $500,000 was invested by the applicants. PM Asset Holdings transferred 93 units in the SHUT, including 47 units to the applicants, and retained a total 107 units in the SHUT.

[18]

The Secret Harbour Development ultimately failed

The Secret Harbour Development was to involve the acquisition of the Secret Harbour property and construction of 18 apartments using modular units which were pre-fabricated in China.
The contract of sale for the Secret Harbour property settled on 19 June 2015. By about early October 2015, the SHUT had expended nearly all of the equity funds raised from investors and its bank account had a credit balance of under $2,000.
By the end of December 2015, the building contract had not yet been executed and the SHUT had not obtained a building permit.
The intention was for the development and construction of the apartments to be funded by a commercial loan facility, which would be obtained once sufficient pre-sales of apartments had been achieved. By March 2016, only four of the proposed 18 apartments had been pre-sold. Mr Harris was partly responsible for achieving pre-sales and sought advice from a real estate agent in Western Australia in regard to the marketing campaign. Even with additional expenditure on marketing, Mr Harris was only able to achieve five pre-sales (out of 18 apartments), although one of the pre-sales was to Mr Polak. However, as time went on, the contracts of sale could not proceed and the deposits were refunded to the purchasers.
On 31 March 2017, the City of Rockingham granted an extension of the planning permit and renewed development approval for the site, subject to further conditions.
The building contract was eventually executed on 10 April 2018. However, having not met the required pre-sales of apartments, the SHUT could not obtain construction finance and did not have the funds to proceed with the Secret Harbour Development. Moreover, in September 2017, Davlyn Property secretly mortgaged the Secret Harbour property as security for an unrelated business loan, which was repayable on 8 September 2018. Mr Polak was unable to repay the loan and the mortgagee took possession of the Secret Harbour property and sold it for $395,000.
The Secret Harbour Development failed and the applicants have lost their investment in the SHUT. On 15 April 2021, Mr Polak filed a debtor's petition and was declared bankrupt. Davlyn Property was deregistered on 21 August 2022.

[19]

Touch for Health

The first applicant, Touch for Health Pty Ltd, is the trustee of the Knight Superannuation Fund and the second and third applicants, Mr Brian Knight, and his wife, Mrs Claire Knight, are the directors of Touch for Health. Mr Knight gave evidence on behalf of the first to third applicants.
In mid-2014, Mr and Mrs Knight attended an investment strategy seminar that was conducted by Mr Nik Halik at the Hilton Hotel, Melbourne. Although the applicants were unaware of the connection between TPM and Mr Halik, Mr Bateman explained that Mr Halik promoted TPM's business at his events and TPM also rented office space from Mr Halik.
According to Mr Knight, the investment strategy seminar included a presentation on behalf of TPM, during which there was a discussion about the various investment opportunities offered by TPM as part of its mentorship program. After the seminar, Mr and Mrs Knight attended a Client Appreciation Night at TPM's offices in early November 2014. At or shortly after the Client Appreciation Night, a face-to-face meeting was arranged for Mr and Mrs Knight to meet with Mr Bateman to discuss their financial situation and goals. After their initial meeting, Mr and Mrs Knight had a further meeting with Mr Bateman during which Mr Bateman discussed the types of investments available through TPM and told Mr and Mrs Knight that they would need to become TPM members to gain access to those investment opportunities. Mr Bateman also raised the possibility of Mr and Mrs Knight accessing equity in their home to fund their investments.
After those two initial meetings with Mr Bateman, Mr and Mrs Knight established a self-managed superannuation fund and began to invest in investment opportunities offered by TPM. By early 2015, Mr and Mrs Knight had invested approximately $110,000 in TPM investments, which were mostly "deposit recycling" investments.
In early June 2015, Mr Bateman telephoned Mr Knight and told him about the Secret Harbour Development. According to Mr Knight, Mr Bateman said it was a very exclusive investment opportunity and it would return a profit as high as 30% within 12-18 months. Mr Bateman also said the investment was suitable for Mr and Mrs Knight because of the short timeframe. Mr Bateman had no recollection of the discussion, but he did not dispute Mr Knight's evidence regarding the discussion.
On 6 June 2015, at 2:32pm, Mr Knight received an email from Mr Bateman with a link to the draft Information Memorandum for the Secret Harbour Development. Hi Brian, We have recently discussed our most recent Property Development opportunity with you, and whilst there are a few documents still to be inserted, and we are awaiting the finalised trust deed back from the solicitors by Tuesday next week (Monday being a public holiday here on the Eastern seaboard) we wanted to provide you with access to a draft version of the Information Memorandum today. That way you can spend some time getting to know the key components of the opportunity and be in a better position to proceed once all the documents are ready mid next week. Please note this opportunity is probably already oversubscribed, given the feedback we have received after last weekends soft launch at the Master Class. Therefore, when it comes to securing your own piece of this development opportunity things will move somewhat quickly. To give you a heads up, here is what we expect the next steps will be: Step 1. Read the draft IM ASAP. Please download by following this link: https://www.dropbox.com/s/792dw48hsthfulc/TPMIMSecret%20Harbour%20Draft%206thJune2015.pdf?dl=0 This is a members only opportunity so please do not forward this draft IM on to anyone (with the exception of your professional advisors) at this stage. Step 2. After reading this draft IM you are interested in proceeding please inform me as to what level of investment you would be seeking in this development so I can allocate the opportunity accordingly. Allocations, will be done on a first in, first served basis, and with limited A & B class units it is advisable that you reply ASAP. At this stage, we are only seeking expressions of interest and until the final version and the Trust Deed are available nothing is of a binding nature. Obviously, If you have any questions regarding this IM please call your mentor ASAP. Step 3. The final version of the IM and the corresponding Secret Harbour Unit Trust deed will be forwarded to you as soon as available (likely to be Tue or Wed next week). Step 4. At that stage if you have decided to formally proceed simply complete the application forms in the IM & Trust Deed and return with a minimum of 10% deposit. Your units will not be secured until such time as the signed documents and initial payments are made. The Trustee reserves the right to allocate Units to members in full, to issue a lesser number of Offer Units than those for which an application has been made, to accept a late application or to decline an application. Step 5. Once all units are assigned & allocated to members, balance of payments must be made (as cleared funds) by no later than 3pm on 17th June 2015. We will provide you with updated documents as soon as they are to hand. [Emphasis in original]
At 3:16pm on 6 June 2015, Mr Knight sent an email to Mr Bateman stating: Thanks for sending the info as promised. I think we will have the option A $250K available for investment. I have a few questions for you when you have a moment.
The questions that Mr Knight had for Mr Bateman related to payment for the investment.
On 11 June 2015, Mr Knight received a further email from Mr Bateman with a Dropbox link to the final Information Memorandum and attaching a copy of the Trust Deed for the SHUT. Mr Bateman's email stated: Hi All, We are very pleased to announce that The Secret Harbour Unit Trust offering is now live. Please note given the unique nature of this development and the high returns available via this this opportunity it is likely to be oversubscribed. Therefore now is not the time to be indecisive. if you are serious about securing returns up up to 49.6% this is now a time critical offering. Step 1. Read the updated and finalised Information Memorandum (IM) by downloading this link (now updated to include Contract Of Sale & EFT Banking Details for payment of the Units you wish to secure): https://www.dropbox.com/s/w126ec1i04p1twf/Information%20Memorandum%20Secret%20Harbour%20Unit%20Trust.pdf?dl=0 Step 2. Read the attached Unit Trust Deed. Step 3. When you are ready to secure your Units please complete pages 21 & 22 of the IM and page of the attached Secret Harbour Unit Trust Deed (instructions available on page 20 of IM) and return with your payment as cleared funds before Wednesday 17th June (We suggest payments should be made no later than Tuesday 16th to ensure time for funds to clear). Step 4. I have already spoken with most of you, but if anyone requires any further information, please call Matthew Bateman on 0417 487 152 between 11am and 2pm (EST) today Thursday 8th June 2015. Step 5. Once all units are assigned & allocated to members, balance of payments must be made (as cleared funds) by no later than 3pm on 17th June 2015. Congratulations to all those that are in the position to take advantage of this terrific Armchair Development™ opportunity. Kind Regards, Matthew Bateman [Emphasis in original]
Mr Knight said he read the Information Memorandum. Mr Knight said he recalled discussing the Secret Harbour Development with Mr Bateman after he received the final Information Memorandum, including how much they were proposing to invest. Mr Knight said that, given Mr Bateman's assurances about the Secret Harbour Development and the strength of profits outlined in the Information Memorandum, Mr Knight told Mr Bateman they had decided to invest $250,000.
On 16 June 2015, Mr Knight completed an application form, on his own behalf and on behalf of Touch for Health, and applied for twenty A Class and five bonus C Class units in the SHUT for a total investment of $250,000.
Touch for Health was issued with unit certificate no 006 for fifteen A Class units and Mr Knight was issued with unit certificate no 007 for five A Class and unit certificate no 008 for five bonus C Class units. Mr Knight accessed some funds from a line of credit on his home loan to invest in the Secret Harbour Development.

[20]

Scoob Pty Ltd

The fourth applicant, Scoob Pty Ltd, is the trustee of the Scoob Family Trust. Mr Stephen Sciberras is a director of Scoob and gave evidence on behalf of Scoob.
In early 2014, Mr Sciberras attended an investment conference held by Mr Halik at a hotel in Sydney. The conference included a presentation by Mr Halik about various investment opportunities and a presentation by Mr Bateman about TPM. After the presentation, Mr Sciberras spoke to Mr Bateman briefly and they exchanged numbers. Not long after the conference, Mr Sciberras had a number of further discussions with Mr Bateman about various investment opportunities.
In July 2014, Scoob invested $21,000 in an investment opportunity introduced by TPM known as "Sterling First". In April 2015, Scoob invested a further $10,000 in a "deposit recycling" investment.
In early June 2015, Mr Bateman telephoned Mr Sciberras and told him about the Secret Harbour Development. According to Mr Sciberras, Mr Bateman said the project was ready for development with an expected build of 12-18 months and, once completed, investors could expect to receive a 30% return, which would fit with their investment strategy and retirement plan. Mr Bateman had no recollection of the discussion, but he did not dispute Mr Sciberras' evidence regarding the discussion.
Mr Sciberras received an email from Mr Bateman with a link to the draft Information Memorandum. Mr Sciberras also received the final Information Memorandum. Mr Sciberras said he read the draft Information Memorandum and the final Information Memorandum, which confirmed the statements made by Mr Bateman that the Secret Harbour Development was ready to start, that the build and return on investment would be within 12-18 months (15 months according to the Information Memorandum) and the return on the investment over that period was expected to be about 30% or greater.
On 15 June 2015, Mr Sciberras completed an application form on behalf of Scoob and applied for four C Class units in the SHUT for a total investment of $50,000.
Scoob paid $50,000 and was issued unit certificate no 015 for four C Class units.

[21]

Mr & Mrs Segui as trustees for the Segui Family Trust

Mr Richard Segui and Mrs Jennifer Segui are the fifth applicants, as trustees for the Segui Family Trust. Mrs Segui gave evidence on behalf of the fifth applicants.
Mr and Mrs Segui learned about TPM through their son. In October 2014, Mr and Mrs Segui contacted TPM's office and spoke with a person in TPM's office about an investment opportunity in Automated Teller Machines (ATMs). In December 2014, the Segui Family Trust invested $110,000 in an ATM investment opportunity introduced by TPM. Although the Segui Family Trust received some return on the ATM investment, the investment had failed completely by May 2015.
On 11 June 2015, Mr and Mrs Segui's son told them about a property development TPM was undertaking and forwarded to them an email exchange with Mr Bateman in relation to the Secret Harbour Development, which included Mr Bateman's email with the Dropbox link to the final Information Memorandum.
Mr and Mrs Segui downloaded the Information Memorandum and read it. On 12 June 2015, they called Mr Bateman to discuss the Secret Harbour Development. According to Mrs Segui, Mr Bateman said it was a fantastic investment opportunity, with a high expected return on investment, but it would only be available if they acted now. Mr Bateman said he was confident that the Secret Harbour Development would provide high returns over a short period, despite the failed ATM investment. Mr Bateman also said that they would not be precluded from investing because they were not members of TPM, but after they had invested, he was willing to give them a five year membership for $2,950. Mr Bateman had no recollection of the discussion, but he did not dispute Mrs Segui's evidence regarding the discussion.
Following the discussion with Mr Bateman, Mr and Mrs Segui decided to invest in the Secret Harbour Development through the Segui Family Trust.
On 13 June 2015, Mr Segui completed an application form on behalf of the Segui Family Trust and applied for 10 Class B units and two bonus Class C units in the SHUT for an investment of $125,000.
The Segui Family Trust paid $125,000 and was issued with unit certificate nos. 009 and 010 for ten B Class units and two bonus C Class units.

[22]

DW Super Fund Pty Ltd and DW Assets Pty Ltd

The sixth applicant, DW Super Fund Pty Ltd, is the trustee of the DW Super Fund, and the seventh applicant, DW Assets Pty Ltd, is the trustee of the DW Trust. Mr David White is the sole director of DW Super and DW Assets and gave evidence on behalf of the sixth and seventh applicants.
In early 2015, Mr White and two of his investment partners attended an investment conference conducted by Mr Halik at a hotel in Perth, at which Mr Bateman gave a presentation about TPM.
After the conference, Mr White and one of his investment partners travelled to Melbourne to attend a two-day Masterclass at TPM's office. There was some dispute about when this Masterclass was held, however, it is likely that it was prior to May 2015 when Mr White established a self-managed superannuation fund in order to start investing.
The first day of the Masterclass included introductions of TPM mentors including Mr Harris and other professionals, such as tax specialists, a real estate agent, a mortgage broker and an accountant. Mr Bateman also spoke about several specific developments that TPM was managing. The second day of the Masterclass was spent on a bus, travelling to and discussing property developments.
Not long after the Masterclass, Mr Bateman telephoned Mr White and told him about the Secret Harbour Development. According to Mr White, Mr Bateman told him that the Secret Harbour Development had a short timeframe, with the project estimated to take approximately 12-18 months to complete, that there was an expected return of at least 20% and that he (Mr Bateman) would be managing it. Mr Bateman said the investment was suitable for Mr White because of the short timeframe. Mr Bateman had no recollection of the discussion, but he did not dispute Mr White's evidence regarding the discussion.
Later, Mr White received an email from Mr Bateman with a Dropbox link to the draft Information Memorandum. Mr White said he read the draft Information Memorandum and was pleased to see that it verified what Mr Bateman had told him about the Secret Harbour Development. Mr White could not recall reading the final version of the Information Memorandum.
On 6 July 2015, Mr White completed two application forms and applied for two C Class Units in the name of DW Assets and four C Class Units in the name of DW Super Fund for a total investment of $75,000.
DW Super Fund paid $50,000 and was issued with unit certificate no 020 for four C Class units. DW Assets paid $25,000 and was issued with unit certificate no 19 for two C Class units. Mr White said that some of the investment was funded through a Flexi Loan, which was like a personal line of credit.

[24]

Relevant provisions

The applicants alleged that the above representations were misleading, or likely to mislead or deceive, in contravention of s 12DA of the ASIC Act.
It was agreed that the offer and promotion of units in the SHUT involved the offer of interests in a "managed investment scheme" within the meaning of s 9 of the Corporations Act 2001 (Cth): definition (a). The definition of "managed investment scheme" in s 9 of the Corporations Act applies for the purposes of the ASIC Act: s 5(2) of the ASIC Act.
It was also agreed that an interest in a "managed investment scheme" is a "financial product" for the purpose of Division 2 of the ASIC Act, and that the conduct of offering, promoting, recommending and assisting members of TPM to apply for units in the SHUT constituted the provision of a "financial service" within the meaning of s 12BAB(1) of the ASIC Act, to which the provisions in Division 2 of the ASIC Act apply.
Section 12DA(1) of the ASIC Act provides: A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
The applicants alleged that the Expected Timeframe Representation and Expected Profit Representation were representations as to future matters, to which s 12BB(1) of the ASIC Act applies.
Section 12BB(1) of the ASIC Act relevantly provides that if a person makes a representation with respect to any future matter and the person does not have reasonable grounds for making the representation, the representation is taken, for the purposes of s 12DA, to be misleading. Section 12BB(2) of the ASIC Act provides that for the purposes of applying s 12BB(1) in relation to a proceeding concerning a representation made with respect to a future matter by a party to the proceeding or any other person, the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
Section 12BB(2) of the ASIC Act is a deeming provision that would apply if the respondents did not adduce evidence as to reasonable grounds. It imposes an evidential burden on the respondents to adduce some evidence of reasonable grounds for making a representation as to a future matter, but the ultimate onus of proof is on the applicants to prove that the respondents did not have reasonable grounds for making the representations at the time they were made: SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (2014) 314 ALR 35; [2014] FCAFC 50 at [71]-[77] (Foster J); McGrath: in the matter of Pan Pharmaceutical Ltd (in liq) v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230; [2008] FCAFC 2 at [191]-[192] (Allsop J, as his Honour then was).

[25]

Relevant principles

In Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd (2023) 277 CLR 186; [2023] HCA 8 at [80]-[81], Kiefel CJ, Gageler, Gordon, Edelman and Gleeson JJ stated that determining whether a person has contravened s 18 of the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010 (Cth)), which is analogous to s 12DA of the ASIC Act, involves four steps:
First, identifying with precision the "conduct" said to contravene the provision. The first step requires asking: "what is the alleged conduct?" and "does the evidence establish that the person engaged in the conduct?"
Second, considering whether the identified conduct was conduct "in trade or commerce".
Third, considering what meaning that conduct conveyed to its intended audience. Where the pleaded conduct is said to amount to a representation, it is necessary to determine whether the alleged representation is established by the evidence.
Fourth, determining whether the conduct in light of that meaning meets the statutory description of "misleading or deceptive or ... likely to mislead or deceive", that is, whether it has the tendency to lead into error.
After observing that each step involves "quintessential question[s] of fact", their Honours (at [82]) said: The third and fourth steps require the court to characterise, as an objective matter, the conduct viewed as a whole and its notional effects, judged by reference to its context, on the state of mind of the relevant person or class of persons. That context includes the immediate context - relevantly, all the words in the document or other communication and the manner in which those words are conveyed, not just a word or phrase in isolation - and the broader context of the relevant surrounding facts and circumstances. It has been said that "[m]uch more often than not, the simpler the description of the conduct that is said to be misleading or deceptive or likely to be so, the easier it will be to focus upon whether that conduct has the requisite character". That said, the description of the conduct alleged and identified at the first step should be sufficiently comprehensive to expose the complaint, because it is that conduct that will ultimately, as a whole, be determined to be or not to be misleading or deceptive. [footnotes omitted]
In relation to the first and second steps, the parties agreed that the conduct that was said to contravene s 12DA of the ASIC Act was the provision of the Information Memorandum inviting investors, including the applicants, to invest in the Secret Harbour Development and that the conduct was "in trade or commerce".
The third step requires me to consider what meaning the conduct conveyed and whether the alleged representations were established by the evidence. The fourth step requires me to determine whether the conduct in light of that meaning was misleading or deceptive, or likely to mislead or deceive. The third and fourth steps require the Court to characterise, as an objective matter, the conduct viewed as a whole: Self Care at [82] (Kiefel CJ, Gageler, Gordon, Edelman and Gleeson JJ).

[26]

Expected Timeframe Representation

In the further amended concise statement, the applicants contended that the Information Memorandum represented that "the investment in the SHUT would have a term of 12 to 15 months". However, in closing submissions, the applicants submitted that the relevant statements in the Information Memorandum: … conveyed to the members that the development was expected to be completed in 12 - 15 months with investment returns expected within or shortly after this timeframe.
TPM and Mr Harris submitted that the applicants expanded on the Expected Timeframe Representation in their closing submissions, to include the notion of "expected" returns and a qualification that the investment returns would be expected "within a reasonable timeframe after completion of the development". TPM and Mr Harris largely accepted the expansion of the applicants' case, however, they submitted the representation conveyed was in the following terms: These statements conveyed to the members that the development was expected to be completed in 12 - 15 months with investment returns expected within or shortly after this timeframe a reasonable timeframe after completion of the development.
Mr Bateman adopted the submissions on behalf of TPM and Mr Harris in relation to the Expected Timeframe Representation.
The applicants relied on the following statements contained in the Information Memorandum, which they submitted conveyed the Expected Timeframe Representation:
"Term of Investment. The Project is estimated to have a term of 12-15 months from the Land Settlement Date" (page 19);
"The development will be Project co-managed by Davlyn Property & The Property Mentors Australia Pty Ltd, allowing for a hands-off vehicle for investors with expected returns on investment of greater than 30% over the life of the project which is expected to be 12-15 months in duration" (page 5);
"The Trust has been set up to provide the opportunity for a select group of investors to participate in … an attractive short to medium term investment" (page 5); and
"Given the short lifespan & limited nature of this project no general meetings are expected to be held" (page 18).
The applicants submitted that the Expected Timeframe Representation was reinforced through statements made by Mr Bateman in the telephone discussions he had with Mr Knight, Mr Sciberras, Mr White and Mrs Segui prior to the investment.
The applicants also submitted that the Expected Timeframe Representation was a representation as to a future matter as it forecasted the time anticipated to complete the Secret Harbour Development and pay any returns on the investment.
TPM and Mr Harris relied upon the following parts of the Information Memorandum in support of their proposed amendment to the applicants' Expected Timeframe Representation:
the word "estimated" is used in the first statement relied upon by the applicants (see sub-paragraph 80(a) above);
the word "expected" is used in the second statement relied upon by the applicants (see sub-paragraph 80(b) above);
in relation to the statement referred to in sub-paragraph 80(c) above, the Information Memorandum further stated that "The trustee can give no assurance as to the future level of distributions to be paid by the Trust, if any… This is because such matters depend, among other factors (sic), the amount of pre-sales in the project to receive commercial funding for construction, weather conditions, change to council planning or policy, and the amount, & timing, of sales to the retails market" (page 19); and
the Information Memorandum stated on page 28 that the performance of the Trust was not guaranteed and was subject to risks, including the specific risks identified on page 29 regarding "Project Duration", which stated that "[t]he duration for the completion of the Project may exceed the expected duration".

[27]

Consideration

The Information Memorandum was provided to and read by the applicants against the background where Mr Bateman had told them that the Secret Harbour Development would return high profits within a short period.
The Information Memorandum was sent to the applicants to read, along with a copy of the SHUT Trust Deed. The Information Memorandum stated that the closing date for expressions of interest was 17 June 2015 and the Secret Harbour property was "ready for settlement". The contract to purchase the Secret Harbour Property settled on 19 June 2015. The period of 12-15 months from settlement of the contract of sale was 19 June 2016-19 September 2016.
Appendix 8.5 of the Information Memorandum contained the Schedule of Particulars for a Lump Sum Building Contract. The Schedule of Particulars noted that Davlyn Homes was the Builder and contained the following details:
the building contract was a fixed contract price for $2,995,000 including GST;
the period of contract was "378 working days";
the time to commence works was "60 working days";
the time to complete works was "318 working days"; and
the deposit payable to the builder was $194,675.
Although the Information Memorandum stated that a fixed price building contract with Davlyn Homes "ha[d] been entered into (see Appendix 8.6 [sic])" and the SHUT had appointed Davlyn Homes as the builder under a fixed price building contract, the respondents acknowledged that the building contract had not been executed at the time the Information Memorandum was issued.
As will be explained, at the time the Secret Harbour property settled, TPM was not in a position to pay the deposit under the building contract or to proceed with the building works. Mr Bateman and Mr Harris said that the building works were to be financed under a commercial loan facility, which was to be obtained from a third party lender once sufficient pre-sales of the apartments had been achieved. The building contract was to be executed once finance was obtained, at which time TPM would be in a position to pay the deposit under the building contract and the building works would commence. Mr Harris said he expected that it would take three to six months before the SHUT could obtain a commercial loan facility and building works could commence. Mr Bateman was more optimistic and said he thought it would take three months for TPM to obtain a commercial loan facility in order to commence the building works.
If the building works had commenced within three to six months after settlement of the purchase of the Secret Harbour property, the period of 378 working days (excluding weekends and public holidays in Western Australia) for the completion of the building works would have been around late March 2017 to June 2017. This calculation does not take into account additional days due to inclement weather or building industry shutdown periods, such as the Christmas / New Year period.
TPM and Mr Harris submitted that, despite Mr Harris and Mr Bateman accepting that 378 working days exceeded the expected timeframe for the Secret Harbour Development, TPM had a reasonable basis for making the Expected Timeframe Representation because 378 working days was the maximum period allowed and the builder was effectively an associated entity which would complete the work in the expected timeframe. It was not suggested that the reference to "working days" was an error and should have referred to "calendar days".
In Mr Bateman's case, he said he was "in very deep communication" with Mr Polak and was confident that the timeframe could be met based on Mr Polak's assurances that the build would be done in under nine months, with 12-15 months included as a buffer. Mr Harris said he believed nine months was sufficient and he also relied on the fact that the modular units were pre-fabricated. However, as the applicants submitted, pre-fabrication of the modular units was already taken into account in the scheduling of the building works (see Appendix 8.5, Schedule of Particulars to the Lump Sum Building Contract).
The applicants submitted that Mr Polak should have been called by the respondents and the failure to do so meant the Court could infer that Mr Polak's evidence regarding the expected duration of the building works would not have assisted the respondents: Jones v Dunkel (1959) 101 CLR 298.
In my assessment, the provision of the Information Memorandum conveyed that the Secret Harbour Development was expected to be completed in 12-15 months with returns on the investment expected within a short period after completion of the development. That representation was misleading or deceptive, or likely to mislead or deceive, because the building works could not commence at the time the Secret Harbour property settled and the building contract had not been executed at the time of the Information Memorandum. Furthermore, according to the respondents, the building works were not likely to commence until three to six months after settlement of the purchase of the Secret Harbour property, once TPM had obtained finance and was in a position to execute the building contract. Once the building contract was executed, the builder was to have 378 working days to complete the works. There was no evidence that the builder had or would agree to vary the Schedule of Particulars, or the duration for completion of the works, to complete the building works in nine months, consistently with the alleged verbal assurances given to Mr Bateman by Mr Polak. I also observe that there would be no incentive for the builder to agree a lesser period, because a longer period would have protected the builder from exposure to delays and liquidated damages.
Assuming the building contract was executed within three months of settlement of the purchase of the Secret Harbour property, the earliest date for completion of the building works would have been 22 March 2017, but more realistically post-March 2017 to allow for building industry shutdown periods. The Secret Harbour Development was meant to be a short-term investment which was expected to be completed in 12-15 months, that is, between 19 June 2016-19 September 2016. A completion timeframe of late March 2017 would have been nine months beyond the earliest expected timeframe of 12 months, or six months beyond the expected timeframe of 15 months, which would have exceeded the expected timeframe by 40-75%. On Mr Harris' evidence, the expected timeframe would have been 12 months beyond the earliest expected timeframe of 12 months, or nine months beyond the later expected timeframe of 15 months, which would have exceeded the expected timeframe by 75-100%.
TPM and Mr Harris submitted that the period of days allowed in the building contract was expressly stated in the Information Memorandum, and was not information that was known only to TPM, but not disclosed. However, the Information Memorandum stated the Secret Harbour property was ready for settlement and that the building contract had been entered into, which was false. The Information Memorandum did not disclose that Mr Harris and Mr Bateman contemplated that it would take three to six months to obtain a commercial loan facility, following which the building contract would be entered into and building works could commence.
TPM and Mr Harris also submitted that there were various qualifying and contextual statements within the Information Memorandum which affected what was conveyed by the document. In addition to declarations and acknowledgements that the applicants gave when completing the application forms for the units in the SHUT, to the effect that they had read and understood the Information Memorandum and had had the opportunity to seek independent professional advice, TPM and Mr Harris relied on the "disclaimers" in clause 9, on page 62 of the Information Memorandum.
Disclaimers and exclusion clauses cannot be relied upon to exclude liability for contravention of the statutory provisions regarding misleading or deceptive conduct: Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367; [1987] FCA 96 at 371 (Shepherd J, Fox and Jackson JJ agreeing); Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546; [1988] FCA 42 at 561 (Lockhart J, Burchett and Foster JJ agreeing). Disclaimers or qualifications are to be taken into account in characterising the conduct as a whole: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [25], [29] (French J, as his Honour then was).
As O'Bryan J stated in Australian Securities and Investments Commission v La Trobe Financial Asset Management Ltd (2021) 158 ACSR 363; [2021] FCA 1417 at [12]: Where the impugned conduct comprises the use of particular words accompanied by a disclaimer, it is necessary to ask whether the disclaimer (considered as part of the conduct, viewed as a whole) has the effect of erasing or dispelling the otherwise misleading or deceptive effects of the conduct: see Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 (Downey) at [82]-[83] per Keane JA, Williams JA and Atkinson J agreeing; Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196; 337 ALR 647 at [214] per Edelman J; Australian Competition and Consumer Commission v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd [2019] FCA 676; 371 ALR 396 (GlaxoSmithKline) at [33] per Bromwich J; Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2020) 278 FCR 450 at [25] per Wigney, O'Bryan and Jackson JJ; Trivago NV v Australian Competition and Consumer Commission [2020] FCAFC 185; 384 ALR 496 at [194] per Middleton, McKerracher and Jackson JJ. Where there is a substantial disparity between the primary representation conveyed by particular conduct and the true position, a disclaimer must be very clear in order to erase or dispel the otherwise misleading effects of the primary representation: see Australian Competition and Consumer Commission v Signature Security Group Pty Ltd [2003] FCA 3; ATPR 41-908 at [27] per Stone J; National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; 49 ACSR 369 at [55] per Jacobson and Bennett JJ; Downey at [83]; GlaxoSmithKline at [33]. [Emphasis in original]
I have had regard to the Information Memorandum in its entirety, including the disclaimers, declarations and acknowledgements made by the applicants. The disclaimers and other similar statements relied upon by the respondents did not erase or dispel the misleading effects of the statements in the Information Memorandum that conveyed the Expected Timeframe Representation.
In my assessment, the provision of the Information Memorandum conveyed that the Secret Harbour Development was expected to be completed in 12-15 months with returns on the investment expected within a short period after completion of the development. That conduct was misleading or deceptive, or likely to mislead or deceive, for the foregoing reasons.

[28]

Expected Profit Representation

In the further amended concise statement, the applicants alleged that the Information Memorandum represented that "it was to be expected that the investment in the SHUT would return more than 20% to the applicants". However, in closing submissions, the applicants submitted that the relevant statements in the Information Memorandum conveyed that: …based on the assumptions and financial information set out in the Information Memorandum, the project pre-tax profit was expected to be $991,775 or 19.97%, which would provide for a return on investment in the range of 39.7% to 49.6% depending on the class of units held by the member (49.59% for members with A Class Units, 47.60% for members with B Class units and 39.67% for members with C Class Units)
TPM and Mr Harris accepted that a representation was conveyed in the terms identified in the applicants' closing submissions. Mr Bateman adopted the submissions on behalf of TPM and Mr Harris in relation to the Expected Profit Representation.
The applicants relied on the following statements in the Information Memorandum to submit that the Expected Profit Representation was conveyed:
The development will be Project co-managed by Davlyn Property and TPM allowing for "a hands-off vehicle for investors with expected returns on investment of greater than 30% over the life of the project which is expected to be 12-15 months in duration";
"Profit and Loss Projection (GST Inc): Gross Realised Value of $5,957,450; Total Costs of $4,965,694.57; Pre-tax Project Profit of $991,755.43; Project return of 19.97%";
"Based on class of Units held return on investments (ROI) is expected to be in the range of 39.7% - 49.6%"; and
The figures contained in the table under heading "5.2 | Unit Holder Returns" on page 27 of the Information Memorandum as reproduced below.
The applicants submitted that the Expected Profit Representation was reinforced through statements made by Mr Bateman in the telephone discussions he had with Mr Knight, Mr Sciberras, Mr White and Mrs Segui and in the email sent by Mr Bateman on 11 June 2015 providing a Dropbox link to the final version of the Information Memorandum which referred to "returns up to 49.6%".
The applicants submitted that the Expected Profit Representation was a representation as to a future matter as it was a forecast as to the likely profit and returns to investors.
In the further amended concise statement, the applicants contended that the Expected Profit Representation was misleading, or likely to mislead or deceive, because the Investment failed and is worthless and the projected returns were not achievable within the estimated 12-15 months because, inter alia, the development could not be completed within 12-15 months. However, in closing submissions, the applicants submitted that the return on investment figures in the Information Memorandum were manifestly wrong.

[29]

Consideration

Mr Bateman and Mr Harris acknowledged that the return on investment calculation under "5.2 | Unit Holder Returns" in the Information Memorandum, reproduced above under paragraph 103(d) above, contained two errors.
First, Mr Bateman explained that the return on investment calculation under "5.2 | Unit Holder Returns" should have specified that the return available for distribution on a wind up of the SHUT would also include the equity invested. In other words, in addition to the "Profit … Projections" from the completion of the Secret Harbour Development (referred to as the "Pre-Tax Project Profit"), the "Unit Holder Returns" should also have included an additional line item or entry that referred to the return of equity invested in the SHUT.
The projected profit on completion of the Secret Harbour Development was $991,755.43 (i.e., a 19.97% profit on the project), which gave a projected profit of $4,958.78 per unit. The projected "Profit % ROI" (return on investment) assumed a profit from the project of $4,958.78 per unit plus a return of equity invested, which was not mentioned in the calculation, resulting in a "Profit % ROI" of 49.59% for Class A units, 47.60% for Class B units and 39.67% for Class C units.
If that error or omission had not occurred, the return on investment calculation would have been clearer. However, that error or omission was an assumption that did not affect the overall arithmetic or calculation of the "Profit % ROI" or "Potential Distribution On Wind Up". It was not the reason the expected return on investment was misleading or deceptive, or likely to mislead or deceive.
The second error acknowledged by the respondents requires explanation. The Information Memorandum stated that PM Asset Holdings "currently owns" 200 units in the SHUT and would "co-invest" in the Secret Harbour Development via a unit transfer, with paid up members of TPM and that PM Asset Holdings would control a maximum of 118 units. The "Profit % ROI" (return on investment) calculation was prepared on the basis that unitholders would share equally in a distribution on the winding up of the SHUT. That is apparent from, first, section "5.2 | Unit Holder Returns" reproduced above in paragraph 103, which stated that the SHUT would comprise 200 fully paid units and the returns were based on the class of units held. Secondly, the "Profit Per Unit" calculation assumed that the total profit from the project, $991,755.43, was divided by the number of issued units in the SHUT (200 fully paid units) to arrive at a "Profit Per Unit" of $4,958.78. Thirdly, the section in the Information Memorandum directly beneath "5.2 | Unit Holder Returns" stated that the SHUT would allocate profits and return of capital to unit holders "in proportion to their unit holding" at the completion of the project.
If the total equity invested in the SHUT was distributed across 200 issued units in the SHUT, the "Potential Distribution On Wind Up" would have been $5,060 per unit, as compared to the price paid of $12,500 per unit. On that basis, the return on investment calculation for an investor in the SHUT would have been negative: Price paid per unit $12,500 Return of equity per unit $5,060 Profit from project per unit $4,958.78 Profit on distribution ($2,481.22)

[30]

TPM and Mr Harris accepted that the Information Memorandum was "in a fundamental respect misleading" because the Information Memorandum did not state that in order to return capital to investors who had paid capital into the fund it may be necessary to equitably reduce PM Asset Holdings share in the assets of the SHUT. However, TPM and Mr Harris submitted that the return on investment calculation was accurate because the Information Memorandum was premised on the assumption that, on a winding up of the SHUT, capital would only be returned to those who had paid capital into the fund regardless of the number of units held in the SHUT. It was submitted that there was never any intention that TPM would have capital returned to it that it never expended (I assume the reference to "TPM" was intended to be a reference to PM Asset Holdings, because TPM never held units in the SHUT).
TPM and Mr Harris submitted that the "error" in the Information Memorandum was the important step of returning capital to those who had paid capital into the fund, which was implicit, when it ought to have been explicit and clear. TPM and Mr Harris relied on the following references to "return of capital" in the Information Memorandum as relevant to their submission regarding the meaning of the expected "return on investment" and their submission that "capital" should be understood to mean "paid capital", referable to what a unitholder paid into the fund:
section 4.1 (Summary Of Offer Conditions), stated that the offer in the Information Memorandum was subject to investors agreeing to the conditions in the Information Memorandum and to be bound by the SHUT Trust Deed. Item (c) stated that on wind up of the SHUT a unit share shall confer on the unitholder the right to repayment in cash of the "Issue Price" and any share of the surplus (if any) available for distribution to unitholders. Item (i) stated that moneys payable to any unit holder in respect of a "return on capital" would be paid by electronic payment or cheque (page 18);
section 4.8 (Term of Investment), referred to "return of capital and profits" upon completion of the project (page 19);
section 4.10 (Distribution and Return of Capital Policies), stated that the trustee would "repay capital & distribute profit" once it had completed the development (page 19);
section 5.3 (Taxation Implications), stated that "The Trust will allocate profits and return of capital to unit holders in proportion to their unit holding at the completion of the project" (page 27);
section 6.2 (Specific Financial Risks), stated that "Future distributions and return of capital or whether a distributions and return of capital will be paid in any given period is not guaranteed by the Trustee" (page 29);
section 6.5 (Unit Holders Deed), stated that investors in the SHUT would be bound by the terms of the SHUT Trust Deed and that unitholders' rights included that "All the Units have equal rights, proportional to the relevant Unit holding, to participate in any capital returned and distributions paid by the Trust" (page 32).
Mr Bateman acknowledged that there was a dilution error in the Information Memorandum which suggested that all profits and capital would be returned to unitholders, but he said it was TPM's intention that equity investors would have their contribution paid in priority to other unitholders. Mr Bateman acknowledged there was no provision in the SHUT Trust Deed or other legal requirement to compel that course.
The respondents submitted that this error was plainly the intention of the SHUT and an assumption that every person involved in the investment held until the respondents gave evidence at the trial. The respondents' acknowledgements in relation to the errors in the Information Memorandum were made at the trial. Until that point, the evidence and submissions on behalf of the respondents were directed to establishing reasonable grounds for the statements made in the Information Memorandum.
I reject the respondents' submission for the following reasons. First, the SHUT was a single purpose trust that was established so that investors could invest in the Secret Harbour Development via a unit transfer from the initial unitholder, PM Asset Holdings, which would co-invest and control a maximum of 118 units in the SHUT. The Information Memorandum referred to the units as "fully paid units" which would confer on a unitholder the right to repayment of the "Issue Price" and an equal share of any surplus available for distribution upon winding up the SHUT, after completion of the development. The allocation of profits and return of capital to unitholders was to be in proportion to their unit holding, not their contribution of capital.
Secondly, the offer to invest in the SHUT was subject to investors being bound by the SHUT Trust Deed, which was sent to investors at the same time as the Information Memorandum and is part of the overall context. The Trust Deed stated that the units in the SHUT were divided into three classes of units. Each class of units had the rights attaching to the units specified in Part 1 of the Third Schedule to the Deed, including the right to "present entitlement to the capital and to Income of the Trust Fund". The Trust Deed provided that on a winding up of the SHUT, the income and property of the SHUT would be divided amongst unitholders according to the number of units held in the SHUT.
Thirdly, at the time the SHUT was established, PM Asset Holdings was the initial unit holder, and held 200 units comprising 40 A class units; 40 B class units; and 120 C class units: see the First Schedule to the SHUT Trust Deed. The First Schedule to the Trust Deed recorded PM Asset Holdings' units as fully paid and the unit certificates issued to PM Asset Holdings also stated that its units were fully paid units. Furthermore, the Trust Deed defined the "Trust Fund" as including amounts "credited" for units and, as already noted, PM Asset Holdings as the initial unitholder was recorded in the Trust Deed as having paid $12,500 per unit: see the First Schedule to the Trust Deed.
Accordingly, under the Information Memorandum and the SHUT Trust Deed, the distribution of profits and return of capital to unitholders was to be in proportion to their unit holding and include a distribution to PM Asset Holdings. After the applicants and others had invested $1.012 million to acquire units in the SHUT, PM Asset Holdings transferred 93 units in the SHUT, including 47 units to the applicants, and retained a total 107 units in the SHUT. The First Schedule to the SHUT Trust Deed and the unit certificates issued to PM Asset Holdings recorded that its units were fully paid. Contrary to the Information Memorandum and the Trust Deed, PM Asset Holdings had not paid for its units in the SHUT or made any financial contribution to the SHUT. Indeed, the respondents' submission that, upon a winding up of the SHUT, capital was to be repaid to those who had contributed capital proceeded on the basis that PM Asset Holdings had not paid for its units.
As a result, a distribution of profits and return of capital to unitholders in proportion to their unit holding would have meant that the "Profit % ROI" would have been negative. It may seem inconceivable that the respondents, who had verified the profit figures, would have proceeded with an investment that was always likely to return a loss. However, the respondents' so-called assumption on which the investment was to return a profit to investors was not clearly stated in, and was contrary to the terms of, the Information Memorandum and the SHUT Trust Deed.
In my assessment, the statements in the Information Memorandum conveyed that an investment in the SHUT was expected to return more than 20% to investors. That representation was misleading and deceptive, or likely to mislead or deceive for the foregoing reasons. For the reasons set out above in paragraphs 96-99, the disclaimers and other similar statements relied upon by the respondents did not erase or dispel the misleading effects of the statements in the Information Memorandum that conveyed the Expected Profit Representation.

[31]

Plans and Permits Representation

In the further amended concise statement, the applicants contended that the Information Memorandum represented that "all material development and building consents for the Investment had been obtained from the relevant Council". However, in their closing submissions, the applicants submitted that the relevant statements in the Information Memorandum: … conveyed to the members that the council requirements necessary to commence construction were complete, and that construction could commence upon settlement.
TPM and Mr Harris objected to the way in which the alleged Plans and Permits Representation was expressed in the applicants' closing submissions, noting that the representation alleged in the further amended concise statement was not a broader representation "that construction could commence upon settlement". Mr Bateman adopted the submissions of TPM and Mr Harris in relation to the Plans and Permits Representation.
The applicants relied on the following statements contained in the Information Memorandum, which they submitted conveyed the Plans and Permits Representation:
"Davlyn Property … has entered into an unconditional contract of sale … for the purchase of the Project Land for $870,000. The contract is a normal, commercial, arms-length transaction and a 10% deposit has been paid and the site is now ready for settlement" (page 5);
"Following acquisition the Trust's sole purpose will be to develop the Project Land into 14 x 2BR units & 4 x 3 BR units, for which plans and permits have already been submitted & approved by council" (page 5); and
"Plans & Permits for the construction on (sic) 18 dwellings has been approved by council (see appendix 8.2)" (page 16).
The applicants submitted that the Plans and Permits Representation was misleading and deceptive because:
the planning permit for the Secret Harbour Development was conditional and various steps were required to be undertaken before the permit became unconditional;
construction could not commence without a building permit, which the SHUT did not have and had not applied for at the time the Information Memorandum was issued;
shortly after settlement of the contract of sale for the Secret Harbour property, the SHUT had expended almost all of the equity raised from investors;
the finalisation of the planning and building permits was reliant on presales of apartments required for a third party debt funding, which had not yet occurred; and
Mr Harris and Mr Bateman expected that construction would commence within three to six months of settlement of the Secret Harbour property.

[32]

Consideration

The Introduction, on page 5 of the Information Memorandum (see paragraph 17 above), contained the statement referred to above in paragraph 125(c), that "plans and permits" for construction had been submitted and approved by Council.
Section 3 of the Information Memorandum, entitled "Property Summary" (page 16), also said that "plans & permits for the construction on (sic) 18 dwellings" had been approved, and referred to "Appendix 8.2". Appendix 8.2 was entitled "Approved Planning Permit", but it did not contain the planning permit. Instead, it contained design drawings and plans that had been stamped by the City of Rockingham, which I infer were the drawings and plans that had been submitted to the Council as part of the planning approval application. Appendix 8.3, entitled "Plans & Drawings", also contained various plans and drawing which were marked "Reissued for development application 25-03-15".
Section 6 of the Information Memorandum dealt with "Investment Considerations & Risk". The first heading in that section referred to "Specific Property Risks", under which the following statement appeared: The Development Approval has been granted and therefore the only approval still required is the building approval. However, should this approval be delayed or require the initial application to be varied, this may impact the timing and amount of income projected to be achieved from the Project and may also impact the cost of development as projected.
In my assessment, the Information Memorandum did not convey the Plans and Permit Representation as contended by the applicants in the further amended concise statement or in their closing submissions. The Information Memorandum expressly stated that building approval was still required and that construction may be delayed if building approval was delayed. Insofar as the applicants submitted that the Information Memorandum conveyed "that construction could commence upon settlement", the statements relied on were tethered to the reference to "plans and permits" and I accept the respondents' submission that it was not a broader representation that the project was ready to commence. The Information Memorandum did not convey that the SHUT had the necessary building consents for construction to commence upon settlement of the Secret Harbour property because it expressly stated that building approval was still required.

[33]

Funding Representation

In the amended concise statement, the applicants alleged that the Information Memorandum represented that "the Secret Harbour Development would be funded to completion in the timeframe stated from the two sources of funds set out in the Information Memorandum namely the members' equity of up to $1.25M and a subsequent commercial loan facility of approximately $3.6M". However, in closing submissions, the applicants submitted that the relevant statements in the Information Memorandum: … conveyed that the Secret Harbour Development would be sufficiently funded and was able to be completed in the expected timeframe from the two sources of funds set out in the Information Memorandum namely the members' equity and a subsequent commercial loan facility of approximately $3.6M. Alternatively, these statements conveyed that the equity contribution of members would be sufficient for the acquisition of the Secret Harbour Land and to cover the costs of the initial phases of the development at least until the debt funding was able to be obtained to complete the project.
TPM and Mr Harris accepted that the Funding Representation was conveyed in the primary way identified in the applicants' closing submissions. However, they objected to the alternative formulation of the alleged representation, submitting that the expression "initial phases of the development" was vague and was not part of the applicants' original case. Mr Bateman adopted the submissions of TPM and Mr Harris in relation to the Funding Representation.
The applicants relied on the following statements in the Information Memorandum, which they submitted conveyed the Funding Representation:
"The Trust will be raising up to $1.25 million for the primary purpose of acquisition & development of the Project Land" (page 5);
"The Trust will be seeking to raise an amount of up to $1.25 million through the transfer of units valued at $12,500 each, in order to acquire the Project Land and undertake the initial phases of the development of the Project" (page 17);
"equity of up to $1.25M … will be mainly used towards the acquisition of the project land" (page 27);
"Use of proceeds. Funds raised under this IM will be combined with debt funding to purchase the Project Land and cover any associated development costs associated with this Offer" (page 19);
"In addition to the initial capital raised under this IM a further commercial loan facility of approximately $3.6M will be required at commercial terms to complete the project" (page 23);
"Equity: of $1.00m to be sufficient to sustain a commercial lend below 65% GRV [Gross Realized Value]" (page 23);
"The Trust will undertake borrowings from third party lenders. The use of debt funding entails a number of specific risks. Debt funding will generally be secured against the assets of the Trust. And be contingent on a number of presales in the development … The term of the debt facilities may be for a term less than the Project Life …" (page 29); and
"By using debt to part finance the completion of the Project …" (page 29).
The applicants submitted that the Funding Representation was misleading and deceptive for the following reasons. First, while the Information Memorandum suggested the maximum that would be raised from investors would be $1.25 million, the Information Memorandum contemplated that the development could proceed if an amount not less than $1,000,000 was raised as equity from members. Secondly, based on the estimated timeframe for the project of 12-15 months, the requirement to effect presales before the SHUT could secure a commercial loan facility and the estimated costs in the project cost forecast, an equity investment greater than $1,000,000 (and, indeed, greater than the maximum amount of $1.25 million which the SHUT was seeking to raise) was required to cover the initial phases of the development. Thirdly, the Secret Harbour Development could not be funded to completion, in the timeframe stated in the Information Memorandum, from the members' equity contribution while awaiting funds to become available from a commercial loan facility, which required a sufficient pre-sales of apartments and never eventuated.

[36]

Amount required to purchase the land and undertake the initial phase of the development

An equity investment of up to $1.25 million was sufficient to cover the projected "Land Acquisition & Holding Costs" of $927,910, leaving the balance of the equity invested to undertake the initial phase of the development.
The "initial phase" of the development was not a defined concept. Furthermore, the point at which the commercial loan facility might have been available to assist with funding the initial phase of the development would not have been a hard line. I accept the evidence of Mr Harris and Mr Bateman that the initial phase of the development would have involved engaging consultants, applying for development and building approvals and obtaining pre-sales of the apartments. Further, that it would not have been necessary for the trustee to have paid upfront all of the "Design and Subdivision Costs" of $416,000, which would have included consultants' fees. Rather, as stated by Mr Harris and Mr Bateman, the initial phase of the development would have required the SHUT to incur expenses associated with engaging consultants to undertake preliminary design work, in addition to incurring marketing expenses and legal costs to obtain pre-sales of the apartments. I do not accept the applicants' submission that the SHUT would have been required to pay the deposit under the building contract in the initial phase of the development. Payment of the deposit under the building contract was more likely something that would have been covered by the commercial loan facility.
Mr Harris and Mr Bateman said, and I accept, that an allowance of 10% of the design and subdivision costs would have been a reasonable amount to engage consultants to undertake preliminary design work in the initial phase of the development. I consider this is a reasonable allowance having regard to the evidence from Mr Harris and Mr Bateman. I also observe that, according to the Information Memorandum, the SHUT had already incurred approximately $6,300 in surveyor and "DA planning" fees and Davlyn Property's financial statement for the year ended 30 June 2016 recorded that it had incurred "Drawing and Design" fees of $18,845 as at 30 June 2016.
The Information Memorandum projected total "Selling Costs" of $231,878.33, which comprised agents' fees of $172,478.33 and marketing costs of $59,400. The reference to agents' fees was to commission on the sale of the apartments and can be put to one side because they would not have been payable until the apartments were completed. The marketing costs of $59,400 included provision for legal costs to prepare contracts of sale. According to Davlyn Property's income statement for the year ending 30 June 2016, Davlyn Property had spent almost $12,000 on legal costs as at 30 June 2016. The applicants did not challenge the estimated marketing costs, other than to submit that the costs would have been incurred upfront or in the initial phase of the development. Mr Harris and Mr Bateman said, and I accept, that not all of the marketing costs would have been incurred in the initial phase of the development. Whilst the initial marketing campaign was unsuccessful in obtaining sufficient pre-sales, apparently due to a downturn in the market, and further marketing expenses were incurred to upgrade the marketing campaign, the applicants did not submit that this matter suggested the projected marketing costs must have been inadequate.
In my assessment, an equity investment of up to $1.25 million would have been sufficient to undertake the initial phase of the development. The balance of the equity investment (after deducting the projected Land Acquisition & Holding Costs) would have been sufficient to provide an allowance for 10% of the Design and Subdivision Costs and marketing costs and legal costs to obtain pre-sales of the apartments.
For completeness, the applicants also sought to challenge the "Project Cost Forecast" by referring to various transfers of funds in Davlyn Property's bank account from Davlyn Property to TPM and others. However, the majority of the transfers were consistent with reimbursement of expenses incurred by TPM or reimbursement of expenses in connection with the acquisition of the Secret Harbour property, bearing in mind that the contract of sale had been signed before the SHUT was established. Insofar as the applicants suggested that a transfer of $50,000 was in respect of "project management fees" payable to TPM, as the respondents pointed out, the Information Memorandum stated that the project management fee was payable to the trustee, Davlyn Property. The applicants also sought to characterise a liability of $233,870 recorded in Davlyn Property's balance sheet as at 30 June 2016 as a loan owed to Mr Bateman, however, it is more likely a record of the investment of a unitholder in the SHUT as that is how other unitholders' investments were recorded in the balance sheet.

[39]

Reliance

The applicants must establish that the impugned misleading conduct was relied on, leading the applicants into error: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; (2013) HCA 54 at [39] (French CJ, Crennan, Bell and Keane JJ).
Mr Knight, Mrs Segui and Mr Sciberras gave evidence that they read the Information Memorandum before deciding to invest in the Secret Harbour Development. Mr White read the draft Information Memorandum, but he could not recall reading the final Information Memorandum. However, there was no material difference in the representations in the draft and final version of the Information Memorandum and no point was taken by the respondents in relation to the differences.
Mr Knight, Mr Sciberras, Mr White and Mrs Segui each gave evidence that the expected return and timeframe of the investment were relevant to their decision to invest. The applicants submitted that the expected return and short period of investment were reinforced in statements made by Mr Bateman in the discussions he had with Mr Knight, Mr Sciberras, Mr White, and Mrs Segui before they invested. Mr Knight said that Mr Bateman told him the investment was suitable for Mr and Mrs Knight because of the short timeframe. Mr Sciberras said Mr Bateman told him the return and timeframe for the investment would fit with their investment strategy and retirement plan. Mr White said Mr Bateman told him the investment was suitable for Mr White because of the short timeframe. Mrs Segui said Mr Bateman told her the investment would provide high returns over a short period.
A longer timeframe of investment would obviously impact the expected return calculated on a per annum basis. In addition, Mr Knight said the expected timeframe for completion was significant because he was considering using money from his redraw facility on his mortgage to invest, and so a short period of investment was relevant to his decision. Similarly, Mr White said he was going to use funds from Flexi Loan to pay into his superannuation fund to invest in the SHUT and the short timeframe of the investment was important to him.
Accordingly, I am satisfied that the applicants relied on the statements in the Information Memorandum regarding the expected return and timeframe for the investment when they decided to invest in the SHUT. Furthermore, I am satisfied that the applicants would not have invested in the SHUT if it were not for the Expected Timeframe and Expected Profit Representations.

[41]

Loss or damage

The applicants claim loss or damage from the respondents pursuant to s 12GF(1), or alternatively s 12GM(1), of the ASIC Act, being the moneys invested in the Secret Harbour Development.
Section 12GF(1) of the ASIC Act provides: A person who suffers loss or damage by conduct of another person that contravenes a provision of Subdivision BA (sections 12BF to 12BM), Subdivision C (sections 12CA to 12CC), Subdivision D (sections 12DA to 12DN) or Subdivision DA (sections 12DO to 12DZA) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
Section 12GM(1) of the ASIC Act empowers the Court to make compensatory orders where a person suffers loss or damage "by" the contravening conduct of another person.
The word "by" in ss 12GF(1) and 12GM(1) of the ASIC Act means that there must be a causal nexus between the contravening conduct and the loss or damage claimed: Butler v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [37] (Gleeson CJ, Hayne and Heydon JJ); Norcast Sarl v Bradken Ltd (No 2) (2013) 219 FCR 14; [2013] FCA 235 at [326] (Gordon J); Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 at 529-30 (Lockhart J). For there to be the necessary causal relationship between the contravention and loss or damage, it is not essential that the contravention be the sole cause of the loss or damage: Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [14] (Gleeson CJ).
The respondents submitted that the applicants' loss or damage was not caused by any misrepresentation. The respondents submitted that the applicants suffered loss or damage because the Secret Harbour Development failed when the expected pre-sales could not be achieved, the developer failed to secure commercial funding, the developer ultimately encumbered the land for an unrelated loan and then defaulted, resulting in the land being sold. The respondents submitted that recoverable loss would only be incurred if the project timeframe was not met, or the project was not successfully completed and failed to achieve the projected returns, which was not what occurred. The respondents did not submit that the applicants could not have suffered or established loss unless the applicants proved that they relied on each of the impugned statements or representations, which were proved to be misleading.
The applicants submitted that they were induced by and would not have invested in the Secret Harbour Development if it were not for the Expected Timeframe and Expected Profit Representations. The applicants further submitted that they are entitled to damages on a 'no transaction' basis and they are entitled to recover the entire amount invested in the Secret Harbour Development, relying on Wyzenbeek v Australian Marine Imports Pty Ltd (In Liq) (2019) 272 FCR 373 at [105]-[108] (Rares, Burley and Anastassiou JJ) and Stav Investments Pty Ltd v Taylor [2022] NSWSC 208 at [541] (Ward CJ in Equity).
In Stav Investments, Ward CJ (as the President then was) made the following observations regarding the damages recoverable in a 'no transaction' case (at [541]): As to the damages recoverable for the misleading or deceptive conduct, I consider that this is properly a "no transaction" case in the sense that the plaintiffs assert that they would not have entered into the transaction were it not for the misleading representation; and that the corporate plaintiffs should therefore be put in the position where they are compensated for the entirety of their investment in Yatango Mobile (Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373; [2019] FCAFC 167). As I said in Xu v Lindsay Bennelong Developments Pty Ltd [2020] NSWSC 1692 at [460] , an award for damages in a "no transaction" case in a suit for misleading and deceptive conduct requires the court to be satisfied that, "but for" the conduct at issue, the plaintiff would not have entered into the transaction, and so would not have suffered the loss.
As stated above, I am satisfied that the applicants relied on the statements in the Information Memorandum regarding the expected timeframe and return on the investment in deciding to invest in the Secret Harbour Development and acquire units in the SHUT and that the applicants would not have invested in the SHUT if it were not for the Expected Timeframe and Expected Profit Representations. I am further satisfied that the Expected Timeframe and Expected Profit Representations caused the applicants to invest in the SHUT because the expected return and timeframe of the investment were relevant to their decision to invest. The applicants were not required to demonstrate how, if at all, they would have invested or whether any such alternative investment would have been successful: Wyzenbeek at [93], [118] (Rares, Burley and Anastassiou JJ). The applicants' loss occurred upon entry into the transaction. Accordingly, in my assessment, the applicants are entitled to recover the money that they invested in the Secret Harbour Development by acquiring units in the SHUT.

[42]

Reduction on account of applicants' alleged failure to take reasonable care

The respondents contended that, in the event the Court found there was contravening conduct that caused loss to the applicants, the damages the applicants may recover should be reduced to the extent to which the Court thinks just and equitable having regard to the applicants' share in the responsibility for the loss or damage, pursuant to s 12GF(1B) of the ASIC Act.
Section 12GF(1B) provides for reduction in the recoverability of damages to the extent the Court considers just and equitable if certain conditions are satisfied, notably if the person suffered loss as a result partly of their own failure to take reasonable care. I am satisfied that the conditions in s 12GF(1B)(c) are satisfied, namely, that the respondents did not intend to or fraudulently cause the loss or damage.
In Stav Investments, Ward CJ (as the President then was) stated at [543]-[544]: A finding of contributory negligence turns on an examination of the factual circumstances in order to determine whether the plaintiffs contributed to their own loss by failing to take reasonable care of their person, property or economic circumstances (see Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 at [30] per Gleeson CJ, McHugh, Gummow and Hayne JJ). Contributory negligence is to be determined objectively: a plaintiff will be guilty of contributory negligence where they expose themselves to a risk which might reasonably have been foreseen and avoided, and suffer damage within the class of risk to which they exposed themselves (Joslyn v Berryman (2003) 214 CLR 552; [2003] HCA 34 at [16] and [32] per McHugh J). In the context of misrepresentation, and misleading and deceptive conduct, Sir Nicholls VC in Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560 at 574 held that "[i]n principle, carelessness in not making other inquiries provides no answer to a claim when the plaintiff has done that which the representor intended he should do". Of relevance in determining whether reliance upon a misrepresentation was negligent is whether a due diligence process was undertaken; whether there was an obligation (or indeed an ability) to "double guess" the representation given; and whether there was exhibited a lack of care in performing the actions induced by, and consequent upon, the misrepresentation (ABN AMRO [Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65] at [1470]). Where the information available to the plaintiffs did not identify with sufficient clarity the risks of the investment, where the defendants failed to disclose those risks which they themselves knew about, and where instead the defendants made repeated representations as to the lack of risk, the plaintiffs were entitled to accept the defendants words and deeds at face value, particularly in light of their repeated inquiries as to the possible risk, and the defendants repeated assurances that the risk had been "dealt with" in response (ABN AMRO at [1480]).
The respondents submitted that the applicants did not seek independent legal, financial or accounting advice and they did not fully read or consider the Information Memorandum, which contained disclaimers and warnings in relation to the risks associated with the investment. For those reasons, the respondents submitted, the Court should make a modest reduction in the award of damages.
Having regard to the nature of the contravening conduct that has been established, I do not accept that the applicants' loss was partly the result of their own failure to take reasonable care. The impugned statements regarding the expected return and timeframe of the investment were intended to entice investors. The reasons why the Expected Timeframe Representation was misleading or deceptive, or likely to mislead or deceive, was not apparent from the Information Memorandum and had the potential to impact on the expected return from the investment. The Information Memorandum omitted details in relation to the expected return on investment that even the respondents did not appreciate until the trial. The respondents have not established that the applicants failed to take reasonable care or that any alleged failure to take reasonable care caused their loss.

[43]

Apportionment of liability

The respondents contended that the applicants' claim was an apportionable claim and any loss found to be owed to the applicants should be reduced on account of the conduct of Mr Polak, who was partly responsible for the applicants' loss, pursuant to s 12GR of the ASIC Act. The respondents contended that the conduct of Mr Polak in failing to secure funding and encumbering the Secret Harbour property for an unrelated loan was the true cause of the applicants' loss and that this was a reason to adjust any loss found to be owed to the applicants.
Section 12GR of the ASIC Act provides for the apportionment of responsibility for the damage arising out of the misleading or deceptive conduct involving multiple wrongdoers. In a proceeding involving an apportionable claim and concurrent wrongdoers, the liability of a respondent who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the Court considers just having regard to the extent of the respondent's responsibility for the damage or loss. The Court apportions liability to each wrongdoer according to its assessment of the extent of their responsibility: Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 at [10] (French CJ, Hayne and Kiefel JJ).
In relation to Mr Polak's alleged concurrent wrongdoing, the respondents relied on conduct on the part of Mr Polak that post-dated the Information Memorandum. The applicants suffered loss when they invested in the SHUT in reliance on the statements in the Information Memorandum. As the applicants submitted, there was no evidence that Mr Polak had any involvement in drafting, authorising or disseminating the Information Memorandum. The evidence at the trial regarding Mr Polak's conduct, which the respondents relied on, concerned Mr Polak's failure to secure funding for the Secret Harbour Development and his conduct in encumbering the Secret Harbour property for an unrelated loan, which subsequently went into default and resulted in the mortgagee selling the property. For those reasons, the respondents failed to establish a basis for limiting their responsibility for the applicants' loss.

[50]

Consideration

Mr Bateman knew the Expected Timeframe Representation was made because he prepared the Information Memorandum in its entirety. Mr Harris knew the Expected Timeframe Representation was made because he said he read every word of the Information Memorandum and, specifically, he read that the investment was estimated to have a term of 12-15 months.
Mr Bateman also knew that the Expected Timeframe Representation was false because he knew construction could not start immediately on settlement of the Secret Harbour property. Mr Bateman said that he expected it would take three months to obtain sufficient pre-sales and a commercial loan to fund the building works. Mr Bateman said he believed the building works could be completed in nine months, however, he did not adduce any evidence to show that Davlyn Homes or Mr Polak had agreed or would agree to a nine month build-time. Mr Bateman therefore must have known that completion of the Secret Harbour Development would take longer than the 12-15 month period stated in the Information Memorandum. Alternatively, Mr Bateman must have known that TPM did not have reasonable grounds to make the Expected Timeframe Representation.
Mr Harris also knew that the Expected Timeframe Representation was false because he knew construction could not start immediately on settlement of the Secret Harbour property. Mr Harris said that he expected it would take three to six months to obtain sufficient pre-sales and a commercial loan to fund the building works, at which time construction could commence. Mr Harris said he believed nine months would be sufficient to complete the build. Mr Harris said he checked the time to complete the building works in clause 9 of the Schedule of Particulars to the Lump Sum Building Contract (Appendix 8.5). Clause 9 provided that the time to complete the works was 378 working days. Mr Harris did not adduce any evidence to show that Davlyn Homes or Mr Polak had agreed or would agree to reduce the contract period to nine months. Mr Harris therefore must have known that completion of the Secret Harbour Development would take longer than the period of 12-15 months as stated in the Information Memorandum. Alternatively, Mr Harris must have known that TPM did not have reasonable grounds to make the Expected Timeframe Representation.
Mr Bateman and Mr Harris also knew the Expected Profit Representation was made. Mr Bateman prepared the Information Memorandum in its entirety, including the projected profit figures that were part of the return of investment calculation. Mr Harris said he read the profit forecasts under section "5.2 | Unit Holder Returns" and gave evidence as to the reasons why he considered the forecasts were reasonable.
At the trial, the respondents acknowledged that the Information Memorandum contained two errors. The first error or omission was that the return on investment calculation under section "5.2 | Unit Holder Returns" did not include an additional line item or entry regarding the return of equity invested that would be returned to unitholders, in addition to the profit from the project. Mr Bateman and Mr Harris said, and I accept, that they became aware of that error for the first time at the trial. In any event, that error did not affect the return on investment calculation.
Mr Bateman and Mr Harris also acknowledged that the Information Memorandum contained a further error in that the return on investment calculation under section "5.2 | Unit Holder Returns" was premised on the assumption that on a winding up of the SHUT, capital would be returned to those who paid capital into the fund regardless of the number of units held in the SHUT. Mr Bateman and Mr Harris submitted that this was an implicit assumption of the Information Memorandum, but it ought to have been explicit and clear. I have rejected that submission.
However, I am not satisfied that the applicants have established that Mr Bateman and Mr Harris knew the Expected Profit Representation was false. It was not put to Mr Bateman or Mr Harris that they knew that the Information Memorandum (and the Trust Deed) provided that all unitholders would be paid according to the number of units held regardless of whether the units had been paid. It was not put to Mr Harris or Mr Bateman that they also must have considered the amount of capital or equity that had been invested in the SHUT and been aware that capital was to be distributed to unitholders according to the number of units held. Mr Bateman said that it was his understanding and intention that capital would be returned to those who had paid in capital. Mr Bateman said that if that intention had not been conveyed, he would have caused equity investors to be paid in priority to PM Asset Holdings. Mr Bateman was not challenged on this.

[52]

Negligence claim

In the further amended concise statement, the applicants contended that TPM acted negligently and breached its duty to exercise reasonable care, skill and diligence in providing the "Services", defined as education, mentoring and like services that TPM offered its members. However, in their opening submissions, the applicants submitted that TPM owed a duty of care to each of the applicants with respect to the provision of financial advice and recommendations, to ensure that they were provided with appropriate investment advice. Further, that TPM breached its duty of care by recommending and arranging for the applicants to enter into the investment in the Secret Harbour Development. It was not alleged that the respondents provided financial advice in contravention of the ASIC Act.
In closing submissions, the applicants' case was put on a somewhat different basis, with the applicants submitting that in offering the investment in and undertaking the project management for the Secret Harbour Development, TPM owed the applicants a duty of care to act with due care and diligence in the carrying out of and in the project management of the Secret Harbour Development. Although the applicants' submissions referred to the "project management" of the Secret Harbour Development, the applicants relied on authorities in relation to negligent misstatements, such as Mutual Life and Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556; [1968] HCA 74 at 571 (Barwick CJ). Counsel for the applicants further submitted that TPM owed a duty of care to the applicants to ensure that TPM provided appropriate and competently managed investments, and that it protected the applicants' financial interests as investors in the Secret Harbour Development. Further, that TPM breached its duty of care by allowing the applicants to invest in the Secret Harbour Development, which was not an appropriate investment for the applicants.
The applicants' claim, as best as it could be understood, was that TPM owed the applicants a duty of care in providing investment advice or recommendations to ensure that the applicants were provided with appropriate investment advice and to ensure that TPM protected the applicants' financial interests as investors in the Secret Harbour Development. Further, that TPM breached that duty of care by offering and recommending the investment in the Secret Harbour Development, which was not an appropriate investment for the applicants. The applicants submitted that the breach of duty was established on the same facts as those relied upon with respect of the breaches of s 12DA of the ASIC Act.

[53]

Relevant principles

The circumstances in which a party owes a duty to take reasonable care in making a representation were described in these terms by Brennan J in San Sebastian Pty Ltd v The Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 at 372, referring to the judgment of Barwick CJ in Mutual Life at 571: Where a representor gives information or advice on a serious or business matter, intending thereby to induce the representee to act on it, the representor is under a duty of care in giving that advice or information if three conditions are satisfied. First (corresponding with the first condition expressed by Barwick CJ), if the representor realizes or ought to realize that the representee will trust in his especial competence to give that information or advice; second (corresponding with the third condition), if it would be reasonable for the representee to accept and rely on that information or advice; and third (applying the underlying principle of the law of negligence), if it is reasonably foreseeable that the representee is likely to suffer loss should the information turn out to be incorrect or the advice turn out to be unsound.
The statement of principle by Barwick CJ in Mutual Life has been accepted by the High Court as authoritative in L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225; [1981] HCA 59 at 251 (Mason J), 255-256 (Murphy J); Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; [1997] HCA 8 at 249-250 (Brennan CJ), 255 (Dawson J), 261 (Toohey and Gaudron JJ); Tepko Pty Ltd v Water Board (2001) 206 CLR 1; [2001] HCA 19 at 16-17, 23 (Gleeson CJ, Gummow and Hayne JJ).
Although the applicants did not address whether the conditions in San Sebastian were satisfied on the facts of this case, I am satisfied that it was intended to suggest that the negligence claim advanced on their behalf satisfied those conditions and should be considered on that basis.

[55]

Money back guarantee claim

The applicants submitted that they were entitled to a refund of the membership fees which they paid to TPM on the basis of TPM's 'money back guarantee'.
Featured prominently on the membership application form and TPM's Membership Brochure was TPM's '100% money back guarantee' which stated: In the event that your mentor is unable to show you how to reduce your personal debt, reduce your personal tax liability or build wealth through asset acquisition … then we insist on refunding your membership investment in full.
The terms of the 'money back guarantee' are to be construed objectively, according to what a reasonable businessperson would have understood the terms to convey, by reference to its text, context and purpose: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46] (French CJ, Nettle and Gordon JJ).
The applicants submitted that the 'money back guarantee' formed a term or warranty included in TPM's terms of service. The applicants relied on the aspect of the guarantee that related to building wealth through asset acquisition. The applicants submitted that they lost wealth as a consequence of their investment in the SHUT and TPM is therefore liable to repay their membership fees because it failed to show how to "build wealth through asset acquisition".
TPM and Mr Harris submitted that the 'money back guarantee' was about the mentoring offered by TPM to members, and it was not a guarantee about the performance of investments or any particular investment opportunity. Furthermore, to call upon the guarantee, the applicants would need to establish that there had been a failure in the mentoring program, rather than a failure in a particular investment.
In my assessment, the operative words in TPM's 'money back guarantee' were that TPM mentors would "show" members "how" to build wealth through asset acquisition. As the respondents submitted, TPM's 'money back guarantee' was not a guarantee about the performance of investments or about investment outcomes. Although the applicants formulated their claim using the language of the 'money back guarantee', asserting that TPM had failed to show the applicants how to build wealth through asset acquisition because they had lost wealth as a consequence of their investment, the applicants' complaint was about the outcome of the investment. The applicants' complaint was not about the mentoring offered and they did not lead any evidence that TPM's mentors had failed to show them "how" to build wealth through asset acquisition. For those reasons, the applicants have failed to establish that they are entitled to a refund of their membership fees pursuant to TPM's 'money back guarantee'.
If I am wrong about the construction of the 'money back guarantee', I consider whether the applicants have established payment of their membership fees.
The parties agreed that Mr Sciberras paid a 5 year membership of $9,995, Mr and Mrs Segui paid a five year membership of $2,950 and Mr White paid a membership fee of $1,500.
Mr and Mrs Knight asserted that they had paid a family membership of $9,990, which the respondents disputed. Mr Knight said that Mr Bateman had told him that the membership price for Mr Knight and his wife was $4,995 each for two years. Mr Knight said that when he invested $20,000 in a "deposit recycling" scheme Mr Bateman told him that the amount paid to access those investments included a family TPM membership. However, Mr Knight also said that the payment of $20,000 was for the "deposit recycling" investment. Accordingly, I am not satisfied that Mr and Mrs Knight paid $9,900 in membership fees. Rather, if the payment for the "deposit recycling" investment included TPM membership, TPM waived payment of the membership fees. As a result, Mr and Mrs Knight would not be entitled to a refund of membership fees under the 'money back guarantee'.

At a glance

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Judgment (57 paragraphs)

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Cases Cited (69)

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